Shareholders of Francescas Holdings Group (FRAN) seem to be excited about the retailer's latest quarterly report but analysts are not as optimistic, viewing the retailer as the latest victim of the mall store slump.
Francescas missed top-line estimates but beat bottom-line predictions by a penny, coming in at $0.18, for the 2016 fiscal first quarter. Shares were up by more than 2% today, nearing $11 in response to the results.
But shareholders might be overlooking the fact that the company preannounced first-quarter earnings two days after CEO Mark Barnes decided to part ways. The early earnings announcement of $0.17 per share was below consensus and on the low end of the guidance range between $0.17 and $0.20; still, that might have eased the sting from the actual quarterly results, as gross profit (as a percentage of net sales) dropped by one percent to 46.3%.
In mid-May the company announced that Barnes was leaving for personal reasons. Richard Kunes stepped in as interim chairman and CEO until a successor is found. Immediately following the news, Jefferies analysts downgraded Francescas' rating to Hold saying Barnes' departure was disappointing, considering he was there for less than two years.
"We continue to believe that fundamentals may not be as powerful under a lack of stable leadership," said the Jefferies analysts in a May 17 note. They also said due to the significant uncertainty around the timing of the turn, they no longer believe the shares warrant a premium multiple. The analysts slashed their price target in half to $11, in addition to lowering EPS estimates for the next two years.
Analysts at Wedbush maintained their price target of $12 and a rating of Neutral prior to Thursday's report. But they cited several challenges that Francescas faces in the future, including tough macro traffic trends and promotions across retail and uncertainty around the CEO departure.
"Near term, our QTD checks indicate the elevated promotions in store are driving traffic, but margins remain at risk," said the Wedbush analysts in a research note Monday. Additionally, they see modest risk to consensus second-quarter and fiscal-year estimates based on other quarterly commentary across the industry and elevated promotions and inventory in store.
The consensus rating remains Hold, according to Bloomberg, with a target price of $15. But Francescas' shareholders have seen the stock slump by nearly 39% so far for the year, with the biggest drop on May 17.
Wedbush analysts believe investors will be focused on the second-quarter guidance, the progress of the CEO hire and updates on strategic initiatives to see if they should stay with the stock. The company has plans to open 15 to 20 new boutiques in the fiscal second quarter, and expects a decrease in comparable net sales with a diluted earnings range between $0.16 and $0.19 per share, which includes a $0.04 per share impact from Barnes' departure. And with no news of a permanent CEO, Francescas' still lacks the leadership it needs.
