Is Francesca's a Retail Succss or Just a Fad?
Mark is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Based on research, Francesca’s Holdings (NASDAQ: FRAN) seems to be on a winning streak. The company started in 1999 in Houston and currently operates over 360 boutiques. The stores have a one of a kind upscale feel, caters to 18-35 year old women and allow managers to personalize each store providing the impression of individual stores.
Francesca’s collection carries limited quantities of items to create a so-called treasure hunt ambiance. The stores carry half apparel and half accessories. The apparel is described as eclectic and sophisticated for career-oriented women who don’t care to shop at a more generic store with bland fashions. New merchandise is introduced every 5 days to keep customers coming back to check all the new styles and offerings. The company only buys merchandise for delivery within 90 days to keep it fresh.
The company's spring collection focuses on classic designs, from dress, separates, pants and pastel colors like muted pinks, oranges, turquoise and green with occasional tribal and unexpected print.
The stores are spacious, clean and well laid out again creating a one of a kind and personal experience although the consumer is in a chain store.
Francesca’s biggest competitors are New York based Ann Taylor (NYSE: ANN), San Diego based Charlotte Russe that was taken private by Advent International back in 2009, and Philadelphia based Urban Outfitters (NASDAQ: URBN).
Ann Taylor’s spring collections are all about color blocking, graphic black and white and bold floral, which is completely opposite of Francesca’s. Charlotte Russe spring forecast is a cross between both Ann Taylors and Francesca’s. Urban Outfitters primary look is more laid back and BoHo California look.
Francesca’s style and look is very classic and traditional, a style that has appealed to women for decades and sure to be around for some time. For this spring season Francesca seems to have the right combinations of colors, styles and fashion to make for a successful season. The company appears to have the edge over the competition.
The company opened 77 stores in 2012 and plans to grow the store base by reaching up to 900 stores in the US. Conversely, Ann Taylor operates approximately 960 upscale boutiques including the namesake Ann Taylor stores and the Loft brand. While Urban Outfitters operates around 600 stores in the US which include Free People, Anthropologie, BHLDN and Terrain brands. Charlotte Russe has around 560 stores providing the best comparison, but unfortunately the private company doesn’t have financials to analyze.
None of the companies have a single brand with more than 560 stores so whether Francesca’s can reach the lofty 900-store level goal without cannibalizing existing stores could become a question. The company does have 6 stores in the small state of Arkansas suggesting it has the style and price points supportable my markets as small as Fort Smith.
In the end, Francesca’s has the right concept as far as the one of a kind boutique shopping experience that consumers are drawn to.
Solid Holiday Sales
The company reported solid holiday numbers with sales expected to now rise 37% over last year. Francesca’s expects comp sales to increase an impressive 7 to 8%. Analysts now expect earnings to soar 50% to $0.30 after originally expecting a 40% jump to $0.28.
In general, analysts forecast a strong 5-year growth rate of over 30%. The stock currently trades at nearly 22x forward earnings. It appears attractive at these levels and currently trades roughly $9 below the all-time high around $37. Even after forecasting better than expected holiday results, the stock has had a limited rebound from the lows.
Francesca’s appears to be a cheap stock in a competitive sector. The company has the potential for strong store expansion over the next 5-7 years. Investors need to be alert for the store expansion cannibalizing existing stores. Until then, the stock provides for a cheap entry point into a leader in the trendy women’s clothing sector.
Mark Holder and Stone Fox Capital Advisors, LLC have no positions in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!