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Francesca’s reports disappointing earnings amid weak store traffic … | Lady Click | Women's Interest
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Francesca's reports disappointing earnings amid weak store traffic ...

Francesca’s reports disappointing earnings amid weak store traffic …

Francesca’s sales and profits plummeted during its second quarter as the Houston retailer struggled to attract customers amid changing fashion and shopping preferences.

The women’s apparel chain said Tuesday that its profit plunged to $454,000 in the three months ending Aug. 4, compared to $7.3 million during the same period last year. Same-store sales fell 13 percent from a year earlier amid weak foot traffic to stores. The company operates 742 stores in 48 states.

Francesca’s shares plunged on the news, losing one-third of their value by the end of trading Tuesday. The company‘s stock fell $2.03 to $3.86 a share.

Francesca’s disappointing second quarter performance represents a setback for the retailer, which earlier this year said it was banking on a strong back-to-school shopping season to propel sales through the holidays. In 2016 and 2017, the retailer posted strong back-to-school sales when it sold merchandise aimed toward the younger end of its 18- to 35-year-old target shoppers.

Francesca’s Facts

Headquarters: Houston

Store Count: 742, about half in malls

Net income, second quarter 2018: $454,000

Net income, second quarter 2017: $7.3 million

Same-store sales, second quarter 2018: 13 percent decline year over year

The company, however, shifted its apparel and accessory mix to attract older millennials and young professionals with more buying power, which, CEO Steve Lawrence conceded in a call with analysts, did not resonate with younger customers. Still, Lawrence said he expected the change in strategy under chief merchandising officer Ivy Spargo to pay off.

“What is clear from the second quarter results is that it’s taking us longer than anticipated to turn the corner,” Lawrence said. ““But we think that was the right move and we think we’re heading in the right direction.”

The lackluster summer traffic forced the company to lower its financial projections for the rest of the year, anticipating same-store sales to decline 8 percent to 10 percent.

Francesca’s reported $23.4 million cash on hand at the end of the second quarter, compared to $33.3 million at the same time last year. The company has no outstanding debt, and has a $28.4 million revolving line of credit.

Francesca’s is facing changing tastes in women’s fashion. Women now prefer jumpsuits, rompers and separates over dresses and tops. Dresses represent about 40 percent of Francesca’s apparel sales, Lawrence said.

Francesca’s last month relaunched its Harper Heritage line of jeans, and plans to introduce jumpsuits in the fall and rompers in the spring, Lawrence said. The company expects its distressed jeans, which are made to look like they’re worn, to become a hot commodity when the weather cools, he said.

Josh Orr, a retail analyst with the Houston consulting firm Streamline, said rompers and jumpsuits have become trendy in recent years, but skeptical Francesca’s could capitalizeon the trend as fashion fads fade quickly.

“If you’re not ahead of a trend,” Orr said, “it’s incredibly difficult to play catch-up and be competitive in that space.”

To draw shoppers to its stores, Francesca’s plans to increase its marketing budget by 20 percent for the remainder of the year. Leading up to Thanksgiving and Christmas, the company will invest in online advertising, social media and brand influencers, who have a large social media following, to encourage sales, Lawrence said.

The company already has invested $300,000 to launch a Fran Rewards customer loyalty program, which has signed up 2.1 million shoppers so far. Francesca’s plans to launch its first free gift promotion over the next few weeks to promote the program, Lawrence said.

Francesca’s is also remodeling stores, spending $4.2 million this year on updating floor layouts and designs. The company is on track to remodel 85 stores, or about 15 percent of its locations.

In addition, Francesca’s hired a consultant to study ways the company can bolster its e-commerce business, which has grown by double-digits as its brick-and-mortar sales lagged. The company this year installed a new point-of-service system, which allows customers to shop in store and have their purchases shipped home, or shop online and pick up their purchases in stores.

Still, Francesca’s online sales are less than 10 percent of the retailer’s business, compared to 20 percent to 40 percent at its competitors, Lawrence said.

“There’s definitely more of a flight to digital,” Lawrence said. “We’ve got to dramatically ramp up our marketing and dot-com business.”

paul.takahashi@chron.com

twitter.com/paultakahashi


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