Is Francesca’s the Next Retailer to Go Bankrupt?

It’s been a rough year for Francesca’s Holdings Corp.

For six consecutive quarters, the Houston-based boutique retailer has posted double-digit losses in same-store sales. It recently saw the exit of CEO Steve Lawrence, who resigned at the end of January as the company sought to explore “strategic alternatives,” including a potential sale.

The business, which launched two decades ago, has also already started to trim its brick-and-mortar fleet. In its delayed fourth-quarter earnings report — released today — Francesca’s announced plans to close at least 20 of its 700-plus stores. It recorded a net loss of $21.3 million during the three-month period, with its stock price now down to 65 cents per share.

As the company moves forward with its turnaround plan, does it have what it takes to survive the so-called retail apocalypse?

With the rise of e-commerce, shifting consumer preferences and increasing competition, many retailers have fallen on hard times; even the most recognized names, including Sears and Payless ShoeSource, have filed for bankruptcy or liquidated. And according to Jane Hali, CEO of namesake retail investment research firm Jane Hali & Associates LLC, the evidence is damning: Francesca’s “is headed for bankruptcy.”

“Execution is to blame. The apparel is moderate, which can be replaced by a number of retailers, including Amazon,” she said. “Francesca’s does not bring anything special to the consumer.”

For the fourth quarter, the company posted a 14% dip in revenues to $119.3 million, compared with $138.5 million the prior-year period. Comparable sales also dropped 14% due to traffic declines — a pitfall for the brick-and-mortar-first apparel and accessories retailer, which has been slow to adapt to e-commerce.

“Their online sales are less than 10% — how can that be in this day and age?” Hali said. “They have over 700 stores, and 2019 appears to be the first time in a decade that Francesca’s will close more stores than it opens. We need less stores, not more, and retailers have known for years to grow their online business.”

In early February, Francesca’s received a letter from the Nasdaq Stock Market informing the company that it was at risk of being delisted after it failed to maintain a minimum bid price of $1 per share for the previous 30 business days. (According to the SEC filing, it has 180 business days to raise that price in order to continue trading on the stock exchange.)

Additionally, two months ago, Francesca’s estimated its cash and cash equivalents at about $20.1 million, with $10 million outstanding under its asset-based revolving credit facility. On April 6, its cash and cash equivalents had dipped to $14.2 million, with $15 million outstanding and another $9 million in availability. Applying its tax refund of $8.5 million, the company returned its outstanding balance to $10 million, said CFO Kelly Dilts at today’s earnings conference call.

But not all hope is lost. Among the initiatives of the company’s turnaround plan is the cost-cutting of its physical store portfolio “to increase boutique productivity.” It also began implementing buying, merchandising and planning processes “to better realign with demand-based fast-fashion principles” and now expects merchandise improvements to be reflected in its assortments come June.

“Over the last three months, we have done an abundance of work evaluating all areas of the business and developing a strategic turnaround plan that we believe will return the company to longer-term positive sales, cash flow and operating income performance,” interim CEO Michael Prendergast said in a statement today. “In addition, we are taking steps to optimize our real estate through selective boutique closures and lease renegotiations, and focusing on additional cost reductions. Looking ahead, we will continue to move swiftly to develop a strong foundation and implement operational disciplines that will enable improved performance across all financial metrics.”

As of 3:30 p.m. ET, Francesca’s shares were in the red less than 1% to 64 cents.

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