Thursday, March 27, 2014

Seeking Alpha: Francesca's Floundering, But The Model Can Still Work

The list of disappointing specialty retailers is getting longer, but Francesca's (FRAN) has really gotten on the bad side of Wall Street with a series of weak quarters. Some of the more bearish analysts are claiming that Francesca's model is fundamentally broken, and that the company's differentiated store concept just doesn't work.

With seven straight quarters of weakening sequential comps, not to mention weak merchandise margins and inventories that go against the supposed virtues of the model, it's difficult to say that the bears don't have a point. Even so, I believe it is hard to fairly judge any retail concept when miserable weather is shutting stores and keeping shoppers at home. I'd also point out that even in a disappointing year, Francesca's FCF generation was better than many retailers. If management can turn this around and resume a path to mid-teens long-term FCF growth, there is enough upside here to be worth a second look but there are many beaten-down retailers to choose from today.

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Francesca's Floundering, But The Model Can Still Work

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