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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