Francesca’s Holdings Corp (FRAN)
Enterprise Value = $214.47 million
Operating Income = $43.18 million
EV/Operating Income = 4.96x
Earnings Yield = 11%
Price/Revenue = .48x
Debt/Equity = 0%
Debt/EBITDA = 0
Francesca’s is a Houston-based boutique retailer selling clothing, jewelry, and gifts for women. You will typically find them in the kind of strip malls appealing to an upper-middle-class clientele (the one near me is in a strip mall with a Whole Foods and a Banana Republic). As a guy who buys my jeans at Wal-Mart, checking out the store was a bit off the beaten path for me.
Sentiment towards Francesca’s is in the realm of extreme hatred. Like Foot Locker and Gamestop, Francesca’s is getting hammered by the “Amazon will destroy physical retail narrative”. It has also seen declines in same-store sales, which the market has reacted with zombie apocalypse level panic. As a small cap retailer, the ride down has been particularly brutal. The stock is down 62% year to date and the hatred towards this stock is high. The news has been moderately bad out of Francesca’s, but not bad enough to justify a 62% decline in the stock and the current valuation.
Francesca’s is a stock at an attractive valuation with zero financial debt that is buying back shares.
55% of their locations are not in malls, they’re in strip malls. Usually, these are high-end strip malls that have other attractions besides retail outlets. The one close to me in Concord, Pennsylvania is in an active retail strip that includes other upper-middle-class destinations like Whole Foods. This helps drive impulse spending without requiring a trip to the mall.
A major advantage that this company has is that they lease many of their locations and they have clauses in their leases that allow them to shut down stores if sales don’t hit targets. This means that if an Amazon-driven “retailpocalypse” is real, they can quickly cut off the bleeding by shutting down unprofitable locations and won’t be stuck paying rent on money-losing stores. They can refocus their efforts on their best and most profitable locations.
Francesca’s is also a location that will get a lot of discretionary spending this holiday season. With the U-6 unemployment rate hitting lows not seen since 1998, real disposable income hitting all-time highs, and debt payments as a percent of disposable income remaining below 10% — I think the holiday season will likely be better than the doomed forecast reflected in the stock price.
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