At August 3, 2019, Francesca’s Holdings had $22 million of cash and cash equivalents while the total debt stood at $274 million. The company has been aggressive in financing its growth with debt due to the high risk in debt-to-equity. The share values turn weaker as the cost of debt financing outweighs the increased earnings.
The company has been keen to shed its workforce as part of its cost reduction initiative from the start of this year. This is likely to lower expenses but the company will face an increase in severance benefits paid to the outgoing employees. Also, Francesca’s plans to close at least 10 existing boutiques during the remainder of the fiscal year from 718 boutiques as of August 3, 2019.
In addition, Francesca’s Holding is expected to lower substantially its investments in new boutiques, remodels and relocations in fiscal 2019 until the desired results of the turnaround plan are achieved. For the balance of fiscal 2019, the additional capital expenditures are anticipated to be about $2.6 million with the majority likely to be spent on improvements in existing boutiques and investments in existing technology.
The company has been struggling to drive traffic towards its key fashion trends and the situation is turning tough. The company plans to increase comparable sales by having customer demand to drive its merchandise assortment. The merchandising strategy is expected to improve its conversion rates as it better meets its customers’ expectations.
Francesca’s Holdings also faces intense competition from the e-commerce platforms of brick and mortar competitors, as well as internet-based retailers due to the continuing shift in customer demand away from brick and mortar to e-commerce. As the company expands into new markets and increase its presence in existing markets, it is likely to face increased competition from existing rivals.
These are expected to hurt the stock but investors remained clueless whether the company will go bankrupt or not? It remains in the hands of the company to show outperformance in the comps and turn beneficial from its cost reduction initiatives.