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Is Francesca’s Holdings heading towards bankruptcy?

By Staff Correspondent |
trending stocks high volatility

Francesca’s Holdings Corporation (NASDAQ: FRAN) stock has soared over 360% in the past month and over 82% in the year so far as an insider purchase on Thursday turned the tables for the company. Despite this, the stock has fallen over 66% since last year. Will the stock worsen further due to weaker comps and compel the company to go bankrupt?

The stock opened Monday’s regular session lower on fears of bankruptcy. The company has been under pressure as comparable-store sales declined for all the quarters in the last three years. Already, market analysts were concerned that weak performance turned Francesca’s Holdings in terrible financial shape as risk exceeded the reward.

Is Francesca's Holdings heading towards bankruptcy
Courtesy: Francesca’s / Facebook post

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.

Read: Will Allergan-AbbVie merger be intercepted

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.

Browse through our earnings calendar and get all scheduled earnings announcements, analyst/investor conference and much more!

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