- Apparel retailer Francesca's sounded an optimistic note while reporting Tuesday that sales fell 50% in the quarter ended May 2, during which its 700-plus stores were closed due to the COVID-19 pandemic.
- In a press release, CEO Andrew Clarke said sales at its reopened stores have been in line with expectations, with high conversions making up for lower traffic. The company's estimates for the second quarter, of sales up to $71 million and comparable sales declines of 11% to 16%, were relatively upbeat and sent the company's stock prices up 28%, according to Seeking Alpha.
- Francesca's has been prioritizing "disciplined inventory levels," discounting merchandise that aged in closed stores to clear and refresh it, according to Clarke. With a majority of the aged product sold, Francesca's is in "a better inventory position heading into the fall season," according to Clarke.
Like a lot of mall-based apparel retailers, Francesca's was in a precarious financial and competitive position even before COVID-19 started spreading globally. Last year brought store closures and leadership churn as the clothing seller tried to stem sales losses.
Since the pandemic forced Francesca's stores closed for most of Q1, the retailer has disclosed that it could have to file for bankruptcy or even shut down operations. The company also added a "going concern" warning to its public filings after an auditor found reasons for "substantial doubt" about Francesca's ability to remain solvent over the next 12 months. The going concern language violated its asset-based loan agreement, but the retailer was able to get a waiver from its lenders.
With hefty pressure on its finances, Francesca's worked to free up cash and maintain its relationship with key creditors. In its earnings release Tuesday, the retailer said it was "substantially current" on its payables with vendors and had "[s]ubstantially completed" negotiations with landlords on rent abatements and deferments, which it said would have "positive impact on the Company's cash flow" for fiscal 2020. Francesca's has also repaid $2 million on its ABL, and it expects a $10.7 million tax refund.
All of this is good news for a company that needs all the breathing room that it can get. Yet it still projects an operating loss of up to $23 million for Q2, and the weeks and months ahead are anything but certain for apparel retail.
Francesca's is a good case study in that uncertainty. After reopening its stores, it has had to re-close 22 in California as COVID-19 cases surged there. (At its open stores, Francesca's now requires customers to wear masks.) Cases in many other U.S. states, including Texas and Florida, have similarly spiked. Clarke said that "the situation remains fluid, with store re-closures taking place in certain states due to increased cases of COVID-19."
The uncertainty around the virus's spread creates yet more uncertainty around the economy generally and the clothing market in particular. All of those unknowns make it very difficult to map out product buying and cash flows for the year, and otherwise manage a retail business.
Clarke said that Francesca's expects a "heightened promotional environment" to continue, with the retailer discounting to maintain sales amid light foot traffic. But he also said that his Francesca's business model "enables us to respond quickly to shifts in consumer demand so that we may manage our inventory flow to align with consumer demand."
The retailer's e-commerce business was able to offset some of its revenue drop-off during the closure. The company is also on track to relaunch its e-commerce site in the fall and launch a new mobile app on the coming weeks which Clarke said would "enhance our ability to serve our customers where stores remain closed."
"While we expect the retail environment to remain challenging as a result of uncertainty related to COVID-19, we believe we are on the right path forward," he added.