Francesca's stock dives as founder to retire

AP News
Posted: Sep 05, 2012 9:52 AM
Francesca's stock dives as founder to retire

NEW YORK (AP) — Shares of Francesca's Holdings Corp. fell Wednesday morning after the women's accessories and clothing store chain unexpectedly announced that its CEO and co-founder, John De Meritt, would retire at the end of this year.

Neill Davis, who became president of the Houston company last month, will succeed him.

De Meritt's retirement led a Jefferies analyst to downgrade the stock to "Hold" from Buy."

The announcement came as Francesca's reported that its net income more than doubled while its revenue rose 49 percent in the second quarter ended July 28. The company's forecast for the quarter ending in October also topped analyst estimates.

Jefferies analyst Randal Konik lauded the company's growth, but said he was taken aback by De Merritt's resignation as CEO and from Francesca's board.

"We had considered Mr. De Meritt to be a key member of the management team whose strong background in real estate had given a competitive advantage to this rapidly expanding retailer," said Konik in a client note published Wednesday.

De Merritt has been credited for building the company into a successful trendy, affordable fashion chain that now operates more than 350 boutiques in 44 states. It was founded in 1999.

Davis, a member of Francesca's board since 2007, was its first outside director. He joined Francesca's in early August to fill the newly created position of president. Before joining Francesca's, Davis had been chief financial officer at clothing chain The Men's Wearhouse Inc.

Francesca's reported net income of $12.7 million, or 28 cents per share, in the May-July quarter. That compares with $5.5 million, or 13 cents per share, in the year-ago period. Revenue reached $76.4 million from $51.2 million. Analysts had expected profit of 24 cents on revenue of $71.3 million.

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For the current quarter, Francesca's predicted adjusted net income of 21 to 22 cents per share on revenue of $70.5 million to $71.5 million. Analysts expect earnings of 19 cents per share on revenue of $67 million.

Shares tumbled $5.54, or 15 percent, to $30.53 in morning trading. The stock had more than doubled in value this year after an initial public stock offering in July 2011 priced it at $17.