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Francesca’s Holdings Q2 misses; store renovation program continues

BY Marianne Wilson

Francesca’s Holdings Corp. reported second-quarter earnings and sales that missed expectations and provided a disappointing outlook amid “weak traffic trends.”

The jewelry and accessories retailer reported net income of $454,000, or 1 cent a share, for the quarter ended Aug. 4, down from $7.3 million, or 20 cents a share, in the year-ago period. Analysts were expecting 5 cents a share.

Sales declined 6% to $113.0 million, missing estimates of $120.8 million, Same-store sales fell 13%, greater than expected.

“Second quarter sales results were disappointing mostly due to weak traffic trends,” said Steve Lawrence, president and CEO, Francesca’s. “While we have made significant progress in our merchandising strategy, inventory discipline and store renovations, we know there is additional work to be done to win back our core customer. We did see some positives in the business, including improving conversion, very strong ecommerce sales growth, and a significant reduction in clearance inventory.”

Francesca’s ended the quarter with 742 locations. It expects to update 80 to 85 stores this year, along with opening 34 locations and closing 24 boutiques, and refreshing 80 to 85 boutiques in fiscal year 2018.

“I strongly believe that the steps we are taking in resetting our merchandising strategy, investing in our omnichannel and reformatting our stores to better showcase our product, were the right decisions for the business,” said Lawrence. “In addition, we are taking action to drive improved traffic trends through a number of marketing initiatives. That said, as we see the progress in our business coming at a more measured pace, we are reducing our annual guidance.”

For the third quarter, the company expects net sales of $105 million to $110 million, below analysts’ forecasts of $116.5 million, and same-store sales to decline 3% to 8%, compared with expectations of a 4.3% rise.

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Walgreens in pharmacy file deal with Fred’s

BY David Salazar

Walgreens will be purchasing the pharmacy patient files and related pharmacy inventory from 185 Fred’s stores in the southeastern United States, the two companies announced Monday.

The deal will see Walgreens paying an aggregate consideration of $165 million to the Memphis-based Fred’s for the files, subject to adjustment plus an amount equal to the value of the pharmacy inventory. Fred’s said that once the transaction is complete, it will still operate roughly 162 pharmacies across its approximate 600 stores.

“This agreement increases patient access to Walgreens pharmacies in the Southeastern United States and allows us to introduce more people to Walgreens trusted pharmacy services in these communities,” Walgreens president of operations Richard Ashworth said. “We look forward to welcoming Fred’s patients and team members who are hired into available Walgreens positions.”

The move comes as Fred’s — which announced it was shopping it retail pharmacy business in May — said it is looking to and monetize non-core assets in an effort to build shareholder value. Fred’s pharmacy staff at the closing locations will have an opportunity to apply for any available position at Walgreens, the companies said.

“With this agreement, we have taken a major step towards achieving one of our main goals of eliminating our debt balance,” said Joe Anto, interim CEO and CFO of Fred’s. “We look forward to partnering with Walgreens to transition our pharmacy patients in these locations as smoothly as possible.”

The companies said patients whose files are being transferred will receive a letter notifying them, and that they would work to make the transition smooth. Once the transition is complete, Walgreens said patients will have access to its pharmacy services across its roughly 9,800 pharmacies nationwide.

PJ Solomon is acting as exclusive financial advisor to Fred’s on the transaction.

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Costco posts another stellar month—and quarter

BY Marianne Wilson

It wasn’t just the weather that was hot in August.

Costco Wholesale Corp. was on fire in August, as total same-store sales rose 9.2% (or 8.9% excluding the impacts of gasoline and currency fluctuations). It was the retailer’s 14th consecutive month of positive comparable sales. Comparable store sales in the U.S. were up 11.3%.

Costco’s online sales surged 23.8% in August. The increase comes amid an increased online push by the retailer, including an updated partnership with Instacart.

For the fourth quarter, Costco’s net sales rose 5% to $43.4 billion. Total company same-store sales rose 9.5%.

For the fiscal year ended Sept. 2, Costco’s net sales rose 9.7% to $138 billion.

Costco currently operates 762 warehouses, including 527 in the United States and Puerto Rico, 100 in Canada, 39 in Mexico, 28 in the United Kingdom, 26 in Japan, 15 in Korea, 13 in Taiwan, 10 in Australia, two in Spain, one in Iceland, and one in France. Costco also operates e-commerce sites in the U.S., Canada, the United Kingdom, Mexico, Korea, and Taiwan.

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