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Executives

Jean Fontana - Managing Director-Retail, Apparel & Footwear, ICR LLC

John De Meritt - President and CEO

Neill Davis - President

Cynthia Thomassee - VP, Accounting and Controller, Interim CFO

Theresa Backes - COO and EVP

Analysts

Adrienne Tennant - Janney Capital Markets

Janet Kloppenburg - JJK Research

Laura Champine - Canaccord Genuity

Howard Tubin - RBC Capital Markets

Luke - KeyBanc Capital Markets

Randal Konik - Jefferies

Brian Tunick - JP Morgan

Liz Dunn - Macquarie

Richard Jaffe - Stifel Nicolaus

Betty Chen - Wedbush Securities

Mark Montagna - Avondale Partners

Michael Weisberg - Crestwood Capital

Francesca’s Holdings Corporation (FRAN) Q3 2012 Earnings Conference Call December 5, 2012 8:00 AM ET

Operator

Welcome to the Francesca’s Holdings Corporation’s Third Quarter Fiscal 2012 Earnings Conference Call. As a reminder, today’s conference is being recorded. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions.

I would now like to turn the conference over to Ms. Jean Fontana, Investor Relations with ICR.

Please go ahead.

Jean Fontana

Thank you. Good morning, everyone. Thank you for joining us today for Francesca’s Collection’s third quarter fiscal 2012 results conference call. On the call today are John De Meritt, Chief Executive Officer; Neill Davis, President; Cynthia Thomassee, Interim Chief Financial Officer; and Theresa Backes, Chief Operating Officer.

Before we begin, I would like to remind you that certain statements in this conference call constitute forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the company’s current expectations or beliefs concerning future events and are subject to various risks and uncertainties that may cause actual results to differ materially from those that were expected. For a discussion of these and other risks and uncertainties that could cause actual results to differ materially from those contained in our forward-looking statements, please refer to the risk factors in our Annual Report, filed with the SEC. We undertake no obligation to publicly update or revise any forward-looking statements.

This information may also be accessed by visiting www.francescascollections.com, under the section entitled Investor Relations. With that, I’ll turn the call over to Neill Davis.

Neill Davis

Thanks Jean and good morning everyone. I will start this off with a recap of the drivers of our sales and profit growth, followed by Cindy who will review the financial results. We will then finish our prepared remarks with some closing comments from John, who as you know is retiring at the end of this month and over the past three months has completely transitioned his CEO duties to me.

This is another outstanding quarter. Total sales increased 44% supported by strong comparable boutique sales growth of 16.7%. Our gross margins increased and we capitalized on significant operating cost leverage all resulting in expanded operating income margin in excess of 20% and finally concluding an EPS level well above last year and our expectations. And on top of that we are projecting another solid quarter coming up and we are off to a solid start with a very strong above plan Black Friday weekend which was more than adequate to offset the estimated negative effects of hurricane Sandy.

Achieving such results requires a lot of hard work and I want to thank all of the Francesca’s associates for their efforts and delivering such market leading performance. They should be proud, I certainly am. And the core of these historical results and our future expectations is our commitment to our competitive differentiation and our growth strategy. The strength in consistency of our results emerges from our unique and powerful business model and the many talented individuals who execute.

Our shopper is on trend, constantly browsing the latest look head to toe, she mixes and matches the updated wardrobe but also adds her own twist and trends and she takes great pride in our style. We believe we are delivering on those launch and needs, specifically the attributes of our brick and mortar presence creates unique boutique lot experience in a space less than 1,500 square feet. That experience provides a value based, the collected mix of fashion apparel, jewelry, accessories and gifts with daily deliveries of new merchandize. Our broad and shallow merchandize assortment strategy creates an urgency to buy today and our short lead times allows us to buy with the trend direction indicates, limiting markdown exposure.

In addition, our promotional strategies are part of our planning process as we plan and built into our financial plans small categories specific offers for a variety of strategic regions that include additional value for the customer, creating early read on the seasons, emerging bestsellers or clearance low sellers to accelerate conversion of the floor to newer trends or as well as adding additional value to remain relevant in a highly promotional environment.

The (inaudible) come rather one cool place to create a personal reflection that is uniquely hers. And we have created a structural environment to generate sustained sales and high margin sales. Just as our shopper’s sense of styles evolves so will our platforms to deliver great merchandize. One example of this evolution is our current direct-to-customer platform. Developing an e-commerce strategy is one of the areas of focus for Francesca’s while we are currently growing sales in the direct channel in excess of 50%. We have a low single-digits penetration of online sales and a low level of awareness among our target customers that we actually sell online. In addition our conversion rates of online traffic of below industry average. We clearly have room for improvement. This past month we initiated an effort that we will enhance our current online experience as well as establish the framework of our longer term digital strategies. We are initially targeting a refresh of our current website for a completion day in late first quarter of 2013.

As our business grows we are also very focused on infrastructure investments. For the last year we have been operating our enterprise merchandised platform and related allocation components that were installed in the second half of fiscal 2011. We have deployed our new point of sales solution in 67 boutiques, prior to entering the peak fourth quarter selling season of this year. We will reengage in February of 2013 the complete conversion of the remaining 293 boutiques. Conversion of the first 67 boutiques I must say went smoothly do in large part to the great collaboration between our technology and boutique operations team.

Another important infrastructure milestone we achieved this past quarter were the relocation to new and expanded office headquarters and distribution facilities in Houston, Texas. The over was completed with that operational disruption ad a new space covers 218,000 square feet and our lease of that primary space includes an incremental option for another 122,000 square feet to access as our growth dictates in the years to come.

We have completed our first round of review of plans for fiscal 2013 and our strategy to expand our boutique base continues. I’m committed to growth plans of ultimately operating approximately 900 boutiques within the U.S. bringing our total square footage to 1.2 million square feet. We successfully opened 77 new boutiques in 2012 and our plans for 2013 calls for 80 new boutiques. 76 of those have been approved internally and we have already executed leases on 50.

In my opening remarks I mentioned having a talented team is a key element and our ability to execute to our strategies. The key leadership roles and structure below myself remain intact and committed. Theresa Backes has been promoted to President and retaining her Chief Operating Officer duties. Sei Jin Alt, continues as our Chief Merchandising Officer. Kal Malik, currently our General Counsel will also serve as Chief Administrative Officer. And Clary Groen continues to head our real estate efforts.

This management team has over 80 years of combined experience in the retail industry. And over 20 years of combined direct experience with Francesca’s. We do have one remaining C level officer to fill and that is the Chief Financial Officer. We are actively engaged with retained search firm and have considered many qualified candidates; however, we will take our time to source this position with someone that has the cultural fit, skills and talent to contribute to the team as we grow the company. In the mean time we are more than [adequately covered] given my significant experience as a retail CFO together with our executive team currently in place.

I’d now like to turn our call over to Cindy Thomassee, our Interim CFO to recap the quarter’s results and details of our outlook for the final quarter of the fiscal year.

Cynthia Thomassee

Thanks Neill and good morning everyone. My financial comments today are on an adjusted basis and I’d refer you to our press release issued earlier today for details on those adjustments in this period’s quarter as well as last year’s quarter.

Total company net sales for the quarter increased by 44% to 72 million, this increase was driven by $14 million increase in non-comparable boutique sales which includes 75 new boutiques and one boutique outlet opened since the end of the third quarter of fiscal 2011 combined with comparable boutique sales growth of 7.6 million which is a 16.7% increase over the prior year quarter. The increase in comparable sales was driven by a double-digit increase in transactions while the average selling price per transaction was consistent with the prior year quarter. From a merchandize category point of view sales increases in the quarter were led by jewelry although all merchandize categories has sales growth in excess of square footage growth.

Gross profit for the quarter increased by 47% to 37.9 million. The gross profit rate improved 96 basis points to 52.61%. The increase in gross profit rate was a result of leveraging boutique occupancy costs.

Total adjusted selling, general and administrative expenses for the quarter increased by 27% to 19.8 million. Total adjusted SG&A, as a percentage of net sales, decreased by 355 basis points to 27.51%. The decrease in rate is due to leverage of costs as sales growth significantly outpaced expense growth.

Adjusted operating income from operations for the quarter increased by 76% to 18.1 million, with an adjusted operating profit margin of 25.1% an increase of 450 basis points over the third quarter of 2011.

Adjusted net earnings were 11 million or $0.24 per diluted share an increase of 71% over the prior year adjusted diluted earnings per share of $0.14. ear-to-date 2012 our total sales are at 47% driven by 17.7% comp in our adjusted EPS is at 92% driven by an increase in net sales and operating margin.

Turning to the balance sheet, total inventories at the end of the quarter increased by 7 million to 23.5 million a 42% increase versus the prior comparable quarter. We ended the quarter with 12.9 million in cash and cash equivalents and no outstanding balance under our revolving credit facility.

As we look forward to the final quarter at fiscal year 2012, keep in mind that the fiscal year 2012 is a 53 week year. That incremental week in the fourth quarter is expected to contribute approximately 3.5 million in net sales and $0.03 per diluted share in net earnings.

As it concern to hurricane Sandy there are approximately 60 boutiques or about 15% of our total boutiques that were forced to close for at least one full business day. We believe that hurricane Sandy will not have a significant impact on the company’s fourth quarter financial results as our above plan November sales driven by strong Thanksgiving holiday selling in the final week of the month offset our estimates of the immaterial sales impact from hurricane Sandy.

For the fourth quarter we expect net sales to be between 82.5 million and 83.5 million an increase of 34 to 35% over the prior year assuming mid single-digits comparable boutique sales increase and opening of one additional new boutique.

Net earnings per diluted share are expected to be in the range of $0.27 to $0.28 an increase of 35 to 40% over the same prior year period adjusted earnings per diluted share of $0.20. For the full year ending February 2, 2013, we expect net sales to be in the range of 292.2 million to 293.2 million an increase of 43 to 44% assuming a low double-digits comparable boutique sales increase.

Adjusted earnings per diluted share are expected to be in the range of $1 to $1.01 an increase of 72 to 74% over 2011.

That concludes our financial comments for the quarter and I will now turn the call to John.

John De Meritt

Thank you, Cindy, and good morning everyone. I’m extremely proud of the company that I had the pleasure of leading for the past six years. As I look back across all of the milestones that Francesca’s has achieved, I’m truly honored to be have been surrounded by such an incredible team of executives and associates. They work hard to continually deliver outstanding results and it's because of this strong team that remains in place that I’m so comfortable with my decision to move on and pursue other life goals.

I also felt very strongly that Neill would be the right person to lead the company and his team in the next phase of growth. Now after seeing him in that role over the past several months, I’m even more confident that his years of retail experience and his leadership style will serve the company extremely well going forward.

The last and the most important thing that I have to say is thank you. Thanks to the shareholders, the associates, the executive team, the board members, and everyone else who has helped me during my tenure as CEO of Francesca’s. For all of you and all of that you have done, I’m truly grateful. And more importantly I look forward to watching you all continue the tradition of success in Francesca’s for years to come.

With that we will open the call for your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question today will come from Adrienne Tennant, Janney Capital Markets.

Adrienne Tennant - Janney Capital Markets

My question is actually on the fourth quarter comp guidance to mid single, obviously your comp compares get much more difficult. I was wondering if your data comment, it's a clarifying question, the first point to clarify. So to Black Friday week and the last week was above plan. Was all of November generally in line or above the guidance that you are currently giving the mid single-digits? And can you just remind us sort of the cadence of the comp last year for the fourth quarter. Thank you.

Neill Davis

I guess from one perspective we don't report monthly comps in the beginning to get in or weekly comps would be a little higher degree of granularity that we would care to go to, but what I will tell you relative to your question that our two year stack trends were consistent in the month of November and are part of our overall guidance for the fourth quarter. So, the two year trends are still there and it was a very meaningful solid month all around.

Adrienne Tennant - Janney Capital Markets

Does the guidance, obviously you typically gave conservative comp guidance so does the guidance inherently imply either an acceleration in comp in a two year stack or maintaining the two year stack or deceleration. It sounds like November was quite successful; you are giving mid single-digits comp guidance. And it would seem as though that’s relatively conservative based on the two year stack trend being able to maintain that. Is that fair?

Neill Davis

Of course, as you point out we are generally conservative in our approach and for everyone keep in mind December is about 50% of the quarter and we got another 20% in January. So, the bulk of the business is right in front of us. So, I think being appropriately conservative maintaining that two year type trend line is the right thing to do. However, as we said in some of our prepared remarks we had a good Thanksgiving week. It was a good start, so we are very encouraged.

Adrienne Tennant - Janney Capital Markets

Cindy do you have ending square footage?

Neill Davis

499,000.

Operator

And next we will hear from Janet Kloppenburg, JJK Research.

Janet Kloppenburg - JJK Research

Neill or Cindy I was wondering if you could discuss your promotional cadence to the third quarter, how it compared to last year. And if there are any changes in your promotional strategies for this holiday season versus last year.

Theresa Backes

The answer to your question is, its relative the same as last year. We sort of carefully planned the promotions in keeping with in a normal strategy which is in keeping in line with our margin expectations as well as looking at what she is expecting through the holiday season. The one change and it does not really significant but we did break the Black Friday sale a couple days early in keeping with the competition. I’m actually really glad that we did. Because what we were able to do is to capture our fair share of traffic and sales well every other retailer was sort of breaking that sale little early. And so we are actually quite pleased. So, it was in keeping with last year’s cadence.

Janet Kloppenburg - JJK Research

And for the jewelry business I was wondering did it represent a larger percentage of the business in the third quarter and that these trends were higher percentage of the business in the fourth quarter as well.

Neill Davis

The answer to both of the questions is yes.

Janet Kloppenburg - JJK Research

Are you investing any deeper, could it become even bigger part of the business going forward Neill?

Neill Davis

We are just looking for overall stability within the categories.

Janet Kloppenburg - JJK Research

Can you discuss it's merchandized margin rate versus relative to the company as a whole?

Neill Davis

Clarify your question please.

Janet Kloppenburg - JJK Research

Does it generate a margin that’s similar to the remaining categories of business or is the margin higher or lower versus the rest of the company?

Neill Davis

You are referring to jewelry category?

Janet Kloppenburg - JJK Research

Yes.

Neill Davis

I mean it's clearly a higher margin category amongst all of our assortments.

Operator

(Operator Instructions) Next we will hear from Laura Champine, Canaccord.

Laura Champine - Canaccord Genuity

Theresa could you comment on promotions, you mentioned that you participated n early promotions, but are there categories that you are emphasizing which are significantly different than a year ago. And keeping with that as we move to next year are there categories that should tick-up space from others and if so how?

Theresa Backes

The answer to your first part of your question is, actually category-by-category relatively similar on a jewelry promo, clothing and accessories as well. I think one thing we did that was slightly more granular was we called out outer wear and we also called out shoes, we actually called out shoes specifically. So, you might have seen a little bit more signage in the boutique than you would have last year. I’m sorry; could you repeat the second half of our question?

Laura Champine - Canaccord Genuity

Second question was, as we move into next year are you changing the allocation of space in the store by category and if so how?

Theresa Backes

Yes, we don't have any plans to do that, in fact quite the opposite, one thing that we understand is a big part of Francesca’s success is that nice balance of space allocation and inventory assortment to appeal to the broadest demographic of customer that we have.

Operator

Next is Howard Tubin, RBC Capital Markets.

Howard Tubin - RBC Capital Markets

Any difference in performance in your mall stores versus your normal stores in the quarter?

Neill Davis

No, the performance in the quarter between the real estate types are generally consistent and that has been the case throughout this year and hence our expectations on a go forward basis.

Howard Tubin - RBC Capital Markets

Maybe just one follow-up. Are you seeing as you opened more stores in malls are they going down a road of kind of opening up at a certain level of productivity and then ramping up as they mature or do they open up in full levels of productivity?

Neill Davis

They open up at full levels of productivity.

Operator

And our next question will come from Edward Yruma, KeyBanc Capital Markets.

Luke - KeyBanc Capital Markets

This is Luke in for Ed. One of the follow-up on the one of the other good opportunities we talked in the past, looking at e-commerce. How was that gone so far on holiday and kind of average sales access going forward?

Neill Davis

I think there are opportunities but very selected and then our customer response to certain brands better than others, and we have learned a few things in terms of footwear, recently this year we will build up on those that work better for us, but it will be a component.

Operator

Randal Konik with Jefferies has a question.

Randal Konik - Jefferies

I guess a question with John leaving, we just talk about the real estate process, how it will go, be changing if that all going forward and if you think about the I guess you said there is 50 leases executed already for 2013 can you talk a little bit about the difference and where those leases are, how you feel about them and just how should we be thinking about your geographic penetration strategy over the next few years. Just more of a backfill strategy, more new markets just give us a little color there. I really appreciate it.

John De Meritt

You know our cadence in our approach to the process in real estate is not changing. Clary and his team are guided in a similar fashion recently in the past as we think about 2013 in terms and the mix of mall, non-mall, regional dispersions up in new locations and dispersions among A, B, and C type malls. We are looking for a good balance that drives a meaningful level of new stores sales productivity as we have been experienced over the last couple of years. So, it's largely similar cadence and I don't see a lot of changes. So, we feel very comfortable about the landscape now and on a go forward basis, actually we are having dialogue about 2014 properties. So, we have some reach into and visibilities we think about those things. But our goal not to be (inaudible) in answering a question but the fairly broad based in considerations around regions around real estate types and strength within that real estate.

Randal Konik - Jefferies

We think about the next three to five years for the company. It looks like the number of units is going up a little bit in 2013 versus 2012. So, should we be expecting a minimum square footage growth rate over the next annually, over the next three to five years, how should we be thinking about how you are going to grow units versus square footage in the next three to five years.

John De Meritt

I think in terms of units, I don't think in terms of square footage average growth rates. I mean the model is best positioned in this 1300 square foot range, so a pace of at least 80 units a year as we progress towards that 900 goal will drive the kind of growth rate you are looking for. So, I will let you guys do the math.

Operator

Brian Tunick with JP Morgan has our next question.

Brian Tunick - JP Morgan

I guess two questions, one on the gross margin for the quarter, I guess you highlighted the leverage of occupancy, but just curious what was going on in the merchandize margin side. Anything you could help us out there mix shift in jewelry or impact at all from lower cotton cost, just curious what you are seeing on the merchandize margin side. And then on the SG&A line, I guess now that we have lapped the IPO and stock comp expense stuff, as we look into next year what kind of comp do you guys need to get SG&A leverage, are there any projects that influence that leverage point.

Neill Davis

As it concerns gross margin, that’s the beauty of our business, from quarter-to-quarter to year-to-year you will see some variations in our merchandize margins maybe 10, 20 basis points but you are talking major shifts and changes in that structure and that’s largely due to our broad shallow assortment strategy and to the promotional strategies Theresa spoke to earlier. So, the real driver then in terms of gross profit margin rate changes is going to be the fixed cost of occupancy. And on that front our range of 3, 4% same-store sales rate will get us leverage. Stepping down to your second question as it relates to SG&A, what kind of number we need to leverage. I would break the SG&A in two components, selling cost. Selling cost will continue to grow at the pace that our store base is, so I don't expect to see any kind of incremental leverage there in the near-term. So that leaves our G&A structure as the place to leverage and we will need to make investments in our business. Those investments are largely payroll driven and are largely focused on our merchandize and technology functions to support our growth. But our point of view is to manage the rate of growth and that spending in terms of what we see in terms of comparable store sales growth rates. So, we will keep it at that type of pace.

Operator

And next we will hear from Liz Dunn with Macquarie.

Liz Dunn - Macquarie

I guess just a follow-up to the SG&A question. I’m really impressed with your ability to move headquarters and come in well below consensus expectations for SG&A this quarter. Are there any ongoing areas of investment spending sort of big chunky items that we should think about? And at what point do you think that you might need to contemplate sort of more traditional marketing.

Neill Davis

In terms of any big chunky spending, there are not. In the near-term, the bulk of our letting in terms of spending as you aid the distribution, relocation, our enterprise platform specifically merchandizing, while we have some incremental technology coming down the road there are more subsystems and tweaking to what we have. So, there are any chunky type numbers coming up. We will manage the growth rate in terms of spending relative to top line. Overtime there will be marketing, however, that maybe defined working into our mix and what essentially my expectation is overtime again is that as we leverage the business we will take the leverage of those dollars and reinvest back in those places that can further help us drive little faster awareness of the Francesca’s brand. It's a very well received brand when discovered by customers, so we will take those savings if you will or those leverage points and drive them back into that arena but I’d not want you to walk away from my comment just now thinking that those are traditional type measures. I think the whole digital world and how our customer shops and consumes and communicates amongst her network and friends will drive some dynamics for us and how we think about that marketing spend. But getting back to the root of your question we believe that there is funding within our business, that will also allow us to maintain these very needy operating margin levels that we have today.

Liz Dunn - Macquarie

What portion of your customer base do you actually capture information for at this point, or have [you no address for it]?

Neill Davis

We have roughly 800,000-ish email addresses and we are looking to grow that at a rather rapid cliff, Theresa and her organization have programs and focus to drive capture those. So, we are building it at a rather fast pace. I think as we improve the experience one has digitally for us that growth rate should improve as well.

Operator

Our next question will come from Richard Jaffe, Stifel Nicolaus.

Richard Jaffe - Stifel Nicolaus

Neill well done, great transition, but curious about the inventory build and the opportunity to manage the inventory through the different channels. Obviously a new distribution center, a lot more stores and hopefully a continuing growth in the e-commerce business. How do you internally look at the inventory and [flex the] inventory between these channels?

Neill Davis

Let me take the first one in terms of our inventory growth at this quarter going into the fourth quarter. That should give you a historical point of reference we did a very light actually on a negative basis on an inventory boutique level in last year’s third quarter going into fourth quarter. We made a very deliberate decision to front load our position going into this quarter because one, we were light last year and merchandised assortment lends itself well, we believe to be in front of this holiday season and that certainly has proven out to be a good decision. So, it's largely timing dynamic. As it relates to your second question, the balance between the direct channel and our brick and motor presence and inventory. I think it's premature for me to give you those answer since I haven’t and we haven’t fully developed our global strategy in terms of what we want to do. I’m hopeful that over the course of this year we will be able to get more articulated definitive for you on that front. So, I will defer that to later on into 2013.

Operator

And next we will hear from Betty Chen, Wedbush Securities.

Betty Chen - Wedbush Securities

I was wondering if you can talk a little bit about IT initiative. I think you had recently concluded the implementation of JDA that could help you in terms of some planning allocation. Could you remind us where we are in that process, what are the benefits and could we see some of those benefits to be visible in 2013? And then my second question is for Theresa, as the company continues to go in terms of store units and now we are looking 80 for 2013. How are you managing to make sure that [this gap] for each boutique continues to maintain the culture in order to really drive customer awareness and continue loyalty? And then my last housekeeping question is for Cindy. What’s the right tax rate you should be using for fourth quarter?

Neill Davis

Since technology is underneath Theresa’s umbrella, I will let her take the bulk of your questions and then she will turn it over to Cindy.

Theresa Backes

IT initiatives, so we in 2011 as Neill stated we did rollout sort of the first most needy part of our JDA enterprise light initiative with allocation and inventory management systems. And we did it quickly see the benefits of that even through Q4 of 2011. We continue to see the benefits. It allows us to add additional information about boutiques, and help the allocators allocate more smoothly and we have seen over the course of the year this smoothness of allocation that helps us realize sales in every genuine volume type that we have. So, that continues. We in January of 2012 started the design construction and then at the end of Q2 2012 launched the first boutiques on a JDA platform for POS. We have as Neill said completed 67 boutiques and we have a pretty robust structure in which to get all of the boutiques completed by the end of Q1 in 2013. One of the benefits, there are many benefits to that obviously it takes us to single platform, but it also enables some additional customer information capture, it allows us to simplify the transaction quite a bit and the last piece of that which is actually happening now is a planning module that we are doing in JDA. So, that will help the planners get a little more specificity in their process. So, those initiatives specific to JDA are we feel will be kind of finished by the end of Q1 of 2013.

The second part of your question for me which is the 80 boutiques in 2013 and managing the talent and the culture, I’m actually really proud of my team, we set off a number of years ago with this exact challenge, because we have always known that we have continual growth in this company, the only way to preserve the integrity of the culture is by nurturing and growing as many of our internal folks as possible while having a great recruiting team for bringing new talent into the organization. And we are really pleased to say that in 2011 and ’12 we [made] no boutique openings for lack of staff, we have continued to decrease our turnover rate and continue to improve our internal promotion rate. So, I believe that the processes we have in place are positioning us well for the future and I have a senior leadership team that continues to grow that I’m extremely proud of and they continue to deliver results. So, I think it's the planning, the proper planning and the continuation of the programs that we have in place.

Now I will turn it over to Cindy to answer the tax question for you.

Cynthia Thomassee

So, we have 39.3% in our model.

Operator

Mark Montagna with Avondale Partners has our next question.

Mark Montagna - Avondale Partners

I have some questions about the headquarters and your systems and so I’m wondering with all of your operations at headquarters now under one roof, should we expect some overall expense savings in 2013 for that expense item. And them currently are you able to target promotions to certain stores with your systems or will we have to wait till next year to see that with the new system. And so can the new system target promotions or clearance items down to the store level?

Neill Davis

In terms of expense savings between the previous facilities and the current there will some at least on a year-over-year basis because we clearly don't have the relocation but I’d be looking for efficiencies, but it's not going to be any material impact to our business now at least in the next year. It's really strategically positioning the business as a roadway and map to the 900 stores. So, that wouldn’t be expecting any savings of any significance in that regard.

Theresa Backes

So, in answer to your question about targeting promotions by boutique, we have always have the ability to do boutique specific activities promotions whether it's additional percentage of sales for weekend or whether to offer an additional discount on any particular for a boutique. So, the benefit of JDA planning and allocation gives the allocators and planning team better insight into what the store’s inventory levels and needs are. So, that’s the system benefit, but the ability to do boutique targeted activities we have always have that.

Mark Montagna - Avondale Partners

You have the ability with those systems to alter certain pre-packs maybe some store SKU little bit larger sizes, SKU little bit smaller that you would change that pre-pack of five items to certain stores.

Theresa Backes

We don't have plans to do that at this time but the system would allow us to do it, should we chose to do so in the future.

Mark Montagna - Avondale Partners

Okay. And then just lastly housekeeping. I think I missed the comment about merchandized margin during Q&A, did you mention what the merchandize margin impact was for the third quarter?

Neill Davis

No we did not; we just said that they were consistent with the prior quarter levels.

Operator

Adrienne Tennant, Janney Capital Markets is next.

Adrienne Tennant - Janney Capital Markets

Just had a follow-up on the inventory. Can you talk about the inventory ending fourth quarter inventory plans if we head into the spring season? Any shift either we should be thinking about due to the earlier holiday or spring vacation.

Neill Davis

It's hard to answer that question, again there is just so much in front of us right now (inaudible) 70% plus of volume. So, I’d leave you with this, we feel very good with how we entered, we feel very good of where we progressed in the first five weeks of the quarter and are encouraged that we will be well positioned going into first quarter next year. But again there is a lot of business to have.

Operator

Next we have Michael Weisberg, Crestwood Capital.

Michael Weisberg - Crestwood Capital

A couple of quick things. I just want to follow-up to the response to Randy’s question, I thought you said the G&A growth will stay at the comp sales rate, looking out to ’13 and beyond, does that mean that you are going to grow G&A at your overall long-term expectations for comp since they need single-digits and that you get leverage above that, is that the right way of looking at it?

Neill Davis

It does need some clarification to it, the overall rate expectation would be again we are in the middle or we are in the rounding out of our 2013 expectations, but I don't expect to grow SG&A in a comp way. I expect to grow it at or slightly below our top line growth rates which would result in potentially neutral to very modest leverage in SG&A.

Michael Weisberg - Crestwood Capital

One other thing. I know you had a great year in jewelry this year, as you are looking out into ’13 without being specific numerically, would you expect jewelry to continue to grow faster than the overall store growth next year?

Neill Davis

You know fashion is a cyclical business and the best way for me to answer that question is that we will follow the trends as they indicate. So, if jewelry continues to have traction and this year into next year rest assured we will be properly positioned for that.

Operator

(Operator Instructions) We have a follow-up question from Mark Montagna, Avondale Partners.

Mark Montagna - Avondale Partners

Just one follow-up on comps, was there any difference or sizeable difference in comps across the different classes of store age?

Neill Davis

No they were generally consist and as we have said in prior calls, the homogeneity of our performance across inches is very consistent.

Operator

And that does conclude our question-and-answer session. At this time I will turn the conference over to Mr. Neill Davis for any closing or additional remarks.

Neill Davis

All I want to say is I do appreciate everyone’s interest in Francesca’s, the team here continues to excel and perform quite well, but I do want to offer my personal thanks to John and wish him well in his future and greener pastures and other live calls. We are jealous but we are very thankful to what he has done and wish him well. And thanks everyone.

Operator

And that does conclude today’s conference call. Thank you for your participation.

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