Update: Francesca's Up Huge On CEO Hire

| About: Francesca's Holdings (FRAN)
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Summary

Francesca's hired Michael Barnes on Friday, sending shares up 25%.

Mr. Barnes is a proven winner in retail and a strong leader, a terrific pick for the struggling retailer.

I reiterate my buy here despite constantly falling earnings estimates.

On Friday, investors received news that embattled retailer Francesca's (NASDAQ:FRAN) had hired a new CEO. The news sent shares soaring 25% as investors cheered the action from the struggling boutique chain. I have written a couple of times about FRAN, most recently calling it a speculative buy on the hopes of a turnaround from terrible comp sales and dwindling profits. After the new CEO has been hired, is there more reason to like FRAN here? In this article, I'll provide a quick update on FRAN given the news investors have just received.

To start, the new CEO named was Michael Barnes, an industry veteran. Mr. Barnes worked at Fossil (NASDAQ:FOSL) for 25 years before taking the helm at mega-successful jeweler Signet (NYSE:SIG). Barnes has a very long and successful track record in retail of growing businesses and making money for shareholders. Given his vast experience in retail, I think he's a terrific pick to spearhead the turnaround at FRAN. He's led small retail chains before and given the terrible results FRAN has been posting of late, I think he will do a lot of good.

Having said that, FRAN is still struggling mightily. Despite the 25% gain in the share price following the announcement, shareholders have been suffering for about two years. FRAN, once a buyout target and a momentum name, has since been slaughtered as the story fell apart and the company tries to produce even flat comps, a goal that has been elusive for a long while at this point.

The company updated its guidance for the third quarter as it announced the arrival of Mr. Barnes and stated comps would be down a further 6% in the third quarter and that EPS will come in at the lower end of the range. Whether or not FRAN can hit this guidance when it reports will be fascinating because I'm wondering if the company is under promising with this announcement. Given that investors would obviously be focusing on the new CEO, now would seem an opportune time to stealthily throw in horrendous guidance the company can easily beat next time it reports. I'm not sure if it did this - time will tell - but I'll be watching especially closely to see if this is the case. Honestly, given the lack of attention the guidance is receiving I wish FRAN would have gone much lower with its comp and EPS guidance; I don't think the market would have cared.

FRAN's earnings estimates have also continued to come down due to terrible and worsening comp sales. Even since my last article in September earnings estimates for next year have continued to come down. Next year's EPS estimate is now just $1.07, down sharply from even three months ago when it was $1.23. It's safe to say that sentiment has been absolutely awful on FRAN for some time and that sentiment is justified as FRAN earned its terrible reputation. However, with Barnes at the helm, perhaps a turnaround is afoot.

I love the hiring of Barnes here. He's an industry veteran with a very strong management background and is a proven winner. The market loves the idea, as FRAN needed some direction following two years of abysmal results. I think Barnes will be a terrific pick and that 2015 looks a lot brighter today than it did yesterday for FRAN. I'm reiterating my speculative buy call here and if all goes well, I will be able to drop the 'speculative' part from my buy recommendation in the near future.

Disclosure: The author is long FRAN.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.