Francesca's (FRAN) Taps New High, Scalable Boutique Model Breaks the Mold

August 17, 2012 10:35 AM EDT
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Price: $18.37 --0%

Rating Summary:
    12 Buy, 12 Hold, 1 Sell

Rating Trend: Down Down

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    Up: 0 | Down: 0 | New: 0
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Shares of boutique retailer Francesca's Holdings Corporation (Nasdaq: FRAN) are trading higher early Friday. Recent analysts at Janney initiated coverage on Francesca's with a Buy rating and $38 price target. Considering today's 10 percent spike above $34, the stock is well on its way. But what's all the fuss about a "boutique" retailer anyway?

The company has approximately 327 boutiques in the United States. Analysts at Janney think the company has the potential to increase its presence to 900 boutiques. For the full fiscal year 2012, the company anticipates opening 75 boutiques and an outlet boutique, with 29 boutiques planned for opening in 2Q12, noted the Janney report.

But the story of Francesca's is about more the design of the retail space. The company’s retail locations are designed to "feel" like independently owned, upscale boutiques. Management at the company believes this, along with the right mix of high-quality merchandise, offers compelling value, and they might be right.

"FRAN has a unique merchandising strategy, with a broad array of categories, including apparel, jewelry, gifts, home, and other accessories, with a philosophy of buying "broad and shallow" and therefore mitigating markdown/clearance risk," said analyst Adrienne Tennant. She believes this is a competitive advantage that is sustainable, as many specialty retailers have stores that are significantly larger than the approximately 1400 square foot average Francesca's boutique.

In other words, the company is taking the retail out of retail and replacing it with the word and image "boutique", polarizing it from other high end luxury retailers like, for example, Nordstrom (NYSE: JWN). Clever.

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