Reuters: Global Markets: Francesca's CEO retirement stokes investor concerns, shares fall

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Francesca's CEO retirement stokes investor concerns, shares fall Sep 5th 2012, 14:53 Wed Sep 5, 2012 10:53am EDT (Reuters) - Shares in rapidly growing Francesca's Holdings Corp (FRAN.O) slid 16 percent after Chief Executive John De Meritt announced his impending retirement, stoking investor concerns that recent management changes could pause growth at the fast-fashion retailer. De Meritt, who co-founded the company in 1999, spent more than a decade shaping fast-fashion practices at Francesca's by adapting styles to suit demand trends while reducing the risks of stocks growing old. He also stepped up the company's focus on apparel, now its largest segment. Fast-fashion chains such as Japan's Uniqlo (9983.T), Sweden's H&M (HMb.ST) and Spain's Zara (ITX.MC) that quickly turn around their light inventories to keep up with changing trends have enjoyed U.S. success recently, taking share from traditional fashion retailers like Abercrombie & Fitch (ANF.N). "The unexpected announcement of CEO and co-founder John De Meritt retiring from the company and the board gives us pause, especially on the heels of the recent CFO departure," Jefferies & Co analyst Randal Konik said in a client report. He lowered his price target on the stock by $3 to $35. Houston-based Francesca's fired its chief financial officer Gene Morphis in May for improperly communicating company information through social media. Co-founder Kyong Gill also retired from the company in July. Konik, who cut his rating on the stock to "hold" from "buy," noted that De Meritt was a key member of the management team and that his strong background in real estate had given the retailer a competitive advantage. Under De Meritt's reign, the company, which specializes in affordable clothing, accessories, jewelry and gifts in a boutique setting for customers in the 18 to 35 age group, has been adding stores and investing in technology. Stifel Nicolaus analyst Richard Jaffe, however, expects a smooth transition to new CEO Neill Davis, who has been on the board since 2007 and has 15 years of experience helping to grow Men's Wearhouse Inc (MW.N). Davis joined as Francesca's president in August from Men's Wearhouse, which sells men's suits and offers tuxedos on rent. Analysts remained positive on Francesca's long-term prospects citing strength in its business model and operating results. Brokerages including Susquehanna Financial Group, Wedbush Securities and KeyBanc Capital Markets increased their price targets on the stock as the company posted a better-than-expected second-quarter profit and raised its full-year adjusted earnings forecast. "Francesca's DNA is anchored in delivering a service-centric, value-priced, highly scarce assortment, poised for continued market share gains," Susquehanna analyst Thomas Filandro said in a note. Francesca's shares, which have more than doubled in value this year, were down 12 percent at $31.62 on Wednesday morning on the Nasdaq. They fell 16 percent to a low of $30.25 earlier in the day. (Reporting by Ranjita Ganesan, Editing by Anthony Kurian) Link this Share this Digg this Email Reprints

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