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Why Francesca's Holdings Corp. Stock Plummeted Today

Image source: Francesca's Holdings Corp.

What: Shares of Francesca's Holdings Corp. (NASDAQ: FRAN) were down 29.1% as of 11:30 a.m. Tuesday after the company announced the resignation of its CEO along with disappointing preliminary fiscal first-quarter results.

So what: More specifically, Francesca's chairman, president, and CEO Michael Barnes has resigned for personal reasons, effective immediately. Francesca's has commenced a search for a successor, and it has named lead director, Richard Kunes, as interim chairman, president, and CEO.

Kunes has served on Francesca's board since February 2013, and previously served as executive VP and senior advisor the CEO at Estee Lauder from August 2013 to June 2013. Before that, Kunes was Estee Lauder's CFO for 12 years.

"We wish Mike the best in his future endeavors," added Kunes before praising the strong leadership put into place by the former CEO. "The board has the utmost confidence in the management team to execute the business plans for fiscal year 2016 and the initial strategies of Vision 2020."

Now what: This doesn't seem particularly alarming on the surface, as the company distanced Barnes' departure from any underlying problems with the business.

At the same time, however, Francesca's also revealed that preliminary comparable sales for the fiscal first quarter ended April 30, 2016, increased 2% year over year, while preliminary earnings per share for the quarter are expected to be $0.17. By comparison, when Francesca's reported fiscal fourth-quarter results in March, it issued guidance for fiscal Q1 earnings per share of $0.17 to $0.20, and for revenue in the range of $108 million to $112 million, with both assuming a higher mid-single-digit percentage increase in comparable-store sales over the same year-ago period. And analysts' consensus estimates predicted quarterly revenue and earnings at the high end of that guidance range.

In the end, I won't rule out the possibility that today's nearly 30% decline could be a knee-jerk overreaction. But given the unsavory combination of an unexpected CEO departure and disappointing preliminary results, it's no surprise to see investors taking a step back until we receive more color on these results when Francesca's holds its official quarterly conference call on June 9, 2016.

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