Francesca’s Holdings: Short Case, Very Aggressive Accounting and More

Francesca’s Holdings: Short Case, Very Aggressive Accounting and More
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Francesca's Holdings: Short Case, Very Aggressive Accounting and More

Over the last several weeks, my friend @volslinger (who is short Francesca’s Holdings Corp (NASDAQ:FRAN)), has been sharing thecase for going short FRAN with longshorttrader and the public. The bet initially paid off for the shorts, as the CFO wasabruptly terminated for “improperly communicating Company information through social media.”More recently, positive earnings led to a rebound in the shares. While the thesis remains intriguing, longshorttrader currently holds no position in FRAN, and would require moreinformation and/or more reasons before initiating one. The case for selling FRAN below includes information and opinions provided by @volslinger, @longshorttrader, and others.

-(from the latest 10K)
 Francesca’s collections® is one of the fastest growing specialty retailers in the United States. Our retail locationsare designed andmerchandised to feel like independently owned, upscale boutiques and provide our customerswith an inviting, intimate and differentiatedshopping experience. We believe we offer compelling value with adiverse and uniquely balanced mix of high-quality, trend-right apparel,jewelry, accessories and gifts at attractive prices. We tailor our assortment to appeal to our core 18-35 year-old, fashion conscious femalecustomer, although we find that women of all ages are attracted to our eclectic and sophisticated merchandiseselection and boutique setting.
FRAN’s past and future earnings(therefore, ‘normalized’ earnings)face the risk theyareartificiallyoverstated as a result ofeither (i)improper/aggressive accounting practices and/or(ii)unsustainable business practices involving related-parties.In either case, it becomes increasinglydifficult for FRAN to keep up the charades, as it grows larger.

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