Francesca's Holdings Corporation (FRAN) has outperformed the Zacks Consensus Estimate over the last four quarters by an average earnings surprise of 12.2%. Most recently, this retail boutiques operator reported a positive earnings surprise of 9.1% in its third quarter, which also included a raised outlook for the fiscal year. The stock has also amassed a year-to-date return of 56.5%.

Meanwhile, the past 30 days have seen 12 of 14 earnings estimates revised higher for the current fiscal year, which helped FRAN to become a Zacks #1 Rank (Strong Buy).

Profit Surges, Guidance Up

Francesca's Holdings reported fiscal third-quarter earnings of 24 cents per share on December 5, beating the Zacks Consensus Estimate by a couple of cents and more than doubling last year's 11 cents.

Net sales of $72 million topped the Zacks Consensus Estimate of $71 million and jumped 44% from $50 million a year ago. Comparable boutique sales improved 16.7%.

Operating income jumped 120.4% to $17.7 million. Operating margin expanded 855 basis points to 24.6%, reflecting selling, general and administrative expense leverage as well as gross margin improvement of 96 basis points to 52.6%.

Buoyed by the robust performance, Francesca's projected fourth quarter net sales between $82.5 million and $83.5 million. Comparable boutique sales are expected to increase in the mid-single digits. Earnings per share are expected at 27 cents to 28 cents in the fourth quarter.

For fiscal 2012, Francesca's now expects net sales between $292.2 million and $293.2 million with earnings per share of $1.00 to $1.01. Earlier, management had guided sales between $290 million and $292 million, and earnings per share of 96 cents to 98 cents. Management now forecasts a low-double-digit increase in comparable boutique sales and plans to open 76 new boutiques and an outlet boutique during the fiscal year.

Soaring Earnings Momentum

The Zacks Consensus Estimate for the current fiscal year rose 3.1% to $1.01 per share in the past 30 days, as 12 out of 14 estimates were revised higher. The current estimate implies year-over-year growth of 83.1%.

For next fiscal year, ten of 14 estimates were revised higher over the same timeframe, lifting the Zacks Consensus Estimate by 4.2% to $1.25 per share. The current estimate suggests year-over-year growth of 23.6%.

Premium Valuation

Francesca's currently trades at a forward P/E of 26.17x, reflecting a 72.1% premium to the peer group average of 15.21x. Also, on a price-to-book basis, shares trade at 20.64x, a substantial premium to the peer group average of 0.99x. Again, its price-to-sales ratio of 4.26 is at a premium to the peer group average of 0.70. Given the company's compelling fundamentals, the premium valuation is justified and is well supported by its long-term estimated EPS growth rate of 27.5%, which fares far better than the peer group average of 15.2%.

With respect to return on equity (ROE), the stock looks very attractive. It has a trailing 12-month ROE of 113.9%, which is substantially above its peer group average of 12.2%. This implies that the company reinvests its earnings more efficiently than its peer group.

A Look at Chart

The 12-month EPS chart below indicates that the stock price has now started to correlate with the increasing trend in estimates. Currently, the stock price is in the range of $26.00-$28.00, and the consensus estimates for fiscal 2012 and fiscal 2013 are steadily moving upward. The year-to-date return for the stock is 56.5% compared with the S&P 500's return of 13%.

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Francesca's Holdings Corporation operates a chain of retail boutiques under the Francesca's collections brand in the United States. It's a holding company and operates through its subsidiary Francesca's Collections Inc. The company targets female customers and offers a diverse and uniquely balanced mix of high-quality, trend-right apparel, jewelry, accessories and gifts at attractive prices. Francesca's Holdings, which competes with Urban Outfitters Inc. (URBN) and ANN Inc. (ANN), currently has a market cap of $1.16 billion.


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