UPDATE: Wedbush Downgrades Francesca's Holdings on Multiple Challenges Ahead

In a report published Monday, Wedbush analyst Betty Chen downgraded Francesca's Holdings (NASDAQ: FRAN) from Outperform to Neutral, and lowered the price target from $40.00 to $32.00.

In the report, Wedbush noted, “We are downgrading shares of FRAN to NEUTRAL from OUTPERFORM as we foresee NT headwinds from (1) lackluster QTD checks suggesting incremental promotions akin to Q1, (2) difficult compares for the balance of F13, and (3) stagnating margins in the face of necessary infrastructure and ecommerce investments. Thus, while we appreciate FRAN's well-differentiated business model and LT growth prospects, we are stepping to the sidelines. Amidst lackluster mall traffic and a competitive landscape, our notes indicate incremental promotions QTD. Although we believe FRAN's short lead times have continued to ensure generally on-trend merchandise, checks suggest lackluster mall traffic and spotty Q2 weather patterns could prove management's guidance for “flattish merchandise margin” difficult to achieve.”

Francesca's Holdings closed on Friday at $27.51.