- Third quarter net income $42 million; year to date at $148 million
- Revenues rose 16.7% to $1.20 billion for the nine months
- Company opens 67 new stores and relocates/expands 23 existing stores
during quarter
FORT MYERS, Fla., Nov. 28 /PRNewswire-FirstCall/ -- Chico's FAS, Inc.
(NYSE: CHS) today announced its financial results for the third quarter and
nine months ended October 28, 2006.
(Logo: http://www.newscom.com/cgi-bin/prnh/20030428/CHICOLOGO)
Net sales for the third quarter ended October 28, 2006, increased 12.5% to
$404 million from $359 million for the third quarter ended October 29, 2005.
Net income decreased to $42 million, or $0.24 a diluted share, compared to net
income of $53 million, or $0.29 a diluted share in the prior year's third
quarter. Total stock-based compensation expense for the third quarter of
fiscal 2006 (which reflects the impact of the Company's adoption of Statement
of Financial Accounting Standard No. 123R ("SFAS 123R"), effective as of
January 29, 2006) increased approximately $3.6 million, net of tax, or $.02
per diluted share over the prior year's third quarter. Comparable store sales
for the Company-owned stores decreased 1.2% for the third quarter ended
October 28, 2006 compared to the same period last year. For the quarter, the
Chico's brand same store sales decreased approximately 3%, while the same
store sales for the WH|BM brand increased by approximately 5%.
For the nine months ended October 28, 2006, net sales increased 16.7% to
$1.20 billion from $1.03 billion for the prior year's nine months ended
October 29, 2005. Net income totaled $148 million, or $0.83 a diluted share,
compared to net income of $150 million, or $0.82 a diluted share in the prior
period. Total stock-based compensation expense for the thirty-nine week
period (which reflects the impact of the Company's adoption of SFAS 123R,
effective as of January 29, 2006) increased approximately $10.1 million, net
of tax, or $.06 per diluted share over the prior year's nine month period.
Comparable store sales for the Company-owned stores increased 3.6% for the
nine months ended October 28, 2006 compared to the same nine month period last
year. For the nine month period, the Chico's brand same store sales were
essentially flat, while the same store sales for the WH|BM brand increased by
approximately 18%.
Scott A. Edmonds, President and CEO, commented, "We achieved a third
quarter earnings per share level that met our revised expectations, including
generating strong cash flows that effectively funded our aggressive store
opening program. We continue to focus on improving our merchandising,
marketing, technology, and customer service initiatives, including adding
management talent to our executive team. Further, we are quite pleased to
have completed most of our fiscal 2006 store opening program prior to the big
Thanksgiving weekend, with 67 new stores opened and another 23 stores
relocated or expanded during the third quarter. In November, we also opened
30 more stores and expanded or relocated another 20 stores. We believe these
additional locations will help to both protect and increase our market share
over the long term."
Mr. Edmonds continued, "The aggressive store opening/relocation/expansion
program, combined with the operational initiatives in the technology and
customer service areas we are undertaking, have put short term pressure on our
earnings. These factors, along with missteps in our fashion merchandising,
have been the principal reasons for the volatility in our short term
profitability. We fully expect that the new marketing and merchandising
initiatives we are undertaking should provide the customer with a clarity of
offer that is sharper in focus and more compelling in fashion terms. We
believe these are the right steps to take and remain confident that these and
other long term initiatives will prove successful. We continue to be
enthusiastic about our strategies and the overall long term growth
opportunities for each of our brands and the Company as a whole."
Mr. Edmonds further commented, "Although the Chico's November same store
sales were essentially in line with guidance, our overall November same store
sales were below guidance mostly because the White House | Black Market same
store sales fell short of plan. We are currently finding that the combination
of the more promotional retail environment along with our own fashion errors
have resulted in a higher than anticipated markdown rate. However, since we
are only four weeks into the quarter and have a number of marketing events
planned for the remaining period, we do not believe it would be prudent to
provide updated guidance for the fourth quarter or for fiscal 2007 until we
see and can more fully appreciate the extent to which these initiatives will
be able to produce stronger sales and margins. Finally, the strength of our
balance sheet, with over a quarter of a billion dollars in cash and no debt,
combined with our continued ability to generate strong cash flows from our
existing and new stores, provides us with a strong platform to maintain our
position in the specialty apparel market for our targeted customers."
Some of the other highlights with respect to the third quarter results
this year, compared to the third quarter results last year, include the
following:
- The Chico's/Soma brand sales, excluding catalog and Internet, increased
by 6.9% from $278 million to $297 million. Comparable store sales for
the combined Chico's/Soma brands, after nine years of quarterly
positive same store sales increases (eight of which were double digit
increases) for the Chico's brand, decreased by approximately 3%. The
average transaction amount for the Chico's front-line stores decreased
by 3.1% and the average unit retail decreased by 4.3%.
- The third quarter Chico's core brand operating margin decreased by
approximately 440 basis points, principally due to an approximate 110
basis point decrease in the Chico's front-line store merchandise
margin, an approximate 40 basis point decrease due to the adoption of
SFAS 123R and the related change in accounting for stock-based
compensation, and an approximate 310 basis point increase in store
operating costs. The decrease in the gross margin percentage was
principally related to higher markdowns, offset, in part, by improved
initial markups, while the increase in store operating costs as a
percentage of net sales was principally caused by increases in store
payroll, occupancy and fringe benefits and the deleverage associated
with the decline in comparable store sales.
- The brand operating margin for Soma decreased by approximately 980
basis points in the quarter, primarily due to the startup costs
associated with an aggressive new store opening program that nearly
doubled the store count. Store operating costs increased by 1350 basis
points while store management and marketing costs increased by 880
basis points to support the new store openings and expanded mailer
distribution. These higher general and administrative costs were
partially offset by a 1510 basis point improvement in overall product
development and merchandising costs. Frontline store merchandise
margins decreased by 110 basis points, primarily due to markdowns
arising from delayed store openings in the second and third quarters,
as well as slower than planned foundations sales. The Company
estimates the investment in Soma reduced the current quarter's earnings
by approximately $.02 per diluted share and the nine month period's
earnings by $.04 per diluted share. The Company is now expecting
investment in the continued growth and development of the Soma brand
will be a reduction of approximately $.05 to $.06 per diluted share for
the full fiscal year 2006 and a reduction of approximately $.04 to $.05
per diluted share for fiscal year 2007. Based on the current store
opening plan, the Company anticipates the Soma brand will reach
profitability in fiscal 2008. The Company estimates its total
investment in the launching of the Soma brand by the time it turns
profitable will be approximately $.12 to $.15 per diluted share.
- The WH|BM brand sales, excluding catalog and Internet, increased by
31.2% from $68 million to $90 million, while comparable store sales for
the brand increased by approximately 5%. The average transaction
amount for the WH|BM brand increased by 1.8%, the average unit retail
increased by 0.6%, and the merchandise margins decreased by
approximately 80 basis points. The brand operating margin for WH|BM
decreased by approximately 440 basis points in the third quarter of
fiscal 2006, principally due to the decreased merchandise margins
referred to above as well as an approximate 280 basis point increase in
store operating expenses for the WH|BM brand. The decrease in the
gross margin percentage was principally related to higher markdowns,
offset, in part, by improved initial markups, while the increase in
store operating costs as a percentage of net sales was principally
caused by increases in store payroll, occupancy and fringe benefits.
- Fitigues, our newest brand, which continues to focus on infrastructure
improvements during fiscal 2006, had the effect of reducing earnings
per share slightly during the third quarter, which is consistent with
earlier management statements projecting that Fitigues would have the
effect of reducing earnings by approximately $.01 to $.02 per diluted
share in fiscal 2006. We also believe that our continuing investment
in Fitigues will have the effect of reducing earnings by $.01 to $.02
per diluted share in fiscal 2007 as we further evaluate this brand.
- Catalog and Internet sales saw an overall 33% increase, principally due
to significant increases in the WH|BM and Soma merchandise available
for sale through the Internet, and to a lesser extent to the
acquisition of Fitigues and the increased circulation of catalog
mailings.
- The outlet division, which includes sales from all four of the brands
and which showed strong same store sales increases, showed decreases in
both gross and operating margins as overall gross margins in the
division declined by approximately 600 basis points, while overall
operating margins in the division decreased by approximately 650 basis
points, principally due to lower merchandise margins at the Chico's
outlet stores and in part due to the change in the mix of brand sales
to include more WH|BM and Soma based sales (both of which brand sales
generally carry lower gross margins).
- The adoption of SFAS 123R and the related change in accounting for
stock-based compensation expense reduced the gross margin in the third
quarter by approximately $1.6 million, or 40 basis points, and
increased SG&A costs by approximately $4.0 million, or 100 basis
points. Overall, the increase in stock-based compensation expense had
the effect of reducing net income and earnings per share for the third
quarter of fiscal 2006 by approximately $3.6 million and $.02 per
diluted share, respectively. For the nine month period ended October
28, 2006, the overall increase in total stock-based compensation
expense had the effect of reducing net income and earnings per share by
$10.1 million and approximately $.06 per diluted share, respectively.
- The Company opened 67 new stores during the third quarter and closed 2
stores. In addition, the Company expanded or relocated 23 additional
stores during the quarter. During the first nine months, the Company
opened 106 new stores, closed 10 stores, reacquired one franchise store
and acquired the Fitigues chain of 12 stores, along with expanding or
relocating 38 stores. The write offs associated with the repositioning
of its stores due to its relocation/expansion/closure program reduced
the first nine months earnings by approximately $.01 per diluted share
and the Company estimates that such write offs will reduce the full
fiscal year's earnings by approximately $.02 per diluted share.
- Since the beginning of the fiscal year and through November 28th, the
Company has opened 127 stores, net of closures, (30 so far in the
fourth quarter) towards its stated goal of 140 to 150 net new stores
for fiscal 2006. The Company expects an additional 14 to 18 stores
will be opened during the remainder of the fourth quarter. In
addition, through November 28th, the Company expanded/relocated 58
stores (including 20 so far in the fourth quarter) and expects to
relocate or expand an additional 6 to 8 stores during the remainder of
the fourth quarter.
- Overall inventories increased 44% since the beginning of the year and
36% since the end of the third quarter of last year. The Company's
inventory per selling square foot increased from $71 of inventory per
selling square foot as of the end of the third quarter last year to $77
of inventory per selling square foot as of the end of the third quarter
this year. This year over year increase was due to several factors,
including expanded direct to consumer offerings for all four brands,
planned increases to support a particularly heavy store opening and
expansion program in the third and early fourth quarter (as 30 new
stores and 20 expanded/relocated stores were opened in fiscal November
alone), and a planned greater emphasis on ocean versus air shipments
which results in a growth in the in-transit portion of the Company's
inventories.
The Company is a specialty retailer of private label, sophisticated,
casual-to-dressy clothing, intimates, complementary accessories, and other
non-clothing gift items. The Company operates 901 women's specialty stores,
including stores in 47 states, the District of Columbia, the U.S. Virgin
Islands and Puerto Rico operating under the Chico's, White House | Black
Market, Soma by Chico's and Fitigues names. The Company owns 538 Chico's
front-line stores, 32 Chico's outlet stores, 247 White House | Black Market
front-line stores, 14 White House | Black Market outlet stores, 47 Soma by
Chico's stores, 9 Fitigues front-line stores and 1 Fitigues outlet store;
franchisees own and operate 13 Chico's stores.
Certain statements contained herein, including without limitation,
statements addressing the beliefs, plans, objectives, estimates or
expectations of the Company or future results or events constitute "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995, as amended. Such forward-looking statements involve known
or unknown risks, including, but not limited to, general economic and business
conditions, and conditions in the specialty retail industry. There can be no
assurance that the actual future results, performance, or achievements
expressed or implied by such forward-looking statements will occur. Users of
forward-looking statements are encouraged to review the Company's latest
annual report on Form 10-K, its filings on Form 10-Q, management's discussion
and analysis in the Company's latest annual report to stockholders, the
Company's filings on Form 8-K, and other federal securities law filings for a
description of other important factors that may affect the Company's business,
results of operations and financial condition. The Company does not undertake
to publicly update or revise its forward-looking statements even if experience
or future changes make it clear that projected results expressed or implied in
such statements will not be realized.
For more detailed information, please call (877) 424-4267 to listen to the
Company's monthly sales information and investor relations line
A copy of a slide show addressing the Company's recent financial results and
current plans for expansion is available on the Company's website at
http://www.chicos.com in the investor relations section under Our Company
Additional investor information on Chico's FAS, Inc. is available free of
charge on the Company's website at http://www.chicos.com in the investor
relations section under Our Company
Executive Contacts:
Charles J. Kleman
Executive Vice President
Chief Financial Officer
Chico's FAS, Inc.
(239) 274-4105
F. Michael Smith
Vice President
Investor and Community Relations
Chico's FAS, Inc.
(239) 274-4797
Chico's FAS, Inc.
Consolidated Balance Sheets
(in thousands)
October 28, January 28,
2006 2006
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $2,606 $ 3,035
Marketable securities, at market 251,297 401,445
Receivables 19,313 7,240
Income taxes receivable - 5,013
Inventories 137,650 95,421
Prepaid expenses 17,629 13,497
Land held for sale 38,120 -
Deferred taxes 16,534 12,327
Total Current Assets 483,149 537,978
Property and Equipment:
Land and land improvements 14,549 44,893
Building and building improvements 56,102 35,573
Equipment, furniture and fixtures 246,106 187,970
Leasehold improvements 275,843 209,342
Total Property and Equipment 592,600 477,778
Less accumulated depreciation and
amortization (169,885) (131,846)
Property and Equipment, Net 422,715 345,932
Other Assets:
Goodwill 69,348 61,796
Other intangible assets 34,063 34,041
Deferred taxes 7,814 -
Other assets 20,914 19,666
Total Other Assets 132,139 115,503
$1,038,003 $999,413
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $77,536 $47,434
Accrued liabilities 83,664 74,586
Current portion of deferred liabilities 1,179 648
Total Current Liabilities 162,379 122,668
Noncurrent Liabilities:
Deferred liabilities 94,091 65,189
Deferred taxes - 5,129
Total Noncurrent Liabilities 94,091 70,318
Stockholders' Equity:
Common stock 1,755 1,817
Additional paid-in capital 225,720 202,878
Unearned compensation - (3,710)
Retained earnings 554,059 605,537
Accumulated other comprehensive loss (1) (95)
Total Stockholders' Equity 781,533 806,427
$1,038,003 $999,413
Chico's FAS, Inc.
Consolidated Statements of Income
(Unaudited)
(in thousands, except per share amounts)
Thirty-Nine Weeks Ended
October 28, 2006 October 29, 2005
Amount % of Sales Amount % of Sales
Net sales by Chico's/
Soma stores $894,423 74.5 $816,672 79.4
Net sales by White
House|Black Market
stores 257,171 21.4 179,545 17.4
Net sales by catalog
& Internet 37,192 3.1 24,526 2.4
Other net sales 11,410 1.0 8,102 0.8
Net sales 1,200,196 100.0 1,028,845 100.0
Cost of goods sold 474,151 39.5 394,935 38.4
Gross profit 726,045 60.5 633,910 61.6
General, administrative
and store operating
expenses 456,183 38.0 371,041 36.1
Depreciation and
amortization 44,007 3.7 31,192 3.0
Income from
operations 225,855 18.8 231,677 22.5
Interest income, net 8,303 0.7 5,658 0.5
Income before
taxes 234,158 19.5 237,335 23.0
Income tax provision 85,704 7.1 87,814 8.5
Net income $148,454 12.4 $149,521 14.5
Per share data:
Net income per common
share-basic $0.83 $0.83
Net income per common
& common equivalent
share-diluted $0.83 $0.82
Weighted average
common shares
outstanding-basic 178,036 180,218
Weighted average
common & common
equivalent shares
outstanding-diluted 179,238 182,115
Thirteen Weeks Ended
October 28, 2006 October 29, 2005
Amount % of Sales Amount % of Sales
Net sales by Chico's/
Soma stores $296,820 73.6 $277,601 77.4
Net sales by White
House|Black Market
stores 89,788 22.2 68,450 19.1
Net sales by catalog
& Internet 12,659 3.1 9,534 2.6
Other net sales 4,296 1.1 3,080 0.9
Net sales 403,563 100.0 358,665 100.0
Cost of goods sold 162,826 40.3 133,308 37.2
Gross profit 240,737 59.7 225,357 62.8
General, administrative
and store operating
expenses 161,373 40.0 131,711 36.7
Depreciation and
amortization 15,224 3.8 11,339 3.2
Income from
operations 64,140 15.9 82,307 22.9
Interest income, net 2,339 0.6 2,154 0.6
Income before
taxes 66,479 16.5 84,461 23.5
Income tax provision 24,332 6.1 31,251 8.7
Net income $42,147 10.4 $53,210 14.8
Per share data:
Net income per common
share-basic $0.24 $0.29
Net income per common
& common equivalent
share-diluted $0.24 $0.29
Weighted average
common shares
outstanding-basic 175,234 180,639
Weighted average
common & common
equivalent shares
outstanding-diluted 176,184 182,556
Chico's FAS, Inc.
Consolidated Cash Flow Statements
(Unaudited)
(In thousands)
Thirty-Nine Weeks Ended
October 28, October 29,
2006 2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $148,454 $149,521
Adjustments to reconcile net income to
net cash provided by operating activities -
Depreciation and amortization, cost of goods
sold 5,557 3,437
Depreciation and amortization, other 44,007 31,192
Deferred tax benefit (17,216) (15,352)
Stock-based compensation expense, cost of
goods sold 4,833 317
Stock-based compensation expense, general,
administrative and store operating expenses 12,052 854
Excess tax benefit of stock-based compensation (2,623) -
Tax benefit of stock options exercised - 13,301
Deferred rent expense, net 5,133 2,635
Loss on disposal of property and equipment 820 437
(Increase) decrease in assets -
Receivables (7,091) (4,528)
Inventories (41,506) (28,308)
Prepaid expenses and other, net (5,403) (5,135)
Increase in liabilities -
Accounts payable 30,103 30,794
Accrued and other deferred liabilities 36,837 36,089
Total adjustments 65,503 65,733
Net cash provided by operating activities 213,957 215,254
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales (purchases) of marketable securities, net 150,242 (130,946)
Purchase of Fitigues assets (7,527) -
Acquisition of franchise store (811) -
Purchase of equity investment - (10,418)
Purchases of property and equipment (165,094) (87,103)
Net cash used in investing activities (23,190) (228,467)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 6,181 16,908
Excess tax benefit of stock-based compensation 2,623 -
Repurchase of common stock (200,000) -
Net cash (used in) provided by financing
activities (191,196) 16,908
Net (decrease) increase in cash and cash
equivalents (429) 3,695
CASH AND CASH EQUIVALENTS, Beginning of period 3,035 14,426
CASH AND CASH EQUIVALENTS, End of period $2,606 $18,121
SOURCE Chico's FAS, Inc.
-0- 11/28/2006
/CONTACT: Charles J. Kleman, Executive Vice President, Chief Financial
Officer, +1-239-274-4105, or F. Michael Smith, Vice President, Investor and
Community Relations, +1-239-274-4797, both of Chico's FAS, Inc./
/Photo: http://www.newscom.com/cgi-bin/prnh/20030428/CHICOLOGO
AP Archive: http://photoarchive.ap.org
PRN Photo Desk, photodesk@prnewswire.com/
/Web site: http://www.chicos.com/
(CHS)
CO: Chico's FAS, Inc.
ST: Florida
IN: REA
SU: ERN
CT-JE
-- CLTU065 --
7616 11/28/2006 16:11 EST http://www.prnewswire.com