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Chico's FAS, Inc. Announces Third Quarter and Nine Month Revenues and Earnings

11/26/2006
     - 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
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  • David M. Oliver

  • Senior Vice President, Finance - Controller
  • cfo@chicos.com