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Chico's FAS, Inc. Announces Fourth Quarter and Year End Revenues and Earnings

03/06/2007
    FORT MYERS, Fla., March 6 /PRNewswire-FirstCall/ --

     - Revenues rose 17.2% to $1.65 billion for the 53-week year
     - Fourth quarter net income $18 million; year to date $167 million
     - Company opened 145 net new stores and relocated/expanded 64 existing
       stores during year for square footage increase of over 30%
     - Company announces 15% selling square footage growth rate plan for
       fiscal 2008; updates fiscal 2007 new store opening plan
     - Company to close Fitigues brand in first quarter of fiscal 2007;
       records $8.6 million pretax impairment charge in fourth quarter, or
       $.03 per diluted share

Chico's FAS, Inc. (NYSE: CHS) today announced its financial results for the fourth quarter and fiscal year ended February 3, 2007.

(Logo: http://www.newscom.com/cgi-bin/prnh/20030428/CHICOLOGO )

For the fourteen-week fourth quarter ended February 3, 2007, net sales increased 18.8% to $446 million from $376 million for the thirteen-week fourth quarter ended January 28, 2006. Net income was $18 million, or $0.10 a diluted share, compared to net income of $44 million, or $0.24 a diluted share in the prior year's fourth quarter. During the fourth quarter of fiscal 2006, the Company recorded pretax impairment related expenses totaling approximately $8.6 million, or approximately $.03 per diluted share, related to the planned closure of its Fitigues brand operations in the first quarter of fiscal 2007. Excluding the $.03 per diluted share charge related to the planned closure of the Fitigues brand, the Company's earnings were in line with its revised fourth quarter expectations. Total stock-based compensation expense for the fourth 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 $2.6 million, net of tax, or $.01 per diluted share over the prior year's fourth quarter. Comparable store sales for the Company-owned stores decreased 2.0% for the fourteen-week fourth quarter ended February 3, 2007 compared to the same fourteen-week period last year, which was consistent in both the Chico's and WH|BM brands.

For the fifty-three week fiscal year ended February 3, 2007 (fiscal 2006), net sales increased 17.2% to $1.65 billion from $1.40 billion for the fifty- two week fiscal year ended January 28, 2006 (fiscal 2005). Net income totaled $167 million, or $0.93 a diluted share, compared to net income of $194 million, or $1.06 a diluted share in the prior period. Total stock-based compensation expense for the current fiscal year increased approximately $12.6 million, net of tax, or $.07 per diluted share over the prior fiscal year. Comparable store sales for the Company-owned stores increased 2.1% for fiscal 2006 compared to the same fifty-three week period last year. For fiscal 2006, the Chico's brand same store sales were essentially flat, while the same store sales for the WH|BM brand increased by approximately 11%.

Scott A. Edmonds, President and CEO, commented, "The latter part of fiscal 2006 was certainly difficult at Chico's; with the fourth quarter being the most challenging. As we indicated on our third quarter conference call, we faced fashion missteps that required much heavier markdowns than originally planned. We committed to clearing our fashion mistakes by year end and I'm pleased to report we were able to do just that. We have also begun to see some positive results from our operational initiatives."

"Although February sales and same store sales were somewhat off planned levels, we are pleased with our initial sell through of most of our Spring line and our February gross margins, especially considering the weather. However, we have not fully realized the corrective measures we have been talking about at either Chico's or WH|BM, especially in providing our customers with a product offering that is more compelling in fashion terms."

"I am pleased to announce that we are no longer in the franchise business. We recently closed the previously announced acquisition of the Minnesota franchise rights and just completed the acquisition of the Winter Park, Florida franchise; the last of the franchisees. This gives us total control of the brand image and customer experience and the opportunity to grow the current stores and expand within these markets."

"We are completely focused on our core Chico's and WH|BM brands, as well as our emerging Soma brand. We have decided the Fitigues brand did not meet our internal expectations and opportunity for roll-out. Thus, we think our shareholders are better served by closing down this brand at this time."

Mr. Edmonds continued, "We have also decided to slow down the Soma store growth somewhat so that we can focus on strengthening the management team, improving profitability and expanding Soma beyond the Chico's customer for the long term benefit of the Soma concept and our shareholders. This strategy was successful for us in the 1994/1995 time frame when we slowed the growth of the Chico's concept so that we could improve our operations and build a solid foundation to achieve much stronger growth long-term. We continue to believe, now more than ever, that the Soma intimate apparel concept represents an excellent market opportunity within the specialty apparel arena."

Mr. Edmonds further said, "The Company has been carefully reviewing and rethinking its recent practice of providing specific quarterly and annual sales and earnings guidance. The retail industry is unique in providing monthly sales and comparable store sales data, as well as detailed operational data, for individual brands, which provides interested parties with much greater detail than is presented in the Company's financial statements. Therefore, while we remain committed to maintaining the transparency in our financial reporting, we will no longer provide such specific sales and earnings guidance as a part of our regular financial reporting process; however, we do expect to comment on the street consensus estimates from time to time, as appropriate."

Some of the other highlights with respect to the fourth quarter and year end results include the following:

    - The Chico's/Soma brand sales, excluding catalog and Internet, increased
      by 13.2% from $279 million for the thirteen-week fourth quarter in
      fiscal 2005 to $316 million for the fourteen-week fourth quarter in
      fiscal 2006.  For fiscal 2006, the Chico's/Soma brand sales, excluding
      catalog and Internet, increased by 10.5% to $1.21 billion from $1.10
      billion for fiscal 2005.  Comparable store sales for the combined
      Chico's/Soma brands were flat for fiscal 2006 and decreased by
      approximately 2% for the fourth quarter of fiscal 2006.  The average
      transaction for the Chico's front-line stores decreased by 1.7% for
      fiscal 2006 and by 8.4% for the fourth quarter, while similarly the
      average unit retail decreased by 1.6% for fiscal 2006 and by 14.1% for
      the fourth quarter of fiscal 2006.

    - The Chico's core brand operating margin for fiscal 2006 decreased by
      approximately 360 basis points from the Chico's core brand operating
      margin in fiscal 2005, principally due to an approximate 100 basis point
      decrease in the Chico's front-line store merchandise margin, an
      approximate 30 basis point decrease due to the adoption of SFAS 123R and
      the related change in accounting for stock-based compensation, and an
      approximate 210 basis point increase in store operating costs.  The
      decrease in the store merchandise margin was principally due to higher
      markdowns while the increase in store operating costs as a percentage of
      net sales was principally caused by increases in store payroll and
      occupancy costs as well as from the deleverage associated with the flat
      comparable store sales.

    - The Soma brand operating margin for fiscal 2006 decreased by
      approximately 720 basis points from fiscal 2005, primarily due to costs
      associated with an aggressive new store opening program that more than
      tripled the store count.  Store operating costs increased by 1130 basis
      points while store management and marketing costs increased by 590 basis
      points to support the new store openings and expanded mailer
      distribution.  These higher general and administrative costs were
      partially offset by a 1190 basis point improvement in overall product
      development and merchandising costs.  Front-line gross margins decreased
      by 470 basis points primarily due to higher markdowns and inventory
      clearance initiatives.  The Company estimates the investment in Soma
      reduced the current quarter's earnings by approximately $.03 per diluted
      share and the fiscal year's earnings by approximately $.07 per diluted
      share.  The Company is now expecting that the investment in the
      continued growth and development of the Soma brand will reduce fiscal
      year 2007 earnings by approximately $.06 to $.10 per diluted share.

    - The WH|BM brand sales, excluding catalog and Internet, increased by
      33.9% from $82 million for the thirteen-week fourth quarter in fiscal
      2005 to $110 million for the fourteen-week fourth quarter in fiscal
      2006.  For fiscal 2006, the WH|BM brand sales, excluding catalog and
      Internet, increased by 40.3% to $367 million from $262 million for
      fiscal 2005.  Comparable store sales for the year increased 11%,
      representing the sixth consecutive year of double digit growth, although
      the fourth quarter comparable store sales decreased by 2%.  The average
      transaction amount for the WH|BM brand increased by 3.1% for fiscal 2006
      but decreased by 1.9% for the fourth quarter.  Similarly, the average
      unit retail increased by 2.5% for fiscal 2006 but decreased by 8.4% for
      the fourth quarter.

    - The WH|BM brand operating margin for fiscal 2006 decreased by
      approximately 250 basis points from the WH|BM brand operating margin in
      fiscal 2005, primarily due to a 40 basis point decline in the
      merchandise margins, an approximate 50 basis point decrease due to the
      adoption of SFAS 123R, a 70 basis point decrease due to increased
      marketing costs, and a 70 basis point increase in store operating
      expenses.  The decrease in the merchandise margin was principally
      related to higher markdowns, while the increase in store operating costs
      as a percentage of net sales was principally caused by increases in
      store payroll and occupancy expenses.

    - Catalog and Internet sales saw an overall 40.5% increase in the quarter
      and a 48.1% increase for the year, principally due to significant
      increases in the WH|BM and Soma merchandise available for sale through
      the Internet, and to a lesser extent, to increases in the Chico's
      merchandise available for sale through the Internet 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 slight
      decreases in fiscal 2006 in both gross and operating margins as overall
      gross margins in the division declined by approximately 120 basis
      points, while overall operating margins in the division decreased by
      approximately 90 basis points, principally due to lower merchandise
      margins associated primarily with the clearance initiatives of the
      Chico's and Soma front-line stores as well as 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).

    - During the fourth quarter of fiscal 2006, the Company recorded
      approximately $8.6 million of pretax impairment related expenses related
      to the planned closure of its Fitigues brand.  The $8.6 million
      impairment charge consisted primarily of an impairment loss on goodwill
      totaling approximately $6.8 million, an accelerated fixed asset
      depreciation totaling approximately $1.2 million, and other impairment
      related charges, mainly associated with inventory, totaling
      approximately $0.6 million.  The impact of the impairment charges
      related to the planned closure of the Fitigues brand was a reduction of
      approximately $.03 per diluted share for the quarter and that the
      overall impact of the Fitigues brand's operations coupled with the
      impairment related expenses was a reduction of the fiscal year's
      earnings of approximately $.05 per diluted share.

    - The adoption of SFAS 123R and the related change in accounting for
      stock-based compensation expense reduced the gross margin in the fourth
      quarter year-over-year by approximately $1.1 million, or 20 basis
      points, and increased SG&A costs year-over-year by approximately $2.9
      million, or 60 basis points.  Overall, the increase in stock-based
      compensation expense had the effect of reducing net income and earnings
      per share for the fourth quarter of fiscal 2006 by approximately $2.6
      million and $.01 per diluted share, respectively, compared to the fourth
      quarter of fiscal 2005.  For fiscal 2006, the overall increase in total
      stock-based compensation expense had the effect of reducing net income
      and earnings per share by $12.6 million and approximately $.07 per
      diluted share, respectively, compared to fiscal 2005.

    - The Company opened 51 new stores during the fourth quarter and closed 2
      stores.  In addition, the Company expanded or relocated 26 additional
      stores during the quarter.  During the fiscal year, the Company opened
      157 new stores, closed 12 stores, reacquired one franchise store and
      acquired the Fitigues chain of 12 stores (which will be closed in the
      first quarter of fiscal 2007), along with expanding or relocating 64
      stores, representing, in the aggregate, a growth rate of over 30% in
      selling square footage, in line with our plan.  The write-offs
      associated with the repositioning of its stores due to its
      relocation/expansion/closure program reduced the full fiscal year's
      earnings by approximately $.02 per diluted share.

    - Overall inventories increased 16% since the beginning of fiscal 2006, in
      line with the Company's overall sales increase of approximately 17%.
      The Company's inventory per selling square foot decreased from $64 of
      inventory per selling square foot as of the end of the 2005 fiscal year
      to $57 of inventory per selling square foot as of the end of the 2006
      fiscal year.  This year over year decrease was mainly the result of the
      Company's merchandise clearance initiatives during the fourth quarter of
      fiscal 2006, which were designed to clear excess merchandise and enter
      fiscal 2007 with little carryover merchandise.  This also explains our
      decreased average transaction values described earlier.

    Future Outlook:

    - The Company will no longer provide specific quarterly or annual sales
      and earnings guidance.  The Company currently believes that if it
      achieves a low single digit same store sales increase on a consolidated
      basis for fiscal 2007, the current consensus First Call estimates for
      fiscal 2007 sales and diluted earnings per share appear reasonable.

    - The Company has revised its targeted net new store openings for fiscal
      2007 to between 135 and 145 new stores (excluding the 10 Fitigues
      planned closures).  At this time, the Company estimates its net new
      store openings will be broken down by brand as follows:  55 to 60
      Chico's stores, 55 to 60 WH|BM stores and 20 to 25 Soma stores.  The
      Company currently anticipates 45 to 55 relocations/expansions in fiscal
      2007. Planned square footage growth for fiscal 2007 is now estimated to
      be approximately 22% to 24% in selling square footage, slightly below
      the previously announced plan of a 25% increase.

    - Looking forward to fiscal 2008, the Company's initial plan contemplates
      targeting an approximate 15% increase in its selling square footage,
      which is expected to result from approximately 105 to 115 net new stores
      and 30 to 50 relocations and expansions of existing stores.  The
      preliminary breakdown of new stores by brand for fiscal 2008 is as
      follows:  40 to 50 Chico's stores, 50 to 60 WH|BM stores, and 5 to 15
      Soma stores.

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 925 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 has 558 Chico's front-line stores, 34 Chico's outlet stores, 257 White House | Black Market front-line stores, 16 White House | Black Market outlet stores, 51 Soma by Chico's stores, 8 Fitigues front-line stores and 1 Fitigues outlet store.

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)

                                                February 3,        January 28,
                                                   2007               2006
                                                (unaudited)
                          ASSETS
    Current Assets:
         Cash and cash equivalents                $37,203             $3,035
         Marketable securities, at market         238,336            401,445
         Receivables                               14,246              7,240
         Income taxes receivable                        -              5,013
         Inventories                              110,840             95,421
         Prepaid expenses                          15,774             13,497
         Land held for sale                        38,120                  -
         Deferred taxes                            17,337             12,327
              Total Current Assets                471,856            537,978

    Property and Equipment:
         Land and land improvements                14,640             44,893
         Building and building
          improvements                             56,782             35,573
         Equipment, furniture and fixtures        268,122            187,970
         Leasehold improvements                   301,670            209,342
              Total Property and Equipment        641,214            477,778
         Less accumulated depreciation and
          amortization                           (184,474)          (131,846)
              Property and Equipment, Net         456,740            345,932

    Other Assets:
         Goodwill                                  62,596             61,796
         Other intangible assets                   34,040             34,041
         Deferred taxes                            11,837                  -
         Other assets                              21,065             19,666
              Total Other Assets                  129,538            115,503
                                               $1,058,134           $999,413


              LIABILITIES AND STOCKHOLDERS' EQUITY
    Current Liabilities:
         Accounts payable                         $55,696            $47,434
         Accrued liabilities                       87,367             74,586
         Current portion of deferred
          liabilities                               1,169                648
              Total Current Liabilities           144,232            122,668

    Noncurrent Liabilities:
         Deferred liabilities                     109,971             65,189
         Deferred taxes                                 -              5,129
              Total Noncurrent Liabilities        109,971             70,318

    Stockholders' Equity:
         Common stock                               1,757              1,817
         Additional paid-in capital               229,934            202,878
         Unearned compensation                          -             (3,710)
         Retained earnings                        572,240            605,537
         Accumulated other comprehensive
          loss                                          -                (95)
              Total Stockholders' Equity          803,931            806,427
                                               $1,058,134           $999,413



                              Chico's FAS, Inc.

                      Consolidated Statements of Income

                   (in thousands, except per share amounts)

                                         Fifty-Three           Fifty-Two
                                         Weeks Ended          Weeks Ended
                                         (unaudited)
                                       February 3, 2007     January 28, 2006

                                                     % of              % of
                                          Amount     Sales   Amount    Sales

    Net sales by Chico's/Soma stores    $1,210,474   73.5  $1,095,938   78.0
    Net sales by White House | Black
     Market stores                         367,063   22.3     261,601   18.6
    Net sales by catalog & Internet         53,523    3.3      36,151    2.6
    Other net sales                         15,422    0.9      10,885    0.8
       Net sales                         1,646,482  100.0   1,404,575  100.0

    Cost of goods sold                     679,416   41.3     547,532   39.0
       Gross profit                        967,066   58.7     857,043   61.0

    General, administrative and store
     operating expenses                    647,421   39.3     514,529   36.6
    Depreciation and amortization           61,840    3.8      44,201    3.2
    Impairment of goodwill                   6,752    0.4           -      -
       Income from operations              251,053   15.2     298,313   21.2
    Interest income, net                    10,626    0.7       8,236    0.6
       Income before taxes                 261,679   15.9     306,549   21.8
    Income tax provision                    95,043    5.8     112,568    8.0
       Net income                         $166,636   10.1    $193,981   13.8

       Per share data:
    Net income per common share-basic        $0.94              $1.07

    Net income per common & common
     equivalent share-diluted                $0.93              $1.06

    Weighted average common shares
     outstanding-basic                     177,273            180,465

    Weighted average common & common
     equivalent shares outstanding-diluted 178,452            182,408



                                              Fourteen          Thirteen
                                            Weeks Ended        Weeks Ended
                                            (unaudited)        (unaudited)
                                          February 3, 2007  January 28, 2006

                                                     % of              % of
                                           Amount    Sales   Amount    Sales

    Net sales by Chico's/Soma stores      $316,050   70.8    $279,266   74.3
    Net sales by White House | Black
     Market stores                         109,894   24.6      82,057   21.8
    Net sales by catalog & Internet         16,331    3.7      11,624    3.1
    Other net sales                          4,011    0.9       2,783    0.8
       Net sales                           446,286  100.0     375,730  100.0

    Cost of goods sold                     205,265   46.0     152,597   40.6
       Gross profit                        241,021   54.0     223,133   59.4

    General, administrative and
     store operating expenses              191,237   42.8     143,488   38.2
    Depreciation and amortization           17,834    4.0      13,009    3.5
    Impairment of goodwill                   6,752    1.5           -      -
       Income from operations               25,198    5.7      66,636   17.7
    Interest income, net                     2,322    0.5       2,578    0.7
       Income before taxes                  27,520    6.2      69,214   18.4
    Income tax provision                     9,339    2.1      24,754    6.6
       Net income                          $18,181    4.1     $44,460   11.8

       Per share data:
    Net income per common share-basic        $0.10              $0.25

    Net income per common & common
     equivalent share-diluted                $0.10              $0.24

    Weighted average common shares
     outstanding-basic                     175,326            181,206

    Weighted average common & common
     equivalent shares outstanding-diluted 176,393            183,184



                              Chico's FAS, Inc.

                      Consolidated Cash Flow Statements

                                (In thousands)

                                                 February 3,      January 28,
                                                    2007             2006
                                                 (unaudited)
    CASH FLOWS FROM OPERATING ACTIVITIES:
      Net income                                  $166,636          $193,981
      Adjustments to reconcile net income
       to net cash provided by operating
       activities -
         Depreciation and amortization,
          cost of goods sold                         7,564             4,651
         Depreciation and amortization,
          other                                     61,840            44,201
         Deferred tax benefit                      (22,324)           (8,411)
         Stock-based compensation expense,
          cost of goods sold                         6,004               438
         Stock-based compensation expense,
          general, administrative and store
          operating expenses                        15,237             1,177
         Excess tax benefit of stock-based
          compensation                              (2,365)                -
         Tax benefit of stock options
          exercised                                      -            21,461
         Deferred rent expense, net                  6,867             3,673
         Goodwill impairment loss                    6,752                 -
         Loss on disposal of property and
          equipment                                    826               753
      (Increase) decrease in assets -
         Receivables                                (2,025)           (7,147)
         Inventories                               (14,696)          (22,198)
         Prepaid expenses and other, net            (3,676)           (5,955)
      Increase in liabilities -
         Accounts payable                            8,262            10,709
         Accrued and other deferred
          liabilities                               54,092            31,073
              Total adjustments                    122,358            74,425
              Net cash provided by
               operating activities                288,994           268,406

    CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchases of marketable securities          (162,690)         (357,237)
      Proceeds from sale of marketable
       securities                                  325,894           207,026
      Purchase of Fitigues assets                   (7,527)                -
      Acquisition of franchise store                  (811)                -
      Purchase of equity investment                      -           (10,418)
      Purchases of property and equipment         (218,311)         (147,635)
              Net cash used in investing
               activities                          (63,445)         (308,264)

    CASH FLOWS FROM FINANCING ACTIVITIES:
      Proceeds from issuance of common
       stock                                         6,402            28,467
      Excess tax benefit of stock-based
       compensation                                  2,365                 -
      Repurchase of common stock                  (200,148)                -
                Net cash (used in) provided
                 by financing activities          (191,381)           28,467

                Net increase (decrease) in
                 cash and cash equivalents          34,168           (11,391)
    CASH AND CASH EQUIVALENTS, Beginning of
     period                                          3,035            14,426
    CASH AND CASH EQUIVALENTS, End of
     period                                        $37,203            $3,035
SOURCE  Chico's FAS, Inc.
    -0-                             03/06/2007
    /CONTACT:  Charles J. Kleman, Executive Vice President and 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:  NewsCom: 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 FAS
SU:  ERN ERP CCA



HB-JK
-- CLTU082 --
6842 03/06/2007 16:05 EST http://www.prnewswire.com
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  • David M. Oliver

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