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Chico's FAS, Inc. Announces Second Quarter and Six Month Revenues and Earnings

08/29/2007
    *  Revenues rose 8.1% to $436 million for the second quarter

    *  Second quarter income from continuing operations was $39 million, or
       $0.22 cents per diluted share

    *  Company opened 17 new stores and relocated/expanded 15 existing stores
       during quarter

    *  August comparable store sales currently trending down in the high
       single digit range, with Chico's trending down in the mid single digit
       range and WH|BM trending down in the low double digit range

FORT MYERS, Fla., Aug. 29 /PRNewswire-FirstCall/ -- Chico's FAS, Inc. (NYSE: CHS) today announced its financial results for the fiscal 2007 second quarter and six months ended August 4, 2007.

Net sales for the second quarter ended August 4, 2007 increased 8.1% to $436 million from $403 million for the fiscal 2006 second quarter ended July 29, 2006. Income from continuing operations for the fiscal 2007 second quarter was $39 million, or $0.22 a diluted share, compared to income from continuing operations of $54 million, or $0.31 a diluted share in the prior year's second quarter. As previously reported, comparable store sales decreased 5.6% for the thirteen week period ended August 4, 2007 compared to the comparable thirteen week period last year ended August 5, 2006 (with the Chico's brand same store sales decrease being approximately 6% and the WH|BM brand's same store sales decrease being approximately 3%).

Net sales for the six months ended August 4, 2007 increased 12.0% to $889 million from $794 million for the prior year's six months ended July 29, 2006. Income from continuing operations for the six months was $88 million, or $0.50 a diluted share, compared to $107 million, or $0.60 a diluted share, in the first six months of the prior year. As previously reported, comparable store sales decreased 3.6% for the twenty-six week period ended August 4, 2007 compared to the comparable twenty-six week period last year ended August 5, 2006 (with the Chico's brand same store sales decrease being approximately 4% and the WH|BM brand's same store sales decrease being approximately 3%).

Gross profit for the second quarter increased 3.2% to $252 million from $244 million in the prior year's second quarter. Gross profit as a percentage of sales for the current quarter was 57.7%, compared to 60.4% in the prior year's second quarter. WH|BM front-line stores' merchandise margins in the second quarter decreased by approximately 360 basis points compared to the prior year's second quarter. The margin decrease at WH|BM was attributable primarily to a higher markdown rate. At the same time, the Chico's front-line stores' merchandise margins decreased by approximately 120 basis points due primarily to a higher markdown rate and, to a lesser extent, from a slightly lower initial markup on new products. To a lesser extent, the Company's overall gross margin was also impacted by the mix effect resulting from the WH|BM and Soma Intimates sales continuing to become a larger portion of the Company's overall net sales (both WH|BM and Soma brands operate with lower gross margins than the gross margins experienced by the Chico's brand), and by the Company's continued investment in its product development and merchandising functions for each of its three brands.

Selling, general and administrative expenses ("SG&A") for the second quarter increased 20.7% to $194 million from $161 million in the prior year's second quarter. As a percentage of sales, SG&A in the second quarter increased by approximately 470 basis points compared to the prior period due to increased store operating and shared services expenses offset slightly by a reduction in marketing costs as a percentage of sales.

Store operating expenses as a percentage of sales in the second quarter increased by approximately 380 basis points compared to the prior period primarily due to increased occupancy and personnel costs attributable mainly to the investment in larger sized Chico's and WH|BM new and expanded stores, the Company's continuing increased investment in store payroll to improve service levels, the mix effect of the WH|BM and Soma Intimates stores becoming a larger portion of the Company's store base (both WH|BM and Soma brands operate with higher store operating costs as a percentage of sales than the store operating costs as a percentage of sales experienced by the Chico's brand) and from the deleverage associated with the Company's negative same store sales. To a lesser degree, store operating expenses as a percentage of sales also increased as a result of additional store level promotion and outreach events across all brands.

Marketing costs as a percentage of sales for the fiscal 2007 second quarter decreased by approximately 10 basis points. The Company intends to increase its marketing spend in the second half of fiscal 2007, compared to the second half of fiscal 2006, in an effort to protect and enhance its market share and to highlight its Fall and Holiday product offerings. Shared services expenses (including headquarters and other non-brand specific expenses) for the fiscal 2007 second quarter increased by 100 basis points mainly due to increased relocation, recruitment, technology and marketing support costs and from the deleverage associated with the Company's negative same store sales. This increase was offset, in part, by a reduction in incentive compensation and stock-based compensation for the fiscal 2007 second quarter when compared to the prior year's second quarter.

Scott A. Edmonds, President and CEO, commented, "We are disappointed with our performance in the second quarter, with earnings per diluted share down 27% compared to the second quarter last year. Gross margins in the second quarter were below plan, particularly in the WH|BM brand, largely due to increased markdowns. We expect that some of this softness in gross margins is likely to continue into the third quarter. SG&A also deleveraged more than planned, mainly due to the quarterly decrease in same store sales at a time when we were making strategic investments. We expect some of this deleverage in SG&A is likely to continue into the third quarter as well."

Mr. Edmonds continued, "No one at Chico's is pleased with our performance so far this year, but we continue to take aggressive steps to improve this performance including making significant investments in design and merchandising talent, new, innovative, and compelling products, larger Chico's and WH|BM stores, our direct-to-consumer business, marketing initiatives, and SAP and other infrastructure improvements. We continue to strategically assess our capital asset allocation and have implemented a more stringent allocation process and a higher bar for cash flow and return on invested capital. We believe that all of these steps will pay off over the long-term for our shareholders."

Mr. Edmonds further stated, "Further, we are focused on improving our comp store sales and profitability. To that end, we are slowing down our store square footage growth rate to 12-15% for 2008 and in the range of 10% for 2009. We have also decided to substantially increase our marketing spend in the second half of fiscal 2007, compared to the second half of fiscal 2006. We believe this initiative will help to protect and enhance our market share and should also serve to highlight our new Fall and Holiday offerings. This enhanced marketing push, together with what we believe is a much more compelling product offering, is designed to generate a favorable and profitable reaction from both our core customers and new customers through a significant increase in the traffic levels and conversion at our stores."

Mr. Edmonds continued, "Although we are continuing to take initiatives to improve our performance, we believe the third quarter of 2007 is likely to reflect another decrease in earnings per diluted share compared to the third quarter of last year. As we move through the Fall and into the Holiday season, we remain optimistic that we will see improvements in our same store sales as our customers react to what we believe are exciting new product offerings. If our expectations concerning our customers' reactions to our Fall product prove to be correct, we would expect the declining net earnings trend to improve throughout the Fall and with net earnings in the fourth quarter that should reflect an increase on a year over year basis."

Mr. Edmonds concluded, "We recognize there are a multitude of challenges out there. Nevertheless, we've got an incredibly strong and highly productive brand in Chico's, a growing brand in WH|BM, and a brand with great potential in Soma Intimates. We continue to believe that over time these brands, combined with the initiatives I mentioned, the loyalty of our customers, the strength of our Board, our executive team, our 14,500 dedicated associates and our balance sheet will position us to once again be the premier specialty retailer in the country."

Some of the other highlights with respect to the second quarter results include the following:

    *  The Chico's/Soma brand sales, excluding catalog and Internet, increased
       by 2.6% from $301 million in last year's second quarter to $309 million
       in this year's second quarter, while WH|BM brand sales increased by
       25.2% from $88 million to $110 million quarter over quarter.  The
       average transaction size for both the Chico's and WH|BM front-line
       stores for the fiscal 2007 second quarter decreased by 5% compared to
       last year's second quarter.  The average unit retail for the Chico's
       front-line stores for the fiscal 2007 second quarter declined by 10% as
       compared to last year's second quarter, while the WH|BM average unit
       retail decreased by 8% quarter over quarter.

    *  Net sales by catalog and Internet increased by 42.0% from $12 million
       in last year's second quarter to $17 million in this year's second
       quarter.  The Company believes this increase is attributable to the
       implementation of the Company's planned improvements in its website and
       call center infrastructure and its updated approach to merchandising on
       the website.  The Company intends to continue making such improvements
       to further promote sales through these channels.

    *  On March 6, 2007, the Company announced the planned closure of the
       Fitigues brand operations ("Fitigues").  Accordingly, for all periods
       presented, the operating results for Fitigues are shown as discontinued
       operations in the Company's consolidated statements of income.  During
       the second quarter, the Company incurred additional immaterial costs
       from such discontinued operations and the Company does not expect to
       incur material additional costs in future quarters.

    *  The Company estimates the investment in its Soma brand reduced the
       current quarter's earnings by approximately $0.02 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 $0.09 to $0.11 per diluted share.

    *  During the fiscal 2007 second quarter, the Company opened 17 new stores
       and closed 2 stores. Also, during this second quarter, the Company
       expanded or relocated 15 stores.  During the third quarter, the Company
       expects to open between 58 and 62 additional stores and to expand or
       relocate between 18 and 20 stores.  The Company is currently on track
       to meet its plan to open approximately 130-140 net new stores in fiscal
       2007.

    *  Overall inventories increased approximately 10.9% since the beginning
       of the year, versus a sales increase of 12.0%.  In comparison, the
       Company's inventory per selling square foot as of the end of the second
       quarter of fiscal 2007 was $58, reflecting a decrease from the
       Company's inventory per selling square foot of $68 as of the end of the
       fiscal 2006 second quarter.  Although the inventory per square foot was
       lower than planned levels at the end of the second quarter of fiscal
       2007, the Company expects its inventory level to be back to planned
       levels by the end of fiscal August.

    *  During the fiscal 2007 second quarter, the Company consummated a
       transaction to sell a parcel of land located in south Fort Myers,
       Florida with a book value of $38.1 million for a sales price totaling
       approximately $39.7 million, consisting of approximately $13.4 million
       in cash proceeds, net of closing costs, and a note receivable with a
       principal amount of approximately $25.8 million and secured by a
       purchase money mortgage.

The Company is a specialty retailer of private branded, sophisticated, casual-to-dressy clothing, intimates, complementary accessories, and other non-clothing gift items. The Company operates 965 women's specialty stores, including stores in 48 states, the District of Columbia, the U.S. Virgin Islands and Puerto Rico operating under the Chico's, White House | Black Market, and Soma Intimates names. The Company has 574 Chico's front-line stores, 35 Chico's outlet stores, 274 White House | Black Market front-line stores, 18 White House | Black Market outlet stores, 63 Soma Intimates front- line stores and 1 Soma Intimates 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


                             (Financial Tables Follow)



                                 Chico's FAS, Inc.
                            Consolidated Balance Sheets
                                   (in thousands)

                                                    August 4,     February 3,
                                                      2007           2007
                                                   (Unaudited)
                           ASSETS
    Current Assets:
      Cash and cash equivalents                      $12,069        $37,203
      Marketable securities, at market               275,073        238,336
      Receivables                                      8,122         14,246
      Inventories                                    122,965        110,840
      Prepaid expenses                                20,585         15,774
      Land held for sale                                   -         38,120
      Deferred taxes                                  17,368         17,337
        Total Current Assets                         456,182        471,856

    Property and Equipment:
      Land and land improvements                      15,107         14,640
      Building and building improvements              58,894         56,782
      Equipment, furniture and fixtures              307,319        268,122
      Leasehold improvements                         345,179        301,670
        Total Property and Equipment                 726,499        641,214
      Less accumulated depreciation
       and amortization                             (218,031)      (184,474)
        Property and Equipment, Net                  508,468        456,740

    Other Assets:
      Goodwill                                        96,774         62,596
      Other intangible assets                         38,930         34,040
      Deferred taxes                                  16,880         11,837
      Other assets, net                               47,388         21,065
        Total Other Assets                           199,972        129,538
                                                  $1,164,622     $1,058,134

          LIABILITIES AND STOCKHOLDERS' EQUITY
    Current Liabilities:
      Accounts payable                               $61,183        $55,696
      Accrued liabilities                             81,561         87,367
      Current portion of deferred liabilities          1,225          1,169
        Total Current Liabilities                    143,969        144,232
    Noncurrent Liabilities:
      Deferred liabilities                           117,619        109,971
        Total Noncurrent Liabilities                 117,619        109,971

    Stockholders' Equity:
      Common stock                                     1,757          1,757
      Additional paid-in capital                     243,192        229,934
      Retained earnings                              658,082        572,240
      Accumulated other comprehensive income               3              -
        Total Stockholders' Equity                   903,034        803,931
                                                  $1,164,622     $1,058,134



                           Chico's FAS, Inc.
                 Consolidated Statements of Income
                              (Unaudited)
               (in thousands, except per share amounts)

                                      Twenty-Six Weeks Ended

                              August 4, 2007            July 29, 2006

                           Amount     % of Sales     Amount    % of Sales

    Net sales by Chico's
     /Soma stores         $641,824         72.2     $597,603         75.3
    Net sales by White
     House | Black
     Market stores         213,591         24.0      167,383         21.1
    Net sales by catalog
     & Internet             33,586          3.8       24,231          3.0
    Other net sales            115          0.0        4,860          0.6
      Net sales            889,116        100.0      794,077        100.0

    Cost of goods sold     357,623         40.2      309,140         38.9
      Gross profit         531,493         59.8      484,937         61.1

    Selling, general and
     administrative
     expenses:
    Store operating
     expenses              305,952         34.4      236,344         29.8
    Marketing               30,385          3.4       30,585          3.8
    Shared services         62,739          7.1       54,521          6.9
      Total selling,
       general, and
       administrative
       expenses            399,076         44.9      321,450         40.5
      Income from
       operations          132,417         14.9      163,487         20.6

    Interest income, net     4,920          0.6        5,965          0.7
      Income before taxes  137,337         15.5      169,452         21.3

    Income tax provision    49,428          5.6       62,021          7.8
      Income from continuing
       operations           87,909          9.9      107,431         13.5
    Loss on discontinued
     operations, net
     of tax                  2,067          0.2        1,124          0.1
      Net income          $ 85,842          9.7    $ 106,307         13.4

      Per share data:
    Income from continuing
     operations per
     common share-basic      $0.50                     $0.60
    Loss on discontinued
     operations per common
     share-basic            $(0.01)                   $(0.01)
    Net income per common
     and common equivalent
     share-basic             $0.49                     $0.59

    Income from continuing
     operations per common
     share-diluted          $ 0.50                     $0.60
    Loss on discontinued
     operations per common
     share-diluted          $(0.01)                   $(0.01)
    Net income per
     common & common
     equivalent
     share-diluted          $ 0.49                     $0.59

    Weighted average
     common shares
     outstanding-basic     175,461                   179,437

    Weighted average
     common & common
     equivalent shares
     outstanding-diluted   176,652                   180,789


                                        Thirteen Weeks Ended

                             August 4, 2007              July 29, 2006

                            Amount    % of Sales     Amount    % of Sales

    Net sales by Chico's
     /Soma stores         $308,772         70.8     $301,045         74.6
    Net sales by White
     House | Black
     Market stores         110,124         25.3       87,964         21.8
    Net sales by catalog
     & Internet             17,133          3.9       12,069          3.0
    Other net sales              -            -        2,336          0.6
      Net sales            436,029        100.0      403,414        100.0

    Cost of goods sold     184,300         42.3      159,583         39.6
      Gross profit         251,729         57.7      243,831         60.4

    Selling, general and
     administrative
     expenses:
    Store operating
     expenses              151,259         34.7      124,656         30.9
    Marketing               12,267          2.8       11,721          2.9
    Shared services         30,448          7.0       24,373          6.0
      Total selling,
       general, and
       administrative      193,974         44.5      160,750         39.8
       expenses
      Income from
       operations           57,755         13.2       83,081         20.6

    Interest income, net     2,674          0.6        2,835          0.7
      Income before taxes   60,429         13.8       85,916         21.3
    Income tax provision    21,664          4.9       31,446          7.8
      Income from
       continuing
       operations           38,765          8.9       54,470         13.5
    Loss on discontinued
     operations, net
     of tax                     82          0.0          627          0.2

      Net income            38,683          8.9     $ 53,843         13.3

      Per share data:
    Income from continuing
     operations per
     common share-basic      $0.22                     $0.31
    Loss on discontinued
     operations per common
     share-basic            $(0.00)                   $(0.01)
    Net income per common
     and common equivalent
     share-basic             $0.22                     $0.30

    Income from continuing
     operations per common
     share-diluted           $0.22                     $0.31
    Loss on discontinued
     operations per common
     share-diluted         $( 0.00)                   $(0.01)
    Net income per
     common & common
     equivalent
     share-diluted           $0.22                     $0.30

    Weighted average
     common shares
     outstanding-basic     175,500                   177,385

    Weighted average
     common & common
     equivalent shares
     outstanding-diluted   176,718                   178,495



                             Chico's FAS, Inc.
                    Consolidated Cash Flow Statements
                                (Unaudited)
                               (in thousands)

                                                    Twenty-Six Weeks Ended
                                                     August 4,     July 29,
                                                      2007           2006

    CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                       $85,842       $106,307
    Adjustments to reconcile net income
     to net cash provided by operating
     activities -
      Depreciation and amortization,
       cost of goods sold                              5,060          3,593
      Depreciation and amortization, other            39,330         28,783
      Deferred tax benefit                            (5,573)       (11,114)
      Stock-based compensation expense,
       cost of goods sold                              2,866          3,144
      Stock-based compensation expense,
       general, administrative and store
       operating expenses                              7,103          7,760
      Deficiency (excess) tax benefit of
       stock-based compensation                          145         (2,615)
      Deferred rent expense, net                       3,050          1,872
     (Gain) loss on disposal of property
      and equipment                                   (1,337)           266
    Decrease (increase) in assets -
      Receivables, net                                 4,352          6,848
      Inventories                                    (11,092)       (12,737)
      Prepaid expenses and other                      (5,282)        (3,466)
    Increase (decrease) in liabilities -
      Accounts payable                                 5,487          5,649
      Accrued and other deferred liabilities            (824)         6,480
        Total adjustments                             43,285         34,463
        Net cash provided by operating activities    129,127        140,770

    CASH FLOWS FROM INVESTING ACTIVITIES:
    (Purchases) sales of marketable securities       (36,734)       163,141
    Purchase of Fitigues assets                            -         (7,527)
    Purchase of Minnesota franchise rights
     and stores                                      (32,896)             -
    Acquisition of other franchise stores             (6,361)          (761)
    Proceeds from sale of land                        13,426              -
    Purchases of property and equipment              (94,720)       (91,128)
      Net cash (used in) provided by
       investing activities                         (157,285)        63,725

    CASH FLOWS FROM FINANCING ACTIVITIES:
      Proceeds from issuance of common stock           3,275          4,875
      (Deficiency) excess tax benefit of
       stock-based compensation                         (145)         2,615
      Repurchase of common stock                        (106)      (200,000)
        Net cash provided by (used in)
         financing activities                          3,024       (192,510)

      Net (decrease) increase in cash and
       cash equivalents                              (25,134)        11,985
    CASH AND CASH EQUIVALENTS, Beginning of period    37,203          3,035
    CASH AND CASH EQUIVALENTS, End of period         $12,069        $15,020
SOURCE  Chico's FAS, Inc.
    -0-                             08/29/2007
    /CONTACT:  Charles J. Kleman, Executive Vice President & Chief Financial
Officer, +1-239-274-4105, or F. Michael Smith, Vice President of Investor and
Community Relations, +1-239-274-4797, both of Chico's FAS, Inc./
    /Web site:  http://www.chicos.com/
    (CHS)

CO:  Chico's FAS, Inc.; WH|BM; Soma; Fitigues
ST:  Florida
IN:  REA
SU:  ERN

DL-JK
-- CLW060 --
5035 08/29/2007 16:05 EDT http://www.prnewswire.com
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  • David M. Oliver

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