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Chico's FAS, Inc. Announces First Quarter Revenues and Earnings

05/28/2008

- Revenues decreased 9.6% to $409.6 million

- First quarter net income was $12.7 million, or $0.07 per diluted share

- First quarter includes special pre-tax charges totaling $2.2 million for closing of 7 Soma stores

- Company opened 18 net new stores and relocated/expanded 17 existing stores during quarter

FORT MYERS, Fla., May 28 /PRNewswire-FirstCall/ -- Chico's FAS, Inc. (NYSE: CHS) today announced its financial results for the fiscal 2008 first quarter ended May 3, 2008.

(Logo: http://www.newscom.com/cgi-bin/prnh/20080211/CHICOSLOGO )

Net sales for the thirteen-week period ended May 3, 2008 decreased 9.6% to $409.6 million from $453.1 million reported for the thirteen-week period ended May 5, 2007. Net income for the fiscal 2008 first quarter was $12.7 million, or $0.07 a diluted share, compared to net income of $47.2 million, or $0.27 a diluted share in the prior year's first quarter. As previously reported, comparable store sales decreased 17.5% for the thirteen-week period ended May 3, 2008 compared to the thirteen-week period last year ending May 5, 2007 (as Chico's brand same store sales decreased by approximately 22% and the WH|BM brand's same store sales decreased by approximately 10%).

Gross margin for the fiscal 2008 first quarter decreased 18.2% to $228.8 million from $279.8 million in the prior year's first quarter. The first quarter 2008 gross margin includes an approximate $4.6 million charge to clear up aged and overstock inventories for Chico's front-line and outlet stores. Gross margin as a percentage of sales for the current quarter was 55.9%, compared to a record first quarter gross margin of 61.7% for fiscal 2007. Chico's front-line stores' merchandise margins in the first quarter decreased by approximately 480 basis points compared to the prior year's first quarter primarily due to higher markdowns and the aforementioned charges. Gross margin percentage was also negatively impacted by continued investment in the Company's product development and merchandising functions and lower merchandise margins in the outlet and direct to consumer channels primarily due to higher ownership of inventory that was marked down and transferred from front-line stores.

Selling, general and administrative expenses ("SG&A") for the fiscal 2008 first quarter increased 3.4% to $212.1 million from $205.1 million in the prior year's first quarter. The increase in SG&A dollars for the current quarter was primarily due to increased store occupancy costs and, to a lesser extent, increased marketing spend. As a percentage of sales, SG&A in the current quarter increased by approximately 660 basis points as the increase in the percentage was further exacerbated by the deleverage associated with the Company's negative same store sales as well as the larger size Chico's and WH|BM stores that the Company has been opening over the last two years. Further, the mix effect of the WH|BM and Soma stores becoming a larger portion of the Company's store base also put pressure on SG&A as a percentage of sales (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).

Marketing and related support costs for the fiscal 2008 first quarter increased 9.1% to $22.8 million from $20.9 million in the prior year's first quarter. As a percentage of sales, marketing costs for the current quarter increased by approximately 100 basis points due mainly to the deleverage associated with the Company's negative same store sales and an increased marketing spend for Soma and consumer research for Chico's. Shared services expenses (including headquarters and other non-brand specific expenses) for the fiscal 2008 first quarter decreased 4.1% to $28.3 million from $29.5 million in the prior year's first quarter. However, as a percentage of sales, shared services expenses for the current quarter increased by 40 basis points mainly due to the deleverage associated with the Company's negative same store sales and to a lesser extent, from increased technology costs.

Scott A. Edmonds, Chairman, President & CEO, stated, "We believe the challenging sales environment experienced in Fall 2007 has continued into the first quarter of 2008. The generally suppressed economic outlook, including housing pressures, rising food and fuel prices, and a more negative employment picture, has eroded consumer confidence and impacted discretionary spending on apparel, especially in the missy sector."

Mr. Edmonds continued, "As we stated during our earnings call in March, we are focused on inventory management and expense control. This focus resulted in a year-over-year decline in inventory per square foot of approximately 4%. We are pleased with the progress so far and we are continuing our efforts to bring down inventories further for the balance of the year."

Mr. Edmonds further stated, "While our overall year-over-year operating performance has declined, we did see an improvement in the trend of same store sales performance for the White House | Black Market brand in the first quarter of 2008 over the fourth quarter of 2007. The Soma Intimates brand continued to experience significant top line sales growth during the quarter. However, our core brand, Chico's, saw a continuing deceleration in same store sales during the quarter and we continue to experience significant year-over-year declines in our Travelers collection. We recently conducted customer focus groups to confirm that the corrective measures we have in place for the Fall season should improve the performance of this very important product category. In addition, we gained further insight into our customers' apparel purchase behavior."

Mr. Edmonds concluded, "We continue to expect negative comparable store sales for the first half of 2008, and expect to have lower earnings than the first half of 2007. Our current expectations are to gradually improve and return to positive comparable store sales increases sometime in the second half of 2008 if we can expect some level of improvement in the economic environment resulting in overall earnings growth during this time frame. We are steadfastly committed to protecting our free cash flow and our strong balance sheet that includes approximately $271 million dollars in cash and marketable securities and no debt. This, along with our extremely loyal customer base, should position us to take advantage of any market opportunities when overall economic conditions improve."

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

  • hico's/Soma brand sales, excluding the direct to consumer channel, decreased by 14.2% from $333.1 million in the prior year's first quarter to $285.7 million in this year's first quarter, while WH|BM brand sales increased by 4.2% from $103.5 million to $107.8 million quarter over quarter. The average transaction for the Chico's front-line stores for the fiscal 2008 first quarter decreased by 9.7% compared to the prior period's first quarter, while the WH|BM average transaction increased slightly by 0.6% in this year's first quarter versus the prior year's first quarter. The average unit retail for the Chico's front-line stores for the fiscal 2008 first quarter declined by 7.0% as compared to the prior year's first quarter, while the WH|BM average unit retail increased by 4.0% quarter over quarter.

  • Net sales for the direct to consumer channel decreased by 3.0% from $16.5 million in the prior year's first quarter to $16.0 million in this year's first quarter. This decrease is attributable specifically to decreased sales for the Chico's brand, which were almost entirely offset by increases in the WH|BM and Soma brands' direct to consumer businesses. The Company intends to continue making improvements to its direct to consumer infrastructure and merchandising approach in an effort to further promote sales through these channels.

  • The Company incurred approximately $2.2 million of pre-tax charges in the quarter to close seven underperforming Soma stores.

  • During the fiscal 2008 first quarter, the Company opened 23 new stores and closed 5 stores. Also, during this first quarter, the Company expanded or relocated 17 stores. The Company expects to open between 17 and 19 net additional stores during the second quarter and to expand or relocate between 9 and 11 stores during the second quarter.

  • Our inventory investment increased approximately 11.8% from the beginning of the quarter to $161.3 million. However, the Company's inventory per selling square foot as of the end of the first quarter of 2008 was $65, and reflects a 4% decrease from the Company's inventory per selling square foot of $68 as of the end of the fiscal 2007 first quarter.

  • 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, if any, are shown as discontinued operations in the Company's consolidated statements of income.
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 1,063 women's specialty stores, including stores in 49 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 614 Chico's front-line stores, 38 Chico's outlet stores, 321 White House | Black Market front-line stores, 19 White House | Black Market outlet stores, 70 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)

    Executive Contacts:
    Kent A. Kleeberger                     F. Michael Smith
    Executive Vice President               Vice President
    Chief Financial Officer                Investor and Community Relations
    Chico's FAS, Inc.                      Chico's FAS, Inc.
    (239) 274-4987                         (239) 274-4797



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

                                                        May 3,     February 2,
                                                         2008         2008
                                                      (Unaudited)
                                  ASSETS
    Current Assets:
       Cash and cash equivalents                        $37,022     $ 13,801
       Marketable securities, at market                 233,752      260,469
       Receivables                                       15,028       11,924
       Income tax receivable                                  -       23,973
       Inventories                                      161,260      144,261
       Prepaid expenses                                  19,880       18,999
       Deferred taxes                                    15,924       13,306
          Total Current Assets                          482,866      486,733

Property and Equipment:

       Land and land improvements                        17,792       17,867
       Building and building improvements                69,224       62,877
       Equipment, furniture and fixtures                359,372      347,937
       Leasehold improvements                           411,930      396,650
          Total Property and Equipment                  858,318      825,331
       Less accumulated depreciation and amortization  (276,528)    (257,378)
          Property and Equipment, Net                   581,790      567,953

Other Assets:

       Goodwill                                          96,774       96,774
       Other intangible assets                           38,930       38,930
       Deferred taxes                                    24,287       22,503
       Other assets, net                                 37,596       37,233
          Total Other Assets                            197,587      195,440
                                                     $1,262,243   $1,250,126

                LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

       Accounts payable                                 $68,905      $88,134
       Accrued liabilities                               99,277       91,622
       Current portion of deferred liabilities            1,472        1,437
          Total Current Liabilities                     169,654      181,193

Noncurrent Liabilities:

       Deferred liabilities                             165,135      156,417
          Total Noncurrent Liabilities                  165,135      156,417

Stockholders' Equity:

       Common stock                                       1,764        1,762
       Additional paid-in capital                       251,843      249,639
       Retained earnings                                673,847      661,115
          Total Stockholders' Equity                    927,454      912,516
                                                     $1,262,243   $1,250,126



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

                                                Thirteen Weeks Ended
                                            May 3, 2008         May 5, 2007
                                          Amount    % of      Amount    % of
                                                    Sales               Sales

Net sales by Chico's/Soma stores $285,694 69.8 $333,052 73.5

Net sales by White House | Black

     Market stores                        107,849    26.3     103,467    22.9

Net sales by Direct to Consumer 16,021 3.9 16,454 3.6

    Other net sales                             -       -         115     0.0
       Net sales                          409,564   100.0     453,088   100.0

    Cost of goods sold                    180,762    44.1     173,323    38.3
       Gross margin                       228,802    55.9     279,765    61.7

    Selling, general and

administrative expenses:

    Store operating expenses              160,985    39.3     154,693    34.1
    Marketing                              22,843     5.6      20,939     4.6
    Shared services                        28,281     6.9      29,471     6.5

Total selling, general and

        administrative expenses           212,109    51.8     205,103    45.2

       Income from operations              16,693     4.1      74,662    16.5
    Interest income, net                    2,239     0.5       2,245     0.5

Income before income taxes 18,932 4.6 76,907 17.0

    Income tax provision                    6,200     1.5      27,764     6.2

Income from continuing

        operations                         12,732     3.1      49,143    10.8

Loss on discontinued operations,

     net of tax                                 -     0.0       1,985     0.4
       Net income                         $12,732     3.1     $47,158    10.4


       Per share data:

Income from continuing operations

     per common share-basic                 $0.07               $0.28

Loss on discontinued operations

     per common share-basic                     -               (0.01)
    Net income per common share-basic       $0.07               $0.27

Income from continuing operations

per common and common equivalent

     share-diluted                          $0.07               $0.28

Loss on discontinued operations

per common and common equivalent

     share-diluted                              -               (0.01)

Net income per common and common

     equivalent share-diluted               $0.07               $0.27

Weighted average common shares

     outstanding-basic                    175,796             175,421

Weighted average common and

common equivalent shares

     outstanding-diluted                  176,014             176,595




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

                                                        Thirteen Weeks Ended
                                                         May 3,       May 5,
                                                          2008         2007

CASH FLOWS FROM OPERATING ACTIVITIES:

       Net income                                       $12,732      $47,158
       Adjustments to reconcile net income to net
        cash provided by operating activities -
          Depreciation and amortization, cost of
           goods sold                                     2,700        2,530
          Depreciation and amortization, other           23,517       19,772
          Deferred tax benefit                           (4,402)      (3,451)
          Stock-based compensation expense, cost
           of goods sold                                  1,008        1,422
          Stock-based compensation expense, other         2,129        3,604
          (Excess) deficiency tax benefit of
           stock-based compensation                        (100)          88
          Deferred rent expense, net                      2,417        1,644
          Loss on disposal of property and equipment          9            -
       Decrease (increase) in assets -
          Receivables, net                               20,869        1,861
          Inventories                                   (16,999)     (29,600)
          Prepaid expenses and other                     (1,245)      (1,462)
       (Decrease) increase in liabilities -
          Accounts payable                              (19,229)      17,865
          Accrued and other deferred liabilities         13,001       27,014
             Total adjustments                           23,675       41,287
             Net cash provided by operating activities   36,407       88,445

CASH FLOWS FROM INVESTING ACTIVITIES:

       Sales (purchases) of marketable securities        26,717      (12,216)
       Purchase of Minnesota franchise rights and
        stores                                                -      (32,896)
       Acquisition of other franchise stores                  -       (6,361)
       Purchases of property and equipment              (40,063)     (52,267)
             Net cash used in investing activities      (13,346)    (103,740)

CASH FLOWS FROM FINANCING ACTIVITIES:

       Proceeds from issuance of common stock               163        1,612
       Excess (deficiency) tax benefit of stock-based
        compensation                                        100          (88)
       Repurchase of common stock                          (103)         (98)
             Net cash provided by financing activities      160        1,426

             Net increase (decrease) in cash and cash
              equivalents                                23,221      (13,869)

CASH AND CASH EQUIVALENTS, Beginning of period 13,801 37,203

    CASH AND CASH EQUIVALENTS, End of period            $37,022      $23,334

SOURCE Chico's FAS, Inc.

/CONTACT: Kent A. Kleeberger, Executive Vice President, Chief Financial
Officer, +1-239-274-4987, 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/20080211/CHICOSLOGO
AP Archive: http://photoarchive.ap.org
PRN Photo Desk, photodesk@prnewswire.com/
/Web site: http://www.chicos.com /
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