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

08/26/2008
  • Second quarter net sales decreased 7.1% to $405.2 million
  • Second quarter net income was $6.7 million, or $0.04 cents per diluted share
  • Company opened 19 net new stores and relocated/expanded 7 existing stores during quarter
  • August consolidated comparable store sales at negative 10.7% through August 24th

FORT MYERS, Fla., Aug. 26 /PRNewswire-FirstCall/ -- Chico's FAS, Inc. (NYSE: CHS) today announced its financial results for the fiscal 2008 second quarter and six months ended August 2, 2008.

Net sales for the second quarter ended August 2, 2008 decreased 7.1% to $405.2 million from $436.0 million for the fiscal 2007 second quarter ended August 4, 2007. Net income for the fiscal 2008 second quarter was $6.7 million, or $0.04 per diluted share, compared to net income of $38.7 million, or $0.22 per diluted share in the prior year's second quarter. As previously reported, comparable store sales decreased 15.9% for the thirteen week period ended August 2, 2008 compared to the comparable thirteen week period last year ended August 4, 2007 as same store sales decreased approximately 19% for the Chico's brand and approximately 12% for WH|BM.

Net sales for the six months ended August 2, 2008 decreased 8.4% to $814.8 million from $889.1 million for the prior year's six months ended August 4, 2007. Net income for the six months was $19.4 million, or $0.11 per diluted share, compared to $85.8 million, or $0.49 per diluted share, in the first six months of the prior year. As previously reported, comparable store sales decreased 16.7% for the twenty-six week period ended August 2, 2008 compared to the comparable twenty-six week period last year ended August 4, 2007 as same store sales decreased approximately 20% for the Chico's brand and approximately 11% for WH|BM.

Gross margin for the second quarter decreased 15.2% to $213.4 million from $251.7 million in the prior year's second quarter. Gross margin as a percentage of sales for the current quarter decreased 500 basis points to 52.7% from 57.7% in the prior year's second quarter. Chico's brand merchandise margins in the second quarter decreased approximately 440 basis points compared to the prior year's second quarter primarily due to higher markdowns in order to liquidate inventory and bring levels closer to the current sales trend. The gross margin percentage at the Chico's brand was also negatively impacted by continued investment in the Company's product development and merchandising functions, coupled with the deleverage of these costs attributable to the negative same store sales. These decreases in gross margin at the Chico's brand were further exacerbated by a 220 basis point decline in the gross margin at WH|BM due to lower initial markups and investments in product development and merchandising functions.

Selling, general and administrative expenses ("SG&A") for the second quarter increased 5.9% to $205.5 million from $194.0 million in the prior year's second 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 620 basis points due to the aforementioned increase in expenses and 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 slight pressure on SG&A as a percentage of sales as both brands operate with higher store operating costs as a percentage of sales than the Chico's brand.

Store operating expenses as a percentage of sales in the second quarter increased by approximately 480 basis points compared to the prior period primarily due to increased occupancy costs accompanied by increased personnel costs as selling payroll did not flex in direct proportion to the decrease in comparable store sales. The increase was also impacted by the deleverage associated with the Company's negative same store sales, and to a lesser extent, the mix effect of the WH|BM and Soma Intimates stores becoming a larger portion of the Company's store base.

Marketing costs as a percentage of sales for the fiscal 2008 second quarter increased by approximately 70 basis points due mainly to the deleverage associated with the Company's negative same store sales and slightly increased marketing costs for the Chico's brand. Shared services expenses (including headquarters and other non-brand specific expenses) for the fiscal 2008 second quarter increased 2.9% to $28.7 million from $27.9 million in the prior year's second quarter due primarily to increased information technology costs.

Commenting on the operating results for the second quarter, Scott A. Edmonds, Chairman, President, and CEO said, "Our disappointing earnings results for the second quarter of fiscal 2008 were primarily the result of lower than anticipated sales and the higher merchandise markdowns required to drive sales and lower the Chico's brand inventory levels closer to current sales trends. Accordingly, we achieved a 13% per square foot reduction for the Chico's brand as we transitioned from the spring merchandising season to the fall merchandising season."

Mr. Edmonds added, "The retail environment continues to be challenging as customers remain increasingly cautious in their spending across the entire retail sector, especially in the missy category. While we anticipate consolidated comparable store sales for the fall season to remain negative, we expect to see an improvement in trend and continue to believe we will be profitable in the second half."

Mr. Edmonds continued, "Although our second quarter results are disappointing, we are encouraged by our initial reads on our fall offerings. Also, we continue to maintain a very strong balance sheet with cash equivalents and marketable securities totaling $278 million and no debt. Further, we remain focused on reducing expenses and managing lower inventory levels without affecting our ability to serve our customers. We are also limiting capital expenditures to those that are necessary to sustain the business, while targeting an acceptable return on where we choose to invest."

Additional information with respect to the second quarter results include the following:

  • The Chico's/Soma brand sales, excluding direct to consumer, decreased by 10.2% to $277.3 million in this year's second quarter from $308.8 million in last year's second quarter, while WH|BM brand sales increased by 3.6% from $110.1 million to $114.1 million quarter over quarter. The average transaction size for the Chico's front-line stores for the fiscal 2008 second quarter decreased by 12% compared to last year's second quarter, while the average transaction size for the WH|BM front-line stores increased by 8% quarter over quarter. The average unit retail for the Chico's front-line stores for the fiscal 2008 second quarter declined by 12% as compared to last year's second quarter, while the WH|BM average unit retail increased by 11% quarter over quarter.
  • Net sales for the direct to consumer channel decreased by 19.3% to $13.8 million in this year's second quarter from $17.1 million in last year's second quarter. This decrease was primarily attributable to decreased sales for the Chico's brand partially offset by increased sales for the Soma brand through each brand's direct to consumer channel. The Company intends to continue making improvements to its direct to consumer infrastructure and merchandising approach in an effort to increase future sales through this channel.
  • During the fiscal 2008 second quarter, the Company opened 20 new stores and closed 1 store. Also, during this second quarter, the Company relocated/expanded 7 stores. The Company expects to open between 7 and 9 net additional stores in the third quarter, but it anticipates no net new store openings (only net closures of approximately 7 to 9 stores) in the fourth quarter, and to relocate/expand between 8 and 10 stores over the balance of the year.
  • The Company's consolidated inventory per selling square foot as of the end of the second quarter of 2008 was $56, and reflects an approximate 3% net decrease from the Company's inventory per selling square foot of $58 as of the end of the fiscal 2007 second quarter. In particular, the Chico's brand end-of-quarter inventories decreased approximately 13% per selling square foot at cost compared to the second quarter of 2007.
  • On August 1, 2007, the Company consummated a transaction to sell a parcel of land which included a note receivable with a principal amount of approximately $25.8 million payable in a balloon payment in two years. As the balloon payment is due within one year of the most recently ended quarter, the Company has reclassified the $25.8 million note receivable from a long-term asset to a current asset and is included in the receivable line of the accompanying balance sheets.

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 1,079 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 619 Chico's front-line stores, 41 Chico's outlet stores, 329 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

Additional investor information on Chico's FAS, Inc. including a presentation summarizing the Company's recent financial results is available on the Company's website at http://www.chicosfas.com

                          (Financial Tables Follow)



                              Chico's FAS, Inc.
                         Consolidated Balance Sheets
                                (in thousands)
                                                   August 2,    February 2,
                                                     2008          2008
                                                 (Unaudited)
                                      ASSETS
    Current Assets:
      Cash and cash equivalents                     $25,381        $13,801
      Marketable securities, at market              252,307        260,469
      Receivables                                    38,293         11,924
      Income tax receivable                               -         23,973
      Inventories                                   142,868        144,261
      Prepaid expenses                               23,004         18,999
      Deferred taxes                                 15,276         13,306
        Total Current Assets                        497,129        486,733

    Property and Equipment:
      Land and land improvements                     17,888         17,867
      Building and building improvements             73,021         62,877
      Equipment, furniture and fixtures             371,863        347,937
      Leasehold improvements                        421,771        396,650
        Total Property and Equipment                884,543        825,331
      Less accumulated depreciation and
       amortization                                (298,495)      (257,378)
        Property and Equipment, Net                 586,048        567,953

    Other Assets:
      Goodwill                                       96,774         96,774
      Other intangible assets                        38,930         38,930
      Deferred taxes                                 25,601         22,503
      Other assets, net                              11,318         37,233
        Total Other Assets                          172,623        195,440
                                                 $1,255,800     $1,250,126

    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current Liabilities:
      Accounts payable                              $65,811        $88,134
      Accrued liabilities                            80,339         91,622
      Current portion of deferred liabilities         1,606          1,437
        Total Current Liabilities                   147,756        181,193

    Noncurrent Liabilities:
      Deferred liabilities                          170,799        156,417
        Total Noncurrent Liabilities                170,799        156,417

    Stockholders' Equity:
      Common stock                                    1,765          1,762
      Additional paid-in capital                    254,952        249,639
      Retained earnings                             680,526        661,115
      Other accumulated comprehensive income              2              -
        Total Stockholders' Equity                  937,245        912,516
                                                 $1,255,800     $1,250,126



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

                                      Twenty-Six Weeks Ended

                                August 2, 2008          August 4, 2007

                             Amount         % of       Amount      % of
                                            Sales                  Sales
    Net sales by
     Chico's/Soma stores    $562,974         69.1     $641,824      72.2

    Net sales by White
     House | Black Market
     stores                  221,945         27.2      213,591      24.0
    Net sales by Direct
     to Consumer              29,864          3.7       33,586       3.8
    Other net sales                -            -          115       0.0


      Net sales              814,783        100.0      889,116     100.0

    Cost of goods sold       372,620         45.7      357,623      40.2

      Gross margin           442,163         54.3      531,493      59.8

    Selling, general and
     administrative expenses:
    Store operating
     expenses                320,942         39.4      305,952      34.4
    Marketing                 39,630          4.9       35,729       4.0
    Shared services           57,018          7.0       57,395       6.5
                             
      Total selling,
       general, and
       administrative
       expenses              417,590         51.3      399,076      44.9
      Income from
       operations             24,573          3.0      132,417      14.9


    Interest income, net       4,038          0.5        4,920       0.6
      Income before
       income taxes           28,611          3.5      137,337      15.5

    Income tax provision       9,200          1.1       49,428       5.6
      Income from continuing
       operations             19,411          2.4       87,909       9.9
    Loss on discontinued
     operations, net of tax        -            -        2,067       0.2
      Net income             $19,411          2.4      $85,842       9.7

      Per share data:
    Income from continuing
     operations per
     common share-basic        $0.11                     $0.50
    Loss on discontinued
     operations per common
     share-basic                   -                     (0.01)
    Net income per common
     share-basic               $0.11                     $0.49

    Income from continuing
     operations per common
     and common equivalent
     share-diluted             $0.11                     $0.50
    Loss on discontinued
     operations per common
     and common equivalent
     share-diluted                 -                     (0.01)
    Net income per common &
     common equivalent
     share-diluted             $0.11                     $0.49
    Weighted average common
     shares outstanding-
     basic                   175,817                   175,461

    Weighted average common
     & common equivalent
     shares outstanding-
     diluted                 176,015                   176,652



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

                                      Thirteen Weeks Ended

                               August 2, 2008            August 4, 2007

                             Amount         % of       Amount      % of
                                            Sales                  Sales
    Net sales by
     Chico's/Soma stores    $277,279         68.4     $308,772      70.8
    Net sales by
     White House | Black
     Market stores           114,095         28.2      110,124      25.3
    Net sales by Direct
     to Consumer              13,844          3.4       17,133       3.9
    Other net sales                -            -            -         -
      Net sales              405,218        100.0      436,029     100.0

    Cost of goods sold       191,857         47.3      184,300      42.3
      Gross margin           213,361         52.7      251,729      57.7

   Selling, general and
    administrative expenses:

    Store operating
     expenses                159,957         39.5      151,259      34.7
    Marketing                 16,786          4.1       14,791       3.4
    Shared services           28,737          7.1       27,924       6.4
      Total selling,
       general, and
       administrative
       expenses              205,480         50.7      193,974      44.5
      Income from
       operations              7,881          2.0       57,755      13.2

    Interest income, net       1,799          0.4        2,674       0.6
      Income before
       income taxes            9,680          2.4       60,429      13.8

    Income tax provision       3,000          0.7       21,664       4.9
     Income from continuing
      operations               6,680          1.7       38,765       8.9
    Loss on discontinued
     operations, net of tax        -            -           82       0.0
      Net income              $6,680          1.7      $38,683       8.9

     Per share data:

    Income from continuing
     operations per common
     share-basic               $0.04                     $0.22
    Loss on discontinued
     operations per common
     share-basic                   -                     (0.00)
    Net income per
     common share-basic        $0.04                     $0.22

    Income from continuing
     operations per common
     and common equivalent
     share-diluted             $0.04                     $0.22
    Loss on discontinued
     operations per common
     and common equivalent
     share-diluted                 -                     (0.00)
    Net income per common
     & common equivalent
     share-diluted             $0.04                     $0.22

    Weighted average
     common shares
     outstanding-basic       175,842                   175,500

    Weighted average
     common & common
     equivalent shares
     outstanding-diluted     176,032                   176,718



                              Chico's FAS, Inc.
                      Consolidated Cash Flow Statements
                                 (Unaudited)
                                (in thousands)
                                                     Twenty-Six Weeks Ended
                                                    August 2,      August 4,
                                                      2008           2007
    CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                       $19,411        $85,842

    Adjustments to reconcile net income to net cash
     provided by operating activities -
      Depreciation and amortization, cost of goods
       sold                                            5,465          5,060
      Depreciation and amortization, other            45,750         39,330
      Deferred tax benefit                            (5,068)        (5,573)
      Stock-based compensation expense, cost
       of goods sold                                   1,807          2,866
      Stock-based compensation expense, other          4,562          7,103
      (Excess) deficiency tax benefit
       of stock-based compensation                      (100)           145
      Deferred rent expense, net                       4,123          3,050
      Loss (gain) on disposal of property and equipment  181         (1,337)
    Decrease (increase) in assets -
      Receivables, net                                  (535)         4,352
      Income tax receivable                           23,973              -
      Inventories                                      1,393        (11,092)
      Prepaid expenses and other                      (3,925)        (5,282)
    Increase (decrease) in liabilities -
      Accounts payable                               (22,323)         5,487
      Accrued and other deferred liabilities          (1,939)          (824)
        Total adjustments                             53,364         43,285
        Net cash provided by operating activities     72,775        129,127

    CASH FLOWS FROM INVESTING ACTIVITIES:
      Sales (purchases) of marketable securities       8,165        (36,734)
      Purchase of Minnesota franchise rights and stores    -        (32,896)
      Acquisition of other franchise stores                -         (6,361)
      Proceeds from sale of land                           -         13,426
      Purchases of property and equipment            (69,490)       (94,720)
        Net cash used in investing activities        (61,325)      (157,285)

    CASH FLOWS FROM FINANCING ACTIVITIES:
      Proceeds from issuance of common stock             163          3,275
      Excess (deficiency) tax benefit of
       stock-based compensation                          100           (145)
      Repurchase of common stock                        (133)          (106)
        Net cash provided by financing activities        130          3,024

        Net increase (decrease) in cash and
         cash equivalents                             11,580        (25,134)
    CASH AND CASH EQUIVALENTS, Beginning of period    13,801         37,203
    CASH AND CASH EQUIVALENTS, End of period         $25,381        $12,069

Executive Contact:
Robert C. Atkinson
Vice President-Investor Relations
Chico's FAS, Inc.
(239) 274-4199

SOURCE Chico's FAS, Inc.

CONTACT: Robert C. Atkinson, Vice President-Investor Relations, Chico's FAS, Inc., +1-239-274-4199/
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