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Chico's FAS, Inc. Reports Third Quarter Results

11/26/2013

FORT MYERS, Fla., Nov. 26, 2013 /PRNewswire/ -- Chico's FAS, Inc. (NYSE: CHS) today announced its financial results for the fiscal 2013 third quarter and thirty-nine weeks ended November 2, 2013.

(Logo: http://photos.prnewswire.com/prnh/20110920/FL71045LOGO )

For the third quarter, the Company reported adjusted net income of $35.8 million, a decrease of 14.8% compared to adjusted net income of $42.0 million in last year's third quarter, and adjusted earnings per diluted share of $0.22, a decrease of 12.0% compared to adjusted earnings per diluted share of  $0.25 in last year's third quarter. The adjusted results exclude charges related to Boston Proper non-cash goodwill and trade name impairment in the third quarter of 2013 and non-recurring acquisition and integration costs in the third quarter of 2012, as presented in the accompanying GAAP to non-GAAP reconciliation. Including the impact of non-cash goodwill and trade name impairment charges of $64.3 million after-tax, or $0.40 per diluted share in the third quarter of 2013, the Company reported a net loss of $28.5 million, or a loss of $0.18 per diluted share compared to net income of $41.7 million, or $0.25 per diluted share in last year's third quarter.

For the thirty-nine weeks ended November 2, 2013, the Company reported adjusted net income of $131.1 million, a decrease of 12.3% compared to adjusted net income of $149.5 million in the same period last year, and adjusted earnings per diluted share of $0.81, a decrease of 9.0% compared to adjusted earnings per diluted share of $0.89 in the same period last year. Including the impact of Boston Proper non-cash goodwill and trade name impairment charges and non-recurring acquisition and integration costs in 2013, the Company reported net income of $66.2 million, or $0.41 per diluted share compared to net income of $148.7 million, or $0.89 per diluted share in the same period last year.

Net Sales

For the third quarter, net sales were $655.6 million, an increase of 3.0% compared to $636.7 million in last year's third quarter, primarily reflecting 115 net new stores for a square footage increase of 8.6%. Comparable sales for the third quarter decreased 1.4% following a 9.9% increase in last year's third quarter, primarily reflecting the cycling of strong comparable sales last year and the impact of lower traffic.

The Chico's/Soma Intimates brands' comparable sales decreased 3.3% following an 11.6% increase in last year's third quarter for a two-year stack of up 8.3% and the White House | Black Market brand's comparable sales increased 2.5% on top of a 6.4% increase in last year's third quarter for a two-year stack of up 8.9%.

Gross Margin

For the third quarter, gross margin was $364.0 million compared to $364.3 million in last year's third quarter.  Gross margin was 55.5% of net sales, a 170 basis point decrease from last year's third quarter, primarily reflecting increased promotional activity in response to lower traffic, partially offset by lower incentive compensation as a percent of net sales.

Selling, General and Administrative Expenses   

For the third quarter, selling, general and administrative expenses ("SG&A") were $308.5 million compared to $297.2 million in last year's third quarter. SG&A was 47.1% of net sales, a 40 basis point increase from last year's third quarter, primarily reflecting deleverage of occupancy expenses and the impact of investment spending on strategic initiatives, substantially offset by lower incentive compensation as a percent of net sales.

Impairment Charges

In the third quarter of 2013, the Company determined that certain Boston Proper intangibles were impaired and recorded $72.5 million in pre-tax, non-cash goodwill and trade name impairment charges. These impairment charges were the result of recent sales declines in the Boston Proper catalog business due to the increasingly competitive direct-to-consumer environment and the impact of integration efforts and new initiatives. The fiscal 2013 impact of the impairment charges is expected to be approximately $71.4 million after-tax, or $0.44 per diluted share, comprised of $0.40 per diluted share in the third quarter and an additional $0.04 per diluted share in the fourth quarter due to the timing of the tax treatment. The $72.5 million Boston Proper impairment charges included $67.3 million related to goodwill impairment and $5.2 million related to the trade name.  

The Company continues to believe in the long-term growth prospects of the Boston Proper brand as it evolves from a direct-to-consumer only business to an omni-channel enterprise, integrating brick and mortar, catalog and web platforms.

Income Tax Provision

The third quarter income tax provision of $11.6 million and effective tax rate of (68.7%) reflects the impact of the Boston Proper goodwill and trade name impairment charges on the annual effective tax rate. Excluding the tax impact of the impairment charges, the third quarter effective tax rate would have been 35.6% compared to an effective tax rate of 37.7% for the same period last year, primarily reflecting federal tax and refund claims filed during the current quarter.

Inventories

In-store inventories per square foot were flat when compared to the comparable period last year for a two year decline of 15%. At the end of the third quarter, total inventories increased $6.3 million, or 3%, over the same period last year, when excluding $13.7 million of inventory related to the calendar shift from last fiscal year's 53rd week and $13.2 million related to 115 net new stores.  

Share Repurchase Program

During the third quarter of fiscal 2013, the Company repurchased 2.1 million shares for $35.0 million under its $300 million share repurchase program announced in February 2013. During the thirty-nine weeks ended November 2, 2013 and October 27, 2012, the Company repurchased a total of 7.0 million shares for $120.0 million and 2.5 million shares for $37.3 million, respectively, with $180 million remaining under the program as of the end of the third quarter of fiscal 2013.

ABOUT CHICO'S FAS, INC.

The Company, through its brands – Chico's, White House | Black Market, Soma Intimates, and Boston Proper, is a leading omni-channel specialty retailer of women's private branded, sophisticated, casual-to-dressy clothing, intimates, complementary accessories, and other non-clothing items.

As of November 2, 2013, the Company operated 1,470 stores in the US and Canada. The Company's merchandise is also available at www.chicos.com, www.whbm.com, www.soma.com, and www.bostonproper.com. For more detailed information on Chico's FAS, Inc., please go to our corporate website at www.chicosfas.com.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995  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.

(Financial Tables Follow)

Executive Contact: 
Todd Vogensen  
Vice President-Investor Relations 
Chico's FAS, Inc.  
(239) 346-4199   

 

 

 

Chico's FAS, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Loss)

(Unaudited)

(in thousands, except per share amounts)










































Thirty-Nine Weeks Ended  


Thirteen Weeks Ended  






















November 2, 2013  


October 27, 2012  


November 2, 2013  


October 27, 2012  

Net sales:

Amount


% of Sales


Amount


% of Sales


Amount


 

% of Sales


Amount


% of Sales

Chico's/Soma Intimates

$

1,255,214


63.5%


$

1,251,632


64.9%


$

415,819


63.4%


$

411,671


64.6%

White House | Black Market


643,688


32.6%



583,473


30.2%



218,200


33.3%



197,248


31.0%

Boston Proper


76,902


3.9%



94,099


4.9%



21,560


3.3%



27,746


4.4%

Total net sales


1,975,804


100.0%



1,929,204


100.0%



655,579


100.0%



636,665


100.0%

Cost of goods sold


868,808


44.0%



824,132


42.7%



291,569


44.5%



272,369


42.8%

Gross margin


1,106,996


56.0%



1,105,072


57.3%



364,010


55.5%



364,296


57.2%

Selling, general and administrative expenses


899,689


45.5%



864,987


44.8%



308,528


47.1%



297,190


46.7%

Goodwill and trade name impairment charges


72,466


3.7%



-


0.0%



72,466


11.0%



-


0.0%

Acquisition and integration costs


914


0.0%



1,321


0.1%



-


0.0%



480


0.0%

Income (loss) from operations


133,927


6.8%



238,764


12.4%



(16,984)


(2.6%)



66,626


10.5%

Interest income, net


404


0.0%



633


0.0%



105


0.0%



231


0.0%

Income (loss) before income taxes


134,331


6.8%



239,397


12.4%



(16,879)


(2.6%)



66,857


10.5%

Income tax provision


68,100


3.4%



90,700


4.7%



11,600


1.7%



25,200


4.0%

Net income (loss)

$

66,231


3.4%


$

148,697


7.7%


$

(28,479)


(4.3%)


$

41,657


6.5%





















Per share data:




















Net income (loss) per common share-basic

$

0.41




$

0.89




$

(0.18)




$

0.25



Net income (loss) per common and common
equivalent share–diluted

$

0.41




$

0.89




$

(0.18)




$

0.25



Weighted average common shares outstanding–basic


156,662





163,683





155,228





163,253



Weighted average common and common
equivalent shares outstanding–diluted


157,604





164,754





155,228





164,411



Dividends declared per share

$

0.165




$

0.1575




$

-




$

-




 

 

 

Chico's FAS, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands)













November 2, 2013


February 2, 2013


October 27, 2012



(Unaudited)




(Unaudited)

ASSETS

 Current Assets:










Cash and cash equivalents


$

52,524


$

56,859


$

79,102

Marketable securities, at fair value



197,235



272,499



292,393

Inventories



267,430



206,849



234,199

Prepaid expenses and other current assets



55,835



61,786



57,436

Total Current Assets



573,024



597,993



663,130











Property and Equipment, net



635,284



608,120



591,346











Other Assets:










Goodwill



171,427



238,693



238,693

Other intangible assets, net



119,269



127,754



128,844

Other assets, net



9,252



8,068



6,787

Total Other Assets



299,948



374,515



374,324



$

1,508,256


$

1,580,628


$

1,628,800











LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:










Accounts payable


$

152,698


$

129,387


$

137,600

Other current liabilities



121,796



173,024



178,685

Total Current Liabilities



274,494



302,411



316,285











Noncurrent Liabilities:










Deferred liabilities



143,991



132,374



132,574

Deferred taxes



53,338



52,644



49,626

Total Noncurrent Liabilities



197,329



185,018



182,200











Stockholders' Equity:










Preferred stock



-



-



-

Common stock



1,588



1,628



1,663

Additional paid-in capital



372,325



348,775



338,703

Retained earnings



662,375



742,580



789,743

Accumulated other comprehensive income     



145



216



206

Total Stockholders' Equity



1,036,433



1,093,199



1,130,315



$

1,508,256


$

1,580,628


$

1,628,800

 

 

 

Chico's FAS, Inc. and Subsidiaries

Condensed Consolidated Cash Flow Statements

(Unaudited)

(in thousands)








Thirty-Nine Weeks Ended


November 2, 2013


October 27, 2012

Cash Flows From Operating Activities:






Net income (loss)

$

66,231


$

148,697

Adjustments to reconcile net income to net cash provided by operating
activities —






Goodwill and trade name impairment charges


72,466



-

Depreciation and amortization


88,123



80,085

Deferred tax expense (benefit)


6,024



(7,809)

Stock-based compensation expense


19,542



18,931

Excess tax benefit from stock-based compensation


(1,281)



(6,757)

Deferred rent and lease credits


(13,299)



(12,130)

Loss on disposal and impairment of property and equipment


1,432



2,045

 

Changes in assets and liabilities:






Inventories


(60,581)



(39,730)

Prepaid expenses and other assets


(1,775)



2,419

Accounts payable


23,311



37,205

Accrued and other liabilities


(25,087)



66,993

Net cash provided by operating activities


175,106



289,949







Cash Flows From Investing Activities:






Decrease (increase) in marketable securities


75,183



(103,582)

Purchases of property and equipment, net


(113,376)



(119,922)

Net cash used in investing activities


(38,193)



(223,504)







Cash Flows From Financing Activities:






Proceeds from issuance of common stock


10,176



14,277

Excess tax benefit from stock-based compensation


1,281



6,757

Dividends paid 


(26,536)



(26,266)

Repurchase of common stock


(126,179)



(41,030)

Net cash used in financing activities


(141,258)



(46,262)

Effects of exchange rate changes on cash and cash equivalents


10



-

Net (decrease) increase in cash and cash equivalents


(4,335)



20,183

Cash and Cash Equivalents, Beginning of period


56,859



58,919

Cash and Cash Equivalents, End of period

$

52,524


$

79,102







 

Supplemental Detail on Earnings Per Share Calculation

In accordance with accounting guidance, unvested share-based payment awards that include non-forfeitable rights to dividends, whether paid or unpaid, are considered participating securities.  As a result, such awards are required to be included in the calculation of basic earnings per share pursuant to the "two-class" method.  For the Company, participating securities are comprised of unvested restricted stock awards. 

Earnings per share is determined using the two-class method, as it is more dilutive than the treasury stock method.  Basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the period.  Diluted earnings per share reflects the dilutive effect of potential common shares from securities such as stock options and performance-based restricted stock units ("PSUs"). For the thirteen weeks ended November 2, 2013, potential common shares from securities such as stock options and PSUs were excluded from the computation of diluted EPS because they were antidilutive.

The following table sets forth the computation of basic and diluted earnings per share shown on the face of the accompanying condensed consolidated statements of income:

 

 





























Thirty-Nine Weeks Ended


Thirteen Weeks Ended



November 2, 2013


October 27, 2012


November 2, 2013


October 27, 2012
















(dollars in thousands)

Numerator













Net income (loss)


$

66,231


$

148,697


$

(28,479)


$

41,657

Net income and dividends declared allocated to

     unvested restricted stock



(1,785)



(2,730)



-



(789)

Net income (loss) available to common shareholders


$

64,446


$

145,967


$

(28,479)


$

40,868














Denominator













Weighted average common shares outstanding – basic



156,661,641



163,682,768



155,227,618



163,253,220

Dilutive effect of stock options and PSUs outstanding



941,988



1,070,757



-



1,157,510

Weighted average common and common equivalent

    shares outstanding – diluted



157,603,629



164,753,525



155,227,618



164,410,730














Net income (loss) per common share*:













Basic


$

0.41


$

0.89


$

(0.18)


$

0.25

Diluted


$

0.41


$

0.89


$

(0.18)


$

0.25

 

*Due to the differences between quarterly and year-to-date weighted average share counts and the effect of quarterly rounding to the nearest cent per diluted share, the year-to-date calculation of GAAP and non-GAAP diluted EPS may not equal the sum of the quarters.

SEC Regulation G - The Company reports its consolidated financial results in accordance with generally accepted accounting principles (GAAP).  However, to supplement these consolidated financial results, management believes that certain non-GAAP operating results, which exclude certain non-recurring charges including goodwill and trade name impairment and acquisition and integration costs, may provide a more meaningful measure on which to compare the Company's results of operations between periods.  The Company believes these non-GAAP results provide useful information to both management and investors by excluding certain expenses that impact the comparability of the results.  A reconciliation of net income and earnings per diluted share on a GAAP basis to net income and earnings per diluted share on a non-GAAP basis is presented in the table below:

 

 

 














Chico's FAS, Inc. and Subsidiaries














GAAP to Non-GAAP Reconciliation of Net Income (Loss) and Diluted EPS

(in thousands, except per share amounts)

















Thirty-Nine Weeks Ended



Thirteen Weeks Ended

Net income:



November 2,
2013



October 27,
2012



November 2,
2013



October 27,
2012














GAAP basis


$

66,231


$

148,697


$

(28,479)


$

41,657

Add: Impact of goodwill and trade name
impairment charges, net of tax



64,266



-



64,266



-

Add: Impact of acquisition and
integration costs, net of tax



577



820



-



299

Non-GAAP adjusted basis


$

131,074


$

149,517


$

35,787


$

41,956














Net income per diluted share:


























GAAP basis


$

0.41


$

0.89


$

(0.18)


$

0.25

Add: Impact of goodwill and trade name
impairment charges, net of tax



0.40



0.00



0.40



0.00

Add: Impact of acquisition and
integration costs, net of tax



0.00



0.00



0.00



0.00

Non-GAAP adjusted basis


$

0.81


$

0.89


$

0.22


$

0.25














 

 











Chico's FAS, Inc. and Subsidiaries

Store Count and Square Footage

Thirteen Weeks Ended November 2, 2013

(Unaudited)












As of
8/3/13


New
Stores


Closures


As of
11/2/13



Store count:










Chico's frontline boutiques

616


2


(1)


617



Chico's outlets

106


2


-


108



WH|BM frontline boutiques

416


18


-


434



WH|BM outlets

52


4


-


56



WH|BM Canada

-


2


-


2



Soma frontline boutiques

218


14


-


232



Soma outlets

17


-


-


17



Boston Proper frontline boutiques

2


2


-


4



Total Chico's FAS, Inc.

1,427


44


(1)


1,470














As of
8/3/13


New
Stores


Closures


Other
changes in
SSF


As of
11/2/13

Net selling square footage (SSF):










Chico's frontline boutiques

1,681,060


5,708


(1,615)


(633)


1,684,520

Chico's outlets

267,673


4,852


-


-


272,525

WH|BM frontline boutiques

932,056


46,338


-


(90)


978,304

WH|BM outlets

106,240


9,009


-


(153)


115,096

WH|BM Canada

-


5,461


-


-


5,461

Soma frontline boutiques

413,499


26,198


-


240


439,937

Soma outlets

32,682


-


-


-


32,682

Boston Proper frontline boutiques

2,878


3,125


-


-


6,003

Total Chico's FAS, Inc.

3,436,088


100,691


(1,615)


(636)


3,534,528

 

 











Chico's FAS, Inc. and Subsidiaries

Store Count and Square Footage

Thirty-Nine Weeks Ended November 2, 2013

(Unaudited)












As of

2/3/13


New
Stores


Closures


As of
11/2/13



Store count:










Chico's frontline boutiques

606


15


(4)


617



Chico's outlets

99


9


-


108



WH|BM frontline boutiques

398


38


(2)


434



WH|BM outlets

45


11


-


56



WH|BM Canada

-


2


-


2



Soma frontline boutiques

193


43


(4)


232



Soma outlets

16


1


-


17



Boston Proper frontline boutiques

-


4


-


4



Total Chico's FAS, Inc.

1,357


123


(10)


1,470














As of

2/3/13


New
Stores


Closures


Other
changes in
SSF


As of
11/2/13

Net selling square footage (SSF):










Chico's frontline boutiques

1,653,252


39,663


(9,392)


997


1,684,520

Chico's outlets

251,846


20,947


-


(268)


272,525

WH|BM frontline boutiques

873,183


96,774


(4,247)


12,594


978,304

WH|BM outlets

91,619


23,630


-


(153)


115,096

WH|BM Canada

-


5,461


-


-


5,461

Soma frontline boutiques

370,770


83,896


(7,863)


(6,866)


439,937

Soma outlets

30,773


1,909


-


-


32,682

Boston Proper frontline boutiques

-


6,003


-


-


6,003

Total Chico's FAS, Inc.

3,271,443


278,283


(21,502)


6,304


3,534,528

 

SOURCE Chico's FAS, Inc.

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Investor Contact

  • David M. Oliver

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