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Chico's FAS, Inc. Reports First Quarter Results

05/26/2016

Expands Cost Reduction and Operating Efficiency Initiatives
- New initiatives in supply chain, non-merchandise procurement and marketing expected to result in $50 million to $70 million in annual savings, in addition to $14 million from recently announced marketing and digital commerce realignment
- Company continuing to execute on four focus areas
- GAAP earnings per share of $0.23; Non-GAAP earnings per share of $0.25

FORT MYERS, Fla., May 26, 2016 /PRNewswire/ -- Chico's FAS, Inc. (NYSE: CHS) today announced its financial results for the fiscal 2016 first quarter and thirteen weeks ended April 30, 2016.

Chico's Logo (PRNewsFoto/Chico's FAS, Inc.)

For the thirteen weeks ended April 30, 2016 ("the first quarter"), the Company reported net income of $31.1 million, or $0.23 per diluted share, compared to net income of $32.5 million, or $0.22 per diluted share, for the thirteen weeks ended May 2, 2015. The Company reported first quarter 2016 adjusted net income of $33.4 million, or $0.25 adjusted earnings per diluted share, compared to adjusted net income of $44.5 million, or  $0.30 adjusted earnings per diluted share, in last year's first quarter. The first quarter adjusted results exclude EPS charges of $0.02 in 2016 and $0.08 in 2015 related to restructuring and strategic charges and Boston Proper operating results, as presented in the accompanying GAAP to non-GAAP reconciliation.

Shelley Broader, CEO and President, said, "In the first quarter, our loyal customers continued to be attracted to our brands. Our overall store traffic trended better than our peer index and when she visited our stores she was buying, although weak traffic across the industry impacted our overall sales.  We are executing against the Company's four focus areas announced earlier this year.  We are taking action to improve our profitability, assuring our brands' leadership in the future and enhancing value for all of our shareholders.  Our cost reduction and operating efficiency initiatives will position us to be more nimble and responsive to our customers' needs. These actions are just the beginning as we execute on our new operating priorities."

Cost Reduction and Operating Efficiency Initiatives

As part of the Company's continued efforts within its four focus areas - evolving the customer experience, strengthening the position of each brand, leveraging actionable retail science, and sharpening financial principles - Chico's FAS today announced new initiatives to improve its supply chain, enhance its marketing efforts and leverage non-merchandise procurement. The new initiatives are expected to reduce complexity and standardize processes across the organization, thereby improving the Company's ability to respond in real-time to changes in customer demand for merchandise.The new initiatives are expected to generate approximately $50 million to $70 million in annualized savings.

These new cost cutting actions are in addition to the previously announced realignment of the Company's marketing and digital commerce functions. That realignment, announced April 25, places the decision makers directly into the Company's three brands and is expected to generate $14 million in annualized savings.

Combined, the marketing realignment and new initiatives are estimated to generate $65 million to $85 million in annual savings. The Company anticipates generating $15 million of these costs savings in fiscal 2016, and expects these initiatives to be fully implemented during 2017.

Net Sales

For the first quarter, net sales were $643.0 million compared to $697.8 million in last year's first quarter. This decrease of 7.9% included $25.3 million related to Boston Proper. When excluding Boston Proper from fiscal 2015, net sales decreased 4.4%, primarily reflecting a decline in comparable sales of 4.2% and 15 net store closures. The 4.2% decrease in comparable sales for the first quarter followed a 0.1% decrease in last year's first quarter, and reflected reduced average dollar sale and slightly lower transaction count.

Comparable Sales


Thirteen Weeks Ended


April 30, 2016


May 2, 2015

Chico's

(5.4)

%


(2.3)

%

White House Black Market

(3.8)

%


1.7

%

Soma

0.5

%


6.5

%

Total Company

(4.2)

%


(0.1)

%

Gross Margin

For the first quarter, gross margin was $262.3 million, or 40.8%, compared to $295.6 million, or 42.4%, in last year's first quarter. When excluding Boston Proper from fiscal 2015, gross margin decreased 190 basis points in fiscal 2016 compared to gross margin of $287.0 million, or 42.7% last year. This decrease in gross margin rate primarily reflects increased promotional activity in response to lower traffic and sales deleverage of store occupancy expenses, partially offset by reduced incentive compensation.

Selling, General and Administrative Expenses

For the first quarter, selling, general and administrative expenses ("SG&A") were $208.1 million, or 32.4%, compared to $228.1 million, or 32.7%, in last year's first quarter. When excluding Boston Proper from fiscal 2015, SG&A decreased $6.9 million in the first quarter of fiscal 2016 compared to $215.1 million, or 32.0% last year. The $6.9 million decrease reflects savings in store labor, marketing expenses and incentive compensation, reflecting a slight decline in SG&A rate.

Restructuring and Strategic Charges

For the first quarter, the Company recorded pre-tax restructuring and strategic charges of $3.7 million, primarily consisting of executive transition costs and consulting fees. On an after-tax basis, the first quarter impact of these charges was $2.3 million, or $0.02 per diluted share.

Inventories

At the end of the first quarter of 2016, inventories totaled $268.0 million compared to $270.3 million last year. When excluding Boston Proper, inventories totaled $268.0 million compared to $257.7 million last year, an increase of 4.0%, primarily reflecting lower than planned sales of spring merchandise. The majority of our inventory increase was in go-forward, full-price summer merchandise. For the second quarter, we are targeting inventory levels to be flat against the prior year when excluding Boston Proper.

Share Repurchase Program

During the first quarter of fiscal 2016, the Company repurchased 3.2 million shares for $36.6 million under its $300.0 million share repurchase program announced in November 2015, with $223.4 million remaining under the program.

Changes in Presentation

Commencing in fiscal 2016, store occupancy expenses and shipping expenses, historically presented in SG&A, are being presented in Cost of Goods Sold. The Company believes that the costs represent direct costs associated with the sale of its merchandise and these changes better align the Company with its peers and better reflect how the business operates. Additionally, shipping revenue, historically presented in SG&A, is being presented in Net Sales. These adjustments were made retrospectively and all periods presented conform with this presentation.

ABOUT CHICO'S FAS, INC.

The Company, through its brands – Chico's, White House Black Market, and Soma 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 April 30, 2016, the Company operated 1,517 stores in the US and Canada and sold merchandise through franchise locations in Mexico. The Company's merchandise is also available at www.chicos.com, www.whbm.com, and www.soma.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 may contain certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect our current views with respect to certain events that could have an effect on our future financial performance, including but without limitation, statements regarding our plans, objectives, and future success of our store concepts, the implementation of our previously announced restructuring program, and implementation of our program to increase the sales volume and profitability of our existing brands through four previously announced focus areas. These statements may address items such as future sales, gross margin expectations, SG&A expectations, operating margin expectations, planned store openings, closings and expansions, future comparable sales, inventory levels, and future cash needs. These statements relate to expectations concerning matters that are not historical fact and may include the words or phrases such as "expects," "believes," "anticipates,"  "plans," "estimates," "approximately," "our planning assumptions," "future outlook," and similar expressions. Except for historical information, matters discussed in such oral and written statements are forward-looking statements. These forward-looking statements are based largely on information currently available to our management and on our current expectations, assumptions, plans, estimates, judgments and projections about our business and our industry, and are subject to various risks and uncertainties that could cause actual results to differ materially from historical results or those currently anticipated. Although we believe our expectations are based on reasonable estimates and assumptions, they are not guarantees of performance and there are a number of known and unknown risks, uncertainties, contingencies, and other factors (many of which are outside our control) that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Accordingly, there is no assurance that our expectations will, in fact, occur or that our estimates or assumptions will be correct, and we caution investors and all others not to place undue reliance on such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, general economic and business conditions, conditions in the specialty retail industry, the availability of quality store sites, the ability to successfully execute our business strategies, the ability to achieve the results of our restructuring program, the ability to achieve the results of our four focus areas, the integration of our new management team, and those described in Item 1A, "Risk Factors" and in the "Forward-Looking Statements" disclosure in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Form 10-K. There can be no assurance that the actual future results, performance, or achievements expressed or implied by such forward-looking statements will occur. Investors using 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. All written or oral forward-looking statements that are made or attributable to us are expressly qualified in their entirety by this cautionary notice. 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:
Jennifer Powers
Vice President – Investor Relations 
Chico's FAS, Inc.
(239) 346-4199

 

 


Chico's FAS, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(Unaudited)

 (in thousands, except per share amounts)



Thirteen Weeks Ended


April 30, 2016


May 2, 2015


Amount


% of
Sales


Amount


% of
Sales

Net sales:








Chico's

$

348,704



54.2



$

369,859



53.0


White House Black Market

214,993



33.5



225,442



32.3


Soma

79,280



12.3



77,167



11.1


Boston Proper



0.0



25,298



3.6


Total net sales

642,977



100.0



697,766



100.0


Cost of goods sold

380,642



59.2



402,148



57.6


Gross margin

262,335



40.8



295,618



42.4


Selling, general and administrative expenses

208,141



32.4



228,065



32.7


Restructuring and strategic charges

3,651



0.5



14,875



2.1


Income from operations

50,543



7.9



52,678



7.6


Interest expense, net

(459)



(0.1)



(453)



(0.1)


Income before income taxes

50,084



7.8



52,225



7.5


Income tax provision

19,000



3.0



19,700



2.8


Net income

$

31,084



4.8



$

32,525



4.7


Per share data:








Net income per common share-basic

$

0.23





$

0.22




Net income per common and common equivalent share–diluted

$

0.23





$

0.22




Weighted average common shares outstanding–basic

131,594





143,378




Weighted average common and common equivalent shares outstanding–diluted

131,689





143,771




Dividends declared per share

$

0.160





$

0.155












 

 

Chico's FAS, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands)



April 30, 2016


January 30, 2016


May 2, 2015







ASSETS






Current Assets:






Cash and cash equivalents

$

56,502



$

89,951



$

97,651


Marketable securities, at fair value

50,479



50,194



48,447


Inventories

267,988



233,834



270,313


Prepaid expenses and other current assets

48,105



45,660



48,812


Income taxes receivable

10,928



29,157



447


Assets held for sale

16,525



16,525



24,042


Total Current Assets

450,527



465,321



489,712


Property and Equipment, net

535,470



550,953



584,616


Other Assets:






Goodwill

96,774



96,774



145,627


Other intangible assets, net

38,930



38,930



108,449


Other assets, net

14,415



14,074



17,953


Total Other Assets

150,119



149,778



272,029



$

1,136,116



$

1,166,052



$

1,346,357


LIABILITIES AND STOCKHOLDERS' EQUITY






Current Liabilities:






Accounts payable

$

144,767



$

129,343



$

147,323


Current debt

10,000



10,000



34,000


Other current and deferred liabilities

142,091



158,788



171,161


Total Current Liabilities

296,858



298,131



352,484


Noncurrent Liabilities:






Long-term debt

79,735



82,219



90,000


Deferred liabilities

129,306



130,743



142,185


Deferred taxes

16,740



15,171



49,273


Total Noncurrent Liabilities

225,781



228,133



281,458


Stockholders' Equity:






Preferred stock






Common stock

1,336



1,355



1,434


Additional paid-in capital

436,581



435,881



353,523


Treasury stock, at cost

(326,418)



(289,813)



(187,393)


Retained earnings

501,936



492,325



544,511


Accumulated other comprehensive income

42



40



340


Total Stockholders' Equity

613,477



639,788



712,415



$

1,136,116



$

1,166,052



$

1,346,357


 

 


Chico's FAS, Inc. and Subsidiaries

Condensed Consolidated Cash Flow Statements

(Unaudited)

(in thousands)



Thirteen Weeks Ended


April 30, 2016


May 2, 2015

Cash Flows From Operating Activities:




Net income

$

31,084



$

32,525


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




Depreciation and amortization

27,957



30,743


Loss on disposal and impairment of property and equipment

597



6,277


Deferred tax expense (benefit)

307



(425)


Stock-based compensation expense

5,546



7,631


Excess tax benefit from stock-based compensation

(96)



(2,012)


Deferred rent and lease credits

(5,007)



(4,283)


Changes in assets and liabilities:




Inventories

(34,154)



(35,154)


Prepaid expenses and other assets

14,617



(3,468)


Accounts payable

4,814



(8,979)


Accrued and other liabilities

(13,029)



18,884


Net cash provided by operating activities

32,636



41,739


Cash Flows From Investing Activities:




Purchases of marketable securities

(11,403)



(18,252)


Proceeds from sale of marketable securities

11,156



96,351


Purchases of property and equipment, net

(13,056)



(19,839)


Net cash (used in) provided by investing activities

(13,303)



58,260


Cash Flows From Financing Activities:




Proceeds from borrowings



124,000


Payments on borrowings

(2,500)




Proceeds from issuance of common stock

1,177



8,025


Excess tax benefit from stock-based compensation

96



2,012


Dividends paid

(10,864)



(11,076)


Repurchase of common stock

(40,660)



(258,450)


Net cash used in financing activities

(52,751)



(135,489)


Effects of exchange rate changes on cash and cash equivalents

(31)



(210)


Net decrease in cash and cash equivalents

(33,449)



(35,700)


Cash and Cash Equivalents, Beginning of period

89,951



133,351


Cash and Cash Equivalents, End of period

$

56,502



$

97,651


 

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 earnings per common share pursuant to the "two-class" method.  For the Company, participating securities are composed entirely of unvested restricted stock awards and performance-based restricted stock units ("PSUs") that have met their relevant performance criteria.

Earnings per share is determined using the two-class method when 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 non-participating securities such as stock options and PSUs. For the thirteen weeks ended April 30, 2016 and May 2, 2015, potential common shares were excluded from the computation of diluted EPS to the extent they were antidilutive.

The following unaudited table sets forth the computation of basic and diluted earnings per share shown on the face of the accompanying condensed consolidated statements of operations (in thousands, except per share amounts):

 


Thirteen Weeks Ended


April 30, 2016


May 2, 2015





Numerator




Net income

$

31,084



$

32,525


Net income and dividends declared allocated to participating securities

(646)



(786)


Net income available to common shareholders

$

30,438



$

31,739






Denominator




Weighted average common shares outstanding – basic

131,594



143,378


Dilutive effect of non-participating securities

95



393


Weighted average common and common equivalent shares outstanding – diluted

131,689



143,771






Net income per common share*




Basic

$

0.23



$

0.22


Diluted

$

0.23



$

0.22


 

*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 generally accepted accounting principles ("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 GAAP.  However, to supplement these consolidated financial results, management believes that certain non-GAAP results, which exclude certain charges and results from non-continuing operations, 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 adjusted basis is presented in the table below:

 

Chico's FAS, Inc. and Subsidiaries

GAAP to Non-GAAP Reconciliation of Net Income and Diluted EPS

(Unaudited)

(in thousands, except per share amounts)








Thirteen Weeks Ended



April 30, 2016


May 2, 2015

Net income:





GAAP basis


$

31,084



$

32,525


Restructuring and strategic charges


2,266



9,264


Boston Proper net loss




2,733


Non-GAAP adjusted basis


$

33,350



$

44,522







Net income per diluted share:





GAAP basis


$

0.23



$

0.22


Restructuring and strategic charges


0.02



0.06


Boston Proper net loss


0.00



0.02


Non-GAAP adjusted basis


$

0.25



$

0.30


(1)  All adjustments to net income and net income per diluted share are presented net of tax.

SEC Regulation G - The Company reports its consolidated financial results in accordance with GAAP. However, to supplement these consolidated financial results, management believes that certain non-GAAP results, which exclude results from non-continuing operations, may provide a more meaningful measure on which to compare the Company's results of operations between periods.

The tables below present a reconciliation of selected consolidated financial data on a GAAP basis to selected consolidated financial data on a non-GAAP adjusted basis, reflecting certain adjustments as identified in the footnotes to the table and excluding Boston Proper:

 

Chico's FAS, Inc. and Subsidiaries

Fiscal 2015 Reconciliation of Reported to Adjusted Selected Non-GAAP Consolidated Financial Data

(Unaudited)

(in thousands)





As Reported






Thirteen Weeks Ended


May 2, 2015


Amount


% of Sales

Net Sales

$

693,339



100.0


Cost of goods sold

297,569



42.9


Gross margin

395,770



57.1


Selling, general and administrative expenses

328,217



47.3


Subtotal

$

67,553



9.8



Boston Proper






Thirteen Weeks Ended


May 2, 2015


Amount


% of Sales

Net Sales

$

23,780



100.0


Cost of goods sold

13,301



55.9


Gross margin

10,479



44.1


Selling, general and administrative expenses

14,866



62.5


Subtotal

$

(4,387)



(18.4)



Adjustments, excluding Boston Proper






Thirteen Weeks Ended


May 2, 2015


Amount


% of Sales

Net Sales(1)

$

2,909



0.4


Store occupancy expense(2)

93,286



13.4


Shipping expense(3)

7,919



1.1


Cost of goods sold

101,205



14.5


Gross margin

(98,296)



(14.1)


Selling, general and administrative expenses

(98,296)



(14.1)


Subtotal

$





As Adjusted, Non-GAAP






Thirteen Weeks Ended


May 2, 2015


Amount


% of Sales

Net Sales

$

672,468



100.0


Cost of goods sold

385,473



57.3


Gross margin

286,995



42.7


Selling, general and administrative expenses

215,055



32.0


Subtotal

$

71,940



10.7






(1) Adjustments to net sales represent the correction of an immaterial error in the classification of shipping revenue, which was previously classified within SG&A.

(2) Adjustments to store occupancy expense represent the reclassification of store occupancy expenses, which were previously classified within SG&A.

(3) Adjustments to shipping expense represent a change in accounting policy to present shipping expenses within cost of goods sold, which were previously presented within SG&A.

 

Chico's FAS, Inc. and Subsidiaries

Store Count and Square Footage

Thirteen Weeks Ended April 30, 2016

(Unaudited)












January 30, 2016


New Stores


Closures


April 30, 2016



Store count:










Chico's frontline boutiques

604



1



(5)



600




Chico's outlets

117







117




Chico's Canada

4







4




WHBM frontline boutiques

429



2



(3)



428




WHBM outlets

71







71




WHBM Canada

6







6




Soma frontline boutiques

269



3





272




Soma outlets

18



1





19




Total Chico's FAS, Inc.

1,518



7



(8)



1,517















January 30, 2016


New Stores


Closures


Other changes in SSF


April 30,
2016

Net selling square footage (SSF):










Chico's frontline boutiques

1,652,991



2,773



(15,910)



(158)



1,639,696


Chico's outlets

293,646









293,646


Chico's Canada

9,695









9,695


WHBM frontline boutiques

991,164



4,691



(6,612)



811



990,054


WHBM outlets

148,457









148,457


WHBM Canada

14,891









14,891


Soma frontline boutiques

507,805



5,558





1,155



514,518


Soma outlets

33,792



1,845







35,637


Total Chico's FAS, Inc.

3,652,441



14,867



(22,522)



1,808



3,646,594


 

As of April 30, 2016 the Company also sold merchandise through 77 international franchise locations, comprised of 6 Chico's stand-alone boutiques, 40 Chico's shop-in-shops, and 31 Soma shop-in-shops.

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SOURCE Chico's FAS, Inc.

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Investor Contact

  • David M. Oliver

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