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Chico's FAS, Inc. Reports Fourth Quarter and Fiscal Year 2017 Results

02/28/2018

FORT MYERS, Fla., Feb. 28, 2018 /PRNewswire/ --

  • Fourth quarter EPS of $0.22, including $0.08 benefit from U.S. tax reform, compared to EPS of $0.10 last year
  • Gross margin expanded 220 basis points in the fourth quarter
  • Net cash provided by operating activities of $167 million generated $118 million free cash flow in fiscal 2017

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

Chico's FAS, Inc. (NYSE: CHS) today announced its financial results for the fiscal 2017 fourth quarter and fiscal year ended February 3, 2018.

For the fourteen weeks ended February 3, 2018 ("the fourth quarter"), the Company reported net income of $28.0 million, or $0.22 per diluted share, compared to net income of $13.5 million, or $0.10 per diluted share, for the thirteen weeks ended January 28, 2017 ("last year's fourth quarter"). Results for the fourth quarter include the favorable impact of the Tax Cuts and Jobs Act of 2017 ("U.S. tax reform") of approximately $10 million after-tax, or $0.08 per diluted share, as well as the benefit of the 53rd week of approximately $4 million after-tax, or $0.03 per diluted share.

For the fifty-three weeks ended February 3, 2018 ("fiscal 2017"), the Company reported net income of $101.0 million, or $0.79 per diluted share, compared to net income of $91.2 million, or $0.69 per diluted share, for the fifty-two weeks ended January 28, 2017 ("fiscal 2016"). Results for fiscal 2017 include the favorable impact of U.S. tax reform of approximately $10 million after-tax, or $0.08 per diluted share, as well as the benefit of the 53rd week of approximately $4 million after-tax, or $0.03 per diluted share. Results for fiscal 2016 include the unfavorable impact of restructuring and strategic charges and Boston Proper of $15.4 million after-tax, or $0.12 per diluted share.

"Our fourth quarter results exceeded expectations and demonstrate clear progress in the execution of our strategic initiatives to drive improved performance and value creation," said Shelley Broader, CEO and President. "In 2017, we strengthened our brands' positioning, enhanced the customer experience, maintained financial discipline and built a solid foundation for our next stage of profitable growth. We are excited about our sales-driving initiatives for 2018, and we are confident in our continued success."

Net Sales

For the fourth quarter, net sales were $587.8 million compared to $600.8 million in last year's fourth quarter. This decrease of 2.2% primarily reflects a comparable sales decline of 5.2% as well as a decrease in selling square footage in fiscal 2017, partially offset by the $29 million benefit of the 53rd week. The comparable sales decline consisted of lower average dollar sale and flat transaction count.

For fiscal 2017, net sales were $2.3 billion compared to $2.5 billion in fiscal 2016. This decrease of 7.8% primarily reflects a comparable sales decline of 7.7% as well as a decrease in selling square footage in fiscal 2017, partially offset by the $29 million benefit of the 53rd week. The comparable sales decline consisted of lower average dollar sale and a decline in transaction count.

Comparable Sales (1)


Thirteen Weeks Ended


Fifty-Two Weeks Ended


January 27, 2018


January 28, 2017


January 27, 2018


January 28, 2017

Chico's


(3.2)%



(4.8)%



(7.2)%



(5.3)%

White House Black Market


(9.3)%



(0.6)%



(10.9)%



(2.8)%

Soma


(2.3)%



0.4%



(1.5)%



0.5%

Total Company


(5.2)%



(2.5)%



(7.7)%



(3.7)%


(1) The 53rd week is excluded from comparable sales calculations.

Gross Margin

For the fourth quarter, gross margin was $221.6 million, or 37.7% of net sales, compared to $213.4 million, or 35.5% of net sales, in last year's fourth quarter. This 220 basis point increase primarily reflects a 170 basis point improvement in merchandise margin driven by lower average unit costs and a reduction in store occupancy costs.

Selling, General and Administrative Expenses

For the fourth quarter, selling, general and administrative expenses ("SG&A") were $192.0 million, or 32.7% of net sales, compared to $192.0 million, or 31.9% of net sales, for last year's fourth quarter. SG&A in the fourth quarter reflects a $13 million decline in store-related costs and marketing, primarily offset by the impact of the 53rd week.

Income Tax Expense

The fourth quarter effective tax rate was 4.4% which included an approximate $10 million benefit resulting from the impact of U.S. tax reform. Excluding the impact of U.S. tax reform, the fourth quarter effective tax rate was 37.7% compared to 35.4% for last year's fourth quarter. The fiscal 2017 effective tax rate was 29.7%. Excluding the impact of U.S. tax reform, the fiscal 2017 effective tax rate was 36.4%.

Inventories

At the end of the fourth quarter, inventories totaled $233.7 million compared to $232.4 million at the end of the fourth quarter last year. Inventories at the end of the fourth quarter include a $16.5 million increase due to a change in shipping terms with a supplier in fiscal 2017. Excluding the impact of the change in shipping terms, inventories decreased 6.5% reflecting continued inventory management.

Share Repurchase Program

During the fourth quarter of 2017, under its $300.0 million share repurchase program announced in November 2015, the Company repurchased 0.2 million shares for $1.7 million, at a weighted average of $8.66 per share with $136.2 million remaining under the program. During fiscal 2017, the Company repurchased a total of 2.7 million shares for $27.4 million, at a weighted average of $10.16 per share.

2018 Full-Year Outlook

For fiscal 2018, the Company is anticipating a low single-digit decline in consolidated comparable sales with comparable sales performance stronger in the second half of the year compared to the first half.

The Company expects gross margin expansion in the range of 125 to 150 basis points over fiscal 2017, driven by decreased average unit costs and planned improvement in promotions. The Company also anticipates SG&A expenses to be approximately flat compared to fiscal 2017.

The Company estimates a fiscal 2018 tax rate in the range of 26% to 28%. The rate includes the benefit of the new 21% federal rate, partially offset by additional expenses due to changes in the deductibility of executive compensation and a lower benefit from state tax deductions.

In addition, the Company anticipates 2018 capital expenditures to be $70 million to $80 million, primarily driven by store reinvestments and technology enhancements.

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 and complementary accessories.

As of February 3, 2018, the Company operated 1,460 stores in the US and Canada and sold merchandise through 94 franchise locations in Mexico. The Company's merchandise is also available at www.chicos.com, www.chicosofftherack.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. The information on our corporate website is not, and shall not be deemed to be, a part of this press release or incorporated into our federal securities law filings.

Chico's FAS, Inc. • 11215 Metro Parkway • Fort Myers, Florida 33966 • (239) 277-6200

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This press release contains "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. These statements, including without limitation statements made in Ms. Broader's quotes and in the section entitled "2018 Full-Year Outlook," relate to expectations concerning matters that are not historical fact and may include the words or phrases such as "will," "should," "expects," "believes," "anticipates," "plans," "intends," "estimates," "approximately," "our planning assumptions," "future outlook," and similar expressions. Except for historical information, matters discussed in such 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, we cannot guarantee their accuracy or our future 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, changes in the general economic and business environment; changes in the general or specialty retail or apparel industries; the availability of quality store sites; the ability to successfully execute and achieve the expected results of our business strategies, particular strategic initiatives, including sales initiatives, and organizational redesign; the successful integration of new members of our senior management team; changes in the political environment that create consumer uncertainty; significant changes to product import and distribution costs (such as unexpected consolidation in the freight carrier industry, and the ability to remain competitive with customer shipping terms and costs pertaining to product deliveries and returns); new or increased taxes or tariffs; significant shifts in consumer behavior; and those other factors 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 latest annual report on Form 10-K and in Part II, Item 1A, "Risk Factors" and the "Forward-Looking Statements" disclosure in Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operation" of our quarterly reports on Form 10-Q and in other reports we file with or furnish to the Securities and Exchange Commission. There can be no assurance that the actual future results, performance, or achievements expressed or implied by such forward-looking statements will occur. All 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:
Julie Lorigan
Vice President – Investor Relations,
Public Relations and Corporate Communications
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)




Fourteen Weeks
Ended


Thirteen Weeks
Ended


Fifty-Three Weeks
Ended


Fifty-Two Weeks
Ended



February 3, 2018


January 28, 2017


February 3, 2018


January 28, 2017



Amount


% of
Sales


Amount


% of
Sales


Amount


% of
Sales


Amount


% of
Sales

Net sales:

















Chico's


$

290,699



49.4



$

290,763



48.4



$

1,187,603



52.0



$

1,285,830



51.9


White House Black Market


197,919



33.7



212,615



35.4



750,912



32.9



846,035



34.2


Soma


99,165



16.9



97,411



16.2



343,864



15.1



344,545



13.9


Total net sales


587,783



100.0



600,789



100.0



2,282,379



100.0



2,476,410



100.0


Cost of goods sold


366,222



62.3



387,392



64.5



1,417,602



62.1



1,529,574



61.8


Gross margin


221,561



37.7



213,397



35.5



864,777



37.9



946,836



38.2


Selling, general and administrative expenses


192,002



32.7



191,990



31.9



719,607



31.5



775,107



31.2


Restructuring and strategic charges




0.0





0.0





0.0



31,027



1.3


Income from operations


29,559



5.0



21,407



3.6



145,170



6.4



140,702



5.7


Interest expense, net


(284)



0.0



(499)



(0.1)



(1,570)



(0.1)



(1,973)



(0.1)


Income before income taxes


29,275



5.0



20,908



3.5



143,600



6.3



138,729



5.6


Income tax provision


1,300



0.2



7,400



1.3



42,600



1.9



47,500



1.9


Net income


$

27,975



4.8



$

13,508



2.2



$

101,000



4.4



$

91,229



3.7


Per share data:

















Net income per common share-basic


$

0.22





$

0.10





$

0.79





$

0.69




Net income per common and common equivalent share–diluted


$

0.22





$

0.10





$

0.79





$

0.69




Weighted average common shares outstanding–basic


124,747





126,489





125,341





128,995




Weighted average common and common equivalent shares outstanding–diluted


124,808





126,905





125,403





129,237




Dividends declared per share


$

0.0825





$

0.08





$

0.33





$

0.32




 

Chico's FAS, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands)



February 3,
2018


January 28,
2017


ASSETS

Current Assets:




Cash and cash equivalents

$

160,071



$

142,135


Marketable securities, at fair value

60,060



50,370


Inventories

233,726



232,363


Prepaid expenses and other current assets

60,668



52,758


Total Current Assets

514,525



477,626


Property and Equipment, net

421,038



477,185


Other Assets:




Goodwill

96,774



96,774


Other intangible assets, net

38,930



38,930


Other assets, net

16,338



18,479


Total Other Assets

152,042



154,183



$

1,087,605



$

1,108,994



LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:




Accounts payable

$

118,253



$

116,378


Current debt

15,000



16,250


Other current and deferred liabilities

133,715



170,232


Total Current Liabilities

266,968



302,860


Noncurrent Liabilities:




Long-term debt

53,601



68,535


Deferred liabilities

103,282



118,543


Deferred taxes

7,372



9,883


Total Noncurrent Liabilities

164,255



196,961


Shareholders' Equity:




Preferred stock




Common stock

1,275



1,288


Additional paid-in capital

468,806



452,756


Treasury stock, at cost

(413,465)



(386,094)


Retained earnings

599,810



541,251


Accumulated other comprehensive loss

(44)



(28)


Total Shareholders' Equity

656,382



609,173



$

1,087,605



$

1,108,994


 

Chico's FAS, Inc. and Subsidiaries

Condensed Consolidated Cash Flow Statements

(Unaudited)

(in thousands)



Fifty-Three
Weeks Ended


Fifty-Two
Weeks Ended


February 3,
2018


January 28,
2017

Cash Flows From Operating Activities:




Net income

$

101,000



$

91,229


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




Depreciation and amortization

96,310



109,251


Deferred tax benefit

(2,070)



(8,427)


Stock-based compensation expense

20,678



21,249


Deferred rent and lease credits

(19,692)



(18,811)


Loss on disposal and impairment of property and equipment

7,042



10,523


Changes in assets and liabilities:




Inventories

(1,364)



1,472


Prepaid expenses and other assets

(4,584)



(7,565)


Income tax receivable

(311)



26,749


Accounts payable

1,950



(13,015)


Accrued and other liabilities

(32,086)



18,659


Net cash provided by operating activities

166,873



231,314


Cash Flows From Investing Activities:




Purchases of marketable securities

(39,794)



(50,717)


Proceeds from sale of marketable securities

30,045



50,508


Purchases of property and equipment, net

(48,530)



(47,836)


Proceeds from sale of land



16,217


Net cash used in investing activities

(58,279)



(31,828)


Cash Flows From Financing Activities:




Payments on borrowings

(16,250)



(7,500)


Proceeds from issuance of common stock

2,127



4,359


Dividends paid

(42,516)



(42,254)


Repurchase of common stock

(27,398)



(96,363)


Payments of tax withholdings related to stock-based awards

(6,740)



(5,515)


Net cash used in financing activities

(90,777)



(147,273)


Effects of exchange rate changes on cash and cash equivalents

119



(29)


Net increase in cash and cash equivalents

17,936



52,184


Cash and Cash Equivalents, Beginning of period

142,135



89,951


Cash and Cash Equivalents, End of period

$

160,071



$

142,135


Supplemental Detail on Net Income 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.

Net income per share is determined using the two-class method when it is more dilutive than the treasury stock method. Basic net income per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the period, including participating securities. Diluted net income per share reflects the dilutive effect of potential common shares from non-participating securities such as stock options, PSUs and restricted stock units. For the fourteen and fifty-three weeks ended February 3, 2018 and thirteen and fifty-two weeks ended January 28, 2017, 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 income (in thousands, except per share amounts):



Fourteen
Weeks Ended


Thirteen Weeks
Ended


Fifty-Three
Weeks Ended


Fifty-Two
Weeks Ended



February 3, 2018


January 28,
2017


February 3,
2018


January 28, 2017

Numerator









Net income


$

27,975



$

13,508



$

101,000



$

91,229


Net income and dividends declared allocated to participating securities


(617)



(258)



(2,300)



(1,915)


Net income available to common shareholders


$

27,358



$

13,250



$

98,700



$

89,314


Denominator









Weighted average common shares outstanding – basic


124,747



126,489



125,341



128,995


Dilutive effect of non-participating securities


61



416



62



242


Weighted average common and common equivalent shares outstanding – diluted


124,808



126,905



125,403



129,237


Net income per common share:









Basic


$

0.22



$

0.10



$

0.79



$

0.69


Diluted


$

0.22



$

0.10



$

0.79



$

0.69


Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow
(Non-GAAP Financial Measure)

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 results should be considered in addition to, not as a substitute for, GAAP measures.

Free cash flow is a non-GAAP financial measure which the Company defines as net cash provided by operating activities less purchases of property and equipment. We believe free cash flow, when used in conjunction with GAAP measures, provides investors with a meaningful analysis of our ability to generate cash for discretionary and non-discretionary items after deducting purchases of property and equipment.

Free cash flow is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for, operating cash flows or other financial measures prepared in accordance with GAAP. Our method of determining non-GAAP financial measures may differ from other companies' methods and therefore may not be comparable to those used by other companies.

A reconciliation of net cash provided by operating activities on a GAAP basis to free cash flow on a non-GAAP basis for the fifty-three weeks ended February 3, 2018 is presented in the table below:

Chico's FAS, Inc. and Subsidiaries

Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow

(Unaudited)

(in thousands)






Fifty-Three Weeks Ended



February 3, 2018

Net cash provided by operating activities


$

166,873


Less: Purchases of property and equipment, net


(48,530)


Free cash flow


$

118,343


 

Chico's FAS, Inc. and Subsidiaries

Store Count and Square Footage

Fourteen Weeks Ended February 3, 2018

(Unaudited)












October 28, 2017


New Stores


Closures


February 3, 2018



Store count:










Chico's frontline boutiques

576



(8)


568



Chico's outlets

117


4


(1)


120



Chico's Canada

4




4



WHBM frontline boutiques

412



(8)


404



WHBM outlets

69




69



WHBM Canada

6




6



Soma frontline boutiques

271


1


(2)


270



Soma outlets

19




19



Total Chico's FAS, Inc.

1,474


5


(19)


1,460
























October 28, 2017


New Stores


Closures


Other changes in SSF


February 3, 2018

Net selling square footage (SSF):










Chico's frontline boutiques

1,577,849



(22,561)


383


1,555,671

Chico's outlets

294,257


9,826


(2,309)


314


302,088

Chico's Canada

9,695





9,695

WHBM frontline boutiques

958,030



(18,424)



939,606

WHBM outlets

143,918




45


143,963

WHBM Canada

14,891





14,891

Soma frontline boutiques

513,548


1,693


(3,252)



511,989

Soma outlets

35,541





35,541

Total Chico's FAS, Inc.

3,547,729


11,519


(46,546)


742


3,513,444

As of February 3, 2018 the Company also sold merchandise through 94 international franchise locations.


Chico's FAS, Inc. and Subsidiaries

Store Count and Square Footage

Fifty-Three Weeks Ended February 3, 2018

(Unaudited)












January 28, 2017


New Stores


Closures


February 3, 2018



Store count:










Chico's frontline boutiques

587



(19)


568



Chico's outlets

116


5


(1)


120



Chico's Canada

4




4



WHBM frontline boutiques

423



(19)


404



WHBM outlets

71



(2)


69



WHBM Canada

6




6



Soma frontline boutiques

275


2


(7)


270



Soma outlets

19




19



Total Chico's FAS, Inc.

1,501


7


(48)


1,460
























January 28, 2017


New Stores


Closures


Other changes in SSF


February 3, 2018

Net selling square footage (SSF):










Chico's frontline boutiques

1,606,730



(47,279)


(3,780)


1,555,671

Chico's outlets

291,455


12,163


(2,309)


779


302,088

Chico's Canada

9,695





9,695

WHBM frontline boutiques

984,754



(45,692)


544


939,606

WHBM outlets

148,457



(4,316)


(178)


143,963

WHBM Canada

14,891





14,891

Soma frontline boutiques

519,945


3,882


(12,885)


1,047


511,989

Soma outlets

35,637




(96)


35,541

Total Chico's FAS, Inc.

3,611,564


16,045


(112,481)


(1,684)


3,513,444

As of February 3, 2018 the Company also sold merchandise through 94 international franchise locations.

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SOURCE Chico's FAS, Inc.

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Investor Contact

  • Julie F. Lorigan

  • Vice President – Investor Relations, Public Relations, and Corporate Communications
  • julie.lorigan@chicos.com