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Chico's FAS, Inc. Announces Record Second Quarter and Six Month Revenues and Earnings

08/23/2006
    * Second quarter net income climbed to a record $54 million
    * Revenues rose 18.9% to a record $797 million for the six months
    * Six months net income climbed to a record $106 million
    * August comparable store sales currently showing a decrease in the range
      of 3%, with Chico's showing a decrease in the range of 6% and WH|BM
      showing an increase in the 9% range

FORT MYERS, Fla., Aug. 23 /PRNewswire-FirstCall/ -- Chico's FAS, Inc. (NYSE: CHS) today announced its financial results for the second quarter and six months ended July 29, 2006.

(Logo: http://www.newscom.com/cgi-bin/prnh/20030428/CHICOLOGO )

Net sales for the second quarter ended July 29, 2006, increased 18.0% to a record $405 million from $343 million for the second quarter ended July 30, 2005. Net income rose to $54 million, or $0.30 a diluted share, compared to net income of $49 million, or $0.27 a diluted share in the prior year's second quarter. Total stock-based compensation expense for the second quarter of fiscal 2006 increased approximately $3.3 million, net of tax, or $.02 per diluted share over the prior year's second quarter. Comparable store sales for the Company-owned stores increased 5.7% for the thirteen-week period ended July 29, 2006 compared to the same thirteen-week period last year. For the quarter, the Chico's brand same store sales increased 3%, while the same store sales for the WH|BM brand increased by 19%.

For the six months ended July 29, 2006, net sales increased 18.9% to a record $797 million from $670 million for the prior year's six months ended July 30, 2005. Net income rose to $106 million, or $0.59 a diluted share, compared to net income of $96 million, or $0.53 a diluted share in the prior period. Total stock-based compensation expense for the twenty-six week period increased approximately $6.4 million, net of tax, or $.04 per diluted share over the prior year's six month period. Comparable store sales for the Company-owned stores increased 6.2% for the twenty-six week period compared to the same twenty-six week period last year. For the six month period, the Chico's brand same store sales increased 2%, while the same store sales for the WH|BM brand increased by 26%.

Scott A. Edmonds, President and CEO, commented, "I am pleased to report that the Company once again posted record sales and profits for the quarter. We continue to see solid same store sales improvements at White House | Black Market and are pleased with its results. We have not realized the level of same store sales in the Chico's brand that we originally anticipated and it appears we are facing our first negative same store sales results in some time. We believe this same store sales decline is due to a combination of factors including the lack of 'wear now' merchandise in our stores, a reduction in overall store traffic, and a pre-planned marketing effort that turned out not to inspire our customer to shop."

Mr. Edmonds continued, "In light of the success our flagship brand has enjoyed over the past several years, our expansion and rapid growth have yielded some issues for us. However, the Chico's brand continues to be a powerful franchise and our Board of Directors is firmly committed to investing for the future. We believe we can continue to be the premier retailer in our category and we are confident in the rationale behind our store opening programs and other initiatives, all of which are easily managed by the strength of our balance sheet. While we are aggressively implementing short term initiatives, we are committed to our long term programs. We continue to be enthusiastic about Chico's long term growth opportunities and we plan to pursue those opportunities aggressively."

Mr. Edmonds further commented, "Given these trends and other factors, we are lowering our same store sales expectations for the Chico's brand and consequently our future operating margin and earnings expectations for the next four quarters. We are committed to our store opening programs and to improving service levels in our stores, as well as providing our customer with fresh, exciting merchandise and we intend to continue investing in these areas. As we continue to focus on improving customer service, product development/merchandising and marketing, on our aggressive approach to expanding our existing store sizes and on our commitment to improving our direct to consumer businesses, we are prepared to experience lower operating margins as a percent of sales through the first half of next year before we begin to see a turn back towards operating margin improvement as a percent of sales in the second half of the year. The slight improvement anticipated for the back half of next year is largely due to a moderating shift in the mix of brand sales and anniversarying the increased size of our new stores. Although we foresee a year of lower operating margins, we still anticipate that our operating margin will remain one of the best in the industry."

Some of the other second quarter highlights this year compared to the second quarter results last year include the following:

* The Chico's/Soma brand sales, excluding catalog and Internet, increased by 10.9% from $271 million to $301 million. Comparable store sales for the combined Chico's/Soma brands, after nine years of double digit increases for the Chico's brand, increased by 3%, just below management's announced expectations of an increase in the mid single digit range. The average transaction amount for the Chico's front-line stores increased by 2.6% and the average unit retail increased by 4.5%.

* The second quarter Chico's core brand operating margin decreased by approximately 240 basis points, principally due to an approximate 30 basis point decrease due to stock-based compensation, an approximate 40 basis point increase in store payroll costs as the Company focuses on improving its service levels, an approximate 80 basis point increase in fringe rate costs (primarily from increased health insurance costs), an approximate 30 basis point increase in write offs associated with the relocation/expansion/closing of existing stores, an approximate 30 basis point increase in marketing for the core brand, and an approximate 10 basis point increase in the Company's investment in the core brand's merchandising teams.

* The brand operating margin for Soma increased by approximately 1,400 basis points. Merchandise margins improved by 590 basis points, while other costs leveraged due to the higher number of stores and the increases in its direct to consumer sales business. The Company estimates that the investment in Soma reduced the current quarter's income by approximately $.01 and the six month period's income by $.02. The Company is now expecting that the investment in the continued growth and development of the Soma brand will be a reduction of approximately $.05 in EPS for fiscal year 2006 and a reduction of approximately $.03 in EPS for fiscal year 2007. The Company continues to anticipate reaching profitability in the Soma brand during fiscal 2008. The Company estimates its total investment in the launching of the Soma brand by the time it turns profitable will be approximately $.12 per share.

* The WH|BM brand sales, excluding catalog and Internet, increased by 42.0% from $62 million to $88 million, while comparable store sales for the brand increased in the high teens range, continuing its trend of five consecutive years of double digit same store sales increases. The average transaction amount for the WH|BM brand increased by 8.7%, the average unit retail increased by 10.7%, and the merchandise margins increased by approximately 230 basis points. The brand operating margin for WH|BM improved by approximately 260 basis points in the second quarter of fiscal 2006, principally due to the improved merchandise margins referred to above.

* Fitigues, our newest brand, which continues to focus on infrastructure improvements during fiscal 2006, had the effect of reducing earnings per share slightly, which is consistent with earlier management statements projecting that Fitigues would have the effect of reducing earnings by approximately $.01 to $.02 in fiscal 2006. We also believe that our continuing investment in Fitigues will have the effect of reducing earnings by $.01 to $.02 in fiscal 2007 as we build this brand.

* Catalog and Internet sales saw an overall 73% increase, principally due to the addition in fiscal 2006 of catalog and Internet sales of WH|BM and Fitigues merchandise and a stepped up presence of Soma merchandise in our catalogs and on the Internet. The Chico's brand by itself experienced a solid 31% increase in catalog and Internet sales.

* The outlet division, which includes sales from all four of the brands, showed slight decreases in both gross and operating margins as overall gross margins in the division declined by approximately 20 basis points, while overall operating margins in the division decreased by approximately 40 basis points, principally due to the change in mix of brand sales.

* Incremental stock-based compensation expense reduced the gross margin in the second quarter by approximately $1.5 million, or 40 basis points, and increased SG&A costs by approximately $3.7 million, or 90 basis points. Overall, increased total stock-based compensation expense had the effect of reducing net income and earnings per share for the second quarter of fiscal 2006 by approximately $3.3 million and approximately $.02 per diluted share, respectively. For the six month period ended July 29, 2006, increased total stock-based compensation expense had the effect of reducing net income and earnings per share by approximately $6.4 million and approximately $.04 per diluted share, respectively.

* The Company opened 19 new stores during the second quarter and closed 5 stores. In addition, the Company expanded or relocated 10 additional stores during the quarter. During the first 6 months, the Company opened 39 new stores, closed 7 stores, reacquired one franchisee and acquired the Fitigues chain of 11 stores, along with expanding or relocating 15 stores. The Company estimates that the write offs associated with repositioning of its stores due to its relocation/expansion/closure program will reduce the fiscal year's earnings by approximately $.03 and that it reduced the first six months earnings by $.01.

* Since the beginning of the fiscal year and through August 23rd, the Company has opened 52 stores, net of closures, (20 so far in the 3rd quarter) towards its stated goal of 145 to 150 net new stores for fiscal 2006. The Company expects 48 to 50 stores will be opened during the remainder of the third quarter with 45 to 48 opening in the fourth quarter. In addition, through August 23rd, the Company expanded/relocated 22 stores (including 7 so far in the 3rd quarter) and expects to relocate or expand an additional 19 to 21 stores in the 3rd quarter and an additional 23 to 25 in the 4th quarter.

* Overall inventories increased 14% since the beginning of the year and 38% since the 2nd quarter of last year. The Company's inventory per selling square foot was up from $59 of inventory per selling square foot for the comparable period last year to $68 of inventory per selling square foot this year. This year over year increase was principally due to several factors, including expanded direct to consumer offerings for all four brands, planned increases to support a particularly heavy store opening and expansion program in the third quarter, and a significantly greater emphasis on ocean versus air shipments which tends to result in a growth in the in transit portion of the Company's inventories.

Future Outlook:

* Although there are many factors that could impact the Company's performance in fiscal 2006 and fiscal 2007, the Company believes that, after taking into consideration the first six months sales and earnings and our August-to-date sales results, the following estimated operating results for the remainder of fiscal 2006 and the initial expectations for fiscal 2007 are sound yet conservative. We certainly intend to strive to exceed these expectations:

               3rd Quarter 2006   4th Quarter    Fiscal 2006    Fiscal 2007
                                    2006(2)
    Comparable
     store
     sales:

    Chico's      Flat to low      Flat to low    Low single     Flat to low
                    single           single                       single

    WH|BM       High single to    High single    Mid double     High single
                  low double

    Operating
     margin        17%-19%          14%-16%        17%-19%        16%-18%

    Earnings       $0.26-           $0.25-         $1.10-         $1.28-
     per share    $0.28(1)        $0.27(1,2)     $1.14(1,2)       $1.36

    (1) Net of $.02 per diluted share associated with the increase in total
        stock-based compensation expense in each of the 3rd and 4th quarters
        and a total of $.08 per diluted share for fiscal 2006 as a whole,
        which is unchanged from the Company's previously announced forecast.
    (2) 4th quarter includes an additional week compared to the fiscal 2005
        4th quarter.


The Company is a specialty retailer of private label, sophisticated, casual-to-dressy clothing, intimates, complementary accessories, and other non-clothing gift items. The Company operates 826 women's specialty stores, including stores in 47 states, the District of Columbia, the U.S. Virgin Islands and Puerto Rico operating under the Chico's, White House | Black Market, Soma by Chico's and Fitigues names. The Company owns 516 Chico's front-line stores, 32 Chico's outlet stores, 216 White House | Black Market front-line stores, 11 White House | Black Market outlet stores, 27 Soma by Chico's stores, 10 Fitigues front-line stores and 1 Fitigues outlet store; franchisees own and operate 13 Chico's stores.

Certain statements contained herein, including without limitation, statements addressing the beliefs, plans, objectives, estimates or expectations of the Company or future results or events constitute "forward- looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Such forward-looking statements involve known or unknown risks, including, but not limited to, general economic and business conditions, and conditions in the specialty retail industry. There can be no assurance that the actual future results, performance, or achievements expressed or implied by such forward-looking statements will occur. Users of forward-looking statements are encouraged to review the Company's latest annual report on Form 10-K, its filings on Form 10-Q, management's discussion and analysis in the Company's latest annual report to stockholders, the Company's filings on Form 8-K, and other federal securities law filings for a description of other important factors that may affect the Company's business, results of operations and financial condition. The Company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that projected results expressed or implied in such statements will not be realized.

For more detailed information, please call (877) 424-4267 to listen to the

Company's monthly sales information and investor relations line

A copy of a slide show addressing the Company's recent financial results and

current plans for expansion is available on the Company's website at

           http://www.chicos.com in the investor relations section

Additional investor information on Chico's FAS, Inc. is available free of

       charge on the Company's website at http://www.chicos.com in the
                          investor relations section


                          (Financial Tables Follow)



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

                                                   July 29,        January 29,
                                                     2006             2006
                                                 (Unaudited)
                                 ASSETS
    Current Assets:
         Cash and cash equivalents                  $15,020           $3,035
         Marketable securities, at market           238,378          401,445
         Receivables                                  5,373            7,240
         Income taxes receivable                          -            5,013
         Inventories                                108,882           95,421
         Prepaid expenses                            16,331           13,497
         Deferred taxes                              14,848           12,327
              Total Current Assets                  398,832          537,978

    Property and Equipment:
         Land and land improvements                  52,653           44,893
         Building and building improvements          55,558           35,573
         Equipment, furniture and fixtures          218,340          187,970
         Leasehold improvements                     235,733          209,342
              Total Property and Equipment          562,284          477,778
         Less accumulated depreciation and
          amortization                             (157,674)        (131,846)
              Property and Equipment, Net           404,610          345,932

    Other Assets:
         Goodwill                                    69,348           61,796
         Other intangible assets                     34,086           34,041
         Deferred taxes                               3,402                -
         Other assets                                20,253           19,666
              Total Other Assets                    127,089          115,503
                                                   $930,531         $999,413

                  LIABILITIES AND STOCKHOLDERS' EQUITY
    Current Liabilities:
         Accounts payable                           $53,082          $47,434
         Accrued liabilities                         72,528           74,586
         Current portion of deferred liabilities        820              648
              Total Current Liabilities             126,430          122,668

    Noncurrent Liabilities:
         Deferred liabilities                        72,035           65,189
         Deferred taxes                                   -            5,129
              Total Noncurrent Liabilities           72,035           70,318

    Stockholders' Equity:
         Common stock                                 1,754            1,817
         Additional paid-in capital                 218,421          202,878
         Unearned compensation                            -           (3,710)
         Retained earnings                          511,912          605,537
         Accumulated other comprehensive loss           (21)             (95)
              Total Stockholders' Equity            732,066          806,427
                                                   $930,531         $999,413



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

                                          Twenty-Six Weeks Ended

                                   July 29, 2006       July 30, 2005

                                             % of                  % of
                                 Amount      Sales     Amount      Sales

    Net sales by Chico's/
     Soma stores                $597,603      75.0    $539,071      80.4
    Net sales by White
     House | Black Market
     stores                      167,383      21.0     111,095      16.6
    Net sales by catalog &
     Internet                     24,533       3.1      14,992       2.2
    Other net sales                7,115       0.9       5,022       0.8
       Net sales                 796,634     100.0     670,180     100.0

    Cost of goods sold           311,326      39.1     261,627      39.0
       Gross profit              485,308      60.9     408,553      61.0

    General, administrative
     and store operating
     expenses                    294,811      37.0     239,330      35.7
    Depreciation and
     amortization                 28,783       3.6      19,853       3.0

       Income from operations    161,714      20.3     149,370      22.3

    Interest income, net           5,965       0.7       3,504       0.5
       Income before taxes       167,679      21.0     152,874      22.8

    Income tax provision          61,372       7.7      56,563       8.4
       Net income               $106,307      13.3     $96,311      14.4

    Per share data:
    Net income per common
     share-basic                   $0.59                 $0.54

    Net income per common &
     common equivalent
     share-diluted                 $0.59                 $0.53

    Weighted average common
     shares outstanding-basic    179,437               180,007

    Weighted average common &
     common equivalent shares
     outstanding-diluted         180,789               181,867



                                         Thirteen Weeks Ended

                                 July 29, 2006          July 30, 2005

                                            % of                   % of
                                Amount      Sales       Amount     Sales

    Net sales by Chico's/
     Soma stores                $301,045      74.4      $271,466     79.2
    Net sales by White
     House | Black Market
     stores                       87,964      21.7        61,932     18.1
    Net sales by catalog &
     Internet                     12,197       3.0         7,035      2.0
    Other net sales                3,447       0.9         2,492      0.7
       Net sales                 404,653     100.0       342,925    100.0

    Cost of goods sold           160,735      39.7       136,429     39.8
       Gross profit              243,918      60.3       206,496     60.2

    General, administrative
     and store operating
     expenses                    146,576      36.2       120,056     35.0
    Depreciation and
     amortization                 15,250       3.8        10,482      3.0

       Income from operations     82,092      20.3        75,958     22.2

    Interest income, net           2,835       0.7         1,994      0.5
       Income before taxes        84,927      21.0        77,952     22.7

    Income tax provision          31,084       7.7        28,841      8.4
       Net income                $53,843      13.3       $49,111     14.3

    Per share data:
    Net income per common
     share-basic                   $0.30                   $0.27

    Net income per common &
     common equivalent
     share-diluted                 $0.30                   $0.27

    Weighted average common
     shares outstanding-basic    177,385                 180,410

    Weighted average common &
     common equivalent shares
     outstanding-diluted         178,495                 182,292



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

                                (In thousands)

                                                     Twenty-Six Weeks Ended

                                                      July 29,     July 30,

                                                        2006         2005
    CASH FLOWS FROM OPERATING ACTIVITIES:
      Net income                                       $106,307      $96,311
      Adjustments to reconcile net income to net
       cash provided by operating activities -
         Depreciation and amortization, cost of
          goods sold                                      3,593        2,225
         Depreciation and amortization, other            28,783       19,853
         Deferred tax benefit                           (11,114)      (8,831)
         Stock-based compensation expense, cost of
          goods sold                                      3,144          205
         Stock-based compensation expense, general,
          administrative and store operating expenses     7,760          579
         Excess tax benefit of stock-based
          compensation                                   (2,615)           -
         Tax benefit of stock options exercised               -       11,766
         Deferred rent expense, net                       1,872        1,647
         Loss on disposal of property and equipment         266          383
      (Increase) decrease in assets -
         Receivables                                      6,848       (1,638)
         Inventories                                    (12,737)      (5,930)
         Prepaid expenses and other, net                 (3,466)      (5,485)
      Increase in liabilities -
         Accounts payable                                 5,649        1,505
         Accrued and other deferred liabilities           6,480       15,647
              Total adjustments                          34,463       31,926
              Net cash provided by operating
               activities                               140,770      128,237

    CASH FLOWS FROM INVESTING ACTIVITIES:
      Sales (purchases) of marketable securities,
       net                                              163,141      (83,724)
      Purchase of Fitigues assets                        (7,527)           -
      Acquisition of franchise store                       (761)           -
      Purchase of equity investment                           -      (10,406)
      Purchases of property and equipment               (91,128)     (45,446)
              Net cash provided by (used in)
               investing activities                      63,725     (139,576)

    CASH FLOWS FROM FINANCING ACTIVITIES:
      Proceeds from issuance of common stock              4,875       12,654
      Excess tax benefit of stock-based compensation      2,615            -
      Repurchase of common stock                       (200,000)           -
                Net cash (used in) provided by
                 financing activities                  (192,510)      12,654

                Net increase in cash and cash
                 equivalents                             11,985        1,315
    CASH AND CASH EQUIVALENTS, Beginning of period        3,035       14,426
    CASH AND CASH EQUIVALENTS, End of period            $15,020      $15,741



     Executive Contacts:

     Charles J. Kleman
     Executive Vice President
     Chief Financial Officer
     Chico's FAS, Inc.
     (239) 274-4105

     F. Michael Smith
     Vice President
     Investor and Community Relations
     Chico's FAS, Inc.
     (239) 274-4797
SOURCE  Chico's FAS, Inc.
    -0-                             08/23/2006
    /CONTACT:  Charles J. Kleman, Executive Vice President, Chief Financial
Officer, +1-239-274-4105, or F. Michael Smith, Vice President, Investor and
Community Relations, +1-239-274-4797, both of Chico's FAS, Inc./
    /Photo:  NewsCom:  http://www.newscom.com/cgi-bin/prnh/20030428/CHICOLOGO
              AP Archive:  http://photoarchive.ap.org
              PRN Photo Desk, photodesk@prnewswire.com /
    /Web site:  http://www.chicos.com /
    (CHS)

CO:  Chico's FAS, Inc.
ST:  Florida
IN:  REA FAS TEX
SU:  ERN ERP

MR-JK
-- FLW016 --
5325 08/23/2006 16:15 EDT http://www.prnewswire.com

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