- Third quarter net sales decreased 5.2% to $394.2 million
- Third quarter net income was $2.0 million, or $0.01 per diluted share
- Company opened 8 net new stores and relocated/expanded 6 existing
stores during quarter
- Company secures new $55 million senior revolving credit facility
FORT MYERS, Fla., Nov. 25 /PRNewswire-FirstCall/ -- Chico's FAS, Inc.
(NYSE: CHS) today announced its financial results for the fiscal 2008 third
quarter and nine months ended November 1, 2008.
(Logo: http://www.newscom.com/cgi-bin/prnh/20080211/CHICOSLOGO )
Net sales for the third quarter ended November 1, 2008 decreased 5.2% to
$394.2 million from $415.9 million for the fiscal 2007 third quarter ended
November 3, 2007. Net income for the fiscal 2008 third quarter was $2.0
million, or $0.01 per diluted share, compared to net income of $23.6 million,
or $0.13 per diluted share, in the prior year's third quarter. As previously
reported, comparable store sales decreased 13.4% for the thirteen-week period
ended November 1, 2008, compared to the comparable thirteen-week period last
year ended November 3, 2007, as same store sales decreased approximately 17%
for the Chico's brand and approximately 5% for the WH|BM brand.
Net sales for the nine months ended November 1, 2008 decreased 7.4% to
$1.209 billion from $1.305 billion for the prior year's nine months ended
November 3, 2007. Net income for the nine months was $21.4 million, or $0.12
per diluted share, compared to $109.4 million, or $0.62 per diluted share, in
the first nine months of the prior year. As previously reported, comparable
store sales decreased 15.7% for the thirty-nine week period ended November 1,
2008, compared to the comparable thirty-nine week period last year ended
November 3, 2007, as same store sales decreased approximately 19% for the
Chico's brand and approximately 9% for the WH|BM brand.
Gross margin for the third quarter decreased 12.8% to $211.4 million from
$242.5 million in the prior year's third quarter. Gross margin as a
percentage of sales for the current quarter decreased 470 basis points to
53.6%, from 58.3% in the prior year's third quarter. Chico's brand
merchandise margins in the third quarter decreased approximately 430 basis
points compared to the prior year's third quarter primarily due to lower
initial markups as well as higher markdowns in order to liquidate inventory
and bring levels in line with the current sales trend. The gross margin
percentage at the Chico's brand was also negatively impacted by continued
investment in the Company's product development and merchandising functions,
coupled with the deleverage of these costs attributable to the negative same
store sales. These decreases in gross margin at the Chico's brand were further
exacerbated by a 450 basis point decline in the brand merchandise margins at
WH|BM, also due primarily to lower initial markups and higher markdowns, which
resulted in overall Company gross margins deteriorating further due to the
impact of the mix effect resulting from WH|BM sales becoming a larger portion
of the Company's overall net sales.
Selling, general and administrative expenses ("SG&A") for the third
quarter decreased 2.8% to $213.1 million from $219.2 million in the prior
year's third quarter mainly due to the on-going cost reduction initiatives
implemented by the Company. As a percentage of sales, SG&A in the third
quarter increased by approximately 130 basis points compared to the prior
period primarily due to the deleverage associated with the Company's negative
same store sales.
Store operating expenses as a percentage of sales in the third quarter
increased by approximately 280 basis points compared to the prior period
primarily due to increased occupancy costs and to a lesser extent, by
increased personnel costs as a percentage of sales, as selling payroll did not
flex in direct proportion to the decrease in comparable store sales. The
percentage was further impacted by the deleverage associated with the
Company's negative same store sales, and to a lesser extent, the mix effect of
the WH|BM and Soma Intimates stores, (which have a higher operating cost
structure) becoming a larger portion of the Company's store base.
Marketing costs for the fiscal 2008 third quarter decreased by $6.9
million or approximately 130 basis points primarily due to the on-going cost
reduction initiatives and increased efficiencies implemented by the Company.
Shared services expenses (including headquarters and other non-brand
specific expenses) for the fiscal 2008 third quarter decreased by $2.0 million
or approximately 20 basis points as a percentage of sales mainly due to the
on-going cost reduction initiatives implemented by the Company.
The income tax benefit for the fiscal 2008 third quarter was $1.3 million
compared to income tax expense of $9.6 million for the fiscal 2007 third
quarter. The effective tax rate for the current quarter is unusual because of
the impact of the Company significantly reducing its estimated annual pre-tax
income for fiscal 2008, and to a lesser extent, the impact of favorable
permanent differences mainly tax-free interest and charitable contributions.
Commenting on the operating results for the third quarter, Scott A.
Edmonds, Chairman, President, and CEO said, "We believe our third quarter
operating results are reflective of the poor economy and consumers declining
confidence. This is underscored by the approximate 10% decrease in Company-
wide transactions experienced during the quarter, which contributed to the
13.4% decline in comparable store sales. Accordingly, the lower level of
sales and transactions necessitated a greater-than-planned level of markdowns
and, therefore, a lower gross margin."
Mr. Edmonds added, "We continue to strive to provide our customers with
merchandise that is both compelling in fashion terms and affordable. While we
are committed to keeping our balance sheet strong and preserving an
appropriate amount of cash, it is vital that we continue to invest in our
brands and position ourselves to recapture sales and gain market share once
the economy improves."
Mr. Edmonds continued, "Given the expectation of continued economic
challenges for the next several quarters, we remain focused on conserving cash
through reducing costs, limiting our capital expenditures to what is
necessary, and managing inventories. To date, we have identified and
implemented over $50 million in annual expense savings while trimming 2008
capital expenditures to approximately $110 million compared to the $202
million expended last year."
The Company's capital position has been strengthened by its recent entry
into a new credit facility with SunTrust Bank. This new $55 million facility
has an increased aggregate principal amount of $10 million (above the prior
$45 million facility), and also has a $45 million accordion feature providing
additional debt capacity if and when needed. The new facility is secured by
certain assets and contains terms and conditions common to facilities of this
type. It will expire in November 2011.
Commenting on the accomplishment of the new credit facility, Mr. Edmonds
stated, "Securing this new facility in these uncertain economic times is a
testament to our financial strength. Our strong balance sheet, which includes
$256 million in cash and marketable securities and no debt, accompanied by no
immediate plans to draw on the new facility, increases our financial
flexibility and further reinforces our ability to successfully emerge from
this economic crisis."
Additional information with respect to the third quarter results include
the following:
-- The Chico's/Soma brand sales, excluding direct to consumer, decreased
by 10.5% from $300.6 million in last year's third quarter to $269.1 million in
this year's third quarter, while WH|BM brand sales increased by 9.8% from
$97.3 million to $106.8 million quarter over quarter. The average transaction
size for the Chico's front-line stores during the fiscal 2008 third quarter
decreased by approximately 7% while the average transaction size at WH|BM
front-line stores increased by approximately 5% compared to last year's third
quarter. The average unit retail for the Chico's front-line stores for the
fiscal 2008 third quarter declined by 7% as compared to last year's third
quarter, while the WH|BM average unit retail decreased by 1% quarter over
quarter. Transactions at the Chico's and WH|BM front-line stores for the
fiscal 2008 third quarter decreased by approximately 12% and 10%,
respectively, as compared to last year's third quarter.
-- Net sales for the direct to consumer channel increased by 2.2% from
$18.0 million in last year's third quarter to $18.4 million in this year's
third quarter. This increase is attributable to higher sales for the Soma and
WH|BM brands offset by decreased sales for the Chico's brand. The Company
believes its ability to achieve some level of overall increase in these
challenging economic times is attributable to several factors: the continued
growth in customer acceptance of the offerings at the Soma and WH|BM brands,
increased traffic in the direct to consumer channel and the Company's
implementation of planned improvements in its website and call center
infrastructure. The Company intends to continue making improvements to its
direct to consumer infrastructure and merchandising approach in an effort to
increase future sales through this channel.
-- During the fiscal 2008 third quarter, the Company opened 13 new stores
and closed 5 stores. Also, during this third quarter, the Company
expanded/relocated 6 stores. During the fourth quarter, the Company expects
net closings of between 5 and 7 stores bringing its fiscal 2008 store openings
to approximately 38-40 net new stores. In addition, during the fourth
quarter, the Company expects to expand or relocate between 1 and 3 stores.
-- The Company's consolidated inventory per selling square foot as of the
end of the third quarter of fiscal 2008 decreased approximately 2% to $72 from
$73 as of the end of the fiscal 2007 third quarter. Included in the
comparisons is an approximate $5 million increase in in-transit inventory for
the WH|BM brand over quarter end last year. In particular, end of quarter
inventories for the Chico's brand decreased by approximately 9% per square
foot compared to the third quarter of fiscal 2007.
-- On August 1, 2007, the Company consummated a transaction to sell a
parcel of land which included a note receivable with a principal amount of
approximately $25.8 million payable in a balloon payment in two years. As the
balloon payment is due within one year of the most recently ended quarter, the
Company has reclassified the $25.8 million note receivable from a long-term
asset to a current asset and is included in the receivable line of the
accompanying balance sheets.
-- During the fiscal 2007 third quarter, the Company realized a gain on
its investment in lucy activewear, inc. The transaction closed on August 24,
2007 and the Company recorded a gain of approximately $6.8 million, or $0.025
per diluted share, which is reflected as non-operating income in the
accompanying statement of operations.
-- On November 24, 2008, the Company entered into a $55 million senior
secured revolving credit facility with SunTrust Bank. The credit facility
provides for swing advances of up to $5 million and issuance of letters of
credit up to $10 million and also provides the Company the ability, subject to
satisfaction of certain conditions, to increase the commitments available
under the credit facility to $100 million through additional syndication.
This credit facility replaces the Company's previous $45 million credit
facility.
The Company is a specialty retailer of private branded, sophisticated,
casual-to-dressy clothing, intimates, complementary accessories, and other
non-clothing gift items. The Company operates 1,086 women's specialty stores,
including stores in 49 states, the District of Columbia, the U.S. Virgin
Islands and Puerto Rico operating under the Chico's, White House | Black
Market, and Soma Intimates names. The Company has 623 Chico's front-line
stores, 41 Chico's outlet stores, 330 White House | Black Market front-line
stores, 19 White House | Black Market outlet stores, 72 Soma Intimates front-
line stores and 1 Soma Intimates outlet store.
Certain statements contained herein, including without limitation,
statements addressing the beliefs, plans, objectives, estimates or
expectations of the Company or future results or events constitute "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995, as amended. Such forward-looking statements involve known
or unknown risks, including, but not limited to, general economic and business
conditions, and conditions in the specialty retail industry. There can be no
assurance that the actual future results, performance, or achievements
expressed or implied by such forward-looking statements will occur. Users of
forward-looking statements are encouraged to review the Company's latest
annual report on Form 10-K, its filings on Form 10-Q, management's discussion
and analysis in the Company's latest annual report to stockholders, the
Company's filings on Form 8-K, and other federal securities law filings for a
description of other important factors that may affect the Company's business,
results of operations and financial condition. The Company does not undertake
to publicly update or revise its forward-looking statements even if experience
or future changes make it clear that projected results expressed or implied in
such statements will not be realized.
For more detailed information, please call (877) 424-4267 to listen to the
Company's monthly sales information and investor relations line
Additional investor information on Chico's FAS, Inc. including a
presentation summarizing the Company's recent financial results is available
on the Company's website at http://www.chicosfas.com
(Financial Tables Follow)
Executive Contact:
Robert C. Atkinson
Vice President-Investor Relations
Chico's FAS, Inc.
(239) 274-4199
Chico's FAS, Inc.
Consolidated Balance Sheets
(in thousands)
November 1, February 2,
2008 2008
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $50,233 $13,801
Marketable securities, at market 206,105 260,469
Receivables 38,287 11,924
Income tax receivable - 23,973
Inventories 187,271 144,261
Prepaid expenses 24,063 18,999
Deferred taxes 19,131 13,306
Total Current Assets 525,090 486,733
Property and Equipment:
Land and land improvements 18,225 17,867
Building and building improvements 74,542 62,877
Equipment, furniture and fixtures 381,812 347,937
Leasehold improvements 428,755 396,650
Total Property and Equipment 903,334 825,331
Less accumulated depreciation and
amortization (319,083) (257,378)
Property and Equipment, Net 584,251 567,953
Other Assets:
Goodwill 96,774 96,774
Other intangible assets 38,930 38,930
Deferred taxes 29,406 22,503
Other assets, net 9,368 37,233
Total Other Assets 174,478 195,440
$1,283,819 $1,250,126
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $81,948 $88,134
Accrued liabilities 83,883 91,622
Current portion of deferred liabilities 1,528 1,437
Total Current Liabilities 167,359 181,193
Noncurrent Liabilities:
Deferred liabilities 174,307 156,417
Total Noncurrent Liabilities 174,307 156,417
Stockholders' Equity:
Common stock 1,765 1,762
Additional paid-in capital 257,854 249,639
Retained earnings 682,522 661,115
Other accumulated comprehensive income 12 -
Total Stockholders' Equity 942,153 912,516
$1,283,819 $1,250,126
Chico's FAS, Inc.
Consolidated Statements of Income
(Unaudited)
(in thousands, except per share amounts)
Thirty-Nine Weeks Ended
November 1, 2008 November 3, 2007
Amount % of Amount % of
Sales Sales
Net sales by Chico's/Soma stores $832,052 68.8 $942,399 72.2
Net sales by
White House | Black Market stores 328,696 27.2 310,928 23.8
Net sales by Direct to consumer 48,278 4.0 51,587 4.0
Other net sales - - 115 0.0
Net sales 1,209,026 100.0 1,305,029 100.0
Cost of goods sold 555,490 45.9 531,072 40.7
Gross margin 653,536 54.1 773,957 59.3
Selling, general and administrative
expenses:
Store operating expenses 485,436 40.2 467,660 35.8
Marketing 61,673 5.1 64,648 5.0
Shared services 83,553 6.9 85,949 6.6
Total selling, general, and
administrative expenses 630,662 52.2 618,257 47.4
Income from operations 22,874 1.9 155,700 11.9
Gain on sale of investment - - 6,833 0.6
Interest income, net 6,433 0.5 8,177 0.6
Income before taxes 29,307 2.4 170,710 13.1
Income tax provision 7,900 0.6 59,065 4.5
Income from continuing operations 21,407 1.8 111,645 8.6
Loss on discontinued operations,
net of tax - - 2,234 0.2
Net income $21,407 1.8 $109,411 8.4
Per share data:
Income from continuing operations
per common share-basic $0.12 $0.63
Loss on discontinued operations
per common share-basic $- $(0.01)
Net income per common share-basic $0.12 $0.62
Income from continuing operations
per common share-diluted $0.12 $0.63
Loss on discontinued operations
per common share-diluted $- $(0.01)
Net income per common & common
equivalent share-diluted $0.12 $0.62
Weighted average common shares
outstanding-basic 175,836 175,511
Weighted average common & common
equivalent shares
outstanding-diluted 176,017 176,614
Thirteen Weeks Ended
November 1, 2008 November 3, 2007
Amount % of Amount % of
Sales Sales
Net sales by Chico's/Soma stores $269,079 68.2 $300,576 72.3
Net sales by
White House | Black Market stores 106,751 27.1 97,337 23.4
Net sales by Direct to consumer 18,413 4.7 18,000 4.3
Other net sales - - - -
Net sales 394,243 100.0 415,913 100.0
Cost of goods sold 182,870 46.4 173,449 41.7
Gross margin 211,373 53.6 242,464 58.3
Selling, general and administrative
expenses:
Store operating expenses 164,494 41.7 161,708 38.9
Marketing 22,043 5.6 28,919 6.9
Shared services 26,535 6.7 28,554 6.9
Total selling, general,
and administrative expenses 213,072 54.0 219,181 52.7
Income (loss) from operations (1,699) (0.4) 23,283 5.6
Gain on sale of investment - - 6,833 1.6
Interest income, net 2,394 0.6 3,257 0.8
Income before taxes 695 0.2 33,373 8.0
Income tax provision (benefit) (1,300) (0.3) 9,637 2.3
Income from continuing operations 1,995 0.5 23,736 5.7
Loss on discontinued operations,
net of tax - - 166 0.0
Net income $1,995 0.5 $23,570 5.7
Per share data:
Income from continuing operations
per common share-basic $0.01 $0.13
Loss on discontinued operations
per common share-basic $- $(0.00)
Net income per common share-basic $0.01 $0.13
Income from continuing operations
per common share-diluted $0.01 $0.13
Loss on discontinued operations
per common share-diluted $- $(0.00)
Net income per common & common
equivalent share-diluted $0.01 $0.13
Weighted average common shares
outstanding-basic 175,876 175,557
Weighted average common & common
equivalent shares outstanding-
diluted 176,029 176,281
Chico's FAS, Inc.
Consolidated Cash Flow Statements
(Unaudited)
(in thousands)
Thirty-Nine Weeks Ended
November 1, November 3,
2008 2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $21,407 $109,411
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization,
cost of goods sold 7,122 7,718
Depreciation and amortization, other 68,190 59,526
Deferred tax benefit (12,728) (9,743)
Stock-based compensation expense, cost
of goods sold 2,612 3,597
Stock-based compensation expense, other 6,822 9,131
(Excess) deficiency tax benefit
of stock-based compensation (100) 259
Deferred rent expense, net 5,423 7,574
Gain on sale of investment - (6,833)
Loss (gain) on disposal of property and
equipment 711 (919)
Increase (decrease) in assets -
Receivables, net (528) (2,495)
Income tax receivable 23,973 -
Inventories (43,010) (56,285)
Prepaid expenses and other (3,035) (5,508)
(Decrease) increase in liabilities -
Accounts payable (6,186) 41,069
Accrued and other deferred liabilities 3,492 25,635
Total adjustments 52,758 72,726
Net cash provided by operating activities 74,165 182,137
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales (purchases) of marketable securities,
net 54,376 (39,177)
Purchase of Minnesota franchise rights
and stores - (32,896)
Acquisition of other franchise stores - (6,361)
Proceeds from sale of land - 13,426
Proceeds from sale of investment - 15,090
Purchases of property and equipment (92,320) (160,452)
Net cash used in investing activities (37,944) (210,370)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 307 3,524
Excess (deficiency) tax benefit of
stock-based compensation 100 (259)
Repurchase of common stock (196) (279)
Net cash provided by financing activities 211 2,986
Net increase (decrease) in cash and
cash equivalents 36,432 (25,247)
CASH AND CASH EQUIVALENTS, Beginning of period 13,801 37,203
CASH AND CASH EQUIVALENTS, End of period $50,233 $11,956
SOURCE Chico's FAS, Inc.
CONTACT: Robert C. Atkinson, Vice President-Investor Relations, Chico's
FAS, Inc., +1-239-274-4199/
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(CHS)