Press Release Details

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

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

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

Net Sales

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

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

Gross Margin

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

Selling, General and Administrative Expenses   

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

Impairment Charges

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

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

Income Tax Provision

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

Inventories

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

Share Repurchase Program

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

ABOUT CHICO'S FAS, INC.

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

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

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

(Financial Tables Follow)

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

Supplemental Detail on Earnings Per Share Calculation

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

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

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

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

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

SOURCE Chico's FAS, Inc.