Chico's FAS, Inc. Reports Second Quarter Results

- Adjusted EPS of $0.25, a 25% increase compared to last year

- Net sales increase of 1.4%, reflecting positive comparable sales

- Gross margin improvement of 140 basis points

- Announces plan to exit Boston Proper

Aug 26, 2015, 07:30 ET from Chico's FAS, Inc.

FORT MYERS, Fla., Aug. 26, 2015 /PRNewswire/ -- Chico's FAS, Inc. (NYSE: CHS) today announced its financial results for the fiscal 2015 second quarter and twenty-six weeks ended August 1, 2015, and a plan (the "Plan") to sell the Boston Proper direct-to-consumer ("DTC") business and close its existing stores.

For the thirteen weeks ended August 1, 2015 ("the second quarter"), the Company reported adjusted net income of $35.5 million compared to net income of $30.1 million for the thirteen weeks ended August 2, 2014, and second quarter 2015 adjusted earnings per diluted share of $0.25 compared to earnings per diluted share of $0.20 in last year's second quarter. The second quarter adjusted results exclude net charges of $0.23 per diluted share in 2015 related to the Plan to exit Boston Proper and restructuring and strategic charges (the "Net Charges"), as presented in the accompanying GAAP to Non-GAAP Reconciliation. Including the impact of the Net Charges, the Company reported second quarter 2015 net income of $2.1 million, or $0.02 per diluted share.

For the twenty-six weeks ended August 1, 2015, the Company reported adjusted net income of $77.3 million compared to net income of $70.0 million for the twenty-six weeks ended August 2, 2014, and adjusted earnings per diluted share of $0.53 compared to earnings per diluted share of $0.46 in the same period last year. The adjusted results exclude Net Charges of $0.29 per diluted share in 2015, as presented in the accompanying GAAP to Non-GAAP Reconciliation.  Including the impact of the Net Charges, the Company reported net income of $34.6 million, or $0.24 per diluted share in 2015.

Net Sales

For the second quarter, net sales were $680.4 million, an increase of 1.4% compared to $671.1 million in last year's second quarter, primarily reflecting 23 net new stores for a square footage increase of 1.3% and a 0.5% increase in comparable sales. The 0.5% increase in comparable sales for the second quarter was on top of a 0.3% increase in last year's second quarter, and reflected an increase in average dollar sale partially offset by a decrease in transaction count.

Comparable Sales

Twenty-Six Weeks Ended

Thirteen Weeks Ended

August 1, 2015

August 2, 2014

August 1, 2015

August 2, 2014

Chico's

(0.8)

%

(0.1)

%

0.9

%

0.7

%

White House | Black Market

0.0

%

(5.4)

%

(1.9)

%

(1.9)

%

Soma

5.7

%

6.7

%

5.1

%

4.7

%

Total Company

0.2

%

(1.2)

%

0.5

%

0.3

%

Gross Margin

For the second quarter, gross margin was $366.0 million compared to $351.5 million in last year's second quarter. Gross margin was 53.8% of net sales, a 140 basis point increase from last year's second quarter, primarily reflecting a decrease in promotional activity in response to improved inventory management, and benefits from previously announced cost reduction efforts, partially offset by an increase in accrued incentive compensation.

Selling, General and Administrative Expenses

For the second quarter, selling, general and administrative expenses ("SG&A") were $308.4 million compared to $304.7 million in last year's second quarter. SG&A was 45.3% of net sales, a 10 basis point decrease from last year's second quarter, primarily reflecting benefits from previously announced cost reduction efforts, partially offset by an increase in accrued incentive compensation and occupancy costs.

Restructuring and Strategic Charges

For the second quarter, the Company recorded pre-tax restructuring and strategic charges of $16.2 million, primarily related to non-cash property and equipment impairment charges for the Boston Proper stores. On an after-tax basis, the second quarter impact of these charges was $10.1 million, or $0.07 per diluted share.

Impairment Charges

For the second quarter of fiscal 2015, in connection with the Plan, the Company determined that certain Boston Proper intangibles were impaired and recorded $66.9 million in pre-tax, non-cash goodwill and trade name impairment charges ("Impairment Charges"), comprised of $48.9 million related to goodwill and $18.0 million related to the trade name.  On an after-tax basis, second quarter Impairment Charges were $47.1 million, or $0.33 per diluted share.

Income Tax Benefit

Excluding the tax benefits related to the Plan, the 2015 second quarter effective tax rate would have been 37.7% compared to an effective tax rate of 35.5% for the same period last year, primarily reflecting favorable state tax settlements in fiscal 2014.

Inventories

At the end of the second quarter of 2015, inventories totaled $250.3 million, when including inventory related to the Boston Proper DTC business, compared to $238.1 million in last year's second quarter. Inventories per selling square foot decreased 5.7%, when excluding in-transit inventories, primarily reflecting improved inventory management and lower average unit cost compared to the second quarter last year. In-transit inventories increased by $20.3 million, primarily reflecting longer in-transit times and accelerated shipping dates to facilitate timely merchandise receipts.

Assets and Liabilities Held for Sale

At the end of the second quarter of 2015, current assets included $85.9 million in assets held for sale, primarily comprised of $61.9 million in Boston Proper DTC assets and $16.4 million in vacant land. Current liabilities included $7.3 million in Boston Proper DTC liabilities held for sale.

Debt

During the second quarter of  fiscal 2015, the Company repaid $26.5 million borrowed against the Company's credit facilities. At the end of the quarter, the Company had $97.2 million in net borrowings outstanding under its term loan commitment and no borrowings outstanding under its revolving credit facility.

Accelerated Stock Repurchase Agreements

During the second quarter of  fiscal 2015, the Company received 3.9 million additional shares upon the completion of the accelerated stock repurchase agreements ("ASR Agreements") entered into in the first quarter of fiscal 2015. Under the ASR Agreements, the Company repurchased a total of 14.6 million shares for $250.0 million.

ABOUT CHICO'S FAS, INC.

The Company, through its brands – Chico's, White House | Black Market, Soma, 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 August 1, 2015, the Company operated 1,548 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, 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. 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. 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 Adkins 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)

Twenty-Six Weeks Ended

Thirteen Weeks Ended

August 1, 2015

August 2, 2014

August 1, 2015

August 2, 2014

Amount

% of Sales

Amount

% of Sales

Amount

% of Sales

Amount

% of Sales

Net sales:

Chico's

$

722,334

52.6

%

$

722,271

53.4

%

$

353,842

52.0

%

$

349,983

52.1

%

White House | Black Market

436,957

31.8

%

431,087

31.9

%

212,437

31.2

%

213,914

31.9

%

Soma

166,410

12.1

%

149,738

11.0

%

89,864

13.2

%

81,905

12.2

%

Boston Proper

47,990

3.5

%

49,639

3.7

%

24,209

3.6

%

25,328

3.8

%

Total net sales

1,373,691

100.0

%

1,352,735

100.0

%

680,352

100.0

%

671,130

100.0

%

Cost of goods sold

611,953

44.5

%

618,372

45.7

%

314,384

46.2

%

319,658

47.6

%

Gross margin

761,738

55.5

%

734,363

54.3

%

365,968

53.8

%

351,472

52.4

%

Selling, general and administrative expenses

636,654

46.3

%

623,786

46.1

%

308,437

45.3

%

304,737

45.4

%

Goodwill and trade name impairment charges

66,941

4.9

%

0.0

%

66,941

9.8

%

0.0

%

Restructuring and strategic charges

31,041

2.3

%

0.0

%

16,166

2.4

%

0.0

%

Income (loss) from operations

27,102

2.0

%

110,577

8.2

%

(25,576)

(3.7)

%

46,735

7.0

%

Interest (expense) income, net

(955)

(0.1)

%

31

0.0

%

(502)

(0.1)

%

(9)

0.0

%

Income (loss) before income taxes

26,147

1.9

%

110,608

8.2

%

(26,078)

(3.8)

%

46,726

7.0

%

Income tax (benefit) provision

(8,500)

(0.6)

%

40,600

3.0

%

(28,200)

(4.1)

%

16,600

2.5

%

Net income

$

34,647

2.5

%

$

70,008

5.2

%

$

2,122

0.3

%

$

30,126

4.5

%

Per share data:

Net income per common share-basic

$

0.24

$

0.46

$

0.02

$

0.20

Net income per common and common  

     equivalent share–diluted

$

0.24

$

0.46

$

0.02

$

0.20

Weighted average common shares

     outstanding–basic

140,992

148,584

138,606

148,694

Weighted average common and common

     equivalent shares outstanding–diluted

141,339

149,127

138,961

149,218

Dividends declared per share

$

0.2325

$

0.2250

$

0.0775

$

0.0750

 

 

Chico's FAS, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands)

August 1, 2015

January 31, 2015

August 2, 2014

ASSETS

Current Assets:

Cash and cash equivalents

$

109,015

$

133,351

$

114,387

Marketable securities, at fair value

47,999

126,561

94,276

Inventories

239,043

235,159

238,072

Prepaid expenses and other current assets

68,979

51,088

50,744

Assets held for sale

85,941

16,800

Total Current Assets

550,977

562,959

497,479

Property and Equipment, net

563,583

606,147

635,651

Other Assets:

Goodwill

96,774

145,627

171,427

Other intangible assets, net

38,930

109,538

116,017

Other assets, net

15,522

14,310

10,828

Total Other Assets

151,226

269,475

298,272

$

1,265,786

$

1,438,581

$

1,431,402

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable

$

148,288

$

144,534

$

156,091

Current debt

10,000

Other current and deferred liabilities

150,433

158,396

140,545

Liabilities held for sale

7,297

Total Current Liabilities

316,018

302,930

296,636

Noncurrent Liabilities:

Long-term debt

87,186

Deferred liabilities

138,815

142,371

141,704

Deferred taxes

13,562

49,659

47,441

Total Noncurrent Liabilities

239,563

192,030

189,145

Stockholders' Equity:

Preferred stock

Common stock

1,394

1,529

1,530

Additional paid-in capital

422,387

407,275

393,031

Treasury stock, at cost

(249,854)

Retained earnings

535,613

534,255

551,003

Accumulated other comprehensive income

665

562

57

Total Stockholders' Equity

710,205

943,621

945,621

$

1,265,786

$

1,438,581

$

1,431,402

 

 

Chico's FAS, Inc. and Subsidiaries

Condensed Consolidated Cash Flow Statements

(Unaudited)

(in thousands)

Twenty-Six Weeks Ended

August 1, 2015

August 2, 2014

Cash Flows From Operating Activities:

Net income

$

34,647

$

70,008

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

Goodwill and trade name impairment charges, pre-tax

66,941

Depreciation and amortization

61,672

60,373

Loss on disposal and impairment of property and equipment

21,603

209

Deferred tax benefit

(39,881)

(4,443)

Stock-based compensation expense

13,657

12,684

Excess tax benefit from stock-based compensation

(2,170)

(1,196)

Deferred rent and lease credits

(9,219)

(9,221)

Changes in assets and liabilities:

Inventories

(15,165)

73

Prepaid expenses and other assets

(19,212)

(1,645)

Accounts payable

(3,045)

13,346

Accrued and other liabilities

2,254

12,952

Net cash provided by operating activities

112,082

153,140

Cash Flows From Investing Activities:

Purchases of marketable securities

(29,460)

(42,700)

Proceeds from sale of marketable securities

107,994

64,407

Purchases of property and equipment, net

(42,836)

(62,966)

Net cash provided by (used in) investing activities

35,698

(41,259)

Cash Flows From Financing Activities:

Proceeds from borrowings

124,000

Payments on borrowings

(26,500)

Proceeds from issuance of common stock

9,087

4,297

Excess tax benefit from stock-based compensation

2,170

1,196

Dividends paid

(22,160)

(22,901)

Repurchase of common stock

(258,834)

(16,527)

Net cash used in financing activities

(172,237)

(33,935)

Effects of exchange rate changes on cash and cash equivalents

121

(3)

Net (decrease) increase in cash and cash equivalents

(24,336)

77,943

Cash and Cash Equivalents, Beginning of period

133,351

36,444

Cash and Cash Equivalents, End of period

$

109,015

$

114,387

Changes in assets and liabilities reflect Boston Proper DTC assets and liabilities prior to reclassification to held for sale.

 

 

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, 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 non-participating securities such as stock options and PSUs. For the twenty-six and thirteen weeks ended August 1, 2015 and August 2, 2014, 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):

 

Twenty-Six Weeks Ended

Thirteen Weeks Ended

August 1, 2015

August 2, 2014

August 1, 2015

August 2, 2014

Numerator

Net income

$

34,647

$

70,008

$

2,122

$

30,126

Net income and dividends declared allocated to participating

     securities

(804)

(1,902)

(28)

(842)

Net income available to common shareholders

$

33,843

$

68,106

$

2,094

$

29,284

Denominator

Weighted average common shares outstanding – basic

140,992

148,584

138,606

148,694

Dilutive effect of non-participating securities

347

543

355

524

Weighted average common and common equivalent shares

     outstanding – diluted

141,339

149,127

138,961

149,218

Net income per common share*:

Basic

$

0.24

$

0.46

$

0.02

$

0.20

Diluted

$

0.24

$

0.46

$

0.02

$

0.20

*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 results, which exclude certain charges, 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:

 

Chico's FAS, Inc. and Subsidiaries

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

(Unaudited)

(in thousands, except per share amounts)

Twenty-Six Weeks Ended

Thirteen Weeks Ended

August 1, 2015

August 2, 2014

August 1, 2015

August 2, 2014

Net income:

GAAP basis

$

34,647

$

70,008

$

2,122

$

30,126

Goodwill and trade name impairment charges, net of tax

47,127

47,127

Restructuring and strategic charges, net of tax

19,334

10,070

Tax benefit related to the expected disposition of Boston

     Proper's stock

(23,779)

(23,779)

Non-GAAP adjusted basis

$

77,329

$

70,008

$

35,540

$

30,126

Net income per diluted share:

GAAP basis

$

0.24

$

0.46

$

0.02

$

0.20

Goodwill and trade name impairment charges, net of tax

0.33

0.00

0.33

0.00

Restructuring and strategic charges, net of tax

0.13

0.00

0.07

0.00

Tax benefit related to the expected disposition of Boston

     Proper's stock

(0.17)

0.00

(0.17)

0.00

Non-GAAP adjusted basis

$

0.53

$

0.46

$

0.25

$

0.20

 

Chico's FAS, Inc. and Subsidiaries

Store Count and Square Footage

Thirteen Weeks Ended August 1, 2015

(Unaudited)

May 2, 2015

New Stores

Closures

August 1, 2015

Store count:

Chico's frontline boutiques

612

2

(5)

609

Chico's outlets

118

1

119

Chico's Canada

4

4

WH|BM frontline boutiques

440

(5)

435

WH|BM outlets

69

2

71

WH|BM Canada

6

6

Soma frontline boutiques

266

3

(2)

267

Soma outlets

17

17

Boston Proper frontline boutiques

20

20

Total Chico's FAS, Inc.

1,552

8

(12)

1,548

May 2, 2015

New Stores

Closures

Other changes in SSF

August 1, 2015

Net selling square footage (SSF):

Chico's frontline boutiques

1,673,063

4,864

(13,588)

(1,630)

1,662,709

Chico's outlets

295,600

1,975

178

297,753

Chico's Canada

9,695

9,695

WH|BM frontline boutiques

1,009,392

(10,382)

999,010

WH|BM outlets

144,106

4,596

148,702

WH|BM Canada

14,891

14,891

Soma frontline boutiques

502,720

6,062

(4,980)

(58)

503,744

Soma outlets

31,672

31,672

Boston Proper frontline boutiques

34,465

34,465

Total Chico's FAS, Inc.

3,715,604

17,497

(28,950)

(1,510)

3,702,641

As of August 1, 2015 the Company also sold merchandise through 33 international franchise locations.

 

 

Chico's FAS, Inc. and Subsidiaries

Store Count and Square Footage

Twenty-Six Weeks Ended August 1, 2015

(Unaudited)

January 31, 2015

New Stores

Closures

August 1, 2015

Store count:

Chico's frontline boutiques

613

5

(9)

609

Chico's outlets

118

2

(1)

119

Chico's Canada

3

1

4

WH|BM frontline boutiques

441

2

(8)

435

WH|BM outlets

68

3

71

WH|BM Canada

5

1

6

Soma frontline boutiques

263

6

(2)

267

Soma outlets

17

17

Boston Proper frontline boutiques

19

1

20

Total Chico's FAS, Inc.

1,547

21

(20)

1,548

January 31, 2015

New Stores

Closures

Other changes in SSF

August 1, 2015

Net selling square footage (SSF):

Chico's frontline boutiques

1,674,640

12,671

(23,297)

(1,305)

1,662,709

Chico's outlets

295,600

4,381

(2,406)

178

297,753

Chico's Canada

7,313

2,382

9,695

WH|BM frontline boutiques

1,010,242

4,837

(17,156)

1,087

999,010

WH|BM outlets

141,900

6,802

148,702

WH|BM Canada

12,460

2,431

14,891

Soma frontline boutiques

498,642

11,339

(4,980)

(1,257)

503,744

Soma outlets

31,672

31,672

Boston Proper frontline boutiques

33,035

1,430

34,465

Total Chico's FAS, Inc.

3,705,504

46,273

(47,839)

(1,297)

3,702,641

As of August 1, 2015 the Company also sold merchandise through 33 international franchise locations.

 

 

Logo - http://photos.prnewswire.com/prnh/20110920/FL71045LOGO

 

SOURCE Chico's FAS, Inc.



RELATED LINKS

http://www.chicosfas.com