Chico's FAS, Inc. Reports Third Quarter Results

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

• Reports third quarter EPS of $0.05 per diluted share
• Maintains strong cash position
• Updates full-year outlook

Chico's FAS, Inc. (NYSE: CHS) (the "Company") today announced its financial results for the fiscal 2018 third quarter ended November 3, 2018.

For the thirteen weeks ended November 3, 2018 (the "third quarter"), the Company reported net income of $6.5 million, or $0.05 per diluted share, compared to net income of $16.7 million, or $0.13 per diluted share, for the thirteen weeks ended October 28, 2017 ("last year's third quarter").

For the thirty-nine weeks ended November 3, 2018, the Company reported net income of $52.3 million, or $0.41 per diluted share, compared to net income of $73.0 million, or $0.57 per diluted share, for the thirty-nine weeks ended October 28, 2017.

Results for the thirteen and thirty-nine weeks ended November 3, 2018 include a favorable tax benefit of approximately $4.9 million, or $0.04 per diluted share, related to the Tax Cuts and Jobs Act of 2017 (the "Tax Act"). Results for the thirteen and thirty-nine weeks ended October 28, 2017 include the unfavorable impact of hurricanes Harvey, Irma and Maria (collectively, the "Hurricanes") of approximately $5.0 million after-tax, or $0.04 per diluted share.

"Brand performance in the third quarter was mixed," said Shelley Broader, CEO and President of the Company. "Soma again performed well and better than expectations, and White House Black Market is continuing its brand repositioning. However, our Chico's brand did not deliver the sales we anticipated, which led to total Company results that were below expectations."

Ms. Broader continued, "The initial emphasis that we selected for our Chico's brand repositioning has not resonated with our broader target customer base. So, we are course correcting by implementing a performance improvement plan that includes brand leadership changes and adjustments to our product offering, marketing strategy and assortment architecture to better meet expectations for all customers who shop the Chico's brand. Our attention is keenly focused on establishing a record of consistent top line growth across all three of our brands."

Chico's Brand Performance Improvement Plan

Following the Chico's brand refresh in February 2018, merchandise and marketing were heavily weighted to boho styles, bold colors and original artisanal prints. The Company has determined that this shift was successful in attracting new customers and in reactivating some customers who aspired to the brand's heritage. However, there was not enough depth in clean, classic polished silhouettes or in basics and top key items to appeal to the brand's more polished and traditional customers.

Accordingly, the Company has implemented the following actions to improve performance at the Chico's brand:

• Initiated a leadership transition for the Chico's brand. As separately announced today, Diane Ellis is departing as the Chico's brand president, effective November 30, 2018. The Company has initiated a search to identify a new Chico's brand president. In the interim, the Chico's brand will be led by Ms. Broader.
• Adjusted the spring assortments to appropriately balance its merchandise architecture, reducing planned receipts and chasing more classic merchandise that is performing well.
• Repositioned marketing touchpoints to be more inclusive of all customers by adjusting in-store merchandising and display, print and digital media to feature more clean, classic silhouettes along with boho artisanal styling.
• Adjusted planning and allocation strategies to improve in-stock and stronger penetration in basics and top key items.

Other Third Quarter Business Highlights

• Soma reported positive comparable sales of 2.4%. This better-than-expected performance was primarily driven by the ongoing success of the Enbliss™ collection and Cool Nights™ sleepwear. October was the brand's fifth consecutive month of positive comparable sales.
• White House Black Market is continuing with its brand repositioning. Merchandise margins improved significantly, driven by better full-price selling compared to last year's third quarter.
• The Company's Endless Aisle, or shared inventory system, has been connected to all stores enabling customers to purchase online and ship from store, and is exceeding management's expectations.
• The Company continued to advance its omni-channel capabilities with the launch of Client Book, an enhanced platform that provides digitized clienteling tools to store associates to personalize the customer experience. With Client Book, store associates now offer customers personalized online store fronts of curated product based on their attributes and prior purchase behavior, as well as the opportunity to work online with a personal stylist. Full rollout to all stores is expected in the first quarter of fiscal 2019.

Net Sales

For the third quarter, net sales were $499.9 million compared to $532.3 million in last year's third quarter, a decrease of 6.1%. Excluding the 1.6%, or $9.1 million, impact of the Hurricanes from last year's third quarter, sales decreased 7.7% in the third quarter, which primarily reflects a comparable sales decline of 6.8% as well as the impact of 43 net store closures since last year's third quarter. The comparable sales decline was driven by a decrease in transaction count and lower average dollar sale.

Comparable Sales

Gross Margin

For the third quarter, gross margin was $181.0 million, or 36.2% of net sales, compared to $196.7 million, or 37.0% of net sales, in last year's third quarter. This 80 basis point decrease was primarily driven by an improvement in maintained margin that was more than offset by costs related to the continued expansion of our omni-channel programs.

Selling, General and Administrative Expenses

For the third quarter, selling, general and administrative ("SG&A") expenses were $178.4 million, or 35.7% of net sales, compared to $171.4 million, or 32.3% of net sales, for last year's third quarter. This increase of $7.0 million, or 340 basis points, primarily reflects investments in marketing as well as contract termination and legal costs.

Income Tax Expense

For the third quarter, the $3.8 million income tax benefit resulted in an effective tax rate of (141.7)% compared to 32.9% for last year's third quarter. The reduction in the effective tax rate for the third quarter was primarily due to the acceleration of income tax deductions into the 2017 federal income tax return as a result of the Tax Act.

Cash, Marketable Securities and Debt

At the end of the third quarter, cash and marketable securities totaled $228.9 million, an increase of $42.8 million compared to last year's third quarter, while debt totaled $61.3 million, a decrease of $11.1 million from last year's third quarter. This $42.8 million increase in cash and marketable securities primarily reflects cash generated from operating activities, partially offset by cash utilized for capital expenditures, return of cash to shareholders and debt payments.

Inventories

At the end of the third quarter, inventories totaled $266.1 million compared to $265.0 million at the end of last year's third quarter. This $1.1 million, or 0.4%, increase primarily reflects the timing of product liquidations through a third party.

Fiscal 2018 Fourth Quarter and Full-Year Outlook

The Company expects to see some immediate benefit from its Chico's brand performance improvement actions in the fiscal 2018 fourth quarter. Given the timing of adjustments that are now being made, the Company expects it to be spring of fiscal 2019 before meaningful improvement in the Chico's brand performance is visible in the Company's results.

For the fiscal 2018 fourth quarter, the Company anticipates a mid-teen decline in net sales, which includes the negative impact of the 53^rd week of $29 million in fiscal 2017, and a high single-digit decline in consolidated comparable sales.

The Company anticipates gross margin rate as a percent of net sales to decline approximately 400 to 500 basis points in the fiscal 2018 fourth quarter compared to the fiscal 2017 fourth quarter, primarily driven by our omni-channel programs and deleverage of fixed costs from lower sales. The Company also expects SG&A expenses to decrease approximately $10 million to $15 million compared to the prior year period, primarily due to the  53^rd week in fiscal 2017.

For full-year fiscal 2018, the Company anticipates a high single-digit decline in net sales and a mid single-digit decline in consolidated comparable sales. The Company expects gross margin rate  as a percent of net sales to decline approximately 120 to 140 basis points over fiscal 2017. The Company also expects SG&A expenses to be approximately flat compared to fiscal 2017. 

The Company anticipates capital expenditures to be $50 million to $60 million, primarily driven by store reinvestments and technology enhancements. Inventory is expected to increase compared to the prior year period as a result of the timing of the Chinese New Year and stronger penetration in basics and top key items. The Company estimates a fiscal 2018 tax rate in the range of 20% to 25%.

Conference Call Information

The Company is hosting a live conference call on Wednesday, November 28, 2018 beginning at 8:30 a.m. EST to review the operating results for the third quarter. The conference call is being webcast live over the Internet, which you may access in the Investors section of the Chico's FAS, Inc. corporate website, www.chicosfas.com. A replay of the webcast will remain available online for one year at http://chicosfas.com/investors/events-and-presentations.

The phone number for the call is 1-877-883-0383. International callers should use 1-412-902-6506. The Elite Entry number, 4706952, is required to join the conference call. Interested participants should call 10-15 minutes prior to the 8:30 a.m. start to be placed in queue.

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 November 3, 2018, the Company operated 1,431 stores in the U.S. and Canada and sold merchandise through 83 international 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 as well as through third party channels. For more detailed information on the Company, 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.

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 "Chico's Brand Performance Improvement Plan" and "Fiscal 2018 Fourth Quarter and 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, including the expected impact of U.S. tax reform; 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 and particular strategic initiatives, sales initiatives and multi-channel strategies, including the Chico's Brand Performance Improvement Plan; customer traffic; our ability to appropriately manage our inventory and allocation processes; our ability to leverage inventory management and targeted promotions; the successful leadership transition for the Chico's brand and successful integration of the 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 (particularly with respect to China) that could impact, among other things, our sourcing from foreign suppliers; 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. • 11215 Metro Parkway • Fort Myers, Florida 33966 • (239) 277-6200

SOURCE Chico's FAS, Inc.