Chico's FAS, Inc. Reports Third Quarter Results

FORT MYERS, Fla., Nov. 26, 2019 /PRNewswire/ --

• Third quarter GAAP loss of $0.07 per diluted share; Adjusted loss of $0.04 per diluted share
• Sequential improvement in comparable sales for all brands
• Executing on strategic priorities, investing in growth areas, maintaining cost discipline
• Updates full-year fiscal 2019 outlook to reflect improvements in the business and tariff impact

Chico's FAS, Inc. (NYSE: CHS) (the "Company") today announced its financial results for the fiscal 2019 third quarter ended November 2, 2019.

For the thirteen weeks ended November 2, 2019 (the "third quarter"), the Company reported a net loss of $8.1 million, or $0.07 loss per diluted share, compared to net income of $6.5 million, or $0.05 earnings per diluted share, for the thirteen weeks ended November 3, 2018 ("last year's third quarter"). The Company reported third quarter adjusted net loss of $4.6 million, or $0.04 loss per diluted share, as presented in the related accompanying GAAP to non-GAAP reconciliation.

For the thirty-nine weeks ended November 2, 2019, the Company reported a net loss of $8.4 million, or $0.07 loss per diluted share, compared to net income of $52.3 million, or $0.41 earnings per diluted share, for the thirty-nine weeks ended November 3, 2018. For the thirty-nine weeks ended November 2, 2019, the Company reported adjusted net income of $0.9 million, or $0.01 earnings per diluted share, as presented in the related accompanying GAAP to non-GAAP reconciliation.

"Our third quarter results demonstrate that we are gaining traction on our strategic priorities. Comparable sales improved sequentially by 10.4 percentage points at White House Black Market and by 2 points at Chico's, our largest brand. In addition, Soma's comparable sales increased double-digits for the second consecutive quarter.  Each of these achievements indicate that the actions being taken are positively impacting results," said Bonnie Brooks, CEO and President.

"Our customers are also responding to our brands' better product, stronger marketing and changes to store presentation. I firmly believe the Company's turnaround is on the right track, and we have updated our full-year financial outlook to reflect the positive momentum of our business," continued Ms. Brooks.

Fiscal 2019 Third Quarter Business Highlights

The following fiscal 2019 third quarter business highlights reflect the Company's progress executing on its three strategic priorities: (i) driving stronger sales through improved product and marketing; (ii) optimizing the customer journey by simplifying, digitizing and extending the Company's unique and personalized service; and (iii) transforming sourcing and supply chain operations to increase product speed to market and improve quality.

• Chico's^® reported sequential improvement in comparable sales, reflecting a focus on key items and a more balanced inventory position between basics and fashion.
• White House Black Market^® ("WHBM") reported sequential improvement in comparable sales enabled by changes made in talent, merchandising and product design.
• Soma^® reported double-digit positive comparable sales growth for the second consecutive quarter, driven by product innovation and inventory and marketing investments.
• In the third quarter, the Company strengthened its product teams and made investments in growth areas, such as digital and customer experience. The Company also repositioned some departments, consolidated others, and reduced areas where the Company can operate more efficiently with fewer resources.
• The Company completed the implementation of its Buy On-Line, Pick-up In-Store (BOPIS) capability across all of its brands.
• The Company is actively diversifying its country of origin mix and reducing manufacturing penetration in China, thereby mitigating the majority of tariff increases.

Net Sales

For the third quarter, net sales were $484.7 million compared to $499.9 million in last year's third quarter. This decrease of 3.0% reflects a comparable sales decline of 2.2% as well as the impact of 58 net store closures since last year's third quarter. The comparable sales decline was driven by lower average dollar sale, partially offset by an increase in transaction count. In the third quarter, comparable sales at Soma were up positive double-digits for the second consecutive quarter while Chico's and WHBM posted sequential quarter-over-quarter improvement by adjusting product assortment and presentation.

Comparable Sales

Gross Margin

For the third quarter, gross margin was $171.0 million, or 35.3% of net sales, compared to $181.0 million, or 36.2% of net sales, in last year's third quarter. This 90-basis point decrease primarily reflects accelerated depreciation as a result of our previously announced retail fleet optimization plan and the impact of severance and other related net charges (collectively, "Severance Charges") in connection with actions taken to reposition our organizational structure.

Excluding the 60 basis-point impact of accelerated depreciation and Severance Charges, gross margin decreased 30 basis points as a result of the clearance of seasonal merchandise and the impact of tariffs, partially offset by improvement in occupancy costs as a percent of sales.

Selling, General and Administrative Expenses

For the third quarter, selling, general and administrative ("SG&A") expenses were $180.6 million, or 37.3% of net sales, compared to $178.4 million, or 35.7% of net sales, for last year's third quarter. The $2.2 million increase primarily includes Severance Charges in connection with our revised organizational structure.

Retail Fleet Optimization Plan

In the third quarter, the Company recorded pre-tax accelerated depreciation charges of property and equipment within cost of goods sold ("COGS") of $2.1 million, or 40 basis points, related to our retail fleet optimization plan. On an after-tax basis, the third quarter impact of these charges was $1.5 million, or $0.01 earnings per diluted share.

Severance Charges

In the third quarter, the Company recorded pre-tax Severance Charges of $2.8 million. These charges are reflected in the financial statements as $1.0 million, or 20 basis points, in COGS and $1.8 million, or 40 basis points, in SG&A. On an after-tax basis, the third quarter impact of these charges was $2.1 million, or $0.02 earnings per diluted share.

Income Taxes

For the third quarter, the effective tax rate was 14.7% compared to (141.7)% for last year's third quarter. The 14.7% effective tax rate was primarily the result of an income tax benefit on the third quarter operating loss, offset by an unfavorable fiscal 2018 provision-to-return adjustment, and a valuation allowance on certain deferred tax assets for charitable contributions with limitations. The favorable prior year effective tax rate was primarily due to the Company's ability to accelerate certain income tax deductions into the 2017 federal tax return as a result of the Tax Cuts and Jobs Act of 2017.

Cash, Marketable Securities and Debt

At the end of the third quarter, cash and marketable securities totaled $127.4 million while debt totaled $46.3 million.

Inventories

At the end of the third quarter, inventories totaled $277.5 million compared to $266.1 million at the end of last year's third quarter. This $11.4 million, or 4.3%, increase primarily reflects continued investment in Soma inventory to fund growth.

Fiscal 2019 Fourth Quarter and Full-Year Outlook

The Company is initiating outlook for the fourth quarter of fiscal 2019 and is updating its previously provided full-year fiscal 2019 outlook to reflect improvements in the business. The outlook for both the fourth quarter and fiscal year now includes the incremental impact of tariffs, while excluding expected net charges related to the Company's retail fleet optimization plan and Severance Charges.

The Company continues to manage through its turnaround and anticipates continued improvement in net sales and comparable sales trends as progress executing its strategic priorities continues.

For the fiscal 2019 fourth quarter, compared to the fiscal 2018 fourth quarter:

• The Company anticipates a low single-digit decline in total net sales and consolidated comparable sales.
• The Company expects gross margin as a percent of net sales to be down approximately 100 to 150 basis points, due primarily to incremental costs from tariffs.
• SG&A expenses are expected to be down approximately $5 to $7 million, reflecting ongoing cost management.

For full year fiscal 2019, compared to full year fiscal 2018:

• The Company anticipates a mid single-digit decline in total net sales and consolidated comparable sales.
• The Company expects gross margin as a percent of net sales to be down 150 to 200 basis points consistent with previous guidance, which now includes our consideration of incremental costs in the second half of fiscal 2019 associated with tariffs.
• The Company anticipates SG&A expenses to be down approximately $10 million, reflecting ongoing cost management, consistent with previous guidance.
• The Company expects capital expenditures to be approximately $40 million to $45 million, primarily driven by store reinvestments and technology enhancements.
• The Company estimates a full year income tax provision of approximately $2 to $3 million, which excludes accelerated depreciation related to our fleet optimization plan and Severance Charges in connection with our revised organizational structure.

Conference Call Information

The Company is hosting a live conference call on Tuesday, November 26, 2019 beginning at 8:00 a.m. ET 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 Company's 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, 5296467, is required to join the conference call. Interested participants should call 10-15 minutes prior to the 8:00 a.m. start to be placed in queue.

ABOUT CHICO'S FAS, INC.

The Company, through its brands – Chico's, White House Black Market, Soma and TellTale™ is a leading omnichannel specialty retailer of women's private branded, sophisticated, casual-to-dressy clothing, intimates and complementary accessories.

As of November 2, 2019, the Company operated 1,373 stores in the U.S. and Canada and sold merchandise through 89 international franchise locations in Mexico and 2 domestic franchise airport locations. The Company's merchandise is also available at www.chicos.com, www.chicosofftherack.com, www.whbm.com, www.soma.com and www.mytelltale.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. Brooks' quotes and in the section entitled "Fiscal 2019 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; changes in the general or specialty retail or apparel industries, including the extent of the market demand and overall level of spending for women's private branded clothing and related accessories; the availability of quality store sites; the effectiveness of our brand strategies, awareness and marketing programs; the ability to successfully execute and achieve the expected results of our business strategies and particular strategic initiatives (including, but not limited to, the Company's revised organizational structure, retail fleet optimization plan and three operating priorities which are driving stronger sales through improved product and marketing; optimizing the customer journey by simplifying, digitizing and extending the Company's unique and personalized service; and transforming sourcing and supply chain operations to increase product speed to market and improve quality), sales initiatives and multi-channel strategies; customer traffic; our ability to appropriately manage our inventory and allocation processes; our ability to leverage inventory management and targeted promotions; the successful recruitment of leadership and the successful integration of new members of our senior management team; uncertainties regarding future unsolicited offers to buy the Company and our ability to respond effectively to them as well as to actions of activist shareholders and others; changes in the political environment that create consumer uncertainty; the risk that our investments in merchandise or marketing initiatives may not deliver the results we anticipate; 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)

Investor Relations Contact:
Tom Filandro
ICR, Inc.
(646) 277-1235
[email protected]

Chico's FAS, Inc. • 11215 Metro Parkway • Fort Myers, Florida 33966 • (239) 277-6200

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

November 2, 2019

November 3, 2018

November 2, 2019

November 3, 2018

Amount

% of
Sales

Amount

% of
Sales

Amount

% of
Sales

Amount

% of
Sales

Net Sales:

Chico's

$

249,973

51.5

%

$

259,503

51.9

%

$

795,599

52.6

%

$

847,247

52.8

%

White House Black Market

154,941

32.0

167,805

33.6

455,695

30.2

519,391

32.3

Soma ⁽¹⁾

79,792

16.5

72,569

14.5

259,496

17.2

239,774

14.9

Total Net Sales

484,706

100.0

499,877

100.0

1,510,790

100.0

1,606,412

100.0

Cost of goods sold

313,668

64.7

318,899

63.8

980,299

64.9

1,001,699

62.4

Gross Margin

171,038

35.3

180,978

36.2

530,491

35.1

604,713

37.6

Selling, general and administrative
expenses

180,586

37.3

178,394

35.7

536,977

35.5

538,902

33.5

(Loss) Income from Operations

(9,548)

(2.0)

2,584

0.5

(6,486)

(0.4)

65,811

4.1

Interest income (expense), net

25

0.0

97

0.0

79

0.0

(458)

0.0

(Loss) Income before Income
Taxes

(9,523)

(2.0)

2,681

0.5

(6,407)

(0.4)

65,353

4.1

Income tax (benefit) provision

(1,400)

(0.3)

(3,800)

(0.8)

2,000

0.2

13,100

0.8

Net (Loss) Income

$

(8,123)

(1.7)

%

$

6,481

1.3

%

$

(8,407)

(0.6)

%

$

52,253

3.3

%

Per Share Data:

Net (loss) income per common share -
basic

$

(0.07)

$

0.05

$

(0.07)

$

0.41

Net (loss) income per common and
common equivalent share – diluted

$

(0.07)

$

0.05

$

(0.07)

$

0.41

Weighted average common shares
outstanding – basic

114,997

122,201

114,744

124,069

Weighted average common and common
equivalent shares outstanding – diluted

114,997

122,273

114,744

124,120

Dividends declared per share

$

—

$

—

$

0.2625

$

0.255

⁽¹⁾ Includes TellTale net sales, which is not a significant component of Soma revenue.

Supplemental Detail on Net (Loss) Income Per Common 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 comprised entirely of unvested restricted stock awards and performance-based restricted stock units ("PSUs") that have met their relevant performance criteria.

Net income per share is determined using the two-class method when it is more dilutive than the treasury stock method. Basic net income per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the period, including participating securities. Diluted net income per share reflects the dilutive effect of potential common shares from non-participating securities such as stock options, PSUs and restricted stock units. For the thirteen and thirty-nine weeks ended November 2, 2019 and November 3, 2018, potential common shares were excluded from the computation of diluted income per share to the extent they were antidilutive.

The following unaudited table sets forth the computation of net (loss) income per basic and diluted share shown on the face of the accompanying condensed consolidated statements of (loss) income (in thousands, except per share amounts):

GAAP to Non-GAAP Reconciliation of Net (Loss) Income and (Loss) Income Per Diluted Common Share

The Company reports information in accordance with GAAP. The Company's management does not, nor does it suggest that investors should, consider non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Further, the non-GAAP measures utilized by the Company may be unique to the Company, as they may be different from non-GAAP measures used by other companies. The Company believes presenting these non-GAAP measures, which exclude items that are not comparable from period to period, is useful to investors and others in evaluating the Company's ongoing operating and financial results in a manner that is consistent with management's evaluation of business performance and understanding how such results compare with the Company's historical performance. The reconciliation below excludes the impact of the Company's retail fleet optimization plan and Severance Charges as previously defined.

A reconciliation of net loss and loss per diluted share on a GAAP basis to net (loss) income and (loss) income per diluted share on a non-GAAP basis for the thirteen and thirty-nine weeks ended November 2, 2019 is presented in the table below:

SOURCE Chico's FAS, Inc.