This summary is based on the second quarter fiscal 2008 earnings call conducted by Chico’s FAS, Inc. (CHS) on August 26, 2008.
Management:
VP IR: Bob Atkinson
President & CEO: Scott Edmonds
Exec. VP & CFO: Kent Kleeberger
President Chico’s Brand: Michele Cloutier
President White House | Black Market Brand: Donna Noce Colaco
Key Investors Issues
- EPS were 4 cents per share compared to 22 cents per share last year.
- Net profit was $6.7 million, down from $38.7 million a year earlier.
- Sales fell to $405.2 million from $436 million a year ago.
Second Quarter Highlights
Net sales decreased 7.1% to $405.2 million from $436 million for the fiscal 2007 second quarter ended August 4, 2007.
- Net income was $6.7 million of 4 cents per share, compared to net income of $38.7 million or 22 cents per share in the prior year’s second quarter.
- Comparable store sales decreased 15.9% for the 13 week period ended August 2, 2008 compared to the comparable 13 week period last year ended August 4, 2007 as same store sales decreased approximately 19% for the Chico’s brand and approximately 12% for White House | Black Market.
- The company continues to maintain strong balance sheet with cash equivalents and marketable securities totaling $278 million and zero debt.
- Transactions were down 7.4% versus down 13% in the first quarter. Average dollar sale was down 12% versus down 9% in the first quarter.
The second quarter results for White House | Black Market showed continued improvement over the first quarter.
- Positive customer response to the collections drove stronger full price sales gains while lower inventory and reduced promotional activity did not anniversary the markdown sales from last year.
- With the reduced level of promotional sales in the second quarter key metrics reflected decline in average store transactions but a healthy improvement to the average dollar sale and average unit retail.
- Transactions were down 21% versus down 9% in the first quarter but average dollar sale was up 9% versus up 2% in the first quarter.
Soma Intimates continued it strong positive comparable store sales growth trend and the growth rate at Soma.com continued to accelerate.
The brand exceeded its sales and gross margin plans for both the quarter and spring season.
- New customer acquisition programs including television advertising, direct mail and e-marketing have increased the active customer database by 66% versus prior year. Strong top line sales volume growth resulted in leverage of SG&A expenses.
- Gross margin as a percentage of sales decreased 500 basis points to 52.7%. The majority of the decrease is attributable to lower merchandise margins at the Chico’s brand further exacerbated by a decline in merchandise margin at White House | Black Market primarily due to lower initial markups. Chico’s lower merchandise margins were largely a result of higher markdowns made necessary to liquidate inventory and bring levels closer to the current sales trend.
- Selling, general and administrative expenses dollars increased 5.9% to $205.5 million primarily as a result of higher occupancy costs due to new and expanded stores, higher payroll costs and to a much lesser extent, higher marketing costs.
- SG&A as a rate of sales increased 620 basis points to 50.7%. Store operating expenses represented 480 basis points of that increase, again largely attributable to the higher occupancy costs, higher field payroll costs, along with the deleverage associated with the comp sales percentage decrease.
- The higher occupancy is a direct result of new stores and higher rents associated with the larger Chico’s and White House | Black Market stores opened over the past two years along with the changing mix within the total store base.
- Marketing represented 70 basis points of the 620 basis point increase. Higher marketing costs came primarily from market research for Chico’s and some additional advertising for Soma accompanied by the deleveraging of these costs given the negative comp.
- Shared services represented an additional 70 basis points of the 620 basis point rate increase largely attributable to the deleverage from the negative comparable store sales and to a lesser extent an increase in information technology spend.
- Cash and marketable securities totaled $278 million versus $271 million at the end of first quarter and $274 million at the end of last year.
- The company opened 20 new stores, closed one, and completed seven relocations and expansions for an estimated 2.3% increase in selling square footage.
- By brand Chico’s opened eight new stores and executed four relocations and expansions, White House | Black Market opened 11 new stores and completed three relocations and expansions and Soma Intimates opened one store and closed another.
Year-to-Date Financial Highlights
- Net sales decreased 8.4% to $814.8 million from $889.1 million for the prior year\''s six months ended August 4, 2007.
- Net income was $19.4 million, or 11 cents per share, compared to $85.8 million, or 49 cents per share, in the first six months of the prior year.
- Comparable store sales decreased 16.7% compared to the comparable twenty-six week period last year ended August 4, 2007 as same store sales decreased approximately 20% for the Chico\''s brand and approximately 11% for WH|BM.
