- With consistent improvement in the product the firm is experiencing positive traction, with average dollar sale increasing 2% and average unit retail increased 4% over last year.
- Transactions in comp stores were down 9% however the quality of these transactions continued to improve.
- The firm was able to significantly improve the pants fit and quarter over quarter impacted the bottoms business with a strong comp improvement.
- Outerwear, which is a new business, was extremely successful throughout the quarter as was the casual and denim business, while the dress business was challenged and continues to be difficult in the month of May.
- Fallout from quality issues severely impacted inventory levels and subsequently comp sales but the firm has repositioned the product and reorganized the business under new leadership and expects to be in a stronger position by mid June.
In Soma, both front line and direct consumer channels experienced strong growth propelled by new product introductions and compelling promotional programs around the Valentine, Easter and Mother’s Day holiday periods.
- The five styles Soma solutions bra launches in February and March filled major voids in the bra product assortment.
- Supported by a strong problem solution launch marketing platform Soma solutions was almost entirely incremental to bra sales and in addition, momentum behind the successful fall 2007 vanishing edge panty launch was sustained through new style introductions as well as expanded fashion color choices.
- Within the apparel category, active wear continued its strong performance while the sleepwear business defied a negative overall market trend with a flat performance.
- Television advertising behind vanishing edge panties supported the brand in selected markets during the pre-Easter and pre-Mother’s Day period driving significant increases in comp store and VPC sales in the television markets.
A new TV market, Chicago, was added in the pre-Mother’s Day period with growth results consistent with the experience in other markets.
- Additional television support for this brand is planned for the fall in key markets since the Soma brand inception ecommerce has been viewed as critical to building brand awareness and trial ahead of store expansion.
- The Soma direct to consumer business grew 17% of total brand sales up from 13% exceeding prior year sales by two times.
- Ecommerce conversion rates for Soma are very high and are running double last year’s rate and the highly integrated front line DTC product and marketing strategy for Soma is proving extremely successful in driving new customer acquisition and sales.
Key questions and answers from the first quarter earnings call conducted by Chico’s FAS, Inc. (CHS) on May 28, 2008.
Kimberly Greenberger (Citigroup):
Is there something else you are looking at in your business that’s giving you a reason for that optimism?
Scott Edmonds: We are looking for gradual improvement as we approach going into fourth quarter. Certainly there are a number of issues that are being addressed in each of the businesses from a merchandising perspective.
We are trying to make positive change. It sounds like we have got the jacket fit worked out well in Chico’s business, that’s helping. The accessories business we are trying new things every day its just that’s been a little bit challenging from an overall market perspective but we constantly introduce new products.
In the White House, Black Market business we are still trying to look at the collections part of the business as well. It looks like we have done a decent job in terms of addressing the fit issues in the bottoms; time will tell how the customer receives that in the second and third quarter.
Kent Kleeberger: When you just look at the historical builds on fall versus spring and you compare the volume of by week, by brand we are a bit more optimistic coming against the dismal numbers that we posted last year.
Kimberly Greenberger (Citigroup):
Are you buying inventory with the expectation that comps will be positive?
Scott Edmonds: We are still working out our fall plans but we are going to manage it much closer to the vest. My perspective is that we can still do positive comps on lower inventory levels.
Tracy Kogan (Credit Suisse):
Could you refresh us on your store openings planned for 2009 and whether those plans have changed given the continuation of weak trends?
Scott Edmonds: The store opening cadence is going to slow down as we go through the balance of this year. We are one of a few retailers that include occupancy as part of our SG&A costs so as we slow down the store growth we will probably get some relief in the occupancy line and therefore the SG&A rate.
Right now we are committed to about nine or 10 new stores and that’s it. Maybe there are some additional relocations, remodels but we are just holding close to our vest until we see significant improvement in trend.
Liz Dunn (Thomas Weisel):
Could you talk about the inventory, the unit positioning versus the total number you reported?
Scott Edmonds:Looking at Chico’s business our average unit retail is actually down and while White House, Black Market is up slightly they are down in units as well. We were not that efficient in recognizing our marked out of stock.
Typically most apparel retailers will clear their selling floor for the previous season’s goods about 45 days or so after the end of the previous season and our execution on that has been somewhat inconsistent. In addition to having some aged inventory in the Chico’s brand and everybody infers that once the goods are transferred from the front line stores they go to the outlets.
We have a similar situation in outlets in that we have a significant number of units that are aged in the outlet stores. We have taken an opportunity to take the charge to clean up inventories. We are also looking at doing some liquidations with jobbers which previously this business has not done for quite some time but the fact that we are adamant about trimming our inventory levels we are looking at any reasonable approach to get rid of some of the excess units.
