Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Chico’s FAS, Inc. and its wholly-owned subsidiaries (collectively, the “Company”) have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and notes required by accounting principles generally accepted in the U.S. (“U.S. GAAP”) for complete financial statements. In the opinion of management, such interim financial statements reflect all normal, recurring adjustments considered necessary to present fairly the condensed consolidated financial position, the results of operations and cash flows for the interim periods presented. All significant intercompany balances and transactions have been eliminated in consolidation. For further information, refer to the consolidated financial statements and notes thereto for the fiscal year ended January 30, 2016, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 8, 2016.

As used in this report, all references to “we,” “us,” “our,” and “the Company,” refer to Chico’s FAS, Inc. and all of its wholly-owned subsidiaries.

Our fiscal years end on the Saturday closest to January 31 and are designated by the calendar year in which the fiscal year commences. Operating results for the thirteen and thirty-nine weeks ended October 29, 2016 are not necessarily indicative of the results that may be expected for the entire year.

Reclassifications

Reclassifications of certain prior year balances were made in order to conform to the current year presentation.

Change in Accounting Policy

Effective January 31, 2016, the Company made a voluntary change in accounting principle related to our classification of shipping expenses. Historically, we have presented shipping expenses within selling, general and administrative expenses ("SG&A"). Under the new policy, the Company is presenting these expenses within cost of good sold ("COGS") in the unaudited Condensed Consolidated Statements of Income. The Company believes that this change is preferable as the shipping expenses represent direct costs associated with the sale of our merchandise and improves comparability with the Company's peers. The accounting policy change was applied retrospectively to all periods presented. There was no change to consolidated net income, however, cost of sales increased by $8.8 million and SG&A decreased by the same amount for the thirteen weeks ended October 31, 2015. The Company recorded $8.6 million in shipping expense as a component of COGS during the thirteen weeks ended October 29, 2016. For the year-to-date period ended October 31, 2015, cost of sales increased by $27.6 million and SG&A decreased by the same amount. The Company recorded $25.5 million in shipping expense as a component of COGS during the thirty-nine weeks ended October 29, 2016.

Reclassification of Occupancy Expenses and Correction of Immaterial Accounting Error

The Company has changed its classification of store occupancy expenses. Historically, we have presented store occupancy expenses within SG&A. As now reclassified, the Company is presenting these expenses within COGS in the unaudited Condensed Consolidated Statements of Income. The Company believes that the store occupancy expenses represent direct costs associated with the sale of our merchandise and improves comparability with the Company’s peers. This reclassification was applied retrospectively to all periods presented. There was no change to consolidated net income, however, cost of sales increased by $96.8 million and SG&A decreased by the same amount for the thirteen weeks ended October 31, 2015. The Company recorded $95.4 million in store occupancy expenses as a component of COGS during the thirteen weeks ended October 29, 2016. For the year-to-date period ended October 31, 2015, cost of sales increased by $289.3 million and SG&A decreased by the same amount. The Company recorded $287.3 million in store occupancy expenses as a component of COGS during the thirty-nine weeks ended October 29, 2016.

The Company has also elected to correct the historical classification of shipping revenue within SG&A. To correct the immaterial error, we are classifying shipping revenue as a component of net sales within the unaudited Condensed Consolidated Statements of Income for all periods presented. There was no change to consolidated net income, however, net sales increased by $4.2 million and SG&A increased by the same amount for the thirteen weeks ended October 31, 2015. The Company recorded $3.0 million in shipping revenue as a component of net sales during the thirteen weeks ended October 29, 2016. For the year-to-date period ended October 31, 2015, net sales increased by $14.1 million and SG&A increased by the same amount. The Company recorded $9.7 million in shipping revenue as a component of net sales during the thirty-nine weeks ended October 29, 2016.

Adjustments to Presentation

The above mentioned changes had no cumulative effect on the presentation of the unaudited Condensed Consolidated Statements of Income, Condensed Consolidated Balance Sheets, or Condensed Consolidated Statements of Cash Flows. The effects of the aforementioned accounting policy change, change in classification and error correction to the October 31, 2015 unaudited Condensed Consolidated Statement of Income are as follows (dollars in thousands):



	As Previously Reported		% of Sales	Change in Accounting Policy			Effect of Change in Occupancy Classification			Effect of Error Correction		As Adjusted		% of Sales

Thirteen Weeks Ended October 31, 2015
Net sales	$	641,219	100.0	$	—		$	—		$	4,214	$	645,433	100.0
Cost of goods sold	290,737		45.3	8,760			96,773			—		396,270		61.4
Gross Margin	350,482		54.7	(8,760		)	(96,773		)	4,214		249,163		38.6
Selling, general and administrative expenses	327,575		51.1	(8,760		)	(96,773		)	4,214		226,256		35.1



	As Previously Reported		% of Sales	Change in Accounting Policy			Effect of Change in Occupancy Classification			Effect of Error Correction		As Adjusted		% of Sales

Thirty-Nine Weeks Ended October 31, 2015
Net sales	$	2,014,910	100.0	$	—		$	—		$	14,115	$	2,029,025	100.0
Cost of goods sold	902,690		44.8	27,585			289,268			—		1,219,543		60.1
Gross Margin	1,112,220		55.2	(27,585		)	(289,268		)	14,115		809,482		39.9
Selling, general and administrative expenses	964,229		47.9	(27,585		)	(289,268		)	14,115		661,491		32.6

Footnotes to the unaudited Condensed Consolidated Financial Statements herein have been adjusted to reflect the impact of these changes accordingly.