EX-99.1 2 erexhibit991q12017.htm EXHIBIT 99.1 Q1 EARNINGS RELEASE Exhibit
Exhibit 99.1

chicosfasbrandlogosupdatea02.jpg

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

Chico's FAS, Inc. Reports First Quarter Results

•
Delivered first quarter EPS of $0.26, compared to $0.23 EPS last year
•
Reduced SG&A by $25.6 million, improving sales leverage by 110 basis points
•
Achieved 150 basis point improvement in income from operations

Fort Myers, FL - May 24, 2017 - Chico’s FAS, Inc. (NYSE: CHS) (the "Company") today announced its financial results for the fiscal 2017 first quarter ended April 29, 2017.
For the thirteen weeks ended April 29, 2017 (the "first quarter"), the Company reported net income of $33.6 million, or $0.26 per diluted share, compared to net income of $31.1 million, or $0.23 per diluted share, for the thirteen weeks ended April 30, 2016 ("last year's first quarter"). In last year's first quarter, the Company reported adjusted net income of $33.4 million, or $0.25 adjusted earnings per diluted share. The 2016 first quarter adjusted results excluded EPS net charges of $0.02 related to restructuring and strategic charges, as presented in the accompanying GAAP to non-GAAP reconciliation.
Shelley Broader, CEO and President, said, "In this challenging retail environment, we remain steadfast in executing against our strategic plan to increase profitable sales and long-term earnings. Our flexible and profitable operating model allowed us to drive improvement in our operating income rate and earnings per share compared to last year even though our comparable sales in the quarter were below our expectations."

Net Sales
    
For the first quarter, net sales were $583.7 million compared to $643.0 million in last year’s first quarter. This decrease of 9.2% primarily reflects a decline in comparable sales of 8.7%, driven by lower average dollar sale and a decline in transaction count.
Comparable Sales
 
 
Thirteen Weeks Ended
 
 
 
April 29, 2017
 
April 30, 2016
 
Chico's
 
(10.0
)%
 
(5.4
)%
 
White House Black Market
 
(9.7
)%
 
(3.8
)%
 
Soma
 
0.2
 %
 
0.5
 %
 
Total Company
 
(8.7
)%
 
(4.2
)%
 
Gross Margin

For the first quarter, gross margin was $237.4 million, or 40.7% of net sales, compared to $262.3 million, or 40.8% of net sales, in last year’s first quarter. This 10 basis point decrease primarily reflects sales deleverage of store occupancy expenses, substantially offset by an improvement in merchandise margin.


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Selling, General and Administrative Expenses

For the first quarter, selling, general and administrative expenses (“SG&A”) were $182.5 million, or 31.3% of net sales, compared to $208.1 million, or 32.4% of net sales, for last year's first quarter. This $25.6 million decrease primarily reflects savings in store related expenses, lower marketing spend and the benefit of other previously announced cost reduction initiatives.
Income Tax Expense
    
For the first quarter, the effective tax rate was 38.2% compared to 37.9% for last year's first quarter. This 30 basis point increase primarily reflects the negative impact of adopting the new employee share-based payment accounting standard (the "Standard"). Excluding the 50 basis point increase related to the Standard, the effective tax rate for the first quarter of 2017 would have been 37.7% compared to 37.9% in last year's first quarter.

Inventories

At the end of the first quarter of 2017, inventories totaled $273.9 million compared to $268.0 million in the same period last year. The $5.9 million increase in inventories primarily reflected a $10.5 million increase in in-transit inventories, largely due to a shift in shipping terms with a major vendor, partially offset by a 2.0% decrease in on-hand inventories compared to the same period last year.

Share Repurchase Program

During the first quarter of fiscal 2017, under its $300.0 million share repurchase program announced in November 2015, the Company repurchased 0.7 million shares for $9.5 million, at a weighted average of $13.65 per share. There is $154.1 million remaining for future repurchases under the program.

Fiscal 2017 Outlook

For fiscal 2017, the Company anticipates a mid single-digit percentage decline in comparable sales. The Company expects gross margin as a percent of net sales to be flat to up to a 30 basis point increase for the year, with approximately flat SG&A leverage. On-hand inventory in each quarter is expected to be down compared to last year, as the Company continues to actively manage inventory. Capital expenditures are expected to be $60 million to $70 million for the year.

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 April 29, 2017, the Company operated 1,492 stores in the US and Canada and sold merchandise through franchise locations in Mexico. The Company’s merchandise is also available at www.chicos.com, www.whbm.com, and www.soma.com. For more detailed information on Chico's FAS, Inc., please go to our corporate website at www.chicosfas.com.


SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 
Some statements herein may be “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, including but without limitation, statements regarding our strategic plan to increase profitable sales and long-term earnings, comparable sales, gross margin, SG&A, operating margin and inventory levels. These statements 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,” “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.

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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; the availability of quality store sites; the ability to successfully execute and achieve the expected results of our business strategies, particular strategic initiatives, and organizational redesign; the integration of our new 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 impact associated with our shift to a predominantly FOB shipping structure); new or increased taxes or tariffs (such as the proposed Border Adjustment Tax); 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. There can be no assurance that the actual future results, performance, or achievements expressed or implied by such forward-looking statements will occur. Investors using forward-looking statements are encouraged to review the Company’s latest annual report on Form 10-K, including management’s discussion and analysis therein, its filings on Form 10-Q, the Company’s filings on Form 8-K, and other federal securities law filings for a description of other important factors that may affect the Company’s business, results of operations and financial condition. 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:
Jennifer Powers
Vice President – Investor Relations
Chico’s FAS, Inc.
(239) 346-4199

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Chico’s FAS, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
(in thousands, except per share amounts)


 
Thirteen Weeks Ended
 
April 29, 2017
 
April 30, 2016
 
Amount
 
% of
Sales
 
Amount
 
% of
Sales
Net sales:
 
 
 
 
 
 
 
Chico's
$
310,127

 
53.1

 
$
348,704

 
54.2

White House Black Market
193,332

 
33.1

 
214,993

 
33.5

Soma
80,269

 
13.8

 
79,280

 
12.3

Total net sales
583,728

 
100.0

 
642,977

 
100.0

Cost of goods sold
346,315

 
59.3

 
380,642

 
59.2

Gross margin
237,413

 
40.7

 
262,335

 
40.8

Selling, general and administrative expenses
182,539

 
31.3

 
208,141

 
32.4

Restructuring and strategic charges
—

 
0.0

 
3,651

 
0.5

Income from operations
54,874

 
9.4

 
50,543

 
7.9

Interest expense, net
(455
)
 
(0.1
)
 
(459
)
 
(0.1
)
Income before income taxes
54,419

 
9.3

 
50,084

 
7.8

Income tax provision
20,800

 
3.5

 
19,000

 
3.0

Net income
$
33,619

 
5.8

 
$
31,084

 
4.8

Per share data:
 
 
 
 
 
 
 
Net income per common share-basic
$
0.26

 
 
 
$
0.23

 
 
Net income per common and common equivalent share–diluted
$
0.26

 
 
 
$
0.23

 
 
Weighted average common shares outstanding–basic
126,050

 
 
 
131,594

 
 
Weighted average common and common equivalent shares outstanding–diluted
126,103

 
 
 
131,689

 
 
Dividends declared per share
$
0.1650

 
 
 
$
0.1600

 
 

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Chico’s FAS, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands)


 
April 29, 2017
 
January 28, 2017
 
April 30, 2016
 
 
 
 
 
 
ASSETS
 
 
 
 
 
Current Assets:
 
 
 
 
 
Cash and cash equivalents
$
119,142

 
$
142,135

 
$
56,502

Marketable securities, at fair value
50,629

 
50,370

 
50,479

Inventories
273,878

 
232,363

 
267,988

Prepaid expenses and other current assets
45,183

 
50,350

 
48,105

Income taxes receivable
1,717

 
2,408

 
10,928

Assets held for sale
—

 
—

 
16,525

Total Current Assets
490,549

 
477,626

 
450,527

Property and Equipment, net
460,845

 
477,185

 
535,470

Other Assets:
 
 
 
 
 
Goodwill
96,774

 
96,774

 
96,774

Other intangible assets, net
38,930

 
38,930

 
38,930

Other assets, net
18,432

 
18,479

 
14,415

Total Other Assets
154,136

 
154,183

 
150,119

 
$
1,105,530

 
$
1,108,994

 
$
1,136,116

 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
Accounts payable
$
133,278

 
$
116,378

 
$
144,767

Current debt
15,000

 
16,250

 
10,000

Other current and deferred liabilities
149,151

 
170,232

 
142,091

Total Current Liabilities
297,429

 
302,860

 
296,858

Noncurrent Liabilities:
 
 
 
 
 
Long-term debt
64,801

 
68,535

 
79,735

Deferred liabilities
115,543

 
118,543

 
129,306

Deferred taxes
14,613

 
9,883

 
16,740

Total Noncurrent Liabilities
194,957

 
196,961

 
225,781

Commitments and Contingencies
 
 
 
 
 
Shareholders’ Equity:
 
 
 
 
 
Preferred stock
—

 
—

 
—

Common stock
1,295

 
1,288

 
1,336

Additional paid-in capital
453,999

 
452,756

 
436,581

Treasury stock, at cost
(395,585
)
 
(386,094
)
 
(326,418
)
Retained earnings
553,466

 
541,251

 
501,936

Accumulated other comprehensive (loss) income
(31
)
 
(28
)
 
42

Total Shareholders’ Equity
613,144

 
609,173

 
613,477

 
$
1,105,530

 
$
1,108,994

 
$
1,136,116



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Chico’s FAS, Inc. and Subsidiaries
Condensed Consolidated Cash Flow Statements
(Unaudited)
(in thousands)


 
Thirteen Weeks Ended
 
April 29, 2017
 
April 30, 2016
Cash Flows From Operating Activities:
 
 
 
Net income
$
33,619

 
$
31,084

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
25,145

 
27,957

Loss on disposal and impairment of property and equipment
513

 
597

Deferred income taxes
4,905

 
307

Stock-based compensation expense
5,794

 
5,546

Deferred rent and lease credits
(4,358
)
 
(5,007
)
Changes in assets and liabilities:
 
 
 
Inventories
(41,516
)
 
(34,154
)
Prepaid expenses and other current assets
5,264

 
(3,613
)
Income tax receivable
691

 
18,230

Accounts payable
6,358

 
4,814

Accrued and other liabilities
(19,724
)
 
(13,029
)
Net cash provided by operating activities
16,691

 
32,732

Cash Flows From Investing Activities:
 
 
 
Purchases of marketable securities
(8,491
)
 
(11,403
)
Proceeds from sale of marketable securities
8,259

 
11,156

Purchases of property and equipment, net
(9,531
)
 
(13,056
)
Net cash used in investing activities
(9,763
)
 
(13,303
)
Cash Flows From Financing Activities:
 
 
 
Payments on borrowings
(5,000
)
 
(2,500
)
Proceeds from issuance of common stock
1,062

 
1,177

Dividends paid
(10,862
)
 
(10,864
)
Repurchase of common stock
(9,498
)
 
(36,637
)
Payments of tax withholdings related to stock-based awards
(5,599
)
 
(4,023
)
Net cash used in financing activities
(29,897
)
 
(52,847
)
Effects of exchange rate changes on cash and cash equivalents
(24
)
 
(31
)
Net decrease in cash and cash equivalents
(22,993
)
 
(33,449
)
Cash and Cash Equivalents, Beginning of period
142,135

 
89,951

Cash and Cash Equivalents, End of period
$
119,142

 
$
56,502


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Supplemental Detail on Net Income Per 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 composed 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. Diluted net income per share reflects the dilutive effect of potential common shares from non-participating securities such as stock options and PSUs. For the thirteen weeks ended April 29, 2017 and April 30, 2016, potential common shares were excluded from the computation of diluted EPS to the extent they were antidilutive.

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

 
 
Thirteen Weeks Ended
 
 
April 29, 2017
 
April 30, 2016
 
 
 
 
 
Numerator
 
 
 
 
Net income
 
$
33,619

 
$
31,084

Net income and dividends declared allocated to participating securities
 
(741
)
 
(646
)
Net income available to common shareholders
 
$
32,878

 
$
30,438

 
 
 
 
 
Denominator
 
 
 
 
Weighted average common shares outstanding – basic
 
126,050

 
131,594

Dilutive effect of non-participating securities
 
53

 
95

Weighted average common and common equivalent shares outstanding – diluted
 
126,103

 
131,689

 
 
 
 
 
Net income per share:
 
 
 
 
Basic
 
$
0.26

 
$
0.23

Diluted
 
$
0.26

 
$
0.23




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Supplemental Detail on GAAP to Non-GAAP Reconciliation

SEC Regulation G - The Company reports its consolidated financial results in accordance with generally accepted accounting principles (GAAP). However, to supplement these consolidated financial results, management believes that certain non-GAAP results should be considered in addition to, not as a substitute for, GAAP measures. These non-GAAP measures exclude results related to certain strategic charges.

A reconciliation of net income and net income per diluted share on a GAAP basis to net income and net income per diluted share on a non-GAAP basis for the thirteen weeks ended April 30, 2016 is presented in the table below:


Chico’s FAS, Inc. and Subsidiaries
GAAP to Non-GAAP Reconciliation of Net Income and Diluted EPS
(Unaudited)
(in thousands, except per share amounts)
 
 
 
 
 
Thirteen Weeks Ended
 
 
April 30, 2016
 
 
 
Net income: 
 
 
GAAP basis
 
$
31,084

Restructuring and strategic charges
 
2,266

Non-GAAP adjusted basis
 
$
33,350

 
 
 
Net income per diluted share:
 
 
GAAP basis
 
$
0.23

Restructuring and strategic charges
 
0.02

Non-GAAP adjusted basis
 
$
0.25






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Chico's FAS, Inc. and Subsidiaries
Store Count and Square Footage
Thirteen Weeks Ended April 29, 2017
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
January 28, 2017
 
New Stores
 
Closures
 
April 29, 2017
 
 
Store count:
 
 
 
 
 
 
 
 
 
Chico’s frontline boutiques
587

 
—

 
(5
)
 
582

 
 
Chico’s outlets
116

 
1

 
—

 
117

 
 
Chico's Canada
4

 
—

 
—

 
4

 
 
WHBM frontline boutiques
423

 
—

 
(4
)
 
419

 
 
WHBM outlets
71

 
—

 
—

 
71

 
 
WHBM Canada
6

 
—

 
—

 
6

 
 
Soma frontline boutiques
275

 
1

 
(2
)
 
274

 
 
Soma outlets
19

 
—

 
—

 
19

 
 
Total Chico's FAS, Inc.
1,501

 
2

 
(11
)
 
1,492

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
January 28, 2017
 
New Stores
 
Closures
 
Other changes in SSF
 
April 29, 2017
Net selling square footage (SSF):
 
 
 
 
 
 
 
 
 
Chico’s frontline boutiques
1,606,730

 
—

 
(10,573
)
 
(2,063
)
 
1,594,094

Chico’s outlets
291,455

 
2,337

 
—

 
225

 
294,017

Chico's Canada
9,695

 
—

 
—

 
—

 
9,695

WHBM frontline boutiques
984,754

 
—

 
(9,293
)
 
675

 
976,136

WHBM outlets
148,457

 
—

 
—

 
58

 
148,515

WHBM Canada
14,891

 
—

 
—

 
—

 
14,891

Soma frontline boutiques
519,945

 
2,189

 
(3,781
)
 
825

 
519,178

Soma outlets
35,637

 
—

 
—

 
—

 
35,637

Total Chico's FAS, Inc.
3,611,564

 
4,526

 
(23,647
)
 
(280
)
 
3,592,163


As of April 29, 2017, the Company also sold merchandise through 93 international franchise locations.


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