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(Address of Principal Executive Offices) | (Zip code) |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ |
(d) | Exhibits: |
Exhibit 99.1 | ||
Exhibit 104 | Cover Page Interactive Data File - the cover page iXBRL tags are embedded within the Inline XBRL document |
CHICO’S FAS, INC. | ||||||
Date: August 26, 2020 | By: | |||||
/s/ David M. Oliver | ||||||
David M. Oliver, Interim Chief Financial Officer and Senior Vice President, Controller |
Exhibit Number | Description | |
Exhibit 99.1 | ||
Exhibit 104 | Cover Page Interactive Data File - the cover page iXBRL tags are embedded within the Inline XBRL document |
Amendment Flag | |
Entity Central Index Key | |
• | Sales improved 9.2% from the first quarter, driven by strong digital performance and store reopenings |
• | Expense reductions accelerated with a second quarter SG&A year-over-year dollar improvement of 37% |
• | Financial position and liquidity remain strong with $124.5 million in cash and cash equivalents |
Business Highlights |
• | Our investments in and focus on our digital business are delivering positive results. Year-over-year, digital sales in the apparel group and intimates each grew double digits. Soma led the way with digital sales improving 70% in the second quarter over last year. |
• | COVID-19 presented a major challenge and we took the opportunity to reassort inventory to customer demand. |
• | We achieved a 37% year-over-year SG&A improvement by streamlining our organizational structure and aligning expenses with sales. |
• | We are performing a strategic real estate review and reevaluating each store’s strategic value and profitability. We are evaluating options for stores not meeting elevated standards and taking action where warranted as evident by our recent exit of frontline stores in Canada. |
• | We are partnering with landlords and achieving rent relief in the form of rent reductions, abatements and other concessions to partially mitigate the impact of COVID-19 on our business. |
• | Our financial position and liquidity have been strengthened through accelerating online sales, store reopenings, an expense structure aligned with sales and reductions in capital spending. |
• | We continue to invest in and focus on innovation in technology, product and marketing.” |
Overview of Financial Results |
• | A net loss of $46.8 million, or $0.40 loss per diluted share, a material improvement over the thirteen weeks ended May 2, 2020 (the “first quarter”). The second quarter net loss includes the after-tax impact of inventory write-offs of $8.0 million, or $0.07 per share. For the thirteen weeks ended August 3, 2019 (“last year’s second quarter”), the net loss was $2.3 million, or $0.02 loss per diluted share. Last year’s second quarter net loss includes after-tax accelerated depreciation charges of $2.2 million, or $0.02 per share. |
• | Net sales were $306.2 million, an improvement of 9.2% from the first quarter, reflecting the benefit of strong digital sales and store reopenings. Sales decreased approximately 39.8% from last year’s second quarter, reflecting disruptions related to the pandemic, including the continuation of temporary store closures and limited hours during the second quarter, as well as the impact of 74 net permanent store closures since last year’s second quarter, partially offset by double-digit growth in digital performance. |
• | Gross margin was $44.8 million, or 14.6% of net sales, up more than 1,800 basis points from the first quarter. Gross margin in last year’s second quarter was $168.6 million, or 33.2% of net sales. The second quarter year-over-year decrease in gross margin primarily reflects the impact of temporary store closures which resulted in deleverage of occupancy costs as a percent of net sales as well as a pre-tax inventory write-off of $12.3 million, or 4.0% of net sales. The inventory write-off was driven by the slower than planned cadence of store reopenings during the first half of the second quarter and less relevant work wear and special occasion product. |
• | Selling, general and administrative (“SG&A”) expenses were $107.3 million, or 35.0% of net sales, compared to $171.0 million, or 33.7% of net sales, for last year’s second quarter. The $63.7 million decrease in SG&A expenses reflects the Company’s ongoing expense reduction initiatives to align its cost structure with sales. |
• | A net loss of $225.1 million, or $1.95 loss per diluted share, compared to net loss of $0.3 million, or $0.00 per diluted share, for the twenty-six weeks ended August 3, 2019. The net loss for the twenty-six weeks ended August 1, 2020 includes the after-tax impact of goodwill impairment charges of $73.8 million, or $0.63 per share; impairments on other indefinite-lived intangible assets of $24.7 million, or $0.21 per share; inventory write-offs of $34.1 million, or $0.29 per share; long-lived store asset impairments of $13.9 million, or $0.12 per share; and impairment on right of use assets of $1.8 million, or $0.02 per share. These charges represent $189.5 million of the pre-tax net loss and $148.4 million of the after-tax loss, or $1.27 per share, for the twenty-six weeks ended August 1, 2020. The net loss for the twenty-six weeks ended August 3, 2019 includes after-tax accelerated depreciation charges of $5.7 million, or $0.05 per share. |
Financial Results |
Summary of Significant Charges (1) | ||||||||||||||
Thirteen Weeks Ended | ||||||||||||||
August 1, 2020 | ||||||||||||||
Amount, pre-tax | % of Net Sales | Amount, after-tax | Per share impact | |||||||||||
(dollars in thousands, except per share amounts) | ||||||||||||||
Gross margin: | ||||||||||||||
Inventory write-offs | $ | 12,256 | 4.0 | % | $ | 8,028 | $ | 0.07 | ||||||
Total significant charges impacting gross margin | $ | 12,256 | 4.0 | % | $ | 8,028 | $ | 0.07 |
Summary of Significant Charges (1) | ||||||||||||||
Twenty-Six Weeks Ended | ||||||||||||||
August 1, 2020 | ||||||||||||||
Amount, pre-tax (2) | % of Net Sales | Amount, after-tax | Per share impact | |||||||||||
(dollars in thousands, except per share amounts) | ||||||||||||||
Gross margin: | ||||||||||||||
Inventory write-offs | $ | 55,357 | 9.4 | % | $ | 34,134 | $ | 0.29 | ||||||
Long-lived store asset impairment | 18,493 | 3.2 | 13,925 | 0.12 | ||||||||||
Right of use asset impairment | 2,442 | 0.4 | 1,839 | 0.02 | ||||||||||
Total significant charges impacting gross margin | 76,291 | 13.0 | 49,898 | 0.43 | ||||||||||
Goodwill and intangible impairment: | ||||||||||||||
Goodwill impairment | 80,414 | 13.7 | 73,837 | 0.63 | ||||||||||
Indefinite-lived asset impairment | 32,766 | 5.6 | 24,673 | 0.21 | ||||||||||
Total goodwill and intangible impairment charges | 113,180 | 19.3 | 98,510 | 0.84 | ||||||||||
Total significant charges | $ | 189,471 | 32.3 | % | $ | 148,408 | $ | 1.27 |
Net Sales |
Gross Margin |
Selling, General and Administrative Expenses |
Income Taxes |
Cash, Marketable Securities and Debt |
Inventories |
Fiscal 2020 Third Quarter and Full-Year Outlook |
Conference Call Information |
Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||||||||||||||||||
August 1, 2020 | August 3, 2019 | August 1, 2020 | August 3, 2019 | ||||||||||||||||||||||||
Amount | % of Sales | Amount | % of Sales | Amount | % of Sales | Amount | % of Sales | ||||||||||||||||||||
Net Sales: | |||||||||||||||||||||||||||
Chico's | $ | 139,584 | 45.6 | % | $ | 268,924 | 52.9 | % | $ | 271,021 | 46.3 | % | $ | 545,626 | 53.2 | % | |||||||||||
White House Black Market | 82,253 | 26.9 | 139,809 | 27.5 | 166,173 | 28.3 | 300,754 | 29.3 | |||||||||||||||||||
Soma | 84,337 | 27.5 | 99,623 | 19.6 | 149,244 | 25.4 | 179,704 | 17.5 | |||||||||||||||||||
Total Net Sales | 306,174 | 100.0 | 508,356 | 100.0 | 586,438 | 100.0 | 1,026,084 | 100.0 | |||||||||||||||||||
Cost of goods sold | 261,408 | 85.4 | 339,734 | 66.8 | 552,767 | 94.3 | 666,631 | 65.0 | |||||||||||||||||||
Gross Margin | 44,766 | 14.6 | 168,622 | 33.2 | 33,671 | 5.7 | 359,453 | 35.0 | |||||||||||||||||||
Selling, general and administrative expenses | 107,304 | 35.0 | 170,983 | 33.7 | 237,475 | 40.5 | 356,391 | 34.7 | |||||||||||||||||||
Goodwill and intangible impairment | — | 0.0 | — | 0.0 | 113,180 | 19.3 | — | 0.0 | |||||||||||||||||||
(Loss) Income from Operations | (62,538 | ) | (20.4 | ) | (2,361 | ) | (0.5 | ) | (316,984 | ) | (54.1 | ) | 3,062 | 0.3 | |||||||||||||
Interest (expense) income, net | (507 | ) | (0.2 | ) | 52 | 0.0 | (851 | ) | (0.1 | ) | 54 | 0.0 | |||||||||||||||
(Loss) Income before Income Taxes | (63,045 | ) | (20.6 | ) | (2,309 | ) | (0.5 | ) | (317,835 | ) | (54.2 | ) | 3,116 | 0.3 | |||||||||||||
Income tax (benefit) provision | (16,200 | ) | (5.3 | ) | — | 0.0 | (92,700 | ) | (15.8 | ) | 3,400 | 0.3 | |||||||||||||||
Net Loss | $ | (46,845 | ) | (15.3 | )% | $ | (2,309 | ) | (0.5 | )% | $ | (225,135 | ) | (38.4 | )% | $ | (284 | ) | 0.0 | % | |||||||
Per Share Data: | |||||||||||||||||||||||||||
Net loss per common share - basic | $ | (0.40 | ) | $ | (0.02 | ) | $ | (1.95 | ) | $ | — | ||||||||||||||||
Net loss per common and common equivalent share – diluted | $ | (0.40 | ) | $ | (0.02 | ) | $ | (1.95 | ) | $ | — | ||||||||||||||||
Weighted average common shares outstanding – basic | 115,912 | 114,802 | 115,743 | 114,618 | |||||||||||||||||||||||
Weighted average common and common equivalent shares outstanding – diluted | 115,912 | 114,802 | 115,743 | 114,618 | |||||||||||||||||||||||
Dividends declared per share | $ | — | $ | 0.0875 | $ | 0.0900 | $ | 0.2625 |
August 1, 2020 | February 1, 2020 | August 3, 2019 | |||||||||
ASSETS | |||||||||||
Current Assets: | |||||||||||
Cash and cash equivalents | $ | 103,765 | $ | 63,972 | $ | 99,634 | |||||
Marketable securities, at fair value | 20,742 | 63,893 | 63,446 | ||||||||
Inventories | 235,844 | 246,737 | 227,736 | ||||||||
Prepaid expenses and other current assets | 31,446 | 41,069 | 41,469 | ||||||||
Income taxes receivable | 85,940 | 7,131 | 6,450 | ||||||||
Total Current Assets | 477,737 | 422,802 | 438,735 | ||||||||
Property and Equipment, net | 271,750 | 315,382 | 337,049 | ||||||||
Right of Use Assets | 571,992 | 648,397 | 697,332 | ||||||||
Other Assets: | |||||||||||
Goodwill | 16,360 | 96,774 | 96,774 | ||||||||
Other intangible assets, net | 6,164 | 38,930 | 38,930 | ||||||||
Other assets, net | 28,931 | 20,374 | 17,468 | ||||||||
Total Other Assets | 51,455 | 156,078 | 153,172 | ||||||||
$ | 1,372,934 | $ | 1,542,659 | $ | 1,626,288 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
Current Liabilities: | |||||||||||
Accounts payable | $ | 108,166 | $ | 134,204 | $ | 137,142 | |||||
Current lease liabilities | 218,691 | 157,043 | 158,866 | ||||||||
Other current and deferred liabilities | 111,318 | 114,498 | 108,861 | ||||||||
Total Current Liabilities | 438,175 | 405,745 | 404,869 | ||||||||
Noncurrent Liabilities: | |||||||||||
Long-term debt | 149,000 | 42,500 | 50,000 | ||||||||
Long-term lease liabilities | 482,380 | 555,922 | 611,308 | ||||||||
Other noncurrent and deferred liabilities | 6,529 | 8,188 | 8,860 | ||||||||
Deferred taxes | 52 | 212 | 2,129 | ||||||||
Total Noncurrent Liabilities | 637,961 | 606,822 | 672,297 | ||||||||
Commitments and Contingencies | |||||||||||
Shareholders’ Equity: | |||||||||||
Preferred stock | — | — | — | ||||||||
Common stock | 1,199 | 1,184 | 1,180 | ||||||||
Additional paid-in capital | 495,163 | 492,129 | 487,789 | ||||||||
Treasury stock, at cost | (494,395 | ) | (494,395 | ) | (494,395 | ) | |||||
Retained earnings | 294,708 | 531,602 | 554,694 | ||||||||
Accumulated other comprehensive gain (loss) | 123 | (428 | ) | (146 | ) | ||||||
Total Shareholders’ Equity | 296,798 | 530,092 | 549,122 | ||||||||
$ | 1,372,934 | $ | 1,542,659 | $ | 1,626,288 |
Twenty-Six Weeks Ended | |||||||
August 1, 2020 | August 3, 2019 | ||||||
Cash Flows from Operating Activities: | |||||||
Net loss | $ | (225,135 | ) | $ | (284 | ) | |
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | |||||||
Goodwill and intangible impairment | 113,180 | — | |||||
Inventory write-offs | 54,308 | 6,232 | |||||
Depreciation and amortization | 33,613 | 46,826 | |||||
Non-cash lease expense | 100,710 | 106,961 | |||||
Exit of frontline Canada operations | 498 | — | |||||
Right of use asset impairment | 3,236 | — | |||||
Loss on disposal and impairment of property and equipment, net | 18,637 | 196 | |||||
Deferred tax benefit | (6,756 | ) | (2,639 | ) | |||
Share-based compensation expense | 3,793 | 3,486 | |||||
Changes in assets and liabilities: | |||||||
Inventories | (44,926 | ) | 1,250 | ||||
Prepaid expenses and other assets | 2,743 | (9,897 | ) | ||||
Income tax receivable | (78,809 | ) | 5,465 | ||||
Accounts payable | (26,300 | ) | (16,509 | ) | |||
Accrued and other liabilities | (338 | ) | (5,884 | ) | |||
Lease liability | (38,673 | ) | (114,186 | ) | |||
Net cash (used in) provided by operating activities | (90,219 | ) | 21,017 | ||||
Cash Flows from Investing Activities: | |||||||
Purchases of marketable securities | (5,212 | ) | (25,615 | ) | |||
Proceeds from sale of marketable securities | 48,326 | 24,384 | |||||
Purchases of property and equipment | (8,151 | ) | (14,076 | ) | |||
Net cash provided by (used in) investing activities | 34,963 | (15,307 | ) | ||||
Cash Flows from Financing Activities: | |||||||
Proceeds from borrowings | 106,500 | — | |||||
Payments on borrowings | — | (7,500 | ) | ||||
Proceeds from issuance of common stock | 251 | 392 | |||||
Dividends paid | (10,701 | ) | (20,633 | ) | |||
Payments of tax withholdings related to share-based awards | (995 | ) | (2,484 | ) | |||
Net cash provided by (used in) financing activities | 95,055 | (30,225 | ) | ||||
Effects of exchange rate changes on cash and cash equivalents | (6 | ) | 21 | ||||
Net increase (decrease) in cash and cash equivalents | 39,793 | (24,494 | ) | ||||
Cash and Cash Equivalents, Beginning of period | 63,972 | 124,128 | |||||
Cash and Cash Equivalents, End of period | $ | 103,765 | $ | 99,634 |
Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||||||
August 1, 2020 | August 3, 2019 | August 1, 2020 | August 3, 2019 | |||||||||||||
Numerator | ||||||||||||||||
Net loss | $ | (46,845 | ) | $ | (2,309 | ) | $ | (225,135 | ) | $ | (284 | ) | ||||
Net income and dividends declared allocated to participating securities | — | — | (193 | ) | — | |||||||||||
Net loss available to common shareholders | $ | (46,845 | ) | $ | (2,309 | ) | $ | (225,328 | ) | $ | (284 | ) | ||||
Denominator | ||||||||||||||||
Weighted average common shares outstanding – basic | 115,912 | 114,802 | 115,743 | 114,618 | ||||||||||||
Dilutive effect of non-participating securities | — | — | — | — | ||||||||||||
Weighted average common and common equivalent shares outstanding – diluted | 115,912 | 114,802 | 115,743 | 114,618 | ||||||||||||
Net loss per common share: | ||||||||||||||||
Basic | $ | (0.40 | ) | $ | (0.02 | ) | $ | (1.95 | ) | $ | — | |||||
Diluted | $ | (0.40 | ) | $ | (0.02 | ) | $ | (1.95 | ) | $ | — |
Chico's FAS, Inc. and Subsidiaries | ||||||||||||||
Store Count and Square Footage | ||||||||||||||
Thirteen Weeks Ended August 1, 2020 | ||||||||||||||
(Unaudited) | ||||||||||||||
May 2, 2020 | New Stores | Closures | August 1, 2020 | |||||||||||
Store Count: | ||||||||||||||
Chico’s frontline boutiques | 523 | — | (3 | ) | 520 | |||||||||
Chico’s outlets | 123 | — | — | 123 | ||||||||||
Chico’s Canada | 4 | — | (4 | ) | — | |||||||||
WHBM frontline boutiques | 357 | — | (3 | ) | 354 | |||||||||
WHBM outlets | 57 | — | (1 | ) | 56 | |||||||||
WHBM Canada | 6 | — | (6 | ) | — | |||||||||
Soma frontline boutiques | 244 | — | (2 | ) | 242 | |||||||||
Soma outlets | 18 | — | — | 18 | ||||||||||
Total Chico’s FAS, Inc. | 1,332 | — | (19 | ) | 1,313 | |||||||||
May 2, 2020 | New Stores | Closures | Other Changes in SSF | August 1, 2020 | ||||||||||
Net Selling Square Footage (SSF): | ||||||||||||||
Chico’s frontline boutiques | 1,424,322 | — | (9,793 | ) | 2,437 | 1,416,966 | ||||||||
Chico’s outlets | 309,921 | — | — | — | 309,921 | |||||||||
Chico’s Canada | 9,695 | — | (9,695 | ) | — | — | ||||||||
WHBM frontline boutiques | 837,390 | — | (6,193 | ) | (834 | ) | 830,363 | |||||||
WHBM outlets | 119,690 | — | (2,206 | ) | — | 117,484 | ||||||||
WHBM Canada | 15,588 | — | (15,588 | ) | — | — | ||||||||
Soma frontline boutiques | 460,153 | — | (3,259 | ) | (288 | ) | 456,606 | |||||||
Soma outlets | 34,329 | — | — | — | 34,329 | |||||||||
Total Chico’s FAS, Inc. | 3,211,088 | — | (46,734 | ) | 1,315 | 3,165,669 |
Chico's FAS, Inc. and Subsidiaries | ||||||||||||||
Store Count and Square Footage | ||||||||||||||
Twenty-Six Weeks Ended August 1, 2020 | ||||||||||||||
(Unaudited) | ||||||||||||||
February 1, 2020 | New Stores | Closures | August 1, 2020 | |||||||||||
Store count: | ||||||||||||||
Chico’s frontline boutiques | 525 | — | (5 | ) | 520 | |||||||||
Chico’s outlets | 123 | — | — | 123 | ||||||||||
Chico's Canada | 4 | — | (4 | ) | — | |||||||||
WHBM frontline boutiques | 362 | — | (8 | ) | 354 | |||||||||
WHBM outlets | 59 | — | (3 | ) | 56 | |||||||||
WHBM Canada | 6 | — | (6 | ) | — | |||||||||
Soma frontline boutiques | 244 | — | (2 | ) | 242 | |||||||||
Soma outlets | 18 | — | — | 18 | ||||||||||
Total Chico’s FAS, Inc. | 1,341 | — | (28 | ) | 1,313 | |||||||||
February 1, 2020 | New Stores | Closures | Other Changes in SSF | August 1, 2020 | ||||||||||
Net Selling Square Footage (SSF): | ||||||||||||||
Chico’s frontline boutiques | 1,429,592 | — | (15,063 | ) | 2,437 | 1,416,966 | ||||||||
Chico’s outlets | 309,921 | — | — | — | 309,921 | |||||||||
Chico's Canada | 9,695 | — | (9,695 | ) | — | — | ||||||||
WHBM frontline boutiques | 848,778 | — | (17,581 | ) | (834 | ) | 830,363 | |||||||
WHBM outlets | 123,735 | — | (6,504 | ) | 253 | 117,484 | ||||||||
WHBM Canada | 15,588 | — | (15,588 | ) | — | — | ||||||||
Soma frontline boutiques | 460,153 | — | (3,259 | ) | (288 | ) | 456,606 | |||||||
Soma outlets | 34,329 | — | — | — | 34,329 | |||||||||
Total Chico’s FAS, Inc. | 3,231,791 | — | (67,690 | ) | 1,568 | 3,165,669 |
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