Chico's Fas, Inc.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K o.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes þ No o

State the aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant:


	Approximately $2,293,100,000 as of August 2, 2003 (based upon the closing sales price reported by the NYSE and published in the Wall Street Journal on August 4, 2003).

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:

Common Stock, par value $.01 per share — 89,093,699 shares as of March 31, 2004.


	Part II Annual Report to Stockholders for the Fiscal Year Ended January 31, 2004.

	Part III Definitive Proxy Statement for the Company’s Annual Meeting of Stockholders presently scheduled for June 22, 2004.

Chico’s FAS, Inc. (together with its subsidiaries, the “Company”) is a specialty retailer of exclusively designed, private label, sophisticated, casual-to-dressy clothing, complementary accessories and other non-clothing gift items under the Chico’s and White House | Black Market brand names.


	*Chico’s.* The Chico’s brand, which began operations in 1983, focuses on women who are 35 years old and up with moderate and higher income levels. The styling is relaxed, figure-flattering and mostly designed for easy care. The Chico’s brand is vertically integrated and the Company designs virtually all of its products either in-house or working with its independent vendors.

	*White House \| Black Market.* The White House \| Black Market brand, which began operations in 1985 and which was acquired by the Company in September 2003, focuses on women between the ages of 25 and 45 who lead active work and social lives with moderate to high income levels. Its offerings include high-quality fashion and merchandise in the classic and timeless colors of white and black and related shades. The White House \| Black Market brand works closely with a number of vendors and agents to select, modify, create and combine products designed and manufactured by them or their sources.

The Company continues to explore and test other specialty retail concepts, which it believes could be future growth vehicles. If and when a test concept is considered to be successful and appears to offer profitable growth within a reasonable time horizon, such concept would be expanded beyond the test phase.


	*Soma by Chico’s.* In September 2003, the Company announced plans to open approximately 10 test stores for its new intimate apparel concept, “Soma by Chico’s”, aimed at customers with the same age and income as customers of the Chico’s brand. This concept is currently planning to offer foundation products in intimate apparel, sleepwear, bodywear and active wear that could ultimately appeal to a broader customer base than Chico’s. The Company plans to begin opening these test stores during the third quarter of fiscal 2004. The plan is for the Soma by Chico’s brand to work closely with a number of vendors and agents to select and modify products designed and manufactured by them or their sources and to design proprietary products either in house or working with these vendors.

	*Pazo.* In March 2003, the Company launched the Pazo concept by opening 10 test stores in seven southern and southwestern states. In September 2003, the Company announced its decision to discontinue its Pazo test. Although the Company believed that the financial performance of this concept could be improved over time, the Company believed that a strategy of focusing on the White House \| Black Market brand and the testing and possible expansion of the Soma by Chico’s concept was a preferable strategy.

The Company historically has endeavored to maintain a merchandise mix which emphasizes the continued introduction of new styles and designs to complement its seasonal and core product offerings. The Company intends to continue this approach with respect to its Chico’s brand and intends to expand the utilization of this approach with respect to the White House | Black Market brand.

As of March 31, 2004, the Company operated 559 retail stores, including those under the names of Chico’s and White House | Black Market in 45 states, the District of Columbia, the Virgin Islands and Puerto Rico. The Company’s 403 Chico’s front-line Company-owned stores and 121 White House | Black Market stores, as of this date, compete in the “better-priced” market, with 31% of these stores in upscale malls, 18% in upscale street locations and the balance in open air specialty and strip centers. Chico’s also has 12 franchised locations remaining in 4 states, although no new franchisees have been authorized since 1989. There are also 23 Chico’s outlet locations at March 31, 2004, which provide clearance activities for the Chico’s front-line stores. Currently, there are no White House | Black Market outlets, although several stores have been designated as “sale” stores for clearance purposes. There are plans to open additional Chico’s outlets and White House | Black Market outlet locations in fiscal 2004 and beyond.

In May 2000, the Company established a call center for catalog and online sales for its Chico’s brand. Although the Chico’s brand mails a catalog almost every month, the Company historically has relied on these catalogs as a staple to drive its customers into its Chico’s brand stores. Since May 2000, these catalogs have also served to promote and encourage call-in and online sales. Sales through the catalog’s toll free telephone numbers and from www.chicos.com amounted to $22.8 million in fiscal 2003 and are viewed as additional sales that provide a customer service for those who prefer shopping in this manner. The Company also launched a catalog for the White House | Black Market brand for the first time during the fiscal 2003 Christmas holiday season. This catalog was designed to drive customers into the White House | Black Market stores, and the Company has not yet established the ability for customers to order White House | Black Market merchandise online or through the catalog. The Company intends to expand its call center operations to handle catalog and online sales of White House | Black Market merchandise in early fiscal 2005.

Chico’s has been experiencing annual double digit same store sales increases since fiscal 1997. Through late 2000, the Company had been able to use markdowns (first, second and special sales) in its front-line stores to effectively clear merchandise without opening new outlets. During this time, the Company operated between 7 and 8 outlets. In late 2000, Chico’s decided to develop a plan to discontinue using some of its smaller front-line stores as clearance vehicles and to reallocate more of the square footage to full-priced merchandise. To this end, the Chico’s brand established a separate outlet division, with separate management, which has since expanded to 23 Chico’s outlets, most of which have a larger average store square footage than in previous years. In order to provide the outlets with a full complement of merchandise, Chico’s also developed a supplemental product line for distribution only through its outlet stores which product line had been labeled “Market by Chico’s.” During fiscal 2004, the Company will be changing the name of this label to avoid confusion with its newly acquired White House | Black Market brand. This supplemental label includes select product items that are designed to help promote the clearance of existing merchandise.

Also during the past few fiscal years, the Company has been testing the expansion of its Chico’s brand within its stores by offering certain items which complement the clothing product, such as footwear, leather goods, watches, and other gift products which are designed by the Company. All of these items are intended to promote the Chico’s brand in areas beyond clothing. Because of the additional space required to accommodate these additional categories and in an effort to improve the visual ambiance of its clothing and accessory presentations, the Company has been actively pursuing larger spaces for its existing and new Chico’s brand stores. Rather than targeting a 1,200-1,500 net selling square foot store as the Company had pursued through fiscal 1998, the Company now believes the target Chico’s brand store size is in the 1,800-3,000 net selling square feet range. Although the Company may from time to time still open Chico’s brand stores in the 1,200-1,700 net selling square foot range, particularly in markets where rents are very high or when a larger well positioned store is not available at a particular location, the Company’s primary focus in both its new and existing markets is a Chico’s brand store with 1,800-3,000 net selling square feet.

The average size of the White House | Black Market brand store has been about 30-40% smaller than the current targeted size for a Chico’s store. In the future, the primary focus for White House | Black Market brand stores, in both new and existing markets, is expected to be a store with 1,500-2,000 net selling square feet.

The Company intends to continue locating a large portion of its front-line Company-owned stores, including Chico’s and White House | Black Market, primarily in established upscale, outdoor destination shopping areas and high-end enclosed malls located either in tourist areas or in, or near, mid-to-larger sized markets. Recently, the Company has been testing several locations in smaller sized markets with encouraging results. The Company intends to expand its opening of stores in smaller sized markets as long as results are meeting expectations. In the fiscal year ended January 31, 2004 (fiscal 2003), the Company opened 72 net new Company-owned stores (including 7 White House | Black Market stores opened since The White House, Inc. was acquired in September 2003 and 6 new Chico’s outlet stores). The Company plans to open a minimum of between 85 and 95 net new Company-owned stores in the fiscal year ending January 29, 2005 (fiscal 2004). Of this total, approximately 40-45 are expected to be Chico’s stores, approximately 35-40 are expected to be White House | Black Market stores, and approximately 10 stores are expected to be opened as

On September 5, 2003, the Company acquired all of the outstanding common stock of The White House, Inc. (“The White House”). As of September 5, 2003, The White House operated 107 stores in 30 states, the Virgin Islands, Puerto Rico and the District of Columbia. As a result of the acquisition, the Company believes it is now poised to strengthen its position in the specialty retail market and more effectively continue with its overall growth strategy.

Over the three-year period ended on February 1, 2003, The White House increased its store base from 60 to 92 stores and achieved a compound annual growth rate in net sales of 32.9%. The White House’s comparable store sales gains averaged 11.5% per fiscal year during this period, increasing 13.1% in the fiscal year ended February 2, 2002 and 16.3% in the fiscal year ended February 1, 2003. The Company believes that its expertise in brand management, sourcing and other logistics provides the Company with the ability to continue to successfully expand product offerings and distribution under the White House | Black Market brand. The Company believes there are excellent opportunities for achieving operating synergies, some of which are already being realized. The Company has already begun to integrate many of The White House’s overhead functions with the Company’s current operations, with the intention of further increasing the cash flow and profitability of The White House’s brand.

Overall Growth Strategy. Over the last several years, the Company has been building its infrastructure to accommodate anticipated future growth in its store base and the associated increases in revenues and expenses. This increase in infrastructure includes significant additions to its senior and middle management teams, a rollout of state-of-the art cash registers (fiscal 2001), a new distribution center (fiscal 2002) and new back office software which “went live” in the latter half of fiscal 2003. As discussed above, the Company acquired The White House, Inc. and its concept, White House | Black Market. The Company believes the White House | Black Market concept has the potential for continued future growth within the United States and, through the added leverage of the two concepts in the leasing marketplace, better site locations for future Chico’s and White House | Black Market stores. The Company has established annual square footage growth of at least 20% as its overall goal (which aggregates the square footage of Chico’s, Soma by Chico’s and White House | Black Market stores) for the next several years. From the perspective of separately assessing the growth potential of each of the Company’s two primary divisions in the United States and the potential Canada market, the Company anticipates the overall market for Chico’s stores to be between 600 and 800 stores, and that the overall market for White House | Black Market stores is very comparable to the potential number of Chico’s brand stores.

Distinctive Private Label Clothing and Coordinated Accessories. The most important element of the Company’s business strategies is the distinctive private label clothing and complementary accessories offered for sale at its stores.


	Chico’s. Emphasizing a relaxed fit as well as comfort, the Chico’s brand clothing is made mostly from natural fabrics (including cotton, rayon, linen and silk) blends and sophisticated synthetics and synthetic blends. Accessories, such as handbags, belts, shoes and jewelry, including earrings, necklaces and bracelets, are specifically designed to coordinate with the colors and patterns of the Chico’s brand clothing, enabling customers to easily enhance and individualize their wardrobe selections.

	The Company designs virtually all of the clothing and accessories offered at the Chico’s stores either in-house or working with its independent vendors, and the Company controls most aspects of the design process, including choices of pattern, construction, specifications, fabric, finishes and color.

	The private label Chico’s brand clothing is designed through the coordinated efforts of the Company’s merchandising and product development teams. Style, pattern, color and fabric for individual


	items of the private label Chico’s brand clothing are developed based upon historical sales data, anticipated future sales and perceived current and future fashion trends that will appeal to its target customer.

	The Chico’s brand product development and merchandising teams develop the in-house designs and design modifications. By conceptualizing and designing in-house and then contracting, for the most part, directly with manufacturers and providing some on-site quality control, the Company has been able to realize average initial gross profit margins for its Chico’s brand clothing and accessories that are higher than the industry average, while at the same time providing value to its customers.

	The distinctive nature of the Chico’s brand clothing is carried through in its sizing. Stores within the Chico’s brand incorporate international type sizing, utilizing sizes 0 (size 4-6), 1 (size 8-10), 2 (size 10-12), and 3 (size 14-16). As in the past, the Chico’s brand occasionally will offer one-size-fits-all and small, medium and large sizing for some items. The relaxed nature of clothing bearing the Chico’s name allows the Chico’s stores to utilize this unusual sizing and thus to offer a wide selection of clothing without having to invest in a large number of different sizes within a single style. The Company has recently added half sizes (sizes .5, 1.5, 2.5 and 3.5) to some of its pant styles, most notably jeans.

	White House \| Black Market. The White House \| Black Market brand clothing is made from natural and synthetic fabrics, including cotton, rayon, silk, polyester, tencel, microfibers and matte jersey, all in the classic and timeless colors of black and white and related shades. As is the case with the Chico’s brand, the accessories, such as handbags, belts and jewelry, including earrings, necklaces and bracelets, are specifically purchased and developed to coordinate with the colors and patterns of the White House \| Black Market brand clothing, enabling customers to easily enhance and individualize their wardrobe selections.

	Similar to the Chico’s brand, the clothing and accessories offered at the White House \| Black Market stores are both designed in-house and designed and developed in conjunction with the Company’s direct vendors and third party manufacturers, although, for the most part, the White House \| Black Market purchases from intermediaries rather than directly from the manufacturers. The merchandise is selected, enhanced and created so as to carry out the White House \| Black Market commitment to “make women feel beautiful” and to project a contemporary, feminine and youthful self-image. As is the case with the Chico’s brand, the style, pattern, color and fabric for individual items of White House \| Black Market brand clothing are selected based upon historical sales data, anticipated future sales and perceived current and future fashion trends that will appeal to its target customer.

	For the foreseeable future, the Company will continue to allow the White House \| Black Market vendors to assist the merchandising and creative teams in the design and development of the White House \| Black Market clothing and accessories. The Company intends to offer the assistance of the sourcing and product development teams for the Chico’s brand to the White House \| Black Market teams in the process of product development and sourcing, and, at the appropriate time, may transition the in-house design and sourcing process for its product offering to deal more directly with its manufacturers

	Sizing in White House \| Black Market stores is currently American sizes in the 0-14 range, which the Company believes is more appropriate for the target White House \| Black Market customer. As a result, the fit of the White House \| Black Market clothing tends to be comfortable, yet more styled to enhance the figure of a body-conscious woman.

Personalized Service and Customer Assistance. The Company has always considered personalized customer service one of the most important factors in determining its success. The Company intends, through its specialized training efforts, to make certain that sales associates in both Chico’s and White House | Black Market stores offer assistance and advice on various aspects of their customers’ fashion and wardrobe needs, including clothing and accessory style and color selection, coordination of complete outfits, and suggestions on different ways in which to wear the clothing and accessories.


	Chico’s. As part of its strategy to reinforce the casual and comfortable aspects of the Chico’s brand clothing, Chico’s sales associates are trained to demonstrate to customers the most attractive ways to wear Chico’s brand clothing. Dressing rooms in a Chico’s store are generally not equipped with mirrors, encouraging customers to come out of the dressing rooms so that store personnel can provide such assistance. Chico’s stores have not found it necessary to offer alteration services.

	Sales associates at Chico’s stores are encouraged to know their regular customers’ preferences and to assist those customers in selecting merchandise best suited to their tastes and wardrobe needs. The Company encourages, but does not require, sales associates at Chico’s stores to wear the Chico’s brand clothing and accessories in its stores (subject to varying state laws) and, to complement this, it offers substantial employee discounts. To better serve the Chico’s customer, sales associates are encouraged to become familiar with new styles and designs of clothing and accessories by trying on new merchandise.

	White House \| Black Market. Although customer service has always been very important to White House \| Black Market sales associates, the Company is in the process of developing new training programs to provide an even more focused customer service emphasis for the White House \| Black Market sales associates, borrowing proven strategies from the operations of its Chico’s stores. These successful customer service strategies are being tailored to the White House \| Black Market store brand and product offerings and are to be implemented through this enhanced training of White House \| Black Market sales associates. Although White House \| Black Market dressing rooms are equipped with mirrors (and are expected to continue to be so equipped), store associates will be trained to further enhance their abilities to assist and advise on various aspects of their customers’ fashion and wardrobe needs.

The Company takes pride in empowering its associates to make decisions that best service the customer. This healthy sense of empowerment enables the Company’s associates to exceed customers’ expectations. In addition, many of the Chico’s store managers and sales associates were themselves Chico’s customers prior to joining the Company and can therefore more easily identify with customers. The Company’s associates are expected to keep individual stores open until the last customer in the store has been served. If an item is not available at a particular store, sales associates are encouraged to arrange for the item to be shipped directly to the customer from another Chico’s or White House | Black Market store. The Company provides a Company sponsored “SKU hotline” to assist sales associates with this task.

Customer Loyalty. Building customer loyalty through focused preferred customer programs and effective implementation of the Company’s merchandising and customer service strategies is considered a key element for the Company’s success.


	Chico’s. Chico’s preferred customer club, which was established in the early 1990’s and which is known as the “Passport Club”, was designed to encourage repeat sales and customer loyalty for its Chico’s brand. Features of the club include discounts, special promotions, invitations to private sales, and personalized phone calls regarding new Chico’s brand merchandise. In late 1994, the Company decided to limit the number of new members and to evaluate ways to restructure the program.

	The Company relaunched the Passport Club (“Passport”) in February 1999 with essentially the same features. A Chico’s brand customer signs up to join the Passport Club at no cost, initially as a “preliminary” member. Once the customer spends $500 over any time frame, the customer becomes a “permanent” member entitled to a 5% lifetime discount, advance sale notices, free shipping and other benefits. Since the relaunch in early 1999, Chico’s has been very successful in increasing its database of preliminary and permanent Passport members. As of January 31, 2004, Chico’s had over 940,000 permanent Passport members and over 3.0 million preliminary Passport members. During fiscal 2003, the permanent Passport members accounted for approximately 74% of overall sales, while the preliminary members accounted for 20% of overall sales. Also, during fiscal 2003, Chico’s signed up an average of 66,000 preliminary new members per month, of which an average of 25,000 per month spent the required $500 to become a permanent member. Prior to the relaunch of Passport, the permanent members accounted for approximately 10% of overall sales at Chico’s stores and the Company was unable to effectively track preliminary Passport members sales.

	The Company believes that permanent Passport members shop more frequently and spend more on the average transaction than preliminary Passport members. During the fiscal year ended January 31,


	2004, the average permanent Chico’s passport member spent $112 per transaction and shopped four to seven times per year, while the preliminary Passport members averaged $75 per transaction and shopped one to three times per year.

	With the sophisticated database hardware and software the Company has acquired to manage the SKU-level transactions being recorded for both preliminary and permanent Passport members, the Company believes it is better able to more sharply focus its marketing, design and merchandising efforts to better address and define the desires of its target customer. The Company intends to extend the Passport benefits offered to the Chico’s customers at its Soma by Chico’s test stores.

	White House \| Black Market. The Company anticipates beginning a customer loyalty program that may, or may not, be similar to Passport for its White House \| Black Market customers in late fiscal 2004 or early fiscal 2005. Based on the responses to catalogs and magazine advertisements in fiscal 2004, the Company will evaluate the anticipated needs of the White House \| Black Market customer and will seek to develop a frequent shopper club designed to meet those needs.

High-Energy, Loyal Associates. The Company believes that the dedication, high energy level and experience of the members of its senior management team, support staff and store associates are key to its continued growth and success and helps to encourage personalized attention to the needs of its customers.

In selecting its associates at all levels of responsibility, the Company looks for quality individuals with high energy levels who project a positive outlook. The Company has found that such persons perform most effectively for the Company and contribute to a fun and exciting shopping experience for its customers. White House | Black Market has followed a similar philosophy for its associates and this has helped to facilitate an easier integration from a personnel perspective.

Sales associates are compensated with a base hourly wage but also have opportunities to earn substantial incentive compensation based on their individual sales. For the most part, these incentives are based upon the dollar amount of sales to individual customers, thereby encouraging sales of multiple items and focusing the sales associate on each transaction. Store managers receive base salaries and are eligible to earn various incentive bonuses tied to individual sales and storewide sales performance. Each store brand has separate district and regional managers. The district and regional managers receive base salaries and also have the opportunity to earn monthly incentive compensation based upon the sales performance of stores in their districts and regions, as well as incentives, including, in some years, stock options, based on their district or region performance compared to the overall sales performance of the respective store brand.

The Company offers its associates other recognition programs and the opportunity to participate in its stock incentive, stock purchase and 401(k) programs. Management believes that these programs and policies offer the Company’s associates opportunities to earn total compensation at levels generally at, or above, the average in the retail industry for comparable positions.

The Company’s emphasis, where possible, on a “promote from within” philosophy, combined with increases in the number of new Company-owned stores, provides opportunities for qualified associates to advance to higher positions in the Company.

Additional Company-Owned Stores. Management believes that the ability to open additional Company-owned stores will be a factor in the future success of the Company. During fiscal 2000, the Company opened 50 new Company-owned front-line stores and two new franchised stores while closing two front-line stores and one outlet store. During fiscal 2001, the Company opened 59 new front-line Company-owned stores and five new Company-owned outlet stores, while closing two front-line stores and one outlet store. During fiscal 2002, the Company opened 60 new Company-owned front-line stores, 6 new Company-owned outlet stores and one new franchised store, while no stores were closed. Prior to March 2003, all stores opened were under the Chico’s brand name. During fiscal 2003, the Company opened 51 new Company-owned Chico’s front-line stores, 10 Pazo stores, seven White House | Black Market stores (since September 5, 2003) and six new Company-owned outlet stores, while closing two Chico’s front-line stores. Also, during fiscal 2003, the Company converted one Pazo store into a Chico’s front-line store. During fiscal 2003, the Company decided to discontinue the Pazo test concept and will convert 9 of the Pazo stores to the Company’s other concepts and will permanently close the remaining Pazo store. As of March 31, 2004, the Company has opened 4, net front-

line stores under the Chico’s name and 7 White House | Black Market stores (including the conversion of 5 Pazo stores into White House | Black Market stores) of the minimum 85-95 net new Company-owned stores planned to be opened in fiscal 2004. The Company has signed leases for several additional new Chico’s and White House | Black Market store locations, and the Company also is currently engaged in negotiations for the leasing of numerous additional sites. Of the 85-95 net new Company-owned stores to be opened in fiscal 2004, the Company expects to open 18-22 stores in the first quarter, 20-24 stores in the second quarter, 32-40 stores in the third quarter, and the balance in the fourth quarter.

In general, the Company intends to locate its new stores predominantly outside of Florida. In deciding whether to open a new store, the Company undertakes an extensive analysis which includes the following: identifying an appropriate geographic market; satisfying certain local demographic requirements; evaluating the location of the shopping area or mall and the site within the shopping area or mall; assessing proposed lease terms; and evaluating the sales volume necessary to achieve certain profitability criteria. Once the Company takes occupancy, it usually takes from three to five weeks to open a store. After opening, Chico’s front-line stores have typically generated positive cash flow within the first year of operation (after allocation of a portion of home office administrative expense based on sales) and have typically had an eleven to eighteen month payback of all initial capital and inventory costs. Prior to the Company’s acquisition of the White House | Black Market chain, White House | Black Market stores, on average, generated positive cash flow within the first year of operations and achieved an eighteen to twenty-four month payback of initial capital and inventory costs. The Company expects new White House | Black Market stores to continue to generate positive cash flow within their first year of operations and expects the new White House | Black Market stores to improve on these performance measures by achieving payback of all initial capital and inventory costs within at least eighteen months after opening. However, there can be no assurance that new Chico’s or White House | Black Market stores will achieve operating results similar to those achieved in the past.

The Company plans to grow by opening additional Company-owned stores and does not currently intend to increase the number of franchisees. The Company intends to continue providing full support for its franchise network and anticipates that one of its existing franchisees may be able to further meet the Chico’s criteria for opening additional stores in its limited territory. This franchisee opened one new franchised store in fiscal 1998, one in fiscal 1999, two in fiscal 2000, none in fiscal 2001, one in fiscal 2002 and none in fiscal 2003.

The Company’s Chico’s and White House | Black Market stores are situated, for the most part, either in tourist areas or in, or near, mid-to-larger sized markets. Recently, the Company has been testing several locations in smaller sized markets with encouraging results. The Company intends to expand its opening of stores in smaller sized markets as long as results are meeting expectations. The Company’s front-line stores are located almost exclusively in upscale outdoor destination shopping areas, high-end enclosed shopping malls and, to a lesser degree, regional malls which offer high traffic of the respective target customers of the brand. For both brands, the Company seeks to locate the Company-owned front-line stores where there are other upscale specialty stores and, as to its mall locations, where there are two or more mid-to-high end department stores as anchor tenants. The Chico’s brand outlet stores are, for the most part, located in outlet centers, although the Company is evaluating the possibility of opening several new outlets in value centers.

At January 31, 2004, the Chico’s brand Company-owned front-line stores average approximately 1,939 net selling square feet, while the Chico’s brand Company-owned outlet stores average approximately 2,998 net selling square feet and the White House | Black Market brand stores average approximately 1,175 net selling square feet. The Company seeks to open Chico’s brand front-line stores with approximately 1,800-3,000 net selling square feet and to open White House | Black Market brand stores with approximately 1,500-2,000 net selling square feet. However, in locations where the Company has a desire to establish a store for either brand but where the optimum store size or location is unavailable, the Company will lease a front-line store with as few as 1,200 net selling square feet or as many as 4,000 net selling square feet. If the volume of business at one of these smaller stores is sufficient, and there is no ability to expand the existing store, the Company has chosen in the past to open additional stores nearby, operating more than one store in the same general shopping area. Non-selling space within Company-owned stores for both principal brands generally amounts to 20-25% of the gross leased space, and is not considered in the net selling square foot calculations.

At March 31, 2004, there were 559 stores, of which 403 were Company-owned front-line Chico’s stores, 23 were Company-owned Chico’s outlet stores, 12 were franchised Chico’s stores and 121 were White House | Black Market stores. The Company’s current stores are located in the following jurisdictions:

In a typical new front-line Company store (including new Chico’s stores and new White House | Black Market stores), the Company’s cost of leasehold improvements, fixtures, store equipment and beginning inventory ranges from $350,000 to $650,000 (after taking into account landlord construction allowances and other concessions).

For both store concepts, the Company utilizes teams of associates experienced in new store openings who are able to supervise final build-out and set up store interiors rapidly, including, where necessary, the flooring, furniture, fixturing, equipment and initial inventory displays. The use of in-house crews allows the Company to open a new store generally within three to five weeks after taking occupancy. As a result, management believes that the Company opens its new stores more rapidly and at somewhat less cost than many of its competitors. The Company has an arrangement whereby the final design and initial build-out of the store is handled by third-party architectural and contracting firms, with offices or affiliates throughout the country. Under this arrangement, the Company’s in-house crews are still responsible for approving the final stages of the build-out and for setting up the store interiors.

The following table sets forth information concerning changes in the number of Company-owned and franchise stores during the past five fiscal years:


*	Not retroactively restated to include the White House \| Black Market stores prior to September 5, 2003.

**	Not retroactively restated to include the growth in the number of White House \| Black Market stores prior to September 5, 2003. Also, does not include stores that opened as relocations of previously existing stores within the same general market area (approximately five miles) or substantial expansions of stores.

***	Includes 7 White House \| Black Market stores, which were opened by the Company subsequent to the acquisition of The White House on September 5, 2003.

****	Composed of 411 Chico’s front-line stores, 23 Chico’s outlet stores, 114 White House \| Black Market stores and 9 Pazo stores.

As of March 31, 2004, the Company operated 23 outlet stores under the name “Chico’s.” Chico’s outlet stores carry slower-selling items removed from the Chico’s brand front-line stores, remaining pieces of better-selling items replaced by new shipments of merchandise to front-line stores, returns of merchandise accepted from franchise stores under the Company’s franchisee return policy, seconds of Chico’s brand merchandise, and its “Market by Chico’s” line, which will utilize a new label name in fiscal 2004 and which is intended to

help promote clearance of existing styles by complementing the other outlet merchandise. The Company does not currently anticipate that the “Market by Chico’s” label, or its new label name, will account for more than 10% of outlet sales in the future. Chico’s outlet stores act as a vehicle for clearing certain marked down merchandise while continuing to allow Chico’s brand front-line stores to maintain a somewhat limited markdown policy. Prices at Chico’s outlet stores generally range from 30% to 70% below regular retail prices at Chico’s brand front-line stores. Although service is also important at Chico’s outlet stores, there is somewhat less emphasis in the outlet stores on personalized customer service. Sales from the Company’s outlet stores represented approximately 4.3% of the Company’s net sales and the “Market by Chico’s” label represented approximately 6% of the outlet sales during fiscal 2003. Chico’s outlet stores have not been intended to be profit centers, and the Company is constantly re-evaluating its approach to outlet stores to improve the return on clearance of such goods.

Chico’s outlet stores are generally larger than front-line stores, averaging approximately 2,998 net selling square feet at January 31, 2004. The Company opened six new outlet stores in fiscal 2003, six new outlet stores in fiscal 2002 and five new outlet stores in fiscal 2001. Currently, the Company is planning to open 1-3 White House | Black Market outlet stores and 2-3 Chico’s outlet stores in fiscal 2004.

Currently, there are twelve franchised Chico’s brand stores operated by four owners, none of whom is otherwise affiliated with the Company. Each franchisee paid an initial franchise fee of between $5,000 and $75,000 per store and is not required to pay any continuing monthly royalty. Each franchisee has been provided an exclusive license at a specified location to operate a Chico’s brand store and to utilize certain of the Company’s trademarks, service marks and certain other rights of the Company relating to the sale of Chico’s brand merchandise. The term of the franchise is generally ten years, renewable for additional ten-year periods if certain conditions pertaining to the renewal are met (including the payment of a renewal fee). Franchisees are required to operate their Chico’s brand stores in compliance with the Company’s methods, standards and specifications for the Chico’s brand regarding such matters as store design, fixturing and furnishings, decor and signage, merchandise type and presentation, and customer service. The franchisee has full discretion to determine the prices to be charged to customers generally by changing or replacing the pre-ticketed price tags. Franchisees are required to purchase all Chico’s brand clothing and all Chico’s brand accessories from Chico’s or from suppliers approved by the Company. Currently, the merchandise offered by Chico’s franchisees at their stores is purchased from the Company at prices equal to 50% of suggested retail prices, subject to rebates of between 2% and 8% based on actual quarterly return rates versus preset goals. In certain situations, franchise stores may carry other brands of clothing or accessories if such merchandise is approved by the Company. In such cases, franchisees may be required to pay to the Company a monthly royalty equal to 5% of gross sales of any approved merchandise not purchased from the Company. During fiscal 2003, the Company’s net sales to franchisees was approximately $7.8 million, or 1.0% of total net sales.

As of March 31, 2004, the franchisee holding franchise rights in Minnesota has the right to open additional Chico’s brand stores. With respect to the franchise rights granted in Minnesota, the Company granted an exclusive right to develop Chico’s brand stores and subfranchise within the state of Minnesota. The Minnesota franchisee may technically have the ability to open an unlimited number of additional stores within its limited territory. However, the Company believes that economic, logistic and other practical considerations effectively limit the number of additional Chico’s brand stores that this franchisee may open in the future. The Company does not believe that the rights of the Minnesota franchisee will significantly limit the Company’s ability to expand.

The Company intends to continue supporting its existing Chico’s brand franchise network. However, the Company does not intend at this time to pursue any new franchises with the Chico’s brand, to establish any franchises with the White House | Black Market brand, or to enter into any additional franchise territory development agreements. In the past, the Company has acquired certain franchise stores that have been offered for sale to the Company. During fiscal 2003, the Company did not repurchase any of its franchise stores although it would consider additional purchases of franchise stores that may be offered to the Company from time to time in the future. In addition, the Company may terminate franchises where performance or

The Company-owned Chico’s stores typically employ a manager, two assistant managers, and numerous sales associates who are either full-time or part-time associates. The White House | Black Market stores historically have employed a manager and a slightly smaller support staff of associates, in part because of the smaller average size of stores. In an effort to further enhance customer service and drive sales in appropriate locations, staffing is being increased somewhat at White House | Black Market stores. In addition, at newer White House | Black Market stores, which are generally larger in size, the Company will typically employ a staff comparable in size to that at Company-owned Chico’s stores. During the peak selling seasons, both Company-owned Chico’s stores and White House | Black Market stores generally hire additional sales associates.

Store managers at Company-owned Chico’s stores are responsible for managing the store’s business and driving sales in the stores. In order to effectively accomplish these tasks, store managers are encouraged to be present on the sales floor whenever possible during business hours. Many store support functions, such as purchasing and accounting, are handled by the Company’s corporate headquarters. This allows store managers more time to focus on store sales through the effective management and training of the sales force, ensuring customer service, and in-store and local community merchandising strategies, including outreach programs. A similar allocation of responsibility is in the process of being implemented and adapted to the operations of the White House | Black Market stores.

Chico’s has established formalized training programs that are intended to reinforce and enhance the personalized customer service offered by all associates as well as increase their merchandise knowledge. The comprehensive training programs include a Most Amazing Personal Services (M.A.P.S.) module and a Most Amazing Register System (M.A.R.S.) module, among others, which the Company believes will help assure that sales associates better understand the Chico’s product and improve the level of service provided to its customers. The Company has begun to implement similar training programs for White House | Black Market associates and expects to incorporate the Company’s sophisticated cash register system in White House | Black Market stores by the end of fiscal 2004.


	Chico’s. The Company currently supervises its Chico’s store operations through its Chief Stores Officer, its Vice President-National Sales, its Senior Director Store Support, several Chico’s Regional Sales Managers, and numerous Chico’s District Sales Managers. The Vice President-National Sales and Senior Director Store Support have direct supervision responsibility of the Chico’s Regional Sales Managers. The Chico’s Regional Sales Managers have direct supervision responsibility of the Chico’s District Sales Managers. Each Chico’s District Sales Manager supervises multiple store locations. Chico’s District Sales Managers have primary responsibility for assisting individual store managers in meeting established sales goals, and carrying out merchandise presentation, staffing, training and expense-control programs established by headquarters.

	White House \| Black Market. The Company currently supervises its White House \| Black Market store operations through its Chief Stores Officer, its National Director of Sales, its Director-Store Support, several recently appointed White House \| Black Market Regional Sales Managers, and numerous White House \| Black Market District Sales Managers. The National Director of Sales and Director-Store Support have direct supervision responsibility of the White House \| Black Market Regional Sales Managers. The White House \| Black Market Regional Sales Managers have direct supervision responsibility of the District Sales Managers. Each White House \| Black Market District Sales Manager supervises multiple store locations. White House \| Black Market District Sales Managers have primary responsibility for assisting individual store managers in meeting established sales goals, and carrying out merchandise presentation, staffing, training and expense-control programs established by headquarters.

Management is continually reviewing its supervisory structures with the intent of improving the performance of individual stores and store managers.

The Company’s current principal management information systems are run on numerous Windows NT/2000 based Applications Servers and two IBM AS/400 platforms located at the home office in Ft. Myers, Florida and the Winder, Georgia distribution center, which provide a full range of retail, catalog, Internet, financial and merchandising information systems, including purchasing, inventory distribution and control, sales reporting, accounting, warehousing and merchandise management principally using CRS Retail Systems, Lawson, Manhattan Associates, STS by NSB, Momentis and Mozart by Commercialware.

The Company installed the Manhattan Associates distribution package and the Lawson Human Resource software during fiscal 2002 and installed the remaining new packages to replace the existing Island Pacific packages during the latter half of fiscal 2003. As of January 31, 2004, software and hardware costs associated with the implementation of the new software packages totaling approximately $15.7 million were capitalized and are being charged to depreciation expense over the estimated useful lives of the assets.

All Company-owned Chico’s stores utilize point of sale cash register computers, which are polled nightly to collect SKU-level sales data, Passport information and inventory receipt and transfer information for each item of merchandise, including information by style, color and size. Management evaluates this information, together with its weekly reports on merchandise shipments to the stores, to analyze profitability, formulate and implement company-wide merchandise pricing decisions, assist management in the scheduling and compensation of associates (including the determination of incentives earned) and, most importantly, to implement merchandising decisions regarding needs for additional merchandise, allocation of merchandise, future design and manufacturing needs and movement of merchandise from Chico’s front-line stores to Chico’s outlet stores.

During fiscal 2001, the Company replaced its in-house developed, DOS-based, cash register systems with a cash register using a Windows NT platform in a wide area network and using the CRS Retail Systems software used by many other retailers. The Company is now focused on the second phase of the register rollout which will focus on improving customer service, reporting, training and overall functionality, including allowing the Company to integrate all three channels of distribution and allowing more extensive use of computer-based training to complement its existing training programs. To that end, the Company rolled out an electronic gift card program in fiscal 2002 and intends to replace its current POS hardware with new and improved hardware and upgraded software in early fiscal 2005.

The White House | Black Market operations utilize different industry standard software systems to provide the various functions related to point-of-sale, inventory management, planning and distribution. The financial books and records for White House | Black Market operations have been migrated to the Company’s existing financial systems and efforts are underway to integrate the software systems currently being utilized for the other operations of White House | Black Market with the Company’s newly implemented software systems. The Company expects to move the White House | Black Market merchandising, distribution and allocation software from its existing platform to a platform using systems substantially like those used at Chico’s in fiscal 2004. In addition, the Company plans to replace the current White House | Black Market cash registers with a register very similar to the Chico’s cash register in the second and third quarters of fiscal 2004.

The Company is committed to an ongoing review and improvement of its information systems to enable the Company to obtain useful information on a timely basis and to maintain effective financial and operational controls. This review includes testing of new products and systems to assure that the Company is able to take advantage of technological developments.

During fiscal 2002, the Company acquired 52 acres of land with an existing 202,000 square foot distribution center and an existing 31,000 square foot office in Barrow County, Georgia. With this acquisition, the Company also secured a commitment from the local county to permit the addition of up to another 200,000 square feet of distribution space and 6,000 square feet of office space for future years.

Also during fiscal 2002, the Company acquired and installed sophisticated “put-to-light” material handling equipment and integrated it with the Warehouse Management System from Manhattan Associates, Inc. to create a new, more automated distribution system. The Company went live with this system in September 2002, closed its Fort Myers distribution center in February 2003 and now has all of its Chico’s brand distribution activities based in this new center. The Company operates both its store fulfillment and its mail order and Internet fulfillment from its new facility. During fiscal 2003, the distribution systems software was integrated with the Company’s newly implemented STS software systems. The Company’s previous distribution center in Ft. Myers has since been converted to office space.

The distribution operations at the White House | Black Market distribution center and headquarters located in Glen Burnie, Maryland will be moved to the Company’s distribution center in Winder, Georgia in early May 2004.

New merchandise is generally received daily at the Company’s distribution center in Winder, Georgia. Merchandise from United States vendors is trucked to Georgia or arrives by air, as the circumstances require. Most of the merchandise from foreign vendors arrives in this country via air (and occasionally by sea) at various points of entry in New York, California, Georgia or Florida and is transported via truck to the distribution center. After arrival at the distribution center, merchandise is sorted and packaged for shipment to individual stores. Merchandise is generally pre-ticketed with price and all other tags at the time of manufacture.

The Company’s current distribution center is highly automated, thus generally permitting turnaround time between distribution center receipt of merchandise and arrival at stores to average approximately 24 to 48 hours for its nearest stores and two days to a week for its other stores. In an attempt to ensure a steady flow of new merchandise, the Company ships merchandise continuously to its stores. The Company uses common carriers, such as United Parcel Service and Federal Express, for most shipments to its stores.

The capacity of the Company’s new distribution center in Georgia should be sufficient, in the opinion of management, to service the Company’s needs for at least several years of future growth (including without limitation the growth of Chico’s, White House | Black Market and, if expanded, Soma by Chico’s), without requiring building expansion under its existing county commitment. The Company will reexamine the need for building expansion at Winder, Georgia in fiscal 2005 and could begin construction as early as fiscal 2006.

Chico’s brand private label clothing is developed through the coordinated efforts of Chico’s merchandising, creative and product development teams and working with its independent vendors. White House | Black Market brand private label clothing is developed through a coordination of efforts between the White House | Black Market merchandising and creative team and the private label design teams of the outside vendors. The Company will continue to evaluate whether, and if so when, to expand the product development team at White House | Black Market. Style, pattern, color and fabric for individual items of the Company’s private label clothing are developed based upon historical sales data, anticipated future sales and perceived current and future fashion trends that will appeal to its target customer.

Chico’s creative and product development department reports to Patricia Murphy Kerstein, Executive Vice President-Chief Merchandising Officer and is headed up by the Vice President of Product Development. Ms. Murphy Kerstein also has the responsibility of overseeing and coordinating the buying, planning, and merchandise allocation departments, headed up by the Vice President-Merchandising, the Vice President-Merchandise Controller and the Vice President-Planning and Allocation. The Company’s sourcing, produc-

White House | Black Market’s creative, product development and merchandising teams are headed up by Patricia Darrow-Smith, Executive Vice President-Chief Merchandising Officer of The White House, Inc., who works with several division directors who, in turn, collectively oversee all areas.

The creative and product development teams for Chico’s develop the in-house designs and design modifications with input from the Chico’s merchandising team as well as the independent vendors. The merchandising team for White House | Black Market coordinates with the creative and product development staffs at its various vendors in the evaluation of designs, design modifications, and creation of new product. In addition to selecting distinctive patterns and colors, the Chico’s product development team and the Company’s merchandising teams are particularly attentive to the design and specification of clothing style, construction, trim and fabric treatment. The Company believes this attention to design detail assists in distinguishing its clothing and strengthening the customer’s perception of quality and value.

Although the Company develops merchandise for specific seasons, the product development efforts, both internally for Chico’s and on a coordinated basis with vendor product development personnel for White House | Black Market, are a constant process which result in the continual introduction of new merchandise in the Company’s front-line stores. This continual process supports the Company’s merchandising and inventory strategy, and serves to reduce, somewhat, the Company’s exposure to fashion risk associated with any group of styles or trends.

Chico’s has historically purchased most of its Chico’s brand clothing and accessories from companies that manufacture such merchandise in foreign countries except for the “cut and sew” operations described below. White House | Black Market has historically purchased a significant amount of its White House | Black Market brand clothing and accessories from companies that arrange for such items to be manufactured in foreign countries. The Company does business with all of its foreign vendors and importers in United States currency, that may be supported through letters of credit.

Clothing manufacturers of the Chico’s brand clothing utilize the designs and specifications provided by the Company most often through its CAD systems. Except for certain U.S. based “cut and sew” operations, the Company generally does not purchase and supply the raw materials for its clothing, leaving the responsibility for purchasing raw materials with the manufacturers. Since late 1997, the Company has been buying fabric and providing the fabric to domestic “cut and sew” manufacturers in the United States who are engaged by the Company to make the specified Chico’s brand designs and styles. The Company anticipates it is likely to continue this practice in the future.

Currently, the Company contracts primarily with between 50 to 75 apparel vendors and 45 to 60 accessory vendors, as well as several fabric suppliers and several “cut and sew” vendors for its Chico’s brand merchandise. Because of certain perceived lower sourcing costs that can be associated with the Company’s vendors in various parts of the world and certain other long term uncertainties presented by such vendor relationships, the Company intends to continue to redirect a portion of its sourcing activities for Chico’s brand merchandise towards new vendors in China, India and other areas.

Currently, the Company contracts with more than 100 different vendors for its White House | Black Market brand, but relies on five to seven core vendors who collectively account for over one third of the total White House | Black Market merchandise purchases. For the most part, however, the White House | Black Market team is not utilizing vendors that are currently supplying the Chico’s brand.

Chico’s. During fiscal 2003, China sources accounted for approximately 50% of the Company’s purchases of Chico’s brand merchandise, United States sources (including the cost of fabric and “cut and sew” vendors) accounted for approximately 21% of Chico’s brand merchandise, India sources accounted for approximately 13% of overall purchases, and Turkey sources accounted for approximately 6% of overall purchases, while Peru, Thailand, Korea, Phillipines, and other smaller sources, in the aggregate, amounted to approximately 10% of overall purchases. In fiscal 2004, the Company expects sourcing from China for Chico’s brand merchandise is likely to remain in the same percentage range of overall


	purchases as the prior year, while vendors in Turkey can be expected to continue to provide approximately 5% to 7% of total purchases. Purchases from vendors in India are also likely to remain in the 12% to 14% range of total purchases, while United States vendors are expected to decrease as a percentage of overall purchases.

	White House \| Black Market. Historically, approximately 50% of the White House \| Black Market merchandise was produced domestically. It is expected that sourcing through foreign vendors could gradually increase now that White House \| Black Market can utilize sourcing alternatives provided by the Company.

Although there are no manufacturers that produced more than 10% of the Company’s merchandise during the last fiscal year, the Company has contracted with one intermediary vendor that accounted for 22% of the Company’s purchases for the Chico’s brand (including all fabric and labor) during the last fiscal year through separate subcontracts with several “cut and sew” factories in the United States and China. With respect to purchases for the Chico’s brand made through this intermediary, the Company, for the most part, purchases the necessary specialized cloth and then coordinates with this intermediary who arranges for various independent United States and Chinese “cut and sew” manufacturers to make the specified designs and styles. Although the Company believes that its relationship with this particular intermediary is good, there can be no assurance that this relationship can be maintained in the future or that the intermediary will continue to be available to coordinate and facilitate production and supply of merchandise. If there should be any significant disruption in the supply of merchandise through this intermediary in particular, management believes that it can successfully implement its contingency plans so as to allow it to continue to secure the required volume of product. Nevertheless, there is some potential that any such disruption in supply could have a short term material adverse impact, and possibly even a longer term material adverse impact, on the Company’s operations.

As with most apparel importers, the Company has infrequently experienced certain difficulties with the quality and timeliness of delivery of merchandise. Although the Company has been sensitive to quality control and has taken certain steps to better control the quality of merchandise, there can be no assurance that the Company will not experience problems in the future with matters such as quality or timeliness of delivery.

The Company has no long-term or exclusive contracts with any manufacturer or supplier and competes for production facilities with other companies offering clothing and accessories utilizing similar manufacturing processes. Although the Company believes that its relationships with its existing vendors are good, there can be no assurance that these relationships can be maintained in the future. If there should be any significant disruption in the delivery of merchandise from one or more of its current key vendors, management believes there would likely be a material adverse impact on the Company’s operations. Also, the Company is in the process of developing relationships with several new vendors in various countries. Although the Company has investigated the past performance of these vendors and has inspected factories and sample merchandise, there can be no assurance that the Company will not experience delays or other problems with these new sources of supply. New relationships often present a number of uncertainties, including payment terms, cost of manufacturing, adequacy of manufacturing capacity, quality control, timeliness of delivery and possible limitations imposed by trade restrictions. Although management believes it could establish satisfactory relationships with other new vendors if required to do so, any such further new relationships would involve similar uncertainties.

Although Chico’s continues to utilize United States manufacturers to manufacture a portion of its clothing and although much of the clothing offered by White House | Black Market is being sourced from United States manufacturers, Chico’s has been shifting more and more of its manufacturing of clothing over the past several years to manufacturers located outside the United States and the Company expects this trend to continue for both Chico’s and White House | Black Market. As a result, the Company’s business has remained and will continue to remain subject to the various risks of doing business abroad and to the

Imports from Turkey, Hong Kong, China, Taiwan, India, and Peru currently all receive the preferential tariff treatment that is accorded goods from countries qualifying for normal trade relations status (“NTR”), formerly known as most favored nation status. If the NTR status of any of these countries were to be lost and the merchandise purchased by the Company were then to enter the United States without the benefit of NTR treatment or subject to retaliatory tariffs, it would be subject to significantly higher duty rates. Increased duties, whether as a result of a change in NTR status or any overall change in foreign trade policy, could have a material adverse effect on the cost and supply of merchandise from these countries. The NTR status for China had in the past been subject to an annual review, and this annual review had generated considerable debate. In October 2000, then-President Clinton signed legislation designed to eliminate the need for this annual review and establish permanent NTR status between the United States and China, effective if and when China was admitted into the World Trade Organization (“WTO”). In December 2001, China became a member of the WTO and permanent NTR status became effective. Although the Company expects NTR status to continue for the countries where its principal vendors are located, the Company cannot predict whether the U.S. government will act to remove NTR status for any of the countries or take other actions that could impact the tariff treatment on foreign made goods coming from any of the countries where its principal vendors are located.

The import of the Company’s clothing and some of its accessories also has been subject to constraints imposed by bilateral textile agreements between the United States and a number of foreign jurisdictions. These agreements have imposed quotas that limit the amount of certain categories of clothing that can be imported from these countries into the United States. The bilateral agreements through which quotas have been imposed were negotiated under the framework established by the Arrangement Regarding International Trade, known as the “Multifiber Arrangement.”

In 1994, the member-countries of the International Trade Organization completed the Uruguay Round of trade negotiations of the General Agreement on Tariffs and Trade and the Agreement was approved by the United States Congress. This pact, as it applies to textiles, which is now known as the WTO Agreement on Textiles and Clothing (the “ATC”), was implemented on January 1, 1995 and, as a result, the Multifiber Arrangement is being phased out over a period of ten years, thus eliminating many of the existing restrictions on the Company’s ability to import Chico’s and White House | Black Market merchandise, including quotas. However, most of the phase out has been left to the final year of the ten year period. The completion of this phase out is scheduled for January 1, 2005, although groups representing textile manufacturers recently have been urging the WTO to extend the import quotas on textiles and apparel for several additional years. A quasi-judicial unit of the WTO, the Textiles Monitoring Body (TMB), supervises the implementation of the ATC. The ATC could have an impact on the Company’s sourcing strategy as the phase out of the Multifiber Arrangement is completed. The Company cannot accurately assess at this time how the ATC will affect its financial results and operations or whether any extension of the phase out will be implemented or whether there might be other arrangements added in the future which impose other types of restrictions on imports of apparel and related accessories. For example, because of increased Chinese imports resulting in large part from the quota phase out, the United States has recently found it necessary to restrict Chinese imports on certain apparel items temporarily through the utilization of special safeguard provisions under China’s accession protocol. Although the apparel items subject to restriction are not items the Company purchases to any significant extent, similar safeguards on other apparel items may be requested by textile makers and are likely to be imposed as the quotas for such items are phased out.

In recent years, the Company’s imports from countries subject to the Multifiber Arrangement have all fallen within the applicable quota limits. There can be no assurance that, as long as the quotas remain in effect, the Company’s vendors will be able to continue to secure sufficient quotas for shipments to the Company or will continue to allocate to the Company a sufficient portion of their respective quotas.

The Omnibus Trade and Competitiveness Act of 1988 added a new provision to the Trade Act of 1974 dealing with intellectual property rights. This provision, which is commonly referred to as “Special 301” and

which remains effective even following the approval of the ATC, directed the United States Trade Representative (the “USTR”) to designate those countries that deny adequate and effective intellectual property rights or fair and equitable market access to United States firms that rely on intellectual property. From the countries designated, the USTR is to identify as “priority” countries those where the lack of intellectual property rights protection is most egregious and has the greatest adverse impact on United States products. The USTR is to identify and investigate as priority foreign countries only those that have not entered into good faith negotiations or made significant progress in protecting intellectual property. Where such an investigation does not lead to a satisfactory resolution of such practices, through consultations or otherwise, the USTR is authorized to take retaliatory action, including the imposition of retaliatory tariffs and import restraints on goods from the priority foreign country.

Under Special 301, the USTR has also created a two-tier “watch list” that requires the country so listed to make progress on intellectual property protection reform or risk designation as a priority foreign country. Countries named on the first tier of the watch list, i.e., the priority watch list, are requested to make progress in certain areas by specific dates. Countries named to the second tier, i.e., the secondary watch list, are asked to improve their intellectual property protection efforts.

As of March 31, 2004, of the countries where the Company’s existing or planned key vendors have manufacturing operations or suppliers, none was a priority foreign country. India and Taiwan were on the priority watch list and Peru and Turkey were on the secondary watch list.

China continues to be monitored under a related provision of the Trade Act of 1974, section 306. The United States Trade Representative will be in a position to impose sanctions if China fails to adequately enforce existing bilateral agreements concerning intellectual property rights.

Of countries where the Company’s existing or planned key vendors have manufacturing operations, Turkey, India and Peru have enjoyed Designated Beneficiary Developing Country (“DBDC”) status under the Generalized System of Preferences (“GSP”), a special status that is granted by the United States to developing nations. DBDC status allows certain products imported from those countries to enter the United States under a reduced rate of duty. In order to maintain that status, the countries are required to meet several criteria. The GSP was renewed in 2002 through December 31, 2006.

The Company cannot predict whether any of the foreign countries in which its clothing and accessories are currently manufactured or any of the countries in which the Company’s clothing and accessories may be manufactured in the future will be subject to these or other import restrictions by the United States Government, including the likelihood, type or effect of any trade retaliation. Trade restrictions, including increased tariffs or more restrictive quotas, or both, applicable to apparel items could affect the importation of apparel generally and, in that event, could increase the cost or reduce the supply of apparel available to the Company and adversely affect the Company’s business, financial condition and results of operations. The Company’s merchandise flow may also be adversely affected by political instability in any of the countries in which its goods are manufactured, significant fluctuation in the value of the U.S. dollar against applicable foreign currencies and restrictions on the transfer of funds.

The marketing program for Chico’s currently consists of the following integrated components, which are planned at a minimum of 3.6% and a maximum of 4.0% of the Company’s net sales for fiscal 2004:


	•	The Passport Club (see page 6)

	•	Direct mail/catalogs

	•	National print and TV advertising

	•	Internet and direct phone sales

	•	Outreach programs

Prior to November 1999, Chico’s had not allocated significant resources to mass media advertising other than direct mail. Chico’s had preferred instead to attract customers through its direct mail programs (which began in 1997), word-of-mouth advertising, its general reputation, its Passport Club and the visual appeal of its stores and window presentations of its merchandise. Chico’s sales associates supplement the promotion of the Company and its merchandise often by making personal telephone calls to existing customers informing them about new merchandise. Over the past several years the Company has increased its use of brochures, catalogs and other merchandise image pieces which are mailed to customers and made available at Chico’s stores.

In November 1999, an integrated marketing program was initiated with store mailers and national print advertising reinforcing each other. The Passport Club database was expanded with inquiries from advertising prospect mailings and signup drives in the stores. The catalogs were upgraded at that time to reflect a move towards a sophisticated lifestyle. The mailers were successful in driving traffic into the stores and this program has been expanded each year since. Most of the active Chico’s Passport customers maintained in the database currently receive an average of one mailer per month. A lifestyle TV campaign was initiated in spring of 2001. The national print ad and television programs currently focus on magazines and television shows that have produced the best response rates for Chico’s measured by inquiries over the telephone and the Company’s website. A regional and national test of television ads was conducted for the first time during fiscal 2001 with a strong response. The Company increased its television advertising presence in fiscal 2002 and fiscal 2003, and, as a result of perceived response to such advertising, the Company plans to increase its television advertising further in fiscal 2004.

Internet and telephone sales began on a limited basis in late May of 2000. Chico’s experienced sales (catalog and Internet) of approximately $22.8 million in this area in fiscal 2003. Chico’s web presence and call center also take in thousands of store location and catalog request inquiries per week. Chico’s anticipates approximately 35 million catalogs or mailers, together with national print, television ads, and web presence will be part of a marketing budget that will be between 3.6% and 4.0% of net sales during fiscal 2004, versus 3.6% of net sales in fiscal 2003, which included approximately 29 million catalogs. During fiscal 2003, the Company launched the first ever catalog showcasing the White House | Black Market brand and its merchandise and the Company anticipates continuing to produce catalogs for White House | Black Market in the future. The Company has also recently begun national magazine advertising for White House | Black Market, although no television advertisements are planned at this time for White House | Black Market.

The Company also places additional emphasis on what it refers to as its “outreach programs.” These outreach programs include, among other events, fashion shows and wardrobing parties that are organized and hosted by store managers and sales associates. As part of these outreach programs, the Company also encourages its managers and sales associates to become involved in community projects. The Company has found its outreach programs are effective in providing introductions to new customers. The Company believes that these programs are effective marketing vehicles and it has developed programs to help its store level associates use these programs. To that end, the Company hired a Public Relations Coordinator in fiscal 2002 to coordinate fashion shows and events nationally and to obtain more awareness for such events in local newspapers and magazines.

The women’s retail apparel business is highly competitive and has become even more competitive in the past several years. The Company’s stores compete with a broad range of national and regional retail chains, including other women’s apparel stores, department stores and specialty stores, as well as local retailers in the areas served by the Company’s stores, all of which sell merchandise generally similar to that offered in its stores. Even discount department stores have begun to carry merchandise which is designed to compete for the consumers that historically have been the Company’s target customer.

Although management believes that there is limited direct competition for Chico’s and White House | Black Market merchandise largely because of the distinctive nature of the Company’s stores and merchandise, the retailers that are believed to most directly compete with Chico’s stores in many of the same

local market areas are the mid-to-high end department stores including Nordstrom’s, Dillards, Neiman-Marcus, Bloomingdale’s, Marshall Field’s and Saks Fifth Avenue and specialty stores which include The Gap, Talbots, J. Jill, The Limited, Banana Republic, Christopher & Banks, and Coldwater Creek, as well as local boutique retailers in the areas served by individual Chico’s stores. The retailers that are believed to most directly compete with White House | Black Market stores are the same mid-to-high end department stores named above and specialty stores which include Ann Taylor, Ann Taylor Loft, Banana Republic, Cache, Anthropologie, bebe, and Arden B. as well as local boutiques. The number of competitors and the level of competition facing the Company’s stores vary by the specific local market area served by individual Chico’s or White House | Black Market stores.

The Company believes that the distinctive designs of its clothing and accessories, which provide good value, their exclusive availability at its stores, the Company’s emphasis on personalized service and customer assistance, and the locations of its stores are the principal means by which the Company competes.

As of January 31, 2004, the Company employed just over 7,100 persons, approximately 44% of whom were full-time associates and approximately 56% of whom were part-time associates. The number of part-time associates fluctuates during peak selling periods. As of the above date, 89% of the Company’s associates worked in Chico’s and White House | Black Market stores, Chico’s outlet stores and in direct field supervision, 2% worked in the distribution center and 9% worked in corporate headquarters and support functions.

The Company has no collective bargaining agreements covering any of its associates, has never experienced any material labor disruption and is unaware of any efforts or plans to organize its associates. The Company contributes part of the cost of medical, dental and vision coverage for eligible associates and also maintains a 401(k), stock incentive and stock purchase plan. All associates also receive substantial discounts on Company merchandise. The Company considers relations with its associates to be good.

The Company, through its wholly owned subsidiaries, Chico’s Retail Services, Inc. and The White House, Inc., is the owner of certain trademarks and service marks (collectively referred to as “Marks”) and has a number of trademark and service mark applications pending.

In the United States, the Company owns the following Marks through its subsidiary, Chico’s Retail Services, Inc., each of which is registered with the United States Patent and Trademark Office (“USPTO”): CHICO’S, CHICO’S PASSPORT, M.A.P.S., MARKET BY CHICO’S, MOST AMAZING PERSONAL SERVICE, NO TUMMY, and PASSPORT. The Trademark CHICO’S has a term of 20 years (expiring, unless renewed, in 2009). The balance of registrations have a term of 10 years (some of which expire, unless renewed, in 2012). Each of the Marks is renewable indefinitely provided that it is still used in commerce at the time of the renewal.

The Company is currently actively pursuing applications to register numerous other Marks with the USPTO including CLUB CHICO’S, SILK CAVIAR, and SOMA BY CHICO’S.

The Company is the owner in Canada of the registered trademark, CHICO’S, and the Canadian Intellectual Property Office has issued a notice of allowance for the trademark TRAVELERS. The Company is actively pursuing applications to register numerous other Marks in Canada including: CHICO’S PASSPORT, M.A.P.S., MOST AMAZING PERSONAL SERVICE, NO TUMMY, PASSPORT, and SILK CAVIAR.

The Company has registered the trademark CHICO’S in Puerto Rico and has trademark applications pending for certain other Marks in: Australia, Bahamas, Brazil, the European Union, and Mexico. These

In the United States, the Company owns the following Marks through its subsidiary, The White House, Inc., each of which is registered with the USPTO: BLACK MARKET, THE WHITE HOUSE, and WHITE HOUSE | BLACK MARKET. The registrations have a term of 10 years (some of which expire, unless renewed, in 2011). Each of the Marks is renewable indefinitely provided that it is still used in commerce at the time of the renewal.

The Company currently is actively pursuing applications to register numerous other Marks with the USPTO including: FOR BOTH SIDES OF YOU, FASHION FOR BOTH SIDES OF YOU, and MAKE WOMEN FEEL BEAUTIFUL.

The Company has registered the trademark WHITE HOUSE | BLACK MARKET in numerous foreign countries including: Australia, Bermuda, the European Union, Japan, Mexico, and the Netherland Antilles. In addition, the Company has applications to register the WHITE HOUSE | BLACK MARKET Mark in the Bahamas and Canada. These various registrations and applications have been made in order to protect the Company’s Marks when the Company decides to expand its operations outside of the United States.

In the opinion of management, the Company’s rights and the Marks are important to the Company’s business. Accordingly, the Company intends to maintain its Marks and the related registrations and applications. The Company is not aware of any claims of infringement or other challenges to its rights to use any registered Marks in the United States or any other jurisdiction in which the Marks have been registered.

Investors in the Company should consider the following risk factors as well as the other information contained herein.

The Company’s continued growth depends on its ability to open and operate stores successfully and to manage the Company’s planned expansion. During fiscal 2004, the Company plans to open approximately 85-95 net new Company-owned stores, of which approximately 40-45 are expected to be Chico’s stores, approximately 35-40 are expected to be White House | Black Market stores, and 10 are planned to be test stores under its intimate apparel concept, Soma by Chico’s. The Company’s planned expansion is dependent upon a number of factors, including locating suitable store sites, negotiating favorable lease terms, sourcing sufficient levels of inventory, hiring and training qualified management level and other associates and integrating new stores into its existing operations. There can be no assurance that the Company will achieve its planned expansion or that such expansion will be profitable or that the Company will be able to manage its growth effectively.

The Company’s comparable store sales results have fluctuated in the past on a monthly, quarterly and annual basis, and are expected to continue to fluctuate in the future. A variety of factors affect comparable store sales results, including changes in fashion trends, changes in the Company’s merchandise mix, timing of catalog mailings, calendar shifts of holiday periods, actions by competitors, weather conditions and general economic conditions. Past comparable store sales results are not an indicator of future results, and there can be no assurance that the Company’s comparable store sales results will not decrease in the future. In October 2004, the Company will include its White House | Black Market stores in its comparable store base for the first time. The Company’s comparable store sales results are likely to have a significant effect on the market price of the Company’s common stock.

The Company sells merchandise over the Internet through its website, www.chicos.com. Although the Company’s catalog and Internet operations encompass only 3% of the Company’s total sales, the Company’s Internet operations are subject to numerous risks, including unanticipated operating problems, reliance on third party computer hardware and software providers, system failures and the need to invest in additional computer systems. The Internet operations also involve other risks that could have an impact on the Company’s results of operations including hiring, retention and training of personnel to conduct the Company’s Internet operations, diversion of sales from the Company’s stores, rapid technological change, liability for online content, credit card fraud, risks related to the failure of the computer systems that operate the website and its related support systems, including computer viruses, telecommunication failures and electronic break-ins and similar disruptions. There can be no assurance that the Company’s Internet operations will continue to achieve sales and profitability growth or even remain at their current level.

The Company’s distribution functions for all of its stores and for catalog and Internet sales are handled from a single facility in Barrow County, Georgia. Any significant interruption in the operation of the distribution facility due to natural disasters, accidents, system failures or other unforeseen causes could delay or impair the Company’s ability to distribute merchandise to its stores and/or fulfill catalog and Internet orders, which could cause sales to decline.

The Company’s success and ability to properly manage its growth depends to a significant extent both upon the performance of its current executive and senior management team and its ability to attract, hire, motivate and retain additional qualified management personnel in the future. The Company’s inability to recruit and retain such additional personnel, or the loss of the services of any of its executive officers, could have a material adverse impact on the Company’s business, financial condition and results of operations.

In response to the terrorist attacks of September 11, 2001, security has been heightened in public areas. Any further threat of terrorist attacks or actual terrorist events, particularly in public areas, could lead to lower customer traffic in regional shopping centers. In addition, local authorities or shopping center management could close regional shopping centers in response to any immediate security concern. For example, on September 11, 2001, a substantial number of the Company’s stores were closed early in response to the terrorist attacks. Lower customer traffic due to security concerns and war, or the threat of war, could result in decreased sales that would have a material adverse impact on the Company’s business, financial condition and results of operations.

The Company’s success is largely dependent upon its ability to gauge the fashion tastes of its customers and to provide merchandise that satisfies customer demand in a timely manner. The Company’s failure to anticipate, identify or react appropriately in a timely manner to changes in fashion trends could lead to lower sales, excess inventories and more frequent markdowns, which could have a material adverse impact on the Company’s business. Misjudgments or unanticipated fashion changes could also have a material adverse impact on the Company’s image with its customers. There can be no assurance that the Company’s new products will be met with the same level of acceptance as in the past or that the failure of any new products will not have a material adverse impact on the Company’s business, results of operations and financial condition.

Although the Company has significant portions of its manufacturing of clothing with United States manufacturers, a majority of the Company’s clothing and accessories are still manufactured outside the United States. As a result, the Company’s business remains subject to the various risks of doing business in foreign markets and importing merchandise from abroad, such as: (i) political instability; (ii) imposition of new legislation relating to import quotas that may limit the quantity of goods that may be imported into the United States from countries in a region that the Company does business; (iii) imposition of duties, taxes, and other charges on imports; and (iv) local business practice and political issues, including issues relating to compliance with domestic or international labor standards.

The Company cannot predict whether any of the foreign countries in which its clothing and accessories are currently manufactured or any of the countries in which the Company’s clothing and accessories may be manufactured in the future will be subject to import restrictions by the United States government, including the likelihood, type or effect of any trade retaliation. Trade restrictions, including increased tariffs or more restrictive quotas, or both, applicable to apparel items could affect the importation of apparel generally and, in that event, could increase the cost, or reduce the supply, of apparel available to the Company and adversely affect the Company’s business, financial condition and results of operations. The Company’s merchandise flow may also be adversely affected by political instability in any of the countries in which its goods are manufactured.

The retail apparel and accessory industry is highly competitive. The Company competes with national, international and local department stores, specialty and discount store chains, independent retail stores and Internet and catalog businesses that market similar lines of merchandise. Many competitors are significantly larger and have substantially greater financial, marketing and other resources and enjoy greater national, regional and local name recognition than does the Company. Depth of selection in sizes, colors and styles of merchandise, merchandise procurement and pricing, ability to anticipate fashion trends and consumer preferences, inventory control, reputation, quality of merchandise, store design and location, brand recognition and customer service are all important factors in competing successfully in the retail industry.

The Company’s successful performance in recent years has increased the amount of imitation by other retailers. Such imitation has made and will continue to make the retail environment in which the Company operates more competitive.

The Company’s business fluctuates according to changes in consumer preferences, which are dictated in part by fashion and season. In addition, certain economic conditions affect the level of consumer spending on merchandise offered by the Company, including, among others, unemployment levels, business conditions, interest rates, energy costs, taxation and consumer confidence in future economic conditions. Consumer preference and economic conditions may differ or change from time to time in each market in which the Company operates and negatively affect the Company’s net sales and profitability.

The Company relies on various information systems to manage its operations and regularly makes investments to upgrade, enhance or replace such systems. Any delays or difficulties in transitioning to these or other new systems, or in integrating these systems with the Company’s current systems, or any other disruptions affecting the Company’s information systems, could have a material adverse impact on the Company’s business.

A significant portion of the Company’s business strategy involves integrating, developing and growing The White House business, including its White House | Black Market store brand. The realization of any revenue growth, cost savings or synergies from the acquisition will depend largely upon the Company’s ability to: (i) open and successfully operate new White House | Black Market stores; (ii) maintain and enhance the brand identity of White House | Black Market stores while integrating the business within the Company; (iii) execute the Company’s strategies for The White House without adversely impacting the Company’s existing business; and (iv) substantially reducing the administrative and corporate overhead and back office expenses of The White House.

Furthermore, to achieve the anticipated benefits of the acquisition of The White House, the Company will need to integrate The White House’s business operations into the Company’s operations. The Company will face challenges in consolidating functions and integrating management procedures, personnel and operations in an efficient and effective manner, including: (i) increased demands on management related to the increase in the Company’s size after the acquisition of The White House; (ii) the retention and integration of key associates; and (iii) merging administrative systems and other functions, including information technology, accounting, financial reporting and logistics systems, distribution facilities and operations and practices and procedures, as well as in maintaining uniform standards and controls, including internal accounting and audit controls, procedures and policies.

There can be no assurance that the Company can successfully execute any of these actions or that its growth strategy for the White House | Black Market brand will achieve the degree of consistent success necessary to generate profits or positive cash flow. If the Company fails to adequately integrate the operations of The White House or cannot successfully execute the growth strategy for the White House | Black Market brand, the Company’s financial condition and results of operations may be adversely impacted.

During fiscal 2004, the Company plans to launch a new 10-store concept, Soma by Chico’s, in which the product offering will focus around intimate apparel for the Chico’s target customer. There can be no assurance that these stores, or any other stores that the Company might open in the future, will be successful or that the Company’s overall profitability will increase as a result of opening these stores. The Company has committed significant financial and human resources to developing and launching this concept. Although the Company believes that Soma by Chico’s may have the potential for expansion, the Company cannot provide any assurance that it will achieve results that will cause the Company to open additional Soma by Chico’s stores beyond the 10 store test, or that if the Company does open additional Soma by Chico’s stores, the concept will be profitable.

The Company believes that its trademarks and proprietary rights are important to its success. Even though the Company takes action to establish, register and protect its trademarks and proprietary rights, there can be no assurance that the Company will be successful or that others will not imitate the Company’s products or infringe upon other of the Company’s proprietary rights. In addition, there can be no assurance that others will not resist or seek to block the sale of the Company’s products as infringements of their trademark and proprietary rights. If the Company is required to stop using any of its registered or non-registered trademarks, the Company’s sales could decline and its business and results of operations could be adversely affected.

As of January 31, 2004, goodwill and other intangible assets (trademark) totaled approximately $60.1 million and $34.0 million, respectively. The Company acquired the goodwill and trademark through its acquisition of The White House. At the time of the acquisition, the Company determined that the trademark had an indefinite useful life. Goodwill and intangible assets with indefinite lives are not amortized, but rather

are tested for impairment annually or more frequently if impairment indicators arise. If the Company determines in the future that impairment has occurred, the Company would be required to write off the impaired portion of goodwill or the trademark asset, which could substantially impact the Company’s results of operations.

The market price of the Company’s common stock has fluctuated substantially in the past and there can be no assurance that the market price of the common stock will not continue to fluctuate significantly. Future announcements or management discussions concerning the Company or its competitors, sales and profitability results, quarterly variations in operating results or monthly comparable store net sales, changes in earnings estimates by analysts or changes in accounting policies, among other factors, could cause the market price of the common stock to fluctuate substantially. In addition, stock markets, in general, have experienced extreme price and volume volatility in recent years. This volatility has had a substantial effect on the market prices of securities of many public companies for reasons frequently unrelated to the operating performance of the specific companies.

The Company’s website is located at www.chicos.com. The Company makes available free of charge through this website all of its Securities and Exchange Commission (“SEC”) filings including its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, as soon as reasonably practicable after those reports are electronically filed with the SEC. The Company also maintains various other data on this website, including its recent press releases, corporate governance information, institutional slide show presentations, quarterly conference calls and other quarterly financial data, e.g. historical store square footage, monthly sales tables, etc.

The Company has a Code of Ethics, which is applicable to all associates of the Company, including the principal executive officer, the principal financial officer, the principal accounting officer and the directors. The Code of Ethics is available in the Investor Relations portion of the Company’s website. The Company intends to post amendments to or waivers from its Code of Ethics (to the extent applicable to the Company’s chief executive officer, principal financial officer, principal accounting officer or its directors) at this location on its website.

The Company’s stores are located throughout the United States as well as the Virgin Islands and Puerto Rico, with a significant concentration in California, Florida, Texas and the northeast United States.

As a matter of policy, the Company prefers to lease its stores and all the stores currently operated by the Company are leased. Lease terms typically range from three to ten years and approximately 51% contain one or more renewal options. Historically, the Company has exercised most of its lease renewal options. Approximately 75% of the leases have percentage rent clauses which require the payment of additional rent based on the store’s net sales in excess of a certain threshold and approximately 37% have early cancellation clauses if certain sales levels are not met in specific periods.

The following table, which covers all of the 547 Company-owned stores existing as of March 31, 2004, sets forth (i) the number of leases that will expire each year if the Company does not exercise renewal options and (ii) the number of leases that will expire each year if the Company exercises all of its renewal options

The Company’s World Headquarters, which is located on approximately 35 acres in Ft. Myers, Florida, was completed and initially opened in September 1994, with an office expansion that opened in January 2001. Another office expansion at the headquarters occurred during fiscal 2003 to convert the area that was previously the Company’s distribution center to office space and additional call center facilities. The facility currently consists of its previous distribution center, and corporate and administrative headquarters that comprises approximately 147,000 square feet, currently used for administrative offices, call center facilities and design offices (including pattern making, sewing and sampling activities).

During fiscal 2002, the Company acquired one acre with a 12,000 square foot office building situated thereon for $0.8 million. This property is located adjacent to its headquarters land in Ft. Myers, Florida and is being used as headquarters and offices for White House | Black Market. During fiscal 2003, the Company acquired 6.67 acres of vacant land adjacent to its headquarters. This land will be used to facilitate future expansion of the Company’s current headquarters. The Company also had leased 19,400 square feet of additional space located nearby its Ft. Myers headquarters facility, but this lease expired in March 2004.

As more fully described in the “Merchandise Distribution” section, in March 2002, the Company acquired 52 acres of land in Barrow County, Georgia and the existing distribution center situated thereon. This facility consists of 202,000 square feet of distribution space and 31,000 square feet of office space. With this acquisition, the Company also secured a commitment from the local county to permit the addition of up to another 200,000 square feet of distribution space and 6,000 square feet of office space in the future. The Company paid approximately $7.2 million for the land and buildings and spent $5.5 million to equip, modify, and accommodate the move to the new facility.

The capacity of the Company’s new distribution center, after taking into account the modifications of the facility and commitment from the local county to increase the distribution space, should be sufficient, in the opinion of management, to service the Company’s needs for at least five years of future growth. The Company is committed to an ongoing review of its facilities to properly address any other long term distribution needs.

The Company was named as defendant in a putative class action suit filed in May 2003 in the Superior Court for the State of California, County of San Francisco, Charissa Villenueva v. Chico’s FAS, Inc. The Company filed an answer denying the material allegations of the Complaint. The Complaint alleges that the Company, in violation of California law, has in place a mandatory uniform policy that requires its employees to purchase and wear Chico’s clothing and accessories as a condition of employment. It is the Company’s position that no such mandatory uniform policy exists; the Company encourages but does not require its associates to wear Chico’s clothing; although many Chico’s associates choose to wear Chico’s clothing, others do not. The parties are engaged in discovery, and the Company is continuing its investigation. No rulings on class certification have been made. The Company believes the case is without merit and intends to vigorously defend the litigation.

The Company is not a party to any other legal proceedings, other than various claims and lawsuits arising in the normal course of business, none of which the Company believes should have a material adverse effect on its financial condition or results of operations.

The following table sets forth certain information regarding the Company’s existing executive officers:

Marvin J. Gralnick is Chairman of the Board of the Company. Marvin J. Gralnick, together with his wife, Helene B. Gralnick, founded the Company in December 1983. He served the Company as its Chief Executive Officer until he stepped down in September 1993. In connection with the resignation of the then current Chief Executive Officer and President of the Company in November 1994, Mr. Gralnick returned to the Company on a full time basis to head up merchandise design, marketing and image for the Company. In February 1995, Mr. Gralnick reassumed the role of Chief Executive Officer and served in that position until September 2003, at which time Scott A. Edmonds was promoted to Chief Executive Officer. In March 1997, Mr. Gralnick reassumed the position of President and served in that position until September 2001, at which time Mr. Edmonds was promoted to the position of President. Mr. Gralnick also served as President from the Company’s founding until 1990 when he became Chairman of the Board and was given the official title of Chief Executive Officer. Mr. and Ms. Gralnick’s vision and creative talents led the development and evolution of the Company’s philosophy and the design and feel of Chico’s merchandise and Chico’s stores through September 1, 1993 and again from November 1994 through September 2003. In addition to serving as Chairman, since early March 2004 Mr. Gralnick has been engaged by the Company on an at-will basis to provide his assistance, guidance and direction, as needed.

Scott A. Edmonds is President and Chief Executive Officer of the Company. Mr. Edmonds has been employed by the Company since September 1993, when he was hired as Operations Manager. In February 1994, he was elected to the position of Vice President-Operations and, effective January 1, 1996, he was promoted to the position of Senior Vice President-Operations. In February 2000, Mr. Edmonds was further promoted to Chief Operating Officer, in September 2001, Mr. Edmonds was promoted to President, and in September 2003, Mr. Edmonds was appointed to the additional office of Chief Executive Officer. Prior to

Charles J. Kleman, is Chief Operating Officer, Executive Vice President-Finance, Chief Financial Officer, Treasurer and Secretary of the Company. Mr. Kleman has been employed by the Company since January 1989, when he was hired as the Company’s Controller. In 1991, he was elected as Vice President/ Assistant Secretary. In 1992, Mr. Kleman was designated as the Company’s Chief Financial Officer. In September 1993, he was elected to the additional position of Secretary/ Treasurer, served as Senior Vice President-Finance from January 1996 through November 1996, effective December 1996, was promoted to the position of Executive Vice President-Finance, and effective November 2003, was promoted to the additional position of Chief Operating Officer. Prior to joining the Company, Mr. Kleman was an independent accounting consultant in 1988, and from 1986 to 1988, Mr. Kleman was employed by Electronic Monitoring & Controls, Inc., a manufacturer and distributor of energy management systems, as its Vice President/ Controller. Prior to 1986, Mr. Kleman was employed by various public accounting firms, spending over four years of that time with Arthur Andersen & Co. Mr. Kleman is responsible for real estate, store construction, facilities management, distribution center management, franchise relations, accounting, financial reporting, management information systems, and investor relations.

Patricia Murphy Kerstein is Executive Vice President-Chief Merchandising Officer for the Company. Ms. Murphy Kerstein has been with the Company since September 1997, when she was hired as the Senior Merchant. In April 1998, she was promoted to the position of General Merchandise Manager, in June 1999, she was promoted to Vice President-General Merchandise Manager, in August 2000, she was promoted to Senior Vice President-General Merchandise Manager, and in January 2003, Ms. Murphy Kerstein was promoted to Executive Vice President-Chief Merchandising Officer. Ms. Murphy Kerstein is principally responsible for the product development, buying, planning and allocation, production sourcing and distribution activities associated with procurement of merchandise. From February 1987 until September 1997, Ms. Murphy Kerstein was Vice President of Merchandising and Director of Fashion for Doncaster and from October 1985 until February 1987 was Merchandiser and National Sales Manager for Caribou Sportswear. From 1981 until 1985, she held various positions including Divisional Merchandise Manager and Director of Fashion Coordination for Lane Bryant, a division of the Limited.

Mori C. MacKenzie is Executive Vice President-Chief Stores Officer for the Company. Ms. MacKenzie has been with the Company since October 1995, when she was hired as the Director of Stores. From June 1999 until October 2001, she served as Vice President-Director of Stores. In October 2001, Ms. MacKenzie was promoted to Senior Vice President-Stores, and effective February 2004 she was promoted to the position of Executive Vice President-Chief Stores Officer. Ms. MacKenzie is responsible for store and field operations management, hiring and training. From January 1995 until October 1995, Ms. MacKenzie was the Vice President of Store Operations for Canadians Corporation. From August 1994 until December 1994, she was the Vice President of Store Development for Goody’s Family Clothing. From April 1992 until August 1994, Ms. MacKenzie was the Vice President of Stores for United Retail Group (“URG”) and from August 1991 until April 1992 she was employed by Conston Corporation, a predecessor of URG. In addition, Ms. MacKenzie was Vice President-Stores for Park Lane from November 1987 until July 1991, and was Regional Director of Stores for the Limited, Inc. from June 1976 until October 1987.

James P. Frain is Executive Vice President-Chief Marketing Officer for the Company. Mr. Frain has been employed by the Company since June 1999, when he was hired as the Company’s Director of Marketing. In April 2000, he was promoted to the position of Vice President-Marketing, in November 2002, he was promoted to Senior Vice President-Marketing and in April 2004, he was promoted to Executive Vice President-Chief Marketing Officer. Mr. Frain is principally responsible for the overall and detailed marketing of the Company’s brands, including the Company’s call center and Internet activities. During 1998 and 1999, Mr. Frain was the Vice President-Marketing and Creative for Current, Inc. and during 1997 and 1998, he was Vice President-Operations and Marketing for A.H. Riise. From 1994 to 1996, Mr. Frain was Vice President-Marketing for Easyriders and from 1993 to 1994, he was Vice President-Marketing for NBO. Mr. Frain held

Barry I. Shapiro is Senior Vice President-Distribution and Logistics for the Company. Mr. Shapiro joined the Company in February 2001, as its Vice President-Outlet Strategies. From August 2002 until January 2004, Mr. Shapiro served as Senior Vice President-Pazo. His title was changed to Senior Vice President-Distribution and Logistics in January 2004. From 1997 to 2001, Mr. Shapiro was employed by Off Fifth Saks-Fifth Avenue Outlet as Senior Vice President-Stores and Operations. From 1990 to 1997, he held various positions with Ann Taylor Stores Corporation including Executive Vice President of Ann Taylor Loft and several other Senior Vice President positions with Ann Taylor. From 1989 to 1990, Mr. Shapiro was Store Manager-Operations with Abraham and Strauss Department Stores, and from 1978 to 1989, Mr. Shapiro held various positions with Lord and Taylor Department Stores and with Macy’s.

Richard D. Sarmiento is Senior Vice President-White House for the Company and President of The White House, Inc., a wholly owned subsidiary of the Company. Mr. Sarmiento joined the Company in September 2003 as a result of the acquisition of The White House, Inc. by the Company. In 1985, Mr. Sarmiento founded The White House, Inc. and served as a director, President and Chief Executive Officer of The White House, Inc. from its inception until it was acquired by the Company. In May 2003, Mr. Sarmiento also assumed the position of Chairman of The White House, Inc. and continued in such additional position until it was acquired by the Company. Prior to 1985, Mr. Sarmiento worked for Hyatt Hotels Corporation.

Patricia Darrow-Smith is Senior Vice President-General Merchandise Manager-White House for the Company and Executive Vice President-Chief Merchandising Officer of The White House, Inc., a wholly owned subsidiary of the Company. Ms. Darrow-Smith joined the Company in September 2003 as Senior Vice President-Merchandising of The White House, Inc. as a result of the acquisition of The White House, Inc. by the Company. In April 2004, she was promoted to Executive Vice President-Chief Merchandising Officer of The White House, Inc. and appointed Senior Vice President-General Merchandise Manager-White House for the Company. From 1986 to September 2003 Ms. Darrow-Smith served as the most senior merchandising executive of The White House, Inc., most recently as Executive Vice President, Merchandising. Ms. Darrow-Smith previously worked for the Hyatt Hotels Corporation.

Michael J. Kincaid is Vice President-Finance and Chief Accounting Officer for the Company. Mr. Kincaid has been with the Company since August 1999 when he was hired as Controller, Director of Finance. In October 2001, Mr. Kincaid was promoted to Vice President-Finance, and in November 2003, Mr. Kincaid was promoted to the additional position of Chief Accounting Officer. From 1991 to 1999, Mr. Kincaid was employed by Tractor Supply Company, most recently as Vice President-Controller, Treasurer and Secretary. From 1981 to 1991, he held various management and accounting positions with Cole National Corporation, Revco D.S., Inc. and Price Waterhouse.

Ajit Patel is Vice President-Chief Information Officer for the Company. Mr. Patel joined the Company in June 2001. From June 1995 to January 1999, Mr. Patel was Vice President-Chief Information Officer of Speedo Swimwear, Inc. where he was responsible for management of the company’s entire information system infrastructure. From February 1999 through June 2000, he was President and Chief Executive Officer of Seal Consulting, Inc., an information systems consulting practice. From June 2000 through June 2001, Mr. Patel was an independent management consultant.

Marvin J. Gralnick and Helene B. Gralnick are husband and wife. None of the other executive officers or directors are related to one another.

There are no arrangements or understandings pursuant to which any officer was elected to office. Executive officers are elected by and serve at the discretion of the Board of Directors.

On April 11, 2001, the Company’s Common Stock began trading on the New York Stock Exchange (“NYSE”) under the symbol “CHS”. From 1993 through April 10, 2001, the Company traded on NASDAQ under the symbol “CHCS”. The high and low prices per share, as adjusted for the stock splits payable in January 2002 and July 2002 of the Company’s Common Stock for each quarterly period for the last two years are set forth in the Company’s 2003 Annual Report to Stockholders and are incorporated herein by reference. On March 31, 2004 the last reported sale price of the Common Stock on the NYSE was $46.40 per share.

Although the Company does not intend to pay any cash dividends over the near term and intends to retain its earnings for the future operation and expansion of the Company’s business, the Company may reconsider this intention as the Company monitors its build up of cash reserves. Any determination to pay dividends in the future will be at the discretion of the Company’s Board of Directors and will be dependent, in addition, upon the Company’s results of operations, financial condition, contractual restrictions and other factors deemed relevant by the Board of Directors.

Selected Financial Data at the dates and for the periods indicated should be read in conjunction with, and is qualified in its entirety by reference to the financial statements and the notes thereto referenced elsewhere and incorporated in this Annual Report on Form 10-K.


(1)	Includes results from The White House, Inc. since September 5, 2003.

(2)	Includes franchisee fees of under $10,000 in certain fiscal years.

(3)	Cost of goods sold includes distribution, merchandising and product development costs, but does not include occupancy cost.

(4)	Restated to give retroactive effect for the 2 for 1 stock split in July 2002 and for the 3 for 2 stock splits payable in May 2001 and January 2002.

(5)	For information concerning stores opened, acquired, sold and closed, see “Business-Store Locations.”

(6)	Average net sales per Company store and average net sales per net selling square foot at Company stores are based on net sales of stores that have been operated by the Company for the full year. For the year ended February 3, 2001, average net sales per Company store and average net sales per selling square foot at Company stores have been adjusted to exclude the effect of the fifty-third week.

A discussion and analysis of the financial condition and results of operations for the specified fiscal periods through January 31, 2004 is set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2003 Annual Report to Stockholders and is incorporated herein by reference.

The information required by this Item is set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2003 Annual Report to Stockholders and is incorporated herein by reference.

Financial statements and supplementary financial information is set forth under the heading “Financial Statements” in the financial information portion of the Company’s 2003 Annual Report to Stockholders and is incorporated herein by reference.

As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

Information about directors and nominees for director, code of ethics, audit committee and audit committee financial expert of the Company and Section 16(a) beneficial ownership reporting compliance in the Company’s 2004 Annual Meeting proxy statement is incorporated herein by reference. Information about executive officers of the Company is included in Item A. of Part I of this Annual Report on Form 10-K.

Information about executive compensation in the Company’s 2004 Annual Meeting proxy statement is incorporated herein by reference.

The information required by this Item is included in the Company’s 2004 Annual Meeting proxy statement and is incorporated herein by reference.

The following table shows information concerning the Company’s equity compensation plans as of the end of the fiscal year ended January 31, 2004:


(1)	Includes shares authorized for issuance under the Company’s 1992 Stock Option Plan, 1993 Stock Option Plan, Independent Directors Plan, 2002 Omnibus Stock and Incentive Plan, 2002 Employee Stock Purchase Plan, and Non-Employee Directors’ Stock Option Plan.

(2)	Includes shares authorized for issuance under the Company’s Non-Employee Directors’ Stock Option Program.

The information required by this Item is included in the Company’s 2004 Annual Meeting proxy statement and is incorporated herein by reference.


(a)(1)	The following financial statements of Chico’s FAS, Inc., and reports of independent certified public accountants are incorporated herein by reference from the Company’s 2003 Annual Report to Stockholders, as noted on page 32 of this document:


	Report of Ernst & Young LLP, independent certified public accountants

	Copy of the report dated March 4, 2002, previously issued by Arthur Andersen LLP, independent certified public accountants

	Consolidated Balance Sheets as of January 31, 2004 and February 1, 2003

	Consolidated Statements of Income for the fiscal years ended January 31, 2004, February 1, 2003, and February 2, 2002

	Consolidated Statements of Stockholders’ Equity for the fiscal years ended January 31, 2004, February 1, 2003, and February 2, 2002

	Consolidated Statements of Cash Flows for the fiscal years ended January 31, 2004, February 1, 2003, and February 2, 2002

	Notes to Consolidated Financial Statements


	Schedules are not submitted because they are not applicable or not required or because the required information is included in the financial statements or the notes thereto.


(3)	The following exhibits are filed as part of this report (exhibits marked with an asterisk have been previously filed with the Commission as indicated and are incorporated herein by this reference):


	The Company filed a Current Report on Form 8-K dated November 4, 2003 to report the issuance of a press release announcing several key promotions in the Company’s management structure.

	On November 19, 2003, the Company filed Amendment No. 1 to the Current Report on Form 8-K dated September 5, 2003 to include financial statements and pro forma financial information relating to the acquisition of The White House, Inc.

	The Company filed a Current Report on Form 8-K dated December 2, 2003 to report the issuance of a press release announcing its financial results for the third quarter of fiscal 2003.

	The Company filed a Current Report on Form 8-K dated January 30, 2004 to announce the appointment of Scott A. Edmonds, the Company’s President and Chief Executive Officer, and Betsy S. Atkins, President and Chief Executive Officer of Baja Capital, as new directors of the Company, increasing the number of Board seats to eight.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	By:	/s/ SCOTT A. EDMONDS



	Scott A. Edmonds,
	President and Chief Executive Officer, Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

39 EX-10.4 3 g88364exv10w4.txt EX-10.4 LETTER AGREEMENT WITH MARVIN J. GRALNICK EXHIBIT 10.4 [CHICO'S LETTERHEAD] March 1, 2004 Mr. Marvin Gralnick 11215 Metro Parkway Fort Myers, FL 33912 Dear Marvin: This letter will confirm our understanding and agreement with respect to your employment by Chico's FAS, Inc. ("Chico's") from and after March 1, 2004. Your employment under this letter agreement will commence on March 1, 2004 and will be on an "at will" basis, with either of us being able to terminate the arrangement upon thirty days prior notice at any time. As compensation for your services under this letter agreement, Chico's will pay you $2,500 per month, payable on our bi-weekly payroll cycle. During such time as this employment continues, you will make yourself available to provide such advice and assistance as Chico's may from time to time reasonably request in order to effectuate a smooth transition of management associated with your change in duties and responsibilities; provided that such services shall not exceed, without your consent, fifteen hours per month. During such time as this employment continues, Chico's shall have the right to control and direct the performance of your services not only as to the results to be accomplished by you but also as to the detail and means by which such results are accomplished by you. We both acknowledge that, among other matters, your services as an employee are being continued because of your past involvement with and knowledge concerning Chico's. We anticipate that the services to be rendered by you under this letter agreement will be performed away from our Ft. Myers offices, with communications provided principally by way of telephone; however, you are certainly welcome to perform any such services at our offices and you agree to provide such services at our offices if expressly requested to do so by one of our senior executives. Kindly indicate your agreement to the above by signing and returning to us the duplicate copy of this letter. Sincerely, Chico's FAS, Inc. By: /s/ Scott A. Edmonds ---------------------------------- Scott A. Edmonds President and Chief Executive Officer Agreed to and accepted as of the 1st day of March, 2004 /s/ Marvin J. Gralnick - ------------------------------ Marvin J. Gralnick EX-10.8 4 g88364exv10w8.txt EX-10.8 LETTER AGREEMENT WITH HELENE B. GRALNICK EXHIBIT 10.8 [CHICO'S LETTERHEAD] March 1, 2004 Ms. Helene B. Gralnick 11215 Metro Parkway Fort Myers, FL 33912 Dear Helene: This letter will confirm our understanding and agreement with respect to your employment by Chico's FAS, Inc. ("Chico's") from and after March 1, 2004. Your employment under this letter agreement will commence on March 1, 2004 and will be on an "at will" basis, with either of us being able to terminate the arrangement upon thirty days prior notice at any time. As compensation for your services under this letter agreement, Chico's will pay you $2,500 per month, payable on our bi-weekly payroll cycle. During such time as this employment continues, you will make yourself available to provide such advice and assistance as Chico's may from time to time reasonably request in order to effectuate a smooth transition of management associated with your change in duties and responsibilities; provided that such services shall not exceed, without your consent, fifteen hours per month. During such time as this employment continues, Chico's shall have the right to control and direct the performance of your services not only as to the results to be accomplished by you but also as to the detail and means by which such results are accomplished by you. We both acknowledge that, among other matters, your services as an employee are being continued because of your past involvement with and knowledge concerning Chico's. We anticipate that the services to be rendered by you under this letter agreement will be performed away from our Ft. Myers offices, with communications provided principally by way of telephone; however, you are certainly welcome to perform any such services at our offices and you agree to provide such services at our offices if expressly requested to do so by one of our senior executives. Kindly indicate your agreement to the above by signing and returning to us the duplicate copy of this letter. Sincerely, Chico's FAS, Inc. By: /s/ Scott A. Edmonds ---------------------------------- Scott A. Edmonds President and Chief Executive Officer Agreed to and accepted as of the 1st day of March, 2004 /s/ Helene B. Gralnick - ---------------------------- Helene B. Gralnick EX-10.13 5 g88364exv10w13.txt EX-10.13 SCOTT A. EDMONDS EMPLOYMENT AGREEMENT EXHIBIT 10.13 EXECUTION VERSION EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into this 29th day of December, 2003, but is effective as of the 3rd day of September, 2003 (the "Commencement Date"), by and between CHICO'S FAS, INC., a Florida corporation (the "Employer"), and SCOTT A. EDMONDS (the "Executive"). W I T N E S S E T H: 1. EMPLOYMENT. The Employer hereby employs the Executive, and the Executive hereby accepts such employment, upon the terms and subject to the conditions set forth in this Agreement. 2. TERM. Subject to the provisions of termination as hereinafter provided, the term of employment under this Agreement shall be effective as of the Commencement Date and shall continue through March 1, 2005; provided, however, that beginning on March 1, 2005, and on each March 1st (each a "Renewal Date") thereafter, the term of employment under this Agreement shall automatically be extended for one (1) additional year, unless either party gives the other written notice of non-renewal at least one hundred eighty (180) days prior to any such Renewal Date (the "Employment Term"). A notice of non-renewal of the Employment Term by the Employer shall be deemed to be a termination of the Executive's employment without Good Cause (as defined below) as of the end of the then Employment Term, but the Executive may terminate at any time after the receipt of such notice and shall be treated as if he was terminated without Good Cause as of such date. 3. COMPENSATION; REIMBURSEMENT, ETC. (a) Basic Salary. The Employer shall pay to the Executive as compensation for all services rendered by the Executive during the Employment Term a basic annualized salary of $750,000 per year (the "Basic Salary"), or such other sum as the parties may agree on, in writing, from time to time, payable monthly or in other more frequent installments, as determined by the Employer. The Board of Directors of the Employer shall have the right to increase the Executive's compensation from time to time by action of the Board of Directors, provided that the Basic Salary may not be decreased, and, provided, further, once the Basic Salary is increased it may not be decreased below such increased amount. In addition, the Board of Directors of the Employer, in its discretion, may, with respect to any year during the term hereof, award a bonus or bonuses to the Executive in addition to the bonuses provided for in Section 3(b). The compensation provided for in this Section 3(a) shall be in addition to any pension or profit sharing payments set aside or allocated for the benefit of the Executive. (b) Bonus. In addition to the Basic Salary paid pursuant to Section 3(a), the Employer shall pay as incentive compensation a semi annual bonus based upon the Executive's performance and computed in accordance with the incentive bonus plan adopted each year by the Board of Directors of the Employer, provided that for each bonus period during the Employment Term the target bonus shall be equal to at least 100% of the Executive's Basic Salary during such bonus period (the "Target Bonus"). (c) Stock Options. Subsequent to the Commencement Date and no later than thirty (30) days after the execution date of this Agreement, the Executive shall receive or shall have received one or more nonqualified stock options to purchase an aggregate of 150,000 shares of the Employer's common stock. The right to purchase such stock shall be nontransferable and shall vest in equal thirds on each one (1) year anniversary of the Commencement Date over a three (3) year period commencing one (1) year after the Commencement Date. The options shall have a term of ten (10) years and the exercise price of the options shall be equal to the closing market price of the stock on the date of grant. The options shall become fully vested upon the occurrence of any of the following: (i) a termination of Executive's employment by the Employer without Good Cause (as defined below); (ii) a termination of the Executive's employment by the Executive for Good Reason (as defined below); (iii) a termination of the Executive's employment as a result of his death or Permanent Disability (as defined below); or (iv) the occurrence of a Change in Control (as defined below) (the "Accelerated Vesting"). The Employer may grant said stock options either under the Employer's currently existing stock option plans ("Plans"), or in such other manner as may be determined by the Employer; provided, however, that the terms pursuant to which the stock option is granted, if granted outside of the Plans, shall be substantially similar to the terms of grant contained in the Plans, and further provided, that in any case the shares of common stock underlying the options shall be registered on Form S-8 (or an equivalent registration statement). During the Employment Term, the Executive shall also be eligible to receive additional stock options as determined by the Board of Directors (or the appropriate committee thereof) in accordance with the Employer's practices applicable to senior executives of the Employer, provided that the next time the Employer makes its customary grant of options to senior officers of the Employer, the Executive shall be granted options in an amount, on a basis relative to other contemporaneous option grants to officers, considered in the judgment of the Board of Directors (or the appropriate committee thereof) to be commensurate with the Executive's position, all on the same terms as described above, provided that the option price of such additional options shall be equal to the closing market price of the stock on the date of such additional grant and vesting shall commence on the date of such additional grant. (d) Reimbursements. The Employer shall pay or reimburse the Executive for all reasonable expenses incurred by the Executive in the performance of his duties under this Agreement; provided, however, that the Executive must furnish to the Employer an itemized account, reasonably satisfactory to the Employer, in substantiation of such expenditures. The Executive shall be entitled to first class air travel where the travel involves a domestic flight in excess of four (4) hours or an international flight. 2. (e) Other Fringe Benefits. The Executive shall be entitled to such fringe benefits including, but not limited to, medical and insurance benefits as may be provided from time to time by the Employer to other senior officers of the Employer at a level commensurate with the Executive's position. (f) Automobile. The Executive shall provide his own automobile for use as an employee hereunder. The Employer shall provide the Executive with an automobile allowance of $2,000 per month ($24,000 per year). 4. DUTIES. The Executive is engaged as the Chief Executive Officer and President of the Employer, and as of the Commencement Date, shall be elected or appointed to the Board of Directors of the Employer no later than March 31, 2004. The Executive shall have such duties, authority and responsibilities as are commensurate with his positions. In addition, the Executive shall have such other duties and hold such other offices as may from time to time be reasonably assigned to him by the Board of Directors of the Employer, which shall be consistent with the duties and authority of chief executive officers of public companies of similar size and type. The Executive shall report directly to the Board of Directors. 5. EXTENT OF SERVICES; VACATIONS AND DAYS OFF. (a) During the Employment Term, except during customary vacation periods and periods of illness, the Executive shall devote substantially all of his time and attention during regular business hours to the benefit and business of the Employer as may be reasonably necessary in performing the Executive's duties pursuant to this Agreement. Notwithstanding the foregoing, the Executive may (i) serve on corporate, trade association, civic, religious or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions and (iii) manage personal investments, so long as such activities do not interfere with the performance of the Executive's duties and responsibilities and do not create a conflict of interest. (b) The Executive shall be entitled to at least four (4) weeks of vacation per year with pay and to such personal and sick leave with pay in accordance with the policy of the Employer as may be established from time to time by the Employer and applied to other senior officers of the Employer. 6. FACILITIES. The Employer shall provide the Executive with a fully furnished office commensurate with the Executive's position at the Employer's executive offices, and the facilities of the Employer shall be generally available to the Executive in the performance of his duties pursuant to this Agreement, it being understood and contemplated by the parties that all equipment, supplies and office personnel required in the performance of the Executive's duties under this Agreement shall be supplied by the Employer. 7. ILLNESS OR INCAPACITY, TERMINATION ON DEATH, ETC. 3. (a) DEATH OF EXECUTIVE. The Employment Term shall terminate automatically on the Executive's death. If the Executive dies during the Employment Term, the Employer shall pay to the estate of the Executive such compensation, including any bonus compensation earned but not yet paid for any completed fiscal year, as would otherwise have been payable to the Executive up to the end of the month in which his death occurs, any unreimbursed business expenses payable in accordance with the Employer's policies, accrued but unusued vacation payable in accordance with the Employer's policies, and all other payments and benefits to which the Executive may be entitled under the terms of any applicable plan, program, policy or arrangement (as modified herein). In addition, following the date of the Executive's death and for twelve (12) months thereafter, the Employer shall pay monthly the following amount to the estate of the Executive the sum of (i) one (1) year's Basic Salary (as existing at the time of death) divided by twelve (12); and (ii) an amount equal to the greater of the Target Bonus or the highest actual bonus paid to the Executive in the three (3) fiscal years preceding the Executive's death and divided by twelve (12). The Executive's estate shall also be entitled to the Accelerated Vesting, continued medical coverage for the Executive's dependents for two (2) years at the same level in effect immediately prior to the Executive's death. The Employer shall have no additional financial obligation under this Agreement to the Executive or his estate, and after receiving the payments provided in this subparagraph (a), the Executive and his estate shall have no further rights under this Agreement (other than the Executive's right to indemnification and directors and officers liability insurance as provided herein). (b) DISABILITY OF EXECUTIVE. (i) During any period of disability, illness or incapacity during the term of this Agreement which renders the Executive at least temporarily unable to perform the services required under this Agreement, the Executive shall continue to receive the compensation and benefits payable under Section 3(a) of this Agreement, less any benefits received by him under any disability insurance carried by or provided by the Employer. (ii) If, as a result of the Executive's Permanent Disability (as defined below), the Executive has been unable to perform his duties under this Agreement, the Employer may terminate the Executive's employment hereunder in accordance with subsection (iii) below. Upon a termination of the Executive's employment as a result of Permanent Disability, all rights of the Executive under this Agreement (other than rights already accrued and the Executive's right to indemnification and directors and officers liability insurance as provided herein) shall terminate as provided below, and the Executive shall receive the compensation and benefits payable under Section 7(a) of this Agreement, less any benefits received by him under any disability income insurance which may be carried by or provided by the Employer from time to time. 4. (iii) The term Permanent Disability as used in this Agreement shall mean the Executive incurring a condition that satisfies the definition of disability under any long term disability income insurance which may be carried, or provided by, the Employer from time to time, and such condition has caused the Executive not to be able to perform his material duties and responsibilities for at least six (6) months after its occurrence, or in the absence of such insurance, a condition that renders the Executive unable by reason of physical or mental illness or incapacity to perform the duties required of him under this Agreement for a period in excess of one hundred and twenty (120) consecutive days or one hundred and eighty (180) days in any consecutive twelve (12) month period. Upon such determination, the Board of Directors may terminate the Executive's employment under this Agreement upon ten (10) days' prior written notice. If any determination of the Board of Directors with respect to Permanent Disability is disputed by the Executive, the parties hereto agree to abide by the decision of a panel of three (3) physicians. The Executive and Employer shall each appoint one (1) member, and the third member of the panel shall be appointed by the other two (2) members. The Executive agrees to make himself reasonably available for and submit to examinations by such physicians as may be reasonably directed by the Employer. The Employer shall pay all costs and expenses with respect to the determination of Permanent Disability. If the Executive receives any amounts under any disability policy carried or provided by the Employer, the amount actually received thereunder prior to the end of the aforesaid six (6) month period shall be offset against any base salary due to the Executive from the Employer during the corresponding period. 8. OTHER TERMINATIONS AND CONSEQUENCES OF TERMINATION. (a) VOLUNTARY TERMINATION BY EXECUTIVE WITHOUT GOOD REASON. (i) The Executive may terminate his employment hereunder without Good Reason (as defined below) upon at least sixty (60) days' prior written notice to the Employer. Promptly after the effective date of the Executive's termination of employment without Good Reason, the Executive shall receive any unpaid Basic Salary through the date of termination, any earned but unpaid bonus for any fiscal year completed prior to the effective date of the Executive's termination, any unreimbursed business expenses in accordance with the Employer's policies, and accrued but unusued vacation payable in accordance with the Employer's policies (collectively, the "Accrued Amounts"); and the Executive shall continue to be entitled to all other then accrued benefits to which the Executive may be entitled under the terms of any applicable plan, program, policy or arrangement (as modified herein), payable as and when provided under the express terms of such plan, program, policy or arrangement (collectively, the "Accrued Benefits"). Under such circumstances, such payment and such rights to accrued benefits shall be in full and complete discharge of any and all liabilities or obligations of the Employer to the Executive hereunder, and the Executive shall be entitled to no further benefits under this Agreement (other than the Executive's right to indemnification and directors and officers liability insurance as provided herein). 5. (ii) If the Executive gives notice pursuant to Section 8(a)(i) above, the Employer shall have the right to relieve the Executive, in whole or in part, of his duties under this Agreement (without reduction in compensation and benefits through the termination date). (b) TERMINATION BY EXECUTIVE FOR GOOD REASON. (i) The Employment Term shall immediately terminate upon written notice by the Executive to the Employer of a termination for Good Reason. Good Reason shall mean, without the express written consent of the Executive, the occurrence of any of the following events unless such events are fully corrected in all material respects by the Employer within thirty (30) days following the Employer's receipt of written notification by the Executive that he intends to terminate his employment hereunder for one of the reasons set forth below: (A) any reduction or diminution (except temporarily during any period of illness or incapacity) in the Executive's then titles or positions, or a material reduction or diminution in the Executive's then authorities, duties or responsibilities or reporting requirements with the Employer, including, but not limited to, a failure by June 30, 2004 to either elect the Executive to the Board of Directors or to recommend to the stockholders of the Employer in the annual meeting proxy statement that the Executive be elected to the Board of Directors, or following such election, failure to reelect such Executive to the Board of Directors whenever, during the term of this Agreement, his term of office as a director expires, or the assignment to the Executive of duties or responsibilities that are materially adversely inconsistent with his then position; (B) a material breach by the Employer of any provisions of this Agreement, including, but not limited to, any reduction in any part of the Executive's then compensation (including Basic Salary) or benefits or any failure to timely pay any part of Executive's compensation or to provide the benefits contemplated herein; (C) a relocation of the Employer's current executive offices to a location more than fifty (50) miles from its current location, but only if such relocation occurs following a Change in Control (as hereinafter defined); or (D) the failure of the Employer to obtain and deliver to the Executive a satisfactory written agreement from any successor to the Employer to assume and agree to perform this Agreement. (ii) If the Executive's employment is terminated by the Executive for Good Reason, the Employer shall: 6. (A) provide the Executive with the following payments promptly after, but in no event later than thirty (30) days after, the termination date: (i) a lump sum payment equal to the Accrued Amounts, and (ii) a lump sum equal to two (2) times the sum of: (a) the Executive's Basic Salary then in effect and (b) the Target Bonus; (B) provide the Executive with a pro-rata bonus for the applicable bonus period in which the termination occurs equal to the product of (x) the actual bonus that would otherwise have been payable to the Executive for the applicable bonus period had employment continued through the end of such period multiplied by (y) a fraction, the numerator of which is the number of days of the applicable bonus period during which the Executive was employed by the Employer, and the denominator of which is the number of days in the applicable bonus period, payable when bonuses are generally paid to senior executive officers of the Employer for such bonus period (it being understood that if the Executive has bonus periods different from other senior executives, the applicable bonus period will be determined based on the Executive's bonus period); (C) provide continued health benefits for the Executive and his dependents for two (2) years following termination at the same level in effect immediately prior to the Executive's termination; (D) provide the Executive with the Accelerated Vesting; and (E) provide the Executive with executive outplacement assistance for one (1) year after such termination. Notwithstanding such termination of employment, the Executive's covenants set forth in Section 10 and Section 11, and the Employer's obligation set forth in Sections 15 and 16, are intended to and shall remain in full force and effect. (c) TERMINATION BY EMPLOYER FOR GOOD CAUSE. (i) The Employer may terminate the employment of the Executive hereunder for Good Cause (as defined below), upon written notice, and only by action taken by at least two-thirds of the Board of Directors at a duly called and properly held Board meeting, which was called for the purpose of considering such termination and which the Executive and his representative had the right to attend and address the Board, and the Board, in good faith, has determined that the Executive engaged in conduct constituting Good Cause; provided, however, that no breach or default by the Executive shall be deemed to occur hereunder unless the Executive shall have failed to cure the breach or default within thirty 7. (30) days after he received written notice thereof indicating that it is a notice of termination pursuant to this Section of this Agreement. (ii) As used herein, Good Cause shall mean: (A) the Executive's conviction in any criminal proceeding (or the Executive entering into a plea bargain admitting criminal guilt) of a felony or any violation of federal or state securities laws which has a material adverse effect on the Employer, but specifically shall not include traffic offenses; (B) the Executive's willful and continued failure to use good faith efforts to follow the legal directions of the Employer's Board of Directors which the Board of Directors has communicated to him in writing, provided that minutes of a Board of Directors meeting attended in its entirety by the Executive shall be deemed communicated to the Executive, provided such written minutes have been promptly provided to the Executive; (C) the Executive's willful and continued failure to use good faith efforts to perform his duties under this Agreement after a written demand for substantial performance is delivered to the Executive by the Board of Directors, which specifically identifies the manner in which it is believed that the Executive has substantially and continually failed to attempt to perform his duties hereunder; or (D) drug or alcohol abuse, but only to the extent that such abuse has an obvious and material adverse effect on the Employer's reputation and/or the performance of the Executive's duties and responsibilities under this Agreement. For the purposes of this Section 8(c)(ii), no act or failure to act shall be considered "willful" unless it is done, or omitted to be done, in bad faith without reasonable belief that the action or omission was in the best interest of the Employer. Termination of the employment of the Executive by the Employer for reasons other than those expressly specified in this Agreement as Good Cause, or failure of the Employer to follow the termination procedures specified herein, shall be deemed to be a termination of employment without Good Cause. (iii) Upon the Executive's termination of employment by the Employer for Good Cause, the Executive shall only be entitled to the Accrued Amounts, which shall be payable promptly after, but in no event later than thirty (30) days after, such termination, and the Accrued Benefits. Under such circumstances, such payment shall be in full and complete discharge of any and all liabilities or obligations of the Employer to the Executive hereunder, 8. and the Executive shall be entitled to no further benefits under this Agreement (other than the Executive's right to indemnification and directors and officers liability insurance as provided herein). (d) TERMINATION BY EMPLOYER WITHOUT GOOD CAUSE. (i) The Employer may terminate the Executive's employment without Good Cause upon written notice to the Executive. If the Employer shall terminate the employment of the Executive without Good Cause, the Executive shall receive the payments and benefits payable pursuant to Section 8(b)(ii) hereof. Notwithstanding such termination of employment, the Executive's covenants set forth in Section 10 and Section 11, and the Executive's rights under Sections 15 and 16 are intended to and shall remain in full force and effect. (ii) The parties agree that, because there can be no exact measure of the damage that would occur to the Executive or the Employer as a result of a termination by the Employer of the Executive's employment without Good Cause or a termination by the Executive for Good Reason, as applicable, the payments and benefits paid and provided pursuant to this Section 8(d) and Section 8(b) shall be deemed to constitute liquidated damages and not a penalty for the Employer's termination of the Executive's employment without Good Cause or the Executive's termination for Good Reason. (e) RIGHTS UPON CHANGE IN CONTROL. (i) If a Change in Control of the Employer, as defined in Section 8(e)(ii) shall occur and the Executive shall: (A) terminate his employment for Good Reason within eighteen (18) months following such Change in Control; (B) have his employment terminated by the Employer for reasons other than those specified in Section 8(c)(ii) within eighteen (18) months following such Change in Control; or (C) have had his employment terminated by the Employer without Good Cause or terminated his employment for Good Reason "in contemplation of" a Change in Control (a termination shall be deemed to be "in contemplation of" a Change in Control if the Executive's employment is terminated after initial discussions of a transaction that could result in a Change in Control having taken place or it is reasonably demonstrated by the Executive that such termination was at the request of a third party who has taken steps reasonably calculated to enter into or effect the Change in Control 9. or the Executive's termination otherwise arose in connection with or in anticipation of the Change in Control); then in any of the above three (3) cases, the Executive shall have, instead of the further rights described in Section 3(a), the right to immediately terminate this Agreement and a nonforfeitable right to receive, payable in a lump sum, the payments and benefits provided in Section 8(b)(ii) provided that the two (2) times multiple shall be three (3) and the medical coverage provided therein shall continue for three (3) years. (ii) For purposes of this Agreement, a "Change in Control" shall mean: (A) any "person" as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 ("Act") (other than the Employer, any trustee or other fiduciary holding securities under any employee benefit plan of the Employer, or any company owned, directly or indirectly, by the shareholders of the Employer in substantially the same proportions as their ownership of common stock of the Employer), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Employer representing fifty percent (50%) or more of the combined voting power of the Employer's then outstanding securities; (B) during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board of Directors, and any new director (other than a director designated by a person who has entered into an agreement with the Employer to effect a transaction described in clause (A), (C), or (D) of this paragraph) whose election by the Board or nomination for election by the Employer's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board; (C) a merger or consolidation of the Employer with any other corporation, other than a merger or consolidation which would result in the voting securities of the Employer outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of the Employer or such surviving entity outstanding immediately after such merger or consolidation; or 10. (D) the shareholders of the Employer approve a plan of complete liquidation of the Employer or the consummation of the sale or disposition by the Employer of all or substantially all of the Employer's assets other than the sale or disposition of all or substantially all of the assets of the Employer to a person or persons who beneficially own, directly or indirectly, at least fifty percent (50%) or more of the combined voting power of the outstanding voting securities of the Employer at the time of the sale. (f) NO MITIGATION/SETOFF. The Executive shall not be required to mitigate the amount of any payment or benefit contemplated by Section 8, nor shall any such payment or benefit described under those sections be reduced by any earnings or benefits that Executive may receive from any other source. The Employer's obligation to pay the Executive the amounts and benefits provided hereunder shall not be subject to set-off, counterclaim or recoupment of amounts owed by the Executive to the Employer or its affiliates, except for any specific, stated amounts owed by the Executive to the Employer. (g) RELEASE. Payment of any compensation (other than Accrued Amounts and/or the Accrued Benefits) to the Executive under this Section 8 following termination of employment shall be conditioned upon the prior receipt by the Employer of a release executed by the Executive in the form attached to this Agreement as Exhibit A. 9. DISCLOSURE. The Executive agrees that during the term of his employment by the Employer, he will disclose and disclose only to the Employer all ideas, methods, plans, developments or improvements known by him which relate directly to the business of the Employer, which are or have been acquired by the Executive during his employment by the Employer (including during his employment by the Employer preceding the Commencement Date under this Agreement). Nothing in this Section 9 shall be construed as requiring any such communication where the idea, plan, method or development is lawfully protected from disclosure as a trade secret of a third party or by any other lawful prohibition against such communication. 10. CONFIDENTIALITY. The Executive agrees to keep in strict secrecy and confidence any and all information the Executive assimilates or to which he has access, and knowledge of, during his employment by the Employer and which is not public knowledge or not a matter of common knowledge in the fields of work of the Employer. Subject to the next sentence, the Executive agrees that both during and after the term of his employment by the Employer, he will not, without the prior written consent of the Employer, disclose any such confidential information to any third person, partnership, joint venture, company, corporation or other organization. Nothing herein shall prevent the Executive from disclosing information that is compelled pursuant to the order of a court or other governmental or legal body having jurisdiction over such matter or from disclosing information in connection with the performance of his duties under this Agreement as he deems in good faith to be necessary or desirable, provided however that promptly after receipt of such order the Executive shall provide the Employer with a copy of such order to enable the Employer, at its sole expense, to seek a 11. protective or similar order and the Executive will provide the Employer with such cooperation in seeking such protective order as may be reasonably requested by the Employer. 11. NONCOMPETITION AND NONSOLICITATION. The Executive hereby acknowledges that, during and solely as a result of his employment by the Employer, he has received and shall continue to receive: (1) special training and education with respect to the operations of a retail clothing chain and other related matters, and (2) access to confidential information and business and professional contacts. In consideration of the special and unique opportunities afforded to the Executive by the Employer as a result of the Executive's employment, as outlined in the previous sentence, the Executive hereby agrees as follows: (a) During the term of the Executive's employment, whether pursuant to this Agreement, any automatic or other renewal hereof or otherwise, and, except as may be otherwise herein provided, for a period of two (2) years after the termination of his employment with the Employer, regardless of the reason for such termination, the Executive shall not, directly or indirectly, enter into, engage in, be employed by or consult with any specialty retail business which competes with the business of the Employer by selling, offering to sell, or soliciting offers to buy on behalf of any specialty retail business, or by consulting with any specialty retail business, concerning the selling of, any women's apparel or intimates product substantially similar to those sold or planned to be sold by the Employer. The Executive shall not engage in such prohibited activities either as an individual, partner, officer, director, stockholder, employee, advisor, independent contractor, joint venturer, consultant, agent, or representative or salesman for any person, firm, partnership, corporation or other entity so competing with the Employer. The restrictions of this Section 11 shall not be violated by: (i) the ownership of no more than 2% of the outstanding securities of any company whose stock is traded on a national securities exchange or is quoted in the Automated Quotation System of the National Association of Securities Dealers (NASDAQ); (ii) other outside business investments that do not in any manner conflict with the services to be rendered by the Executive for the Employer and that do not diminish or detract from the Executive's ability to render his required attention to the business of the Employer; or (iii) the Executive's employment by (or association with) any entity so long as the Executive is not employed directly by the women's apparel or intimate products specialty store divisions thereof and no more than five percent (5%) of the revenue of such entity under the Executive's supervision is generated from women's apparel or intimate products specialty stores. (b) During his employment with the Employer and, except as may be otherwise herein provided, for a period of two (2) years following the termination of his employment with the Employer, regardless of the reason for such termination, the Executive agrees he will refrain from and will not, directly or indirectly, as an individual, partner, officer, director, stockholder, employee, advisor, independent contractor, joint venturer, consultant, agent, representative, salesman or otherwise solicit any non-clerical employee of the Employer who was such an employee as of the date of the Executive's termination of employment to 12. terminate his or her employment. Nothing herein shall prevent the Executive from serving as a reference for any employee of the Employer or from the general advertising for employees. (c) The period of time during which the Executive is prohibited from engaging in certain business practices pursuant to Sections 11(a) or (b) shall be extended by any length of time during which the Executive is in breach of such covenants, as such breach and time period is determined by a court of law or arbitrator, provided that such court or arbitrator deems an extension appropriate. (d) It is understood by and between the parties hereto that the foregoing restrictive covenants set forth in Sections 11(a) through (c) are essential elements of this Agreement, and that, but for the agreement of the Executive to comply with such covenants, the Employer would not have agreed to enter into this Agreement. Such covenants by the Executive shall be construed as agreements independent of any other provision in this Agreement. The existence of any claim or cause of action of the Executive against the Employer, whether predicated on this Agreement, or otherwise, shall not constitute a defense to the enforcement by the Employer of such covenants. (e) It is agreed by the Employer and Executive that if any portion of the covenants set forth in this Section 11 are held to be invalid, unreasonable, arbitrary or against public policy, then such portion of such covenants shall be considered divisible both as to time and geographical area. The Employer and Executive agree that, if any court of competent jurisdiction determines the specified time period or the specified geographical area applicable to this Section 11 to be invalid, unreasonable, arbitrary or against public policy, a lesser time period or geographical area which is determined to be reasonable, non-arbitrary and not against public policy may be enforced against the Executive. The Employer and the Executive agree that the foregoing covenants are appropriate and reasonable when considered in light of the nature and extent of the business conducted by the Employer. 12. SPECIFIC PERFORMANCE. The Executive agrees that damages at law will be an insufficient remedy to the Employer if the Executive violates the terms of Sections 9, 10 or 11 of this Agreement and that the Employer would suffer irreparable damage as a result of such violation. Accordingly, it is agreed that the Employer shall be entitled, upon application to a court of competent jurisdiction, to obtain injunctive relief to enforce the provisions of such Sections, which injunctive relief shall be in addition to any other rights or remedies available to the Employer. An arbitrator or court may award the prevailing party in any litigation or arbitration with regard to enforcement of the terms of Sections 9, 10 or 11 of this Agreement, its reasonable fees and disbursements of counsel (including before trial, at trial and in appellate proceedings) if an arbitrator or court determines it appropriate. 13. EXCISE TAXES. In the event that the Executive becomes entitled to payments and/or benefits which would constitute "parachute payments" within the meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended, the provisions of Exhibit B shall apply. 13. 14. LEGAL FEES. The Employer shall pay the Executive's reasonable legal fees incurred in connection with the negotiation and drafting of this Agreement. To the extent any such payments result in taxable income to the Executive, the Employer shall provide the Executive with an amount equal to any income and other taxes such that the Executive shall not incur any tax costs with respect to such payments or benefits. 15. INDEMNIFICATION. In addition to any other rights of indemnification of the Executive, the Employer hereby covenants and agrees to promptly indemnify the Executive (or, in the event of his death, his heirs, executors, administrators or legal representatives) and hold him harmless to the fullest extent permitted by law against and in respect to any and all actions, suits, proceedings, claims, demands, judgments, costs, expenses (including attorneys' fees), penalties, fines, settlements, losses, and damages resulting from, or in connection with, the Executive's employment with, and serving as a director of, the Employer, including, but not limited to, as an officer and director of any subsidiary or as a fiduciary of any employee benefit plan. Such indemnification and any advancement of expenses shall be provided in accordance with and be subject to the terms and conditions of the Executive's Indemnification Agreement dated June 28, 1995 (the "Indemnification Agreement"). 16. LIABILITY INSURANCE. The Employer shall cover the Executive under directors and officers liability insurance both during and, while potential liability exists (but no less than six years), after the term of this Agreement in the same amount and to the same extent, if any, as the Employer covers its other officers and directors. 17. WITHHOLDING. All amounts or benefits payable hereunder shall be subject to applicable tax withholding (including without limitation any applicable excise tax), and the withholding of any such amounts shall be treated as payment thereof to the Executive for purposes of determining whether all amounts required hereunder to be paid have been paid. Withholding of tax from any non-cash amounts or benefits that are subject to withholding may be made from cash amounts otherwise payable to the Executive. 18. ARBITRATION. All disputes and controversies arising under or in connection with this Agreement, other than the seeking of injunctive or other equitable relief pursuant to Section 11 hereof, shall be settled by arbitration conducted before one (1) arbitrator sitting in the city in which Executive's principal office space is located at the time of the dispute or such other location agreed by the parties hereto, in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association then in effect. The arbitration shall take place before a single arbitrator, who will preferably but not necessarily be a lawyer but who shall have at least five years' experience in working in or with retail companies. The determination of the arbitrator shall be final and binding on the parties. Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction. The American Arbitration Association fees associated with any such arbitration proceedings (including the fees of the arbitrator) shall be borne solely by the Employer. In the event the Executive substantially prevails on the majority of any material claims brought in such arbitration proceedings, the arbitration panel shall require the Employer to reimburse the Executive 14. for all reasonable legal fees and expenses incurred during the course of such arbitration. In the event that the Executive does not so prevail, the arbitration panel shall have the authority to require the Executive to reimburse the Employer for one-half of the arbitration fees (excluding legal fees and expenses incurred by the Employer). 19. COMPLIANCE WITH OTHER AGREEMENTS. The Executive represents and warrants that the execution of this Agreement by him and his performance of his obligations hereunder will not conflict with, result in the breach of any provision of or the termination of or constitute a default under any Agreement to which the Executive is a party or by which the Executive is or may be bound. 20. WAIVER OF BREACH. The waiver by either party of a breach by the other party of any provision or condition of this Agreement, or any condition or provision provided in this Agreement to be performed by such other party, shall not be construed as a waiver of a similar or dissimilar breach, condition or provision at the same or any prior or subsequent time. 21. BINDING EFFECT; ASSIGNMENT. The rights and obligations of the Employer under this Agreement shall inure to the benefit of and shall be binding upon the successors and permitted assigns of the Employer, and the rights of the Executive shall inure to the benefit of his personal or legal representatives, executors, administrators, successors, heirs, distributes, devisees, legatees and permitted assigns. It is expressly acknowledged that the provisions of Section 11 relating to noncompetition, nonsolicitation and nonacceptance may be enforced by the Employer's successors and assigns, but shall apply only with regard to the Employer's business. This Agreement is a personal employment contract and the rights, obligations and interests of the Executive hereunder may not be sold, assigned, transferred, pledged or hypothecated. The Employer shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Employer to expressly assume and agree, in writing, to perform this Agreement in the same manner and to the same extent that the Employer would be required to perform it if no such succession had taken place, and may not assign this Agreement or its rights hereunder other than to a successor to all or substantially all of its business. 22. ENTIRE AGREEMENT. This Agreement (together with the Indemnification Agreement) contains the entire agreement and supersedes all prior agreements and understandings, oral or written, with respect to the subject matter hereof. This Agreement may be changed only by an agreement in writing signed by the party against whom any waiver, change, amendment, modification or discharge is sought. 23. HEADINGS. The headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. 24. GOVERNING LAW. This Agreement shall be construed and enforced in accordance with the laws of the State of Florida. 15. 25. NOTICE. All notices which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when received if personally delivered; when transmitted if transmitted by telecopy or similar electronic transmission method; one (1) working day after it is sent, if sent by recognized expedited delivery service; and five (5) days after it is sent, if mailed, first class mail, certified mail, return receipt requested, with postage prepaid. In each case notice shall be sent to: To the Employer: Chico's FAS, Inc. 11215 Metro Parkway Ft. Myers, Florida 33912 With a copy to: Gary I. Teblum, Esquire Trenam, Kemker, Scharf, Barkin, Frye, O'Neill & Mullis, P.A. Post Office Box 1102 Tampa, Florida 33601 To the Executive at his address on file with the Employer. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. CHICO'S FAS, INC. By: /s/ Charles J. Kleman --------------------------------- Charles J. Kleman Chief Operating Officer EMPLOYEE: /s/ Scott A. Edmonds ------------------------------------- SCOTT A. EDMONDS 16. EXHIBIT A TO EMPLOYMENT AGREEMENT WITH SCOTT A. EDMONDS DATED AS OF SEPTEMBER 3, 2003 RELEASE WHEREAS, Scott A. Edmonds (the "Executive") is an employee of Chico's FAS, Inc., (the "Company") and is a party to the Employment Agreement dated as of September 3, 2003 (the "Agreement"); WHEREAS, the Executive's employment has been terminated in accordance with Section 8___ of the Agreement; and WHEREAS, the Executive is required to sign this Release in order to receive the payment of any compensation under Section 8 of the Agreement following termination of employment (other than to receive amounts earned and accrued prior to such termination). NOW, THEREFORE, in consideration of the promises and agreements contained herein and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, and intending to be legally bound, the Executive agrees as follows: 1. This Release is effective on the date hereof and will continue in effect as provided herein. 2. In consideration of the payments to be made and the benefits to be received by the Executive pursuant to the Agreement [NOTE: specify the payments and benefits] (collectively, the "Release Consideration), which the Executive acknowledges are in addition to payments and benefits to which the Executive would be entitled but for the Agreement, the Executive, for the Executive and the Executive's dependents, successors, assigns, heirs, executors and administrators (and their respective legal representatives of every kind), hereby releases, dismisses, remises and forever discharges the Company, its predecessors, parents, subsidiaries, divisions, related or affiliated companies, officers, directors, stockholders, members, employees, heirs, successors, assigns, representatives, agents and counsel (collectively the "Released Party") from any and all arbitrations, claims (including claims for attorneys' fees), demands, damages, suits, proceedings, actions and/or causes of action of any kind and every description, whether known or unknown, which the Executive now has or may have had for, upon, or by reason of any cause whatsoever up to the date the Executive signs this Agreement ("Claims"), against the Released Party, including but not limited to: A-1 (a) any and all Claims arising out of or relating to Executive's employment by or service with the Company and the Executive's termination from the Company. (b) any and all Claims of discrimination, including, but not limited to, Claims of discrimination on the basis of sex, race, age, national origin, marital status, religion or handicap, including, specifically, but without limiting the generality of the foregoing, any Claims under the Age Discrimination in Employment Act, as amended, Title VII of the Civil Rights Act of 1964, as amended, the Americans with Disabilities Act; and (c) any and all Claims of wrongful or unjust discharge or breach of any contract or promise, express or implied. Notwithstanding the foregoing, nothing herein shall be considered as releasing the Released Party from: (i) its obligations to pay and/or provide the Release Consideration or as an agreement by the Executive not to file a lawsuit to enforce the payment and/or providing of the Release Consideration; (ii) any rights that the Executive may have to indemnification and directors and officers liability insurance coverage; and (iii) the Executive's right to enforce the terms of the Agreement. 3. The Executive understands and acknowledges that the Company does not admit any violation of law, liability or invasion of any of the Executive rights and that any such violation, liability or invasion is expressly denied. The consideration provided for this Release is made for the purpose of settling and extinguishing all Claims and rights (and every other similar or dissimilar matter) that the Executive ever had or now may have against the Company to the extent provided in this Release. The Executive further agrees and acknowledges that no representations, promises or inducements have been made that the Company other than as appear in the Agreement. 4. The Executive further agrees and acknowledges that: (a) the Release provided for herein solely releases Claims up to and including the date of execution of this Release; (b) the Executive has been advised by the Company to consult with legal counsel prior to executing this Release, has had an opportunity to consult with and to be advised by legal counsel of the Executive's choice, fully understands the terms of this Release, and enters into this Release freely, voluntarily and intending to be found; (c) the Executive has been given a period of 21 days to review and consider the terms of this Release, prior to its execution and that the Executive may use as much of the 21 day period as the Executive desires; and (d) the Executive may, within 7 days after execution, revoke this Release. Revocation shall be made by delivering a written notice of revocation to the Chief Financial A-2 Officer at the Company. For such revocation to be effective, written notice must be actually received by the Chief Financial Officer at the Company no later than the close of business on the 7th day after the Executive executes this Release. If the Executive does exercise the Executive's right to revoke this Release, all of the terms and conditions of the Release shall be of no force and effect and the Company shall not have any obligation to make payments or provide benefits to the Executive as set forth in Sections 8 of the Agreement. 5. The Executive agrees that the Executive will never file a lawsuit or other complaint asserting any Claims that are released in this Release. 6. The Executive waives and releases any Claims that the Executive has or may have to reemployment after___. IN WITNESS WHEREOF, the Executive has executed and delivered this Release on the date set forth below. Dated: _______________ __________________________________ Executive A-3 EXHIBIT B (a) In the event it shall be determined that the Executive shall become entitled to payments and/or benefits provided by this Agreement or any other amounts in the "nature of compensation" (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company or any affiliate, any person whose actions result in a change of ownership or effective control of the Company covered by Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code") or any person affiliated with the Employer or such person) as a result of such change in ownership or effective control of the Employer (a "Payment") which would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment. (b) Subject to the provisions of paragraph (c), all determinations required to be made under this Exhibit B, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a nationally recognized accounting firm, law firm or compensation consulting firm with substantial expertise in executive compensation taxation (the "Advising Firm") which shall provide detailed supporting calculations both to the Employer and the Executive within fifteen (15) business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Employer. The Advising Firm shall be jointly selected by the Employer and the Executive. If the Employer and the Executive cannot agree on the firm to serve as the Advising Firm, then the Employer and the Executive shall each select a nationally recognized accounting firm, law firm or compensation consulting firm and those two (2) firms shall jointly select a nationally recognized accounting firm, law firm or compensation consulting firm to serve as the Advising Firm. All fees and expenses of the Advising Firm(s) shall be borne solely by the Employer. Any Gross-Up Payment, as determined pursuant to this Exhibit B, shall be paid by the Employer to the Executive within thirty days of the receipt of the Advising Firm's determination. If the Advising Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion to that effect on a substantial authority level. Any determination by the Advising Firm shall be binding upon the Employer and the Executive, subject to the provisions of this Exhibit. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Advising Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Employer should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Employer exhausts its remedies pursuant to paragraph A-4 (c) hereof and the Executive thereafter is required to make a payment of any Excise Tax, the Advising Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Employer to or for the benefit of the Executive. (c) The Executive shall notify the Employer in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Employer of a Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Employer of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the thirty (30) day period following the date on which he or she gives such notice to the Employer (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Employer notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Employer any information reasonably requested by the Employer relating to such claim, (ii) take such action in connection with contesting such claim as the Employer shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Employer, (iii) cooperate with the Employer in good faith in order effectively to contest such claim, and (iv) permit the Employer to participate in any proceedings relating to such claim; provided, however, that the Employer shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed on the Payment. Without limitation on the foregoing provisions of this paragraph (c), the Employer shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Employer shall determine; provided, however, that if the Employer directs the Executive to pay such claim and sue for a refund, the Employer shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax A-5 basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided the Executive shall not be required by the Employer to agree to any extension of the statute of limitations relating to the payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due unless such extension is limited solely to such contested amount. To the extent the foregoing provision shall be deemed to create a loan of a personal nature in violation of Section 402 of the Sarbanes-Oxley Act of 2002, the provision for repayment shall be null and void. Furthermore, the Employer's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Employer pursuant to paragraph (c) hereof, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Employer's complying with the requirements of paragraph (c) hereof) promptly pay to the Employer the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). To the extent the foregoing provision shall be deemed to create a loan of a personal nature in violation of Section 402 of the Sarbanes-Oxley Act of 2002, the provision for repayment shall be null and void. If, after the receipt by the Executive of an amount advanced by the Employer pursuant to paragraph (c) hereof, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Employer does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. (e) If, pursuant to regulations issued under Section 280G or 4999 of the Code, the Employer and the Executive were required to make a preliminary determination of the amount of an excess parachute payment and thereafter a redetermination of the Excise Tax is required under the applicable regulations, the parties shall request the Advising Firm to make such redetermination. If as a result of such redetermination an additional Gross-Up Payment is required, the amount thereof shall be paid by the Employer to the Executive within thirty days of the receipt of the Advising Firm's determination. If the redetermination of the Excise Tax results in a reduction of the Excise Tax, the Executive shall take such steps as the Employer may reasonably direct in order to obtain a refund of the excess Excise Tax paid. If the Employer determines that any suit or proceeding is necessary or advisable in order to obtain such refund, the provisions of paragraph (c) hereof relating to the contesting of a claim shall apply to the claim for such refund, including, without limitation, the provisions concerning legal representation, cooperation by the Executive, participation by the Employer in the proceedings and indemnification by the Employer. Upon receipt of any such refund, the Executive shall promptly A-6 pay the amount of such refund to the Employer. If the amount of the income taxes otherwise payable by the Executive in respect of the year in which the Executive makes such payment to the Employer is reduced as a result of such payment, the Executive shall, no later than the filing of his income tax return in respect of such year, pay the amount of such tax benefit to the Employer. In the event there is a subsequent redetermination of the Executive's income taxes resulting in a reduction of such tax benefit, the Employer shall, promptly after receipt of notice of such reduction, pay to the Executive the amount of such reduction. If the Employer objects to the calculation or recalculation of the tax benefit, as described in the preceding two sentences, the Advising Firm shall make the final determination of the appropriate amount. The Executive shall not be obligated to pay to the Employer the amount of any further tax benefits that may be realized by him or her as a result of paying to the Employer the amount of the initial tax benefit. To the extent the foregoing provisions shall be deemed to create a loan of a personal nature in violation of Section 402 of the Sarbanes-Oxley Act of 2002, the provision for repayment shall be null and void. A-7 EX-10.29 6 g88364exv10w29.txt EX-10.29 CHICO'S 2002 EMPLOYEE STOCK PURCHASE PLAN EXHIBIT 10.29 CHICO'S FAS, INC. AMENDED AND RESTATED 2002 EMPLOYEE STOCK PURCHASE PLAN As Approved March 1, 2004 and As Effective April 1, 2004 CHICO'S FAS, INC. AMENDED AND RESTATED 2002 EMPLOYEE STOCK PURCHASE PLAN ARTICLE 1................................................................................................. 1 ESTABLISHMENT, PURPOSE AND SHARES COVERED............................................................. 1 1.1 Plan Established...................................................................... 1 1.2 Purpose............................................................................... 1 1.3 Shares Covered; Annual Adjustment..................................................... 1 1.4 Source of Shares...................................................................... 1 1.5 Section 423 Plan...................................................................... 1 ARTICLE 2................................................................................................. 2 DEFINITIONS........................................................................................... 2 2.1 Account............................................................................... 2 2.2 Board or Board of Directors........................................................... 2 2.3 Code.................................................................................. 2 2.4 Committee............................................................................. 2 2.5 Common Stock.......................................................................... 2 2.6 Company............................................................................... 2 2.7 Compensation.......................................................................... 2 2.8 Eligible Employee..................................................................... 3 2.9 Fair Market Value..................................................................... 3 2.10 Offering Period....................................................................... 3 2.11 Participant........................................................................... 3 2.12 Plan.................................................................................. 3 2.13 Plan Administrator.................................................................... 4 2.14 Purchase Documents.................................................................... 4 2.15 Section 423........................................................................... 4 2.16 Securities Exchange Act of 1934....................................................... 4 2.17 Shares................................................................................ 4 2.18 Subsidiary............................................................................ 4 ARTICLE 3................................................................................................. 4 ADMINISTRATION........................................................................................ 4 3.1 Committee............................................................................. 4 3.2 Organization.......................................................................... 4 3.3 Power and Authority................................................................... 5 3.4 No Liability; Indemnification......................................................... 5 ARTICLE 4................................................................................................. 5

As Approved March 1, 2004 and As Effective April 1, 2004 Page ii Amended and Restated Chico's FAS, Inc. 2002 ESPP EMPLOYEES ELIGIBLE TO PARTICIPATE..................................................................... 5 4.1 General Eligibility Standards......................................................... 5 4.2 Certain Exclusions.................................................................... 6 ARTICLE 5................................................................................................. 6 OFFERING PERIODS; PURCHASE PRICE; NUMBER OF SHARES OFFERED............................................ 6 5.1 Offering Periods...................................................................... 6 5.2 Number of Shares Available for Purchase............................................... 7 5.3 Purchase Price Generally.............................................................. 7 5.4 Alternative Purchase Price............................................................ 7 5.5 Number of Shares Offered to Eligible Employees........................................ 7 ARTICLE 6................................................................................................. 8 PARTICIPATION AND PAYMENT............................................................................. 8 6.1 Election To Participate............................................................... 8 6.2 No Revocation of Election............................................................. 9 6.3 No Interest........................................................................... 9 6.4 Custodial Safekeeping Arrangement..................................................... 9 6.5 Delivery of Certificates Representing Shares.......................................... 10 6.6 Rights as Stockholder................................................................. 11 6.7 Termination of Employment............................................................. 11 6.8 Rights Not Transferable............................................................... 11 ARTICLE 7................................................................................................. 11 PAYROLL DEDUCTIONS.................................................................................... 11 7.1 Election of Payroll Deduction......................................................... 11 7.2 Maintenance of Accounts............................................................... 12 7.3 Use of Accounts To Purchase Common Stock.............................................. 12 7.4 Withdrawals........................................................................... 12 ARTICLE 8................................................................................................. 12 MISCELLANEOUS......................................................................................... 12 8.1 Stock Adjustments..................................................................... 12 8.2 Necessity for Delay................................................................... 13 8.3 Term of Plan.......................................................................... 14 8.4 Amendment of the Plan; Termination.................................................... 14 8.5 Application of Funds.................................................................. 14 8.6 No Obligation to Participate.......................................................... 14 8.7 No Implied Rights to Employees........................................................ 15 8.8 Withholding........................................................................... 15 8.9 Participants' Personal Tax Responsibilities........................................... 15 8.10 Designation of Beneficiary............................................................ 15 8.11 Choice of Law......................................................................... 16 8.12 Effective Date of Plan; Stockholder Approval.......................................... 16

As Approved March 1, 2004 and As Effective April 1, 2004 Page iii Amended and Restated Chico's FAS, Inc. 2002 ESPP CHICO'S FAS, INC. AMENDED AND RESTATED 2002 EMPLOYEE STOCK PURCHASE PLAN ARTICLE 1 ESTABLISHMENT, PURPOSE AND SHARES COVERED 1.1 Plan Established. Chico's FAS, Inc. (the "Company") hereby establishes an employee stock purchase plan, subject to the terms and conditions set forth herein, to be known as the Chico's FAS, Inc. 2002 Employee Stock Purchase Plan (the "Plan"). 1.2 Purpose. The purpose of the Plan is to provide eligible employees of the Company and its subsidiaries with a convenient way to purchase the Company's stock, in order to provide an incentive for their continued employment and to enhance such employees' sense of participation in the affairs of the Company and interest in assuring the continued success of the Company. 1.3 Shares Covered; Annual Adjustment. Subject to adjustment as provided in this Section 1.3 and elsewhere in the Plan, the maximum number of shares of Common Stock that may be offered under the Plan from and after April 1, 2004 is 1,100,000. On the first day of each new fiscal year of the Company, the aggregate number of shares that may be offered under the Plan shall be increased automatically by a number of shares equal to the least of (1) one hundred twenty percent (120%) of the total number of shares acquired pursuant to the Plan during the immediately preceding fiscal year, (2) 75,000 or (3) such lesser number of shares (which may be zero) as may be specified by the Board of Directors prior to the last day of such preceding fiscal year, which number shall be less than each of (1) and (2). 1.4 Source of Shares. The shares subject to the Plan and issued under the Plan may be authorized and previously unissued shares or may be previously issued shares acquired in the open market or from other sources. 1.5 Section 423 Plan. It is the intention of the Company to have the Plan qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of the Plan, accordingly, shall be construed so as to extend and limit participation in a manner consistent with the requirements of such Section 423. Any term not expressly defined in the Plan but defined for purposes of such As Approved March 1, 2004 and As Effective April 1, 2004 Page 1 Amended and Restated Chico's FAS, Inc. 2002 ESPP Section 423 shall have the same definition in the Plan, unless a different meaning is clearly required by the context. ARTICLE 2 DEFINITIONS The following words and terms as used in the Plan shall have the meanings set forth therefor in this Article 2 unless a different meaning is clearly required by the context. Whenever appropriate, words used in the singular shall be deemed to include the plural and vice versa, and the masculine gender shall be deemed to include the feminine gender. 2.1 "Account" shall mean the payroll deduction account maintained for an electing Eligible Employee as provided in Article 7. 2.2 "Board" or "Board of Directors" shall mean the Board of Directors of the Company. 2.3 "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated thereunder. Reference to a specific section of the Code shall include a reference to any successor or replacement provision. 2.4 "Committee" shall mean the Compensation and Benefits Committee of the Board. 2.5 "Common Stock" shall mean the common stock, par value $.01 per share, of the Company. 2.6 "Company" shall mean Chico's FAS, Inc., a Florida corporation, and any successor. 2.7 "Compensation" shall mean an Eligible Employee's regular salary and wages, overtime pay, bonuses and commissions (in all cases, before any reduction for elective contributions to any Code Section 401(k) or Code Section 125 Plan), but shall not include credits or benefits under the Plan, or any amount contributed by the Company to any pension, profit sharing or employee stock ownership plan, or any employee welfare, life insurance or health insurance plan or arrangement, or any deferred compensation plan or arrangement. As Approved March 1, 2004 and As Effective April 1, 2004 Page 2 Amended and Restated Chico's FAS, Inc. 2002 ESPP 2.8 "Eligible Employee" shall mean any individual employed by the Company or any Subsidiary who meets the eligibility requirements and is not excluded under the limitations set forth in Article 4. The Committee shall have the sole power to determine who is and who is not an Eligible Employee. 2.9 "Fair Market Value" of a share of Common Stock means, as of any date, the value of a share of the Common Stock determined as follows: (a) if the Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal or such other source as the Committee deems reliable; (b) if the Common Stock is then quoted on the Nasdaq National Market or Nasdaq SmallCap Market, its closing price on such market on the date of determination as reported in The Wall Street Journal or such other source as the Committee deems reliable; (c) if the Common Stock is publicly traded but is not quoted on the Nasdaq National Market or the Nasdaq SmallCap Market and is not listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported in The Wall Street Journal or such other source as the Committee deems reliable; or (d) if none of the foregoing is applicable, by the Committee in good faith. 2.10 "Offering Period" shall mean any of the periods during which subscriptions for Shares may be tendered, as more particularly described in Section 5.1. 2.11 "Participant" shall mean an Eligible Employee who has become a participant in the Plan through the purchase of Shares in accordance with the provisions of the Plan. 2.12 "Plan" shall mean this Chico's FAS, Inc. Amended and Restated 2002 Employee Stock Purchase Plan, as set forth herein and as amended from time to time. As Approved March 1, 2004 and As Effective April 1, 2004 Page 3 Amended and Restated Chico's FAS, Inc. 2002 ESPP 2.13 "Plan Administrator" shall mean the Company's Vice President - Human Resources, or such other person designated by the Committee to act as Plan Administrator. 2.14 "Purchase Documents" shall mean the documents as defined in Section 6.1. 2.15 "Section 423" shall mean Section 423 of the Code, or any amendment thereto, or any replacement or successor statute of similar import. 2.16 "Securities Exchange Act of 1934" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, or any successor or replacement statute or regulation of similar import. 2.17 "Shares" shall mean shares of the Common Stock. 2.18 "Subsidiary" shall mean any corporation that at the time qualifies as a subsidiary of the Company under the definition of "subsidiary corporation" contained in Section 424(f) of the Code. ARTICLE 3 ADMINISTRATION 3.1 Committee. The Plan shall be administered by the Committee, or if no Committee is appointed and serving as provided herein, by the full Board of Directors. The Committee shall consist of not less than two (2) nor more than five (5) persons, each of whom shall be a member of the Board and a "Non-Employee Director " (as such term is defined in Rule 16b-3 under the Securities Exchange Act of 1934), and none of whom shall be eligible to participate under the Plan. The Board of Directors may from time to time remove members from, or add members to, the Committee. Vacancies on the Committee, howsoever caused, shall be filled by the Board of Directors. 3.2 Organization. The Committee shall select one of its members as chairman, and shall hold meetings at such times and places as it may determine. The acts of a majority of the Committee in meetings at which a quorum is present, or acts reduced to or approved in writing by a majority of the members of the Committee, shall be valid acts of the Committee. As Approved March 1, 2004 and As Effective April 1, 2004 Page 4 Amended and Restated Chico's FAS, Inc. 2002 ESPP 3.3 Power and Authority. Subject to the provisions of the Plan, the Committee shall have full authority, in its discretion: (a) to determine the employees of the Company and its Subsidiaries who are eligible to participate in the Plan; (b) to determine the purchase price of the Common Stock being offered; and (c) to interpret the Plan, and to prescribe, amend and rescind rules and regulations with respect thereto. The interpretation and construction by the Committee of any provision of the Plan over which it has discretionary authority shall be final and conclusive. All actions and policies of the Committee shall be consistent with the qualification of the Plan at all times as an employee stock purchase plan under Section 423 of the Code. 3.4 No Liability; Indemnification. No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan. To the fullest extent permitted by law, each person who is or shall have been a member of the Committee shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company's approval, or paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided that the person shall give the Company an opportunity, at its own expense, to handle and defend the same before the person undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's Certificate of Incorporation or Bylaws, by contract or under a policy of insurance, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless. ARTICLE 4 EMPLOYEES ELIGIBLE TO PARTICIPATE 4.1 General Eligibility Standards. Any person, including any officer but not a person who is solely a director, who is employed by the Company or any Subsidiary on the first day of an Offering Period is eligible to participate in the Plan with respect to that offering, except (a) a person who has been employed less than one year; (b) a person whose customary employment is 20 hours or fewer per week; and (c) a person whose customary employment is for not more than five months in any calendar year. As Approved March 1, 2004 and As Effective April 1, 2004 Page 5 Amended and Restated Chico's FAS, Inc. 2002 ESPP 4.2 Certain Exclusions. Notwithstanding any provision of the Plan to the contrary, no person shall be eligible to participate in the Plan, to subscribe for or purchase any Common Stock under the Plan if: (a) immediately after the subscription, the person , together with any other person whose stock would be attributed to such employee pursuant to Section 424(d) of the Code, would own stock and/or hold outstanding options to purchase stock, possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or of any Subsidiary (as determined in accordance with the provisions of Section 423(b)(3) of the Code); (b) the subscription would provide the person rights to purchase shares under all employee stock purchase plans of the Company and any parent and subsidiary corporations to accrue at a rate that exceeds $25,000 of Fair Market Value of such shares (or such other limit as may be imposed by the Code), determined at the time such right to subscribe accrues, in respect of any calendar year in which such right to subscribe is outstanding at any time; (c) the person provides services to the Company or any of its Subsidiaries as an independent contractor who is reclassified as a common law employee for any reason except for federal income and employment tax purposes; (d) the subscription is otherwise prohibited by law; or (e) the person's employment is terminated for any reason prior to the time revocation or cancellation of participation in an Offering is prohibited under Section 6.2 (in which event such person no longer shall be an Eligible Employee and any previous subscription for Shares in such Offering Period shall be null and void). ARTICLE 5 OFFERING PERIODS; PURCHASE PRICE; NUMBER OF SHARES OFFERED 5.1 Offering Periods. There shall be 15 Offering Periods under the Plan. The first Offering Period shall commence on September 1, 2004 and shall conclude on September 30, 2004. Thereafter, a separate Offering Period shall commence on the first day and conclude on the last day of the months of March and September in each of the years 2005 through 2011, inclusive. As Approved March 1, 2004 and As Effective April 1, 2004 Page 6 Amended and Restated Chico's FAS, Inc. 2002 ESPP 5.2 Number of Shares Available for Purchase. Subject to the other terms and conditions of the Plan limiting the number of Shares which may be purchased hereunder, there shall be no limit on the aggregate number of Shares for which subscriptions may be made with respect to any particular Offering Period. The right of an Eligible Employee to subscribe for Shares in an Offering Period shall not accrue until the first day of that Offering Period. 5.3 Purchase Price Generally. Unless the Committee acts to set the purchase price as provided in Section 5.4, the per Share purchase price applicable to an Offering Period shall be 85% of the Fair Market Value of the Common Stock on the last trading day immediately preceding the first day of the Offering Period. 5.4 Alternative Purchase Price. The Committee, in its discretion, may decide not to set the per Share purchase price under Section 5.3 but instead to set the per Share purchase price for an Offering Period on an alternative basis, such per Share purchase price being equal to 85% of the lesser of: (a) the Fair Market Value of the Common Stock on the last trading day immediately preceding the first day of the Offering Period, or (b) the Fair Market Value of the Common Stock on the last trading day immediately preceding the last day of the Offering Period. Any decision to employ the alternative per Share purchase price determination under this Section 5.4 shall be made by the Committee not less than one month prior to the commencement of the Offering Period(s) to which the alternative purchase price procedure is to apply. The Committee shall notify Eligible Employees promptly of any decision to set the per Share purchase price pursuant to this Section 5.4. 5.5 Number of Shares Offered to Eligible Employees. (a) Subject to the limitations set forth in this Section 5.5 and any adjustments required by other provisions of the Plan, in each Offering Period, an Eligible Employee shall be entitled to subscribe for one share of Common Stock for each Two Hundred Fifty ($250.00) of Compensation paid to him for the calendar year immediately preceding the year in which the Offering Period occurs. Subscriptions shall be allowed for full Shares only. Any rights to subscribe for fractional shares of Common Stock shall be void and disregarded; and, any computation resulting in fractional shares shall be rounded down to the next lowest whole number of Shares. As Approved March 1, 2004 and As Effective April 1, 2004 Page 7 Amended and Restated Chico's FAS, Inc. 2002 ESPP (b) Notwithstanding the provisions of Section 5.5(a), in any Offering Period, no Eligible Employee shall be entitled to subscribe for more than four hundred (400) Shares; no Eligible Employee who is entitled to subscribe for ten (10) or more Shares shall be permitted to subscribe for fewer than ten (10) Shares; and, no Eligible Employee who is entitled to subscribe for fewer than ten (10) Shares shall be entitled to subscribe for fewer than the maximum number of Shares he or she is entitled to purchase. (c) Notwithstanding the provisions of Section 8.1, no stock adjustment referred to therein shall operate to change (i) from ten (10) the minimum number of Shares required to be subscribed for by an Eligible Employee in any Offering Period, (ii) from four hundred (400) the maximum number of Shares that may be subscribed for by an Eligible Employee in any Offering Period, or (iii) from Two Hundred Fifty ($250.00) the dollar amount used in computing the number of Shares for which an Eligible Employee is entitled to subscribe in any Offering Period. (d) If, with respect to any Offering Period, the aggregate Shares subscribed for by Eligible Employees computed in accordance with other provisions of the Plan exceed the number of Shares available for issuance under the Plan, the aggregate number of Shares covered by such subscriptions shall be reduced to such lower number of Shares as may be necessary to eliminate the over-subscription. Such reduction shall be effected in respect of the subscriptions of Eligible Employees participating in such Offering Period on a proportionate basis as equitably as possible; but, in no event shall such reduction result in a subscription for fewer than the minimum number of Shares or a subscription for fractional Shares. In the event of an over-subscription and cutback as provided in this Section 5.5(d), the Company shall refund any excess payments for subscribed Shares as soon as practicable after closing of the Offering Period. ARTICLE 6 PARTICIPATION AND PAYMENT 6.1 Election To Participate. (a) During any Offering Period, an Eligible Employee desiring to become a Participant must (1) complete a subscription agreement, indicating the number of shares of Common Stock to be purchased, and such other documents as the Company may require (the "Purchase Documents") and (2) tender to the Plan Administrator the Purchase Documents and cash or a check (payable in U.S. funds) for the full purchase As Approved March 1, 2004 and As Effective April 1, 2004 Page 8 Amended and Restated Chico's FAS, Inc. 2002 ESPP price for the Shares covered by the Purchase Documents (less any amount to be withdrawn from such Eligible Employee's Payroll Deduction Account pursuant to Section 7.3) at any time before the conclusion of the Offering Period. Such Eligible Employee will become a Participant upon acceptance by the Company of the Purchase Documents and consideration for the Shares being purchased under the Plan immediately after the close of the Offering Period. (b) With respect to any Offering Period in which the Committee has elected to employ the alternative per Share purchase price determination pursuant to Section 5.4, the Eligible Employee shall tender an amount equal to the purchase price based on the Fair Market Value of the Common Stock on the last trading day before the commencement of the Offering Period. If the final purchase price is less than the amount tendered, the Company shall refund the excess amount to the Eligible Employee as soon as practicable after the close of the Offering Period. (c) Purchase Documents and cash or check received by the Plan Administrator before or after an Offering Period shall be void and shall be given no effect with respect to the particular Offering Period; and, the Plan Administrator shall return such documents and cash or check to the involved person as soon as practicable after receipt. 6.2 No Revocation of Election. No election to participate in an Offering Period may be revoked or cancelled by an Eligible Employee once the Purchase Documents and full payment have been tendered to the Company. Any such election, however, is subject to cancellation or reduction by the Company as provided elsewhere in the Plan. 6.3 No Interest. No interest shall be payable on the purchase price of the Shares subscribed for or on the funds returned to employees as a result of an over-subscription, an overpayment, or pursuant to Section 6.1 for early or late delivery. 6.4 Custodial Safekeeping Arrangement. (a) For the purpose of assuring compliance with applicable provisions of the tax laws, the Committee in its discretion may condition the issuance of Shares under the Plan upon the delivery of certificates representing such Shares to the Company as temporary custodial safekeeping agent for the benefit of the Eligible Employee purchasing the Shares under the Purchase Documents. As Approved March 1, 2004 and As Effective April 1, 2004 Page 9 Amended and Restated Chico's FAS, Inc. 2002 ESPP (b) Such custodial safekeeping arrangement shall not affect the right of the affected Participants as owners of such Shares and such Shares may be sold or otherwise transferred by the owners thereof during the pendency of the custodial safekeeping arrangement. A written safekeeping receipt evidencing the Shares so held in safekeeping, bearing the name of the Participant, indicating the number of the certificate or certificates and the number of Shares so represented shall be delivered promptly to each Participant. In its capacity as safekeeping agent for Participants purchasing Shares, the Company shall act in accordance with instructions received from such Participants, which instructions are to be confirmed in writing if deemed appropriate by the Company. (c) The custodial safekeeping arrangement shall terminate upon the first to occur of (1) the sale or other transfer of the Shares by the owner or (2) the second anniversary of the issuance of the Shares. 6.5 Delivery of Certificates Representing Shares. (a) Subject to the provisions of Section 6.5(b), as soon as practicable after the completion of each Offering Period, the Company shall cause a certificate or certificates representing the Common Stock purchased in the Offering Period to be issued in the name of each Participant. (b) If determined by the Committee in its discretion to be appropriate in order to administer the custodial safekeeping arrangements of Section 6.4, but only for so long as such provisions remain in effect, certificates representing Shares shall not be delivered to Participants but shall be delivered to the Company to be held by the Company as temporary custodial safekeeping agent for the benefit of each Participant pursuant to Section 6.4. (c) Upon the termination of any custodial safekeeping arrangement applicable to Shares issued to any Participant pursuant to Section 6.4, the certificate(s) representing the Shares owned by the Participant, registered in the name of the Participant, shall be delivered promptly to such Participant. (d) Certificate(s) representing shares of Common Stock to be delivered to a Participant under the Plan will be registered in the name of the Participant, or if the Participant so directs, by written notice to the Company prior to the termination date of the pertinent offering, and to the extent permitted by applicable law, in the names of the Participant and one such other person as may be designated by the Participant, as joint tenants with rights of survivorship. As Approved March 1, 2004 and As Effective April 1, 2004 Page 10 Amended and Restated Chico's FAS, Inc. 2002 ESPP 6.6 Rights as Stockholder. No Eligible Employee participating in the Plan shall have any right as a stockholder until after the completion of the Offering Period in which he or she participated and the date on which he or she becomes a record owner of the Shares purchased under the Plan (the "Record Ownership Date"). No adjustment shall be made for dividends or other rights for which the record date is prior to the Record Ownership Date. 6.7 Termination of Employment. An Eligible Employee whose employment is terminated for any reason (including but not limited to termination because of death, retirement or disability) shall have no right to participate in the Plan after termination. However, the termination shall not affect any election to participate in the Plan that is made prior to termination in accordance with the provisions of Section 6.1 and as to which, at the time of such termination, the Eligible Employee's right to withdraw from or cancel his or her purchase of Common Stock in the Offering Period is no longer permitted under Section 6.2. 6.8 Rights Not Transferable. The right of an Eligible Employee to participate in the Plan shall not be transferable, and no right of an Eligible Employee under the Plan may be exercised after his death, by his Personal Representative or anyone else, or during his lifetime by any person other than the Eligible Employee. ARTICLE 7 PAYROLL DEDUCTIONS 7.1 Election of Payroll Deduction. Each Eligible Employee may elect to have a portion of his or her Compensation deducted from each paycheck (or, if the Company so permits, from only the first paycheck in each month), which amounts shall not exceed in the aggregate Twenty-Five Thousand Dollars ($25,000.00) in any calendar year. Elections to begin, change or terminate payroll deductions may be made on such forms as may be provided from time to time by the Company and in accordance with rules established by the Committee, which rules may include, among other things, limitations on the number of times changes are permitted and when changes are permitted and effective. A change shall be effective no earlier than the first full payroll period following receipt of the new form by the Committee. The Committee may, however, on a uniform and non-discriminatory basis delay the effective date of any change if it determines that such a delay is either necessary or appropriate for the proper administration of the Plan. As Approved March 1, 2004 and As Effective April 1, 2004 Page 11 Amended and Restated Chico's FAS, Inc. 2002 ESPP 7.2 Maintenance of Accounts. A separate Account shall be maintained for each Eligible Employee who has amounts withheld from his Compensation under this Article 7. The maintenance of separate Accounts shall not require the segregation of any assets from any other assets held under this Article 7. The Accounts shall not bear interest. Each Account shall be adjusted from time to time to reflect the amounts withheld from the Compensation of the Eligible Employee to whom the Account relates, the amounts withdrawn by such Eligible Employee for purchases of Common Stock under the Plan, and for other amounts withdrawn by such Eligible Employee from the Account. 7.3 Use of Accounts To Purchase Common Stock. At the time that an Eligible Employee elects to participate in an offering under Section 6.1, the Eligible Employee may elect to have a specified amount from his Account (up to the whole amount thereof) used to pay all or a portion of the purchase price. 7.4 Withdrawals. At any time that a person is no longer an employee (including by reason of death) or an Eligible Employee, the balance in such person's Account shall be paid to such person or his legal representative. In addition, the Committee may also permit the complete withdrawal of the amounts in an Account under such uniform and non-discriminatory conditions as it may impose from to time to time (including, without limitation, not permitting the Eligible Employee making such withdrawal from again electing payroll deductions for a specified period of time). Except as otherwise provided in Section 7.3 and this Section 7.4, an Eligible Employee shall not withdraw any amount from his Account, in whole or in part. ARTICLE 8 MISCELLANEOUS 8.1 Stock Adjustments. (a) In the event of any increase or decrease in the number of issued shares of Common Stock resulting from a stock split or other division or consolidation of shares or the payment of a stock dividend (but only on the Common Stock) or any other increase or decrease in the number of such shares effected without any receipt of consideration by the Company, then, in any such event, the number of shares of Common Stock that remain available under the Plan, and the number of shares of Common Stock and the purchase price per share of Common Stock then subject to subscription by Eligible Employees, shall be proportionately and appropriately adjusted for any such increase or decrease. As Approved March 1, 2004 and As Effective April 1, 2004 Page 12 Amended and Restated Chico's FAS, Inc. 2002 ESPP (b) Subject to any required action by the stockholders, if any change occurs in the shares of Common Stock by reason of any recapitalization, reorganization, merger, consolidation, split-up, combination or exchange of shares, or of any similar change affecting the shares of Common Stock, then, in any such event, the number and type of shares then subject to subscription by Eligible Employees, and the purchase price thereof, shall be proportionately and appropriately adjusted for any such change. (c) In the event of a change in the Common Stock as presently constituted that is limited to a change of all of its authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any change shall be deemed to be shares of Common Stock within the meaning of the Plan. (d) To the extent that the foregoing adjustments relate to stock or securities of the Company, such adjustments shall be made by, and in the discretion of, the Committee, whose determination in that respect shall be final, binding and conclusive. (e) Except as hereinabove expressly provided in this Section 8.1, an Eligible Employee shall have no rights by reason of any division or consolidation of shares of stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any dissolution, liquidation, merger or consolidation, or spin-off of assets or stock of another corporation; and any issuance by the Company of shares of stock of any class, securities convertible into shares of stock of any class, or warrants or options for shares of stock of any class shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to any subscription. (f) The existence of the Plan, and any subscription for Shares hereunder, shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate, or to dissolve, to liquidate, to sell, or to transfer all or any part of its business or assets. 8.2 Necessity for Delay. If at any time the Committee shall determine, in its discretion, that the listing, registration or qualification of the Shares covered by the Plan upon any securities exchange or under any state or federal law or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the Plan or the offering, issue or purchase of Shares thereunder, the Plan shall not be effective as to later offerings unless and until such listing, registration, As Approved March 1, 2004 and As Effective April 1, 2004 Page 13 Amended and Restated Chico's FAS, Inc. 2002 ESPP qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. Notwithstanding anything in the Plan to the contrary, if the provisions of this Section 8.2 become operative and if, as a result thereof, an Offering Period is missed in whole or in part, then and in that event, the missed portion of the Offering Period shall be passed and the term of the Plan shall not be affected. Notwithstanding the foregoing or any other provision in the Plan, the Company shall have no obligation under the Plan to cause any Shares to be registered or qualified under any federal or state law or listed on any stock exchange or admitted to any national marketing system. 8.3 Term of Plan. The Plan, unless sooner terminated as provided in Section 8.4, shall commence upon its adoption by the Board and shall terminate on the conclusion of the Offering Period commencing on September 1, 2011. 8.4 Amendment of the Plan; Termination. The Board shall have the right to revise, amend or terminate the Plan at any time without notice, provided that no Eligible Employee's existing rights are adversely affected thereby without the consent of the Eligible Employee, and provided further that, without approval of the stockholders of the Company, no such revision or amendment shall (1) increase the total number of Shares to be offered other than with evergreen increases provided for in Section 1.3; (2) change the formula by which the price at which the Shares shall be sold is determined; (3) increase the maximum number of Shares that an Eligible Employee may purchase; (4) materially modify the requirements as for becoming an Eligible Employee under the Plan; (5) otherwise materially increase the benefits under the Plan to Eligible Employees; or (6) remove the administration of the Plan from the Committee. The foregoing prohibitions shall not be affected by adjustments in Shares and purchase price made in accordance with the provisions of Section 8.1. It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide Eligible Employees with the benefits available under Section 423 of the Code relating to employee stock purchase plans or to bring the Plan or rights granted under the Plan into compliance therewith. 8.5 Application of Funds. The proceeds received by the Company from the sale of Common Stock pursuant to the Plan will be used for general corporate purposes. 8.6 No Obligation to Participate. The offering of Shares under the Plan shall impose no obligation upon any Eligible Employee to subscribe to purchase any such Shares. As Approved March 1, 2004 and As Effective April 1, 2004 Page 14 Amended and Restated Chico's FAS, Inc. 2002 ESPP 8.7 No Implied Rights to Employees. The existence of the Plan, and the offering of Shares under the Plan, shall in no way give any employee the right to continued employment, give any employee the right to receive any Common Stock or any additional Common Stock under the Plan, or otherwise provide any employee any rights other than those specifically set forth in the Plan. 8.8 Withholding. Whenever (1) the Company proposes or is required to issue, transfer or approve the transfer or Shares issued under the Plan or (2) if a Participant previously receiving Shares under the Plan makes any disposition of such Shares prior to the expiration of the holding periods required under Section 423(a)(1) of the Code, and such Participant is then employed by the Company, then in either event, the Company shall have the right, but shall not be obligated, to require a Participant to remit to the Company an amount sufficient to satisfy any federal, state or local withholding tax liability. Pending receipt of such payment, the Company may delay the delivery of any certificate or certificates for such Shares or may deduct the required amount from amounts otherwise due and payable to the Participant by the Company. Whenever under the Plan payments are to be made in cash, such payments shall be made net of an amount sufficient to satisfy any federal, state or local withholding tax liability. 8.9 Participants' Personal Tax Responsibilities. Each Participant shall be personally responsible to pay or make adequate provision to pay any individual foreign, federal, state or local tax obligations which may arise as a result of his or her acquisition or disposition of Shares. 8.10 Designation of Beneficiary. A Participant may file a written designation of a beneficiary who is to receive any Shares and, if applicable, funds from the Participant's Account in the event of the Participant's death subsequent to the end of an Offering Period but prior to delivery to the Participant of such Shares and funds. In addition, a Participant may file a written designation of a beneficiary who is to receive any cash from the Participant's Account in the event of the Participant's death during an Offering Period. Such designation of beneficiary may be changed by the Participant at any time by written notice in the form prescribed by the Committee. In the event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living (or if an entity, is otherwise in existence) at the time of the Participant's death, the Company shall deliver such Shares and funds to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its sole discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may determine. As Approved March 1, 2004 and As Effective April 1, 2004 Page 15 Amended and Restated Chico's FAS, Inc. 2002 ESPP 8.11 Choice of Law. All questions concerning the construction, validity and interpretation of the Plan shall be governed by the substantive laws of the State of Florida (but any provision of Florida law shall not apply if the application of such provision would result in the application of the law of a state or jurisdiction other than Florida). 8.12 Effective Date of Plan; Stockholder Approval. The Amended and Restated Plan shall become effective April 1, 2004, with such date being the effective date of the Amended and Restated Plan; provided that (1) the Amended and Restated Plan is approved by the stockholders of the Company within 12 months after its adoption by the Board and (2) no Purchase Documents may be tendered and no Shares may be purchased under the Restated and Amended Plan from and after April 1, 2004 and prior to such approval by the Company's stockholders. As Approved March 1, 2004 and As Effective April 1, 2004 Page 16 Amended and Restated Chico's FAS, Inc. 2002 ESPP EX-13 7 g88364exv13.txt EX-13 ANNUAL REPORT TO STOCKHOLDERS (PHOTO) Exhibit 13 ANNUAL REPORT FISCAL 2003 CHICO'S A message from our CEO to our shareholders... [PICTURE] 1 I would like to begin this letter, my first as CEO, by expressing my heartfelt gratitude to our founders, Marvin and Helene Gralnick, for their years of dedication to this amazing company. Without their insight, energy, and passion, Chico's would not be what it is today. I speak on behalf of the entire Chico's organization when I say that this will always be their home. Even though Marvin and Helene officially retired as officers this past March, they continue to serve both as board members and dedicated founders to help ensure their vision and values are maintained at the same levels. I look forward to partnering with them to take advantage of the tremendous growth potential that we see both now and in the future. Fiscal year 2003 was a year of tremendous accomplishment for Chico's as we improved results on virtually every financial metric. To start with, this was our seventh consecutive year of double-digit comparable store sales increases. Our net income rose 50.1% to a record $100 million, or $1.14 per diluted share, and net sales for the fiscal year increased 44.7% to a record $768 million. Comparable store sales for Company-owned stores increased 16.1% for the fiscal year, and our gross and operating margins increased almost a full percentage point over fiscal 2002. Our balance sheet is extremely strong. In fiscal 2003, we funded over $87 million of cash on the White House | Black Market acquisition and over $52 million on capital expenditures, while at the same time managing to add $20 million to our cash and marketable securities balances. Our inventory balances remain strong at $55 per square foot and we are virtually debt free. Lastly, our net book value rose by over $134 million to end the year at over $374 million. It is important to note that these impressive results were accomplished during a year when we: (1) acquired the White House | Black Market company which closed on September 5, 2003; (2) implemented new software in almost every division of the Company; (3) launched and concluded the 10 store Pazo test; (4) opened 72 net new stores, and expanded, relocated, or remodeled another 37 stores; (5) prepared for the test launch of our new intimate apparel line, Soma by Chico's; (6) completed a CEO transition; and (7) expanded our Board of Directors from six to eight members. Although I am certainly pleased to become a member of the Board, I am particularly excited about the second new member of our Board, Betsy S. Atkins. Ms. Atkins is a nationally recognized leader, speaker, and writer concerning corporate governance matters and has significant experience with mergers and acquisitions, integration, and investment banking. As you can see, 2003 was a year of tremendous accomplishment, not only financially, but on many other fronts as well. The White House | Black Market integration is almost complete, and I'm pleased to report that their new headquarters is now located right next door to Chico's headquarters on our 35 acre campus here in Fort Myers, Florida. We have already integrated the majority of their operations into our infrastructure with the exception of merchandising, which we plan to keep independent for the most part, or their distribution center, which we plan to close once their business is up and running on our software platform. We plan to convert their back office systems and move their distribution center at the start of the second quarter of 2004, convert their cash registers to our systems in July 2004, and anticipate getting their website operational for Internet purchasing in the fourth quarter of this year or the first quarter of next year. NET SALES IN MILLIONS NET INCOME IN MILLIONS FY 99 $155 FY 99 $15 FY 00 $259 FY 00 $28 FY 01 $378 FY 01 $42 FY 02 $531 FY 02 $67 FY 03 $768 FY 03 $100 As I stated earlier, in fiscal 2003 we opened 72 net new stores, expanded or relocated 21 stores, and remodeled 16 stores for a 26% increase in net sq. footage. Including the 107 stores we acquired from White House, we expanded our overall square footage by 45%. For fiscal 2004, we plan to open between 85 and 95 net new stores and expand or relocate another 20 to 30. Of the 85 to 95 new stores, we anticipate 35-40 of these to be White House | Black Market stores, 10 to be Soma by Chico's test stores, and the remainder to be under the Chico's brand. There is tremendous momentum behind the Chico's brand and our brand awareness is increasing every day. We are eagerly anticipating the launch of our new intimate apparel line, Soma by Chico's. Soma, which is the Greek word for body, will open 10 new test stores in the second half of this year. These 10 stores will offer a unique and exciting intimate apparel shopping experience with the same level of service to which our Chico's customers have become accustomed. We are very excited about the test of this brand and its potential to supplement our growth in future years. Membership in our customer loyalty program, the Passport Club, continues to steadily rise. We currently have over 900,000 permanent Passport members and these members drove 74% of our business last fiscal year. In fact, during fiscal year 2003, we enrolled 300,000 new permanent Passport members and an additional 800,000 new preliminary members. The Passport Club is the heartbeat of our marketing effort and we will continue to seek ways to enhance the program with special promotions and incentives to keep our customers coming back. Chico's is the hottest specialty apparel brand in America today, but it's not just our unique merchandise and trademarked "most amazing personal service" that sets us apart from other retailers. It's also the culture of our company. We have a firm belief that Chico's is a sum of its parts and every associate is important to our success. Because of this belief, every associate is treated with sincere respect, honesty, and courtesy, and in return, they treat our customers in the same fashion. This fosters a deep sense of loyalty at both the associate and customer level. I am aware that the Company's personality starts at the top and permeates throughout the organization, and I intend to continue this focus on our culture that has been a "secret weapon" over the years. The entire management team is committed to ensuring that each individual brought into the company supports these same beliefs. Only then can we ensure that the arts, beliefs, customs, institutions, and all other products of human work and thought created by Chico's since 1983 will continue into the future. My most sincere thanks to every Chico's associate for their dedication and commitment to making Chico's the best place in America to work and shop. I look forward to their partnership in continuing to deliver new, unique, creative, and exciting product to our customers. Finally, I would like to thank our customers, suppliers, and shareholders for their continued support. Chico's is on track for success in 2004 and beyond. I believe that the best is yet to come! /s/ Scott A. Edmonds - -------------------- Scott A. Edmonds President Chief Executive Officer DILUTED EARNINGS PER SHARE STORE GROWTH FY 99 $0.19 FY 99 200 FY 00 $0.35 FY 00 250 FY 01 $0.50 FY 01 311 FY 02 $0.78 FY 02 378 FY 03 $1.14 FY 03 557 3 CONTENTS 7 Management's Discussion & Analysis 19 Stock Information 22 Financial Statements 42 Executive Officers/Directors 48 Store Listing [PICTURE] [PICTURE] 5 financial highlights
FISCAL YEAR ENDED ----------------------------------------------------------------------------------- JANUARY 31, FEBRUARY 1, FEBRUARY 2, FEBRUARY 3, JANUARY 29, 2004 2003 2002 2001 2000 (52 WEEKS) (52 WEEKS) (52 WEEKS) (53 WEEKS) (52 WEEKS) ----------------------------------------------------------------------------------- (Dollars in thousands except per share data) STATEMENT OF INCOME DATA: Net Sales $768,499 $531,108 $378,085 $259,446 $155,002 Income from Operations 160,774 106,793 67,536 45,363 24,806 Net Income 100,230 66,759 42,187 28,379 15,489 Basic Earnings Per Share (1) 1.16 0.80 0.52 0.36 0.20 Diluted Earnings Per Share (1) 1.14 0.78 0.50 0.35 0.19 BALANCE SHEET AND OPERATING DATA: Total Assets $470,854 $301,544 $186,385 $117,807 $ 70,316 Long-Term Debt -- -- 5,022 5,150 5,222 Other Noncurrent Liabilities 24,437 6,551 2,922 2,008 1,617 Stockholders' Equity 374,835 240,133 143,495 85,321 52,641 # of Stores (at end of period): Company-owned 545 366 300 239 191 Franchised 12 12 11 11 9 -------- -------- -------- -------- -------- Total 557 378 311 250 200 ======== ======== ======== ======== ========
(1) Restated to give retroactive effect for the 2 for 1 stock split payable in July 2002, the 3 for 2 stock split payable in January 2002 and the 3 for 2 stock split payable in May 2001. CASH FLOW FROM OPERATIONS IN MILLIONS BOOK VALUE PER SHARE FY 99 $17 FY 99 $0.68 FY 00 $39 FY 00 $1.08 FY 01 $65 FY 01 $1.76 FY 02 $109 FY 02 $2.82 FY 03 $145 FY 03 $4.28 [PICTURE] MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS [PICTURE] The following discussion and analysis should be read in conjunction with the Company's consolidated financial statements and notes thereto. EXECUTIVE OVERVIEW Chico's FAS, Inc. (together with its subsidiaries, the "Company") is a specialty retailer of exclusively designed, private label, sophisticated, casual-to-dressy clothing, complementary accessories, and other non-clothing gift items under the Chico's and White House | Black Market brand names. The Chico's brand, which began operations in 1983, focuses on women who are 35 years old and up with moderate and higher income levels. The styling is relaxed, figure-flattering and designed for easy care. The White House | Black Market brand, which was acquired by the Company in September 2003 as a result of the acquisition of The White House, Inc., targets middle-to-upper income, youthful women between the ages of 25 and 45. The styling is contemporary, feminine and unique, assorted primarily in the classic and timeless colors of white and black and related shades. The Company earns revenues and generates cash through the sale of merchandise in its retail stores, to its franchisees, and through its call center, which handles sales related to the Company's catalog and online operations. Since the Company opened its first Chico's store in 1983 principally selling folk art, its retail store system, now selling principally women's apparel, has grown to 559 stores as of March 31, 2004, of which 426 are Company-owned Chico's stores, 12 are Chico's franchised stores and 121 are White House | Black Market stores. During the fiscal year ended January 31, 2004, the Company decided to discontinue its 10-store Pazo test, converting one of these stores to the Chico's concept, converting 5 of these stores in the first quarter of fiscal 2004 to the White House | Black Market concept, scheduling 3 of these stores to be converted later in 2004 to the new intimate apparel brand concept that the Company is testing, Soma by Chico's, and closing one of these stores in the first quarter of fiscal 2004 as well. Over the period from January 31, 1999 through January 31, 2004, the Company has opened 295 new Company-owned stores (including 7 new White House | Black Market stores in fiscal 2003 since acquiring the chain in September 2003), and acquired two stores from franchisees, and one franchisee has opened five new franchised stores. Of the new Company-owned stores, 74 were opened in fiscal 2003 (year ended January 31, 2004), 66 were opened in fiscal 2002, 64 were opened in fiscal 2001, 51 were opened in fiscal 2000, and 40 were opened in fiscal 1999. During this same time period, the Company closed 13 Company-owned stores and no franchised stores were closed. The Company expects to open between 85 and 95 net new stores during fiscal year 2004. Of this total, approximately 40-45 are expected to be Chico's stores, approximately 35-40 are expected to be White House | Black Market stores, and approximately 10 are expected to comprise the test for the new Soma by Chico's concept store. In addition, the Company is evaluating certain existing Company-owned store locations, including stores with leases coming up for renewal, and is considering the possibility of closing between 6 and 8 existing Company-owned stores in fiscal 2004. In September 2003, the Company acquired The White House, Inc., and its concept, White House | Black Market, for approximately $93 million, of which approximately $88 million consisted of cash consideration (net of cash acquired) and the balance consisted of the Company's common stock. The White House, Inc. was a privately held retailer, which owned 107 stores in 30 states, Puerto Rico, and the US Virgin Islands, on the closing date of the acquisition. The Company remains quite positive about the acquisition and believes that the acquisition will strengthen its position in the specialty retail market and will contribute to the Company's overall growth strategy. 7
AVERAGE NET SALES PER STORE NET SELLING SQUARE FEET (000'S) AVERAGE NET SALES PER NET SELLING SQUARE FOOT FY 99 $904 FY 99 278 FY 99 $675 FY 00 $1,200 FY 00 388 FY 00 $809 FY 01 $1,385 FY 01 535 FY 01 $815 FY 02 $1,556 FY 02 692 FY 02 $849 FY 03 $1,783 FY 03 1,000 FY 03 $924
In addition to the acquisition of The White House, the Company announced its plan to open 10 test concept stores during fiscal 2004 under its new intimate apparel concept, Soma by Chico's. The Company believes that the intimate apparel market could offer the Company another vehicle to reach the Chico's customer and to further leverage the Chico's brand. Factors that will be critical to determining the Company's future success include, among others, managing the overall growth strategy, including the ability to open and operate stores effectively, maximizing efficiencies in the merchandising, product development and sourcing processes, maintaining high standards for customer service and assistance, maintaining the newness, fit and comfort in its merchandise offerings, and generating cash to fund the Company's expansion needs. In order to monitor the Company's success in regards to these critical success factors, the Company's senior management monitors certain key performance indicators, including: - Comparable same store sales growth - In fiscal 2003, the Company's comparable store sales growth (sales from stores open for at least twelve full months, including stores that have been expanded or relocated within the same general market) reached 16.1%. This increase represents the seventh consecutive year in which the Company has experienced double-digit comparable store sales growth. Management believes that this is a positive indication of the Company's ability to manage its expansion and its ability to open and operate stores effectively. Maintaining comparable same store sales growth over an extended period of time into the future can be impacted by saturation, customer receptiveness to new product offerings and price elasticity, among other factors. In late fiscal 2004, White House | Black Market stores will enter into the comparable store base. The ability of the Company to maintain strong comparable same store sales increases within the White House | Black Market stores will be important to the ability of the Company to continue its comparable same store sales growth. - Positive operating cash flow - In fiscal 2003, the Company generated $145 million of cash flow from operations compared with $109 million in fiscal 2002, which represents an increase of 33.6%. The Company believes a key strength of its business is the historical ability to consistently generate cash. In addition to supporting the general operating needs of the Company, the Company uses cash generated from operations to fund capital expenditures related to new store openings, to fund the implementation of state of the art information systems which will help support the future growth of the Company, and to fund strategic acquisitions. Although the Company used approximately $88 million of cash to complete the acquisition of The White House, Inc. in 2003 and approximately $52 million of cash to fund store growth and to complete the implementation of new information systems, the Company's cash and marketable securities balances as of the end of fiscal 2003 still increased over the balances as of the end of fiscal 2002. Cash flow can be negatively impacted by a slow down in sales, higher costs of goods sold as a percentage of sales and increased selling, general and administrative expenses as a percentage of sales. See further discussion of the Company's cash flows in the Liquidity and Capital Resources section. - Passport Club - Management believes that a significant indicator of the Company's emphasis on personalized customer service is the growth of its loyalty program, the "Passport Club." The Passport Club features discounts and other special promotions for its members. Preliminary members may join the Passport Club at no cost and upon spending $500, customers automatically become permanent members and are entitled to a lifetime 5% discount and other benefits. During fiscal 2003, the Company added 300,000 permanent Passport Club members and 800,000 preliminary Passport Club members. In fiscal [PICTURE] [PICTURE] 2003, permanent Passport Club members accounted for approximately 74% of overall sales, about the same as in fiscal 2002. Although the Company has tended to experience a more significant drop off in sales to Passport Club members as a group in the second year of their membership, the sales to such members in the aggregate tend to level out in subsequent years. The Company believes that the growth of its Passport Club indicates that the Company is still generating strong interest from new customers, many of whom tend to become long term loyal customers due in large part to the Company's commitment to personalized customer service. - Quality of merchandise offerings - To monitor and maintain the acceptance of its merchandise offerings, the Company monitors sell-through levels, inventory turns, gross margins and markdown rates on a classification and style level. Although the Company does not disclose these statistics for competitive reasons, these reviews help identify comfort, fit and newness issues at an early date and help the Company plan future product development and buying. In fiscal year 2003, the Company reported net sales, operating income and net income of $768 million, $161 million and $100 million, respectively, up 44.7%, 50.5% and 50.1%, from the prior fiscal year. Net sales for fiscal year 2003 included approximately 5 months of sales from the newly acquired White House | Black Market concept, as well as the results of the Company's now discontinued Pazo store concept. The Company's gross margin increased to 61.3% in fiscal 2003 from 60.5% in fiscal 2002. The increases in operating income and net income benefited significantly from the leverage associated with the Company's fiscal 2003 comparable store sales increase of 16.1%. Sales and profitability trends are further discussed in the Results of Operations section. RESULTS OF OPERATIONS NET SALES The following table shows net sales by Company-owned stores, net sales by catalog and Internet and net sales to franchisees in absolute dollars and as a percentage of total net sales for the fiscal years ended January 31, 2004 (fiscal 2003 or "current period"), February 1, 2003 (fiscal 2002 or "prior period") and February 2, 2002 (fiscal 2001) (amounts in thousands):
FISCAL 2003 % FISCAL 2002 % FISCAL 2001 % ----------- ----- ----------- ----- ----------- ----- Net sales by Company stores $737,918 96.0% $508,492 95.8% $362,443 95.9% Net sales by catalog and Internet 22,780 3.0 16,070 3.0 10,203 2.7 Net sales to franchisees 7,801 1.0 6,546 1.2 5,439 1.4 -------- ----- -------- ----- -------- ----- Net sales 768,499 100.0 531,108 100.0 378,085 100.0
Net sales by Company-owned stores have increased over the past three years primarily due to new store openings, as well as the current trend of double-digit increases in the Company's comparable store net sales (including stores within the comparable store base that have been expanded). A summary of the factors impacting year-over-year sales increases is provided in the table below:
FISCAL 2003 FISCAL 2002 FISCAL 2001 ----------- ----------- ----------- Comparable store sales increases $ 80,935 $ 48,286 $ 42,087 Comparable same store sales % 16.1% 13.5% 17.1% New store sales $148,491 $ 97,763 $ 68,188 Number of new stores opened, net 72 66 61
9 All of the net sales from White House | Black Market stores since the date of acquisition on September 5, 2003 and through the end of fiscal 2003, and all of the net sales from the Company's now discontinued Pazo store concept during fiscal 2003 are included in new store sales for fiscal 2003; no such sales are included in fiscal 2003 comparable store sales. Net sales by catalog and Internet for fiscal 2003 (which only included Chico's merchandise) increased by $6.7 million, or 41.8%, compared to net sales by catalog and Internet for fiscal 2002. It is believed that the increase was principally attributable to the increased page count and number of catalog mailings and additional television spots in the current period versus the prior period. Net sales to franchisees for the current period increased by $1.3 million, or 19.2%, compared to net sales to franchisees for the prior period. The increase in net sales to franchisees was primarily due to a net increase in purchases by existing franchisees and, to a lesser degree, the opening of a new franchise location by an existing franchisee. COST OF GOODS SOLD/GROSS PROFIT The following table shows cost of goods sold and gross profit in absolute dollars and the related gross profit percentages for fiscal 2003, 2002 and 2001 (amounts in thousands):
FISCAL 2003 FISCAL 2002 FISCAL 2001 ----------- ----------- ----------- Cost of goods sold $ 297,477 $ 209,770 $ 153,937 Gross profit $ 471,022 $ 321,338 $ 224,148 Gross profit percentage 61.3% 60.5% 59.3%
The increase in the gross profit percentage from fiscal 2002 to fiscal 2003 primarily resulted from operating efficiencies related to the Company's new distribution center near Atlanta, Georgia (which costs are included in the Company's cost of goods sold). To a lesser extent, the improvement in the gross profit percentage was from improved margins at the Chico's frontline and outlet stores (which improvement resulted from improved initial merchandise markups on new products in the current period versus the prior period offset, in part, by increased markdowns in the current period as a percent of net sales) and, to a lesser degree, from decreased shrinkage and related costs. These improvements in the gross profit percentage were also offset, in part, by White House | Black Market and Pazo sales, which in fiscal 2003 carried a lower gross profit percentage than the Company as a whole. In fiscal 2004, the gross profit percentage should not be materially impacted by Pazo, with any sales being limited to final close out sales in a few remaining stores in the first few months of the year. The Company anticipates achieving some improvement in the gross profit percentage in White House | Black Market sales in fiscal 2004, but also expects that such gross profit percentage will remain lower than the gross profit percentage at Chico's Company-owned stores. In addition, the Company anticipates that during the test period for the Soma by Chico's brand, gross profit percentages for this new brand will be significantly lower and may remain somewhat lower even if, and when, the Company decides the test is a success and begins a more extensive store roll out. The increase in the gross profit percentage from fiscal 2001 to fiscal 2002 primarily resulted from improved initial merchandise markups on new products, and a significant improvement in the gross profit percentage experienced in the Company's outlet division. To a lesser degree, this increase in gross profit percentage resulted from decreased freight and inventory shrinkage costs, as well as from leveraging costs associated with the Company's product development and merchandising operations (which costs are included in the Company's cost of goods sold), and net of a slight increase in markdowns as a percent of sales and an overall increase in outlet net sales as a percent of overall sales. [PICTURE] [PICTURE] Although the gross profit percentage in the outlet division has improved over the past two years, outlet net sales still tend to have a substantially lower gross profit margin than sales at the Company's front line stores. The increase in outlet net sales as a percent of net sales in the prior year and the increase in gross profit percentage in this division results primarily from the change in outlet strategy implemented by the Company in fiscal 2001. GENERAL, ADMINISTRATIVE AND STORE OPERATING EXPENSES The following table shows general, administrative and store operating expenses in absolute dollars and as a percentage of total net sales for fiscal 2003, 2002 and 2001 (amounts in thousands):
FISCAL 2003 FISCAL 2002 FISCAL 2001 ----------- ----------- ----------- ~~General, administrative and store operating expenses $ 289,118 $ 199,495 $ 146,611 Percentage of total net sales 37.6% 37.6% 38.8%~~
General, administrative and store operating expenses increased $89.6 million in fiscal 2003 compared to fiscal 2002, but remained constant as a percent of total net sales. The increase in absolute dollars was, for the most part, the result of increases in Chico's store operating expenses, including associate compensation, occupancy and other costs associated with additional store openings, the acquisition of the White House | Black Market stores and, to a lesser degree, an increase in marketing expenses and other general corporate infrastructure costs to support the Company's rapid growth. However, general, administrative and store operating expenses as a percentage of net sales decreased compared to fiscal 2002 due to decreases in Chico's store associate compensation and store occupancy costs as a percentage of net sales and by leverage associated with the Company's fiscal 2003 comparable store sales increase of 16.1%. These decreases were offset by the effect of the Pazo test concept stores, including approximately $3.2 million of store closing costs associated with the conclusion of the Pazo test concept (including a $2.9 million fixed asset impairment charge), and The White House acquisition, which operates with considerably higher store operating expenses as a percent of net sales compared to Chico's. The Company expects to improve store operating expenses in the White House | Black Market division as a percent of net sales in fiscal 2004 and thereafter, but remains uncertain as to the extent, if any, and, if so, when, such improvements can be achieved. General, administrative and store operating expenses increased $52.9 million in fiscal 2002 compared to fiscal 2001, but decreased as a percent of total net sales from 38.8% in fiscal 2001 to 37.6% in fiscal 2002. The absolute dollar increase in general, administrative and store operating expenses was, for the most part, the result of increases in store operating expenses, including associate compensation, occupancy and other costs associated with additional store openings, and to a lesser degree, an increase in marketing expenses. The decrease in these expenses as a percentage of net sales was principally due to decreases in store payroll and bonuses as a percentage of net sales, and to a lesser degree, to leverage associated with the Company's fiscal 2002 comparable store sales increase of 13.5%. PROVISION FOR INCOME TAXES The income tax provision represents an effective tax rate of 38% for all periods presented and the Company anticipates this will remain consistent in fiscal 2004. 11 NET INCOME The following table shows net income in absolute dollars and as a percentage of total net sales for fiscal 2003, 2002 and 2001 (amounts in thousands):
FISCAL 2003 FISCAL 2002 FISCAL 2001 ----------- ----------- ----------- ~~Net income $ 100,230 $ 66,759 $ 42,187 Percentage of total net sales 13.0% 12.6% 11.2%~~
COMPARABLE COMPANY STORE NET SALES Comparable Company store net sales increased by 16.1% in the 52 weeks ended January 31, 2004 when compared to the comparable prior period. Comparable Company store net sales data is calculated based on the change in net sales of currently open Company-owned stores that have been operated as a Company store for at least twelve full months, including stores that have been expanded or relocated within the same general market area (approximately five miles). The comparable store percentage reported above includes 42 stores that were expanded or relocated within the last two fiscal years by an average of 947 net selling square feet. If the stores that were expanded and relocated had been excluded from the comparable Company-owned store base, the increase in comparable Company-owned store net sales would have been 14.8% for fiscal 2003 (versus 16.1% as reported). The Company does not consider the effect to be material to the overall comparable store sales results and believes the inclusion of expanded stores in the comparable store net sales to be an acceptable practice, consistent with the practice followed by the Company in prior periods and by many other retailers. The comparable store percentages reported above do not include any of the White House | Black Market stores. These stores are treated by the Company as new stores acquired in fiscal 2003 and will not be included in the comparable store computation until they have been under the ownership of the Company for at least twelve full months. The Company believes that the increase in comparable Company store net sales in the current fiscal year resulted from the continuing effort to focus the Company's product development, merchandise planning, buying and marketing departments on Chico's target customer. The Company also believes that the look, fit and pricing policy of the Company's product was in line with the needs of the Company's target customer. In addition, the Company believes that the increase in comparable store sales was also fueled by a coordinated marketing plan, which includes national and regional television advertising, national magazine advertising, increased direct mailings of catalogs, a larger database of existing customers for such mailings and the success of the Company's frequent shopper club. To a lesser degree, the Company believes the increase was due to continued store-level training efforts associated with ongoing training programs. The following table sets forth for each of the quarters of the previous five fiscal years, the percentage change in comparable store net sales at Company-owned stores from the comparable period in the prior fiscal year:
FISCAL YEAR ENDED ---------------------------------------- 1/31/04 2/1/03 2/2/02 2/3/01 1/29/00 ------- ------ ------ ------ ------- FULL YEAR 16.1% 13.5% 17.1% 34.3% 23.3% ==== ==== ==== ==== ==== First Quarter 7.8% 13.2% 27.7% 30.9% 22.6% Second Quarter 14.6% 11.6% 17.4% 34.3% 17.2% Third Quarter 20.9% 18.2% 7.0% 39.1% 26.9% Fourth Quarter 20.5% 11.0% 17.9% 32.2% 26.5%
[PICTURE] [PICTURE] LIQUIDITY AND CAPITAL RESOURCES OVERVIEW The Company's primary ongoing capital requirements are for funding capital expenditures for new, expanded, relocated and remodeled stores and increased merchandise inventories. Also, during fiscal 2003, the Company experienced the need for capital to address the conversion of the Company's former distribution center into office space and the acquisition, installation and roll out of new software packages. The Company funded its acquisition of The White House with existing cash balances, the sale of certain marketable securities and the issuance of approximately 151,000 shares of the Company's common stock. The following table shows the Company's capital resources at the end of fiscal year 2003 and 2002 (amounts in thousands):
FISCAL 2003 FISCAL 2002 ----------- ----------- ~~Cash and cash equivalents $ 15,676 $ 8,753 Marketable securities 104,453 91,195 Working capital 125,991 105,570~~
Working capital increased from fiscal 2002 to fiscal 2003 primarily due to the Company's ability to generate significant cash from operating activities to more than satisfy the Company's investment in capital expenditures, as well as to fund the Company's acquisition of The White House. The significant components of the Company's working capital are cash and cash equivalents, marketable securities and inventories, reduced by accounts payable and accrued liabilities. Based on past performance and current expectations, the Company believes that its cash and cash equivalents, marketable securities and cash generated from operations will satisfy the Company's working capital needs, capital expenditures (see "New Store Openings" discussed below), commitments and other liquidity requirements associated with the Company's operations through at least the next 12 months. OPERATING ACTIVITIES Net cash provided by operating activities was $145.4 million and $108.8 million for fiscal 2003 and 2002, respectively. The cash provided by operating activities for both periods was due to the Company's net income adjusted for non-cash charges and changes in working capital such as: - Depreciation and amortization expense; - Normal fluctuations in accounts receivable, inventories, prepaid and other current assets, accounts payable and accrued liabilities. Significant adjustments to net income for fiscal 2003 included: - A non-cash tax benefit of $15.1 million related to the exercise of employee stock options; and - A non-cash charge of $2.9 million associated with the impairment of assets related to the Pazo store closings. Significant adjustments to net income for fiscal 2002 included: - A non-cash tax benefit of $22.6 million related to the exercise of employee stock options; and - An increase of $16.0 million and $9.0 million in inventories and accounts payable, respectively, resulting from the Company's strong sales and the Company's planned increase of inventory levels to support the Company's growth. 13 INVESTING ACTIVITIES Net cash used in investing activities was $153.3 million and $115.4 million for fiscal 2003 and 2002, respectively. Net cash used in investing activities was significantly impacted in fiscal 2003 by the acquisition of The White House. The cash paid for the acquisition of The White House was approximately $87.6 million (net of cash acquired of $1.3 million). The Company's investment in capital expenditures during fiscal 2003 (excluding The White House acquisition) primarily related to the planning and opening of new, relocated, remodeled and expanded Chico's, Pazo and White House | Black Market stores ($34.8 million), the continued acquisition and ongoing installation costs associated with new software packages ($5.4 million), the conversion of the former distribution center into office space ($5.2 million) and other miscellaneous capital expenditures ($6.9 million). Capital expenditures decreased by $12.4 million from fiscal 2002 to fiscal 2003, primarily as a result of decreased investments in new software packages during the current year of approximately $5.0 million and an $8.0 million reduction in costs associated with the equipping of the Company's new distribution center in Georgia, offset in part by amounts used to fund the conversion of the Company's former distribution center in fiscal 2003 compared to fiscal 2002. The Company invested $13.4 million, net, in marketable securities in the current year. In the prior year, the Company invested $50.7 million in marketable securities. The $37.3 million year-over-year decrease in net marketable securities was, for the most part, the result of the sale of certain marketable securities to fund the acquisition of The White House. FINANCING ACTIVITIES Net cash provided by financing activities was $14.9 million and $2.0 million in fiscal 2003 and 2002, respectively. The Company received proceeds in both fiscal 2003 and 2002 from the issuance of common stock related to current and former employee option exercises and employee participation in its employee stock purchase plan. In fiscal 2002, the Company repaid the remaining balance of its mortgage of $5.2 million. During fiscal 2003, sixteen of the Company's twenty-five officers and three of its four independent directors exercised an aggregate of 1,948,664 stock options at prices ranging from $0.9307 to $18.505 and several employees and former employees exercised an aggregate of 100,237 options at prices ranging from $0.361 to $18.505. Also, during this period, the Company sold 30,340 and 25,153 shares of common stock during the March and September offering periods under its employee stock purchase plan at prices of $15.36 and $27.62, respectively. The proceeds from these issuances of stock, exclusive of the tax benefit realized by the Company, amounted to approximately $15.2 million. NEW STORE OPENINGS The Company plans to open between 85 and 95 net new Company-owned stores (which includes approximately 40-45 Chico's stores, approximately 35-40 White House | Black Market stores and 10 Soma by Chico's stores) in fiscal 2004. The Company has also closed its Pazo store locations and begun the process of converting most of them to the Company's other formats. The Company believes that the liquidity needed for its planned new store growth (including the launch of its new concept, Soma by Chico's), continuing remodel/expansion program, continued installation of new software packages, and maintenance of proper inventory levels associated with this growth will be funded primarily from cash flow from operations and its existing cash and marketable securities balances, which remain strong even after taking into account the impact of using a substantial portion of its cash and marketable securities balances to fund the acquisition of The White House. The Company further believes that this liquidity will be sufficient, based on the above, to fund anticipated capital needs over the near-term. Given the Company's existing cash and marketable securities balances and the capacity included in its bank credit facilities, the Company does not believe that it would need to seek other sources of financing to conduct its operations or pursue its expansion plans even if cash flow from operations should prove to be less than anticipated or if there should arise a need for additional letter of credit capacity due to establishing new and expanded sources of supply, or if the Company were to increase the number of new Company-owned stores planned to be opened in future periods. [PICTURE] CONTRACTUAL OBLIGATIONS The following table summarizes the Company's contractual obligations at January 31, 2004 (amounts in thousands):
LESS THAN AFTER TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS 5 YEARS -------- --------- --------- --------- ------- Long-term debt $ -- $ -- $ -- $ -- $ -- Short-term borrowings -- -- -- -- -- Capital lease obligations 1,478 684 698 96 -- Operating leases 285,083 46,213 87,483 69,728 81,659 Non-cancelable purchase commitments 14,388 14,388 -- -- -- -------- --------- --------- --------- ------- Total $300,949 $ 61,285 $ 88,181 $ 69,824 $81,659 ======== ========= ========= ========= =======
As of January 31, 2004, the Company's contractual obligations consisted of amounts outstanding under operating and capital leases and non-cancelable purchase commitments. Amounts due under non-cancelable purchase commitments consist primarily of $11.8 million of letters of credit outstanding with the remainder consisting of contractual obligations related to the Company's telecommunications and distribution infrastructure. In September 2002, the Company entered into a replacement unsecured revolving credit facility with Bank of America, N.A., expanding the maximum available commitment from $25 million to $45 million, extending the maturity to June 2005 and increasing the letter of credit sublimit of the facility from $22 million to $35 million. At January 31, 2004 and February 1, 2003, the Company did not have any relationship with unconsolidated entities or financial partnerships, which other companies have established for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. Therefore, the Company is not materially exposed to any financing, liquidity, market or credit risk that could arise if the Company had engaged in such relationships. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to customer product returns, inventories, income taxes, insurance reserves, contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. 15 The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements: INVENTORY VALUATION The Company identifies potentially excess and slow-moving inventories by evaluating turn rates and inventory levels in conjunction with the Company's overall growth rate. Excess quantities are identified through evaluation of inventory ageings, review of inventory turns and historical sales experiences, as well as specific identification based on fashion trends. Further, exposure to inadequate realization of carrying value is identified through analysis of gross margins and markdowns in combination with changes in the fashion industry. The Company provides lower of cost or market reserves for such identified excess and slow-moving inventories. INVENTORY SHRINKAGE The Company estimates its expected shrinkage of inventories between physical inventory counts by applying historical chain-wide average shrinkage experience rates to the related periods' sales volume. The historical rates are updated on a regular basis to reflect the most recent physical inventory shrinkage experience. SALES RETURNS The Company's policy is to honor customer returns at all times. Returns after 30 days of the original purchase, or returns without the original receipt, qualify for store credit only. The Company will, in certain circumstances, offer full customer refunds either after 30 days or without a receipt. The Company estimates its reserve for likely customer returns based on the average refund experience in relation to sales for the related period. GOODWILL AND OTHER INTANGIBLE ASSETS The Company evaluates the recoverability of goodwill at least annually based on a two-step impairment test. The first step compares the fair value of the Company's reporting unit with its carrying amount, including goodwill. If the carrying amount exceeds fair value, then the second step of the impairment test is performed to measure the amount of any impairment loss. Fair value is determined based on estimated future cash flows, discounted at a rate that approximates the Company's cost of capital. The Company evaluates its other intangible assets, specifically trademarks, for impairment on an annual basis by comparing the fair value of the asset with its carrying value. Such estimates are subject to change and the Company may be required to recognize impairment losses in the future. SELF-INSURANCE The Company is self-insured for certain losses relating to workers' compensation, medical and general liability claims. Self-insurance claims filed and claims incurred but not reported are accrued based upon management's estimates of the aggregate liability for uninsured claims incurred using insurance industry benchmarks and historical experience. Although management believes it has the ability to adequately accrue for estimated losses related to claims, it is possible that actual results could significantly differ from recorded self-insurance liabilities. [PICTURE] [PICTURE] RECENT ACCOUNTING PRONOUNCEMENTS In January 2003, the Financial Accounting Standards Board (FASB) issued Financial Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities". A variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights, or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN 46 requires that if an entity has a controlling financial interest in a variable interest entity, the assets, liabilities and results of activities of the variable interest entity should be included in the consolidated financial statements of the entity. The provisions of FIN 46 were effective immediately for all arrangements entered into after January 31, 2003. For those arrangements entered into prior to February 1, 2003, the provisions of FIN 46 are effective for the first interim or annual period ending after December 15, 2003. Since the Company does not currently have any variable interest entities, the adoption of the provisions of FIN 46 did not have an impact on the Company's financial position or results of operations. SEASONALITY AND INFLATION Although the operations of the Company are influenced by general economic conditions, the Company does not believe that inflation has had a material effect on the results of operations during the current or prior periods. The Company does not consider its business to be seasonal. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS This annual report may contain certain "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 the current views of the Company with respect to certain events that could have an effect on the Company's future financial performance, including but without limitation, statements regarding the impact of the acquisition of The White House, Inc., the conclusion of the Pazo test concept and the launch of the Soma by Chico's concept. The statements may address items such as future sales, gross profit expectations, planned store openings, closings and expansions, future comparable store sales, future product sourcing plans, inventory levels, planned capital expenditures and future cash needs. In addition, from time to time, the Company may issue press releases and other written communications, and representatives of the Company may make oral statements, which contain forward-looking information. These statements, including those in this annual report and those in press releases or made orally, may include the words "expects," "believes," and similar expressions. Except for historical information, matters discussed in such oral and written statements, including this annual report, are forward-looking statements. These forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from historical results or those currently anticipated. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and beginning on page 21 of the Company's Form 10-K. These potential risks and uncertainties include the financial strength of retailing in particular and the economy in general, the extent of financial difficulties that may be experienced by customers, the ability of the Company to secure and maintain customer acceptance of Chico's styles (including without limitation the styles of White House | Black Market), the propriety of inventory mix and sizing, the quality of merchandise received from vendors, the extent and nature of competition in the markets in which the Company operates, the extent of the market demand and overall level of spending for women's private label clothing and related accessories, the adequacy and perception of customer service, the ability to coordinate product development with buying and planning, the ability of the Company's suppliers to timely produce and deliver clothing and accessories, the changes in the costs of manufacturing, labor and advertising, the rate of new store openings (including without limitation White House | Black Market and Soma by Chico's new store openings), the buying public's acceptance of the Company's new store concept, the performance, implementation and 17 integration of management information systems, the ability to hire, train, energize and retain qualified sales associates and other employees, the availability of quality store sites, the ability to hire and train qualified managerial employees, the ability to effectively and efficiently establish and operate catalog and Internet sales, the ability to secure and protect trademarks and other intellectual property rights, the ability to effectively and efficiently integrate and operate the newly acquired White House | Black Market division, risks associated with terrorist activities and other risks. In addition, there are potential risks and uncertainties that are peculiar to the Company's reliance on sourcing from foreign vendors, including the impact of work stoppages, transportation delays and other interruptions, political or civil instability, imposition of and changes in tariffs and import and export controls such as import quotas, changes in governmental policies in or towards foreign countries and other similar factors. The forward-looking statements included herein are only made as of the date of this Annual Report. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The market risk of the Company's financial instruments as of January 31, 2004 has not significantly changed since February 1, 2003. The Company is exposed to market risk from changes in interest rates on any future indebtedness and its marketable securities. The Company's exposure to interest rate risk relates in part to its revolving line of credit with its bank; however, as of January 31, 2004, the Company did not have any outstanding borrowings on its line of credit and, given its strong liquidity position, does not expect to utilize its line of credit in the foreseeable future except for its continuing use of the letter of credit facility portion thereof. CONTROLS AND PROCEDURES As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of the Company's management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of such period, the Company's disclosure controls and procedures were effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic SEC filings. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. LEGAL PROCEEDINGS The Company was named in a putative class action suit filed in May 2003 in the Superior Court for the State of California, County of San Francisco. The Company filed an answer denying the material allegations of the Complaint. The Complaint alleges that the Company, in violation of California law, has in place a mandatory uniform policy that requires its employees to purchase and wear Chico's clothing and accessories as a condition of employment. It is the Company's position that no such mandatory uniform policy exists; the Company encourages but does not require its associates to wear Chico's clothing; although many Chico's associates choose to wear Chico's clothing, others do not. The parties are engaged in discovery, and the Company is continuing its investigation. No rulings on class certifications have been made. The Company believes the case is without merit and intends to vigorously defend the litigation. The Company is not a party to any other legal proceedings, other than various claims and lawsuits arising in the normal course of business, none of which the Company believes should have a material adverse effect on its financial condition or results of operations. [PICTURE] [PICTURE] TRADING AND DIVIDEND INFORMATION The following table sets forth, for the periods indicated, the range of high and low sale prices for the Common Stock, as reported on the New York Stock Exchange.
FOR THE FISCAL YEAR ENDED JANUARY 31, 2004 HIGH LOW -------- ------- Fourth Quarter (November 2, 2003 - January 31, 2004) $ 39.43 $ 30.51 Third Quarter (August 3, 2003 - November 1, 2003) 38.39 26.53 Second Quarter (May 4, 2003 - August 2, 2003) 27.84 18.80 First Quarter (February 2, 2003 - May 3, 2003) 24.49 16.75

FOR THE FISCAL YEAR ENDED FEBRUARY 1, 2003 HIGH (1) LOW (1) -------- ------- Fourth Quarter (November 3, 2002 - February 1, 2003) $ 23.73 $ 16.83 Third Quarter (August 4, 2002 - November 2, 2002) 21.09 13.02 Second Quarter (May 5, 2002 - August 3, 2002) 21.00 13.26 First Quarter (February 3, 2002 - May 4, 2002) 18.99 14.40
(1) Adjusted for the 2 for 1 stock split payable in July 2002. Although the Company does not intend to pay any cash dividends over the near term and intends to retain its earnings for the future operation and expansion of the Company's business, the Company may reconsider this intention as the Company monitors its build up of cash reserves. Any determination to pay dividends in the future will be at the discretion of the Company's Board of Directors and will be dependent, in addition, upon the Company's results of operations, financial condition, contractual restrictions and other factors deemed relevant by the Board of Directors. The approximate number of equity security holders of the Company is as follows:
Number of Record Holders Title of Class As of March 31, 2004 - -------------------------------------- ------------------------ ~~Common Stock, par value $.01 per share 1,224~~
19 [PICTURE] [PICTURE] 21 [PICTURE] [PICTURE] [PICTURE] [PICTURE] [PICTURE] REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Shareholders Chico's FAS, Inc. We have audited the accompanying consolidated balance sheets of Chico's FAS, Inc. and subsidiaries as of January 31, 2004 and February 1, 2003, and the related consolidated statements of income, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements of Chico's FAS, Inc. and subsidiaries for the year ended February 2, 2002 were audited by other auditors who have ceased operations and whose report dated March 4, 2002, expressed an unqualified opinion on those statements before the common stock split restatement adjustments described in Note 1. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Chico's FAS, Inc. and subsidiaries at January 31, 2004 and February 1, 2003, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States. As described in Note 1 during fiscal year 2003, the Company changed its method of accounting for inventories. As discussed above, the financial statements of Chico's FAS, Inc. and subsidiaries for the year ended February 2, 2002 were audited by other auditors who have ceased operations. As described in Note 1, in the fiscal year ended February 1, 2003, the Company's Board of Directors approved a two-for-one common stock split, and all references to number of shares and per share information in the financial statements have been adjusted to reflect the common stock split on a retroactive basis. We audited the adjustments that were applied to restate the number of shares and per share information reflected in the financial statements for the year ended February 2, 2002. Our procedures included (a) agreeing the authorization for the two-for-one common stock split to the Company's underlying records obtained from management, and (b) testing the mathematical accuracy of the restated number of shares, basic and diluted earnings per share and other applicable disclosures such as stock options. In our opinion, such adjustments are appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the financial statements of the Company for the year ended February 2, 2002 other than with respect to such adjustments and, accordingly, we do not express an opinion or any other form of assurance on the financial statements for the year ended February 2, 2002 taken as a whole. /s/ ERNST & YOUNG LLP - ------------------------ Tampa, Florida, February 27, 2004 [PICTURE] [PICTURE] [PICTURE] [PICTURE] [PICTURE] REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS THIS REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP. THE INCLUSION OF THIS PREVIOUSLY ISSUED ANDERSEN REPORT IS PURSUANT TO THE "TEMPORARY FINAL RULE AND FINAL RULE REQUIREMENTS FOR ARTHUR ANDERSEN LLP AUDITING CLIENTS," ISSUED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION IN MARCH 2002. NOTE THAT THIS PREVIOUSLY ISSUED ANDERSEN REPORT INCLUDES REFERENCES TO CERTAIN FISCAL YEARS, WHICH ARE NOT REQUIRED TO BE PRESENTED IN THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED JANUARY 31, 2004. To Chico's FAS, Inc. and Subsidiaries: We have audited the accompanying consolidated balance sheets of Chico's FAS, Inc. (a Florida corporation) and subsidiaries as of February 2, 2002, and February 3, 2001, and the related consolidated statements of income, stockholders' equity and cash flows for the fiscal years ended February 2, 2002, February 3, 2001, and January 29, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Chico's FAS, Inc. and subsidiaries as of February 2, 2002, and February 3, 2001, and the results of their operations and their cash flows for the fiscal years ended February 2, 2002, February 3, 2001, and January 29, 2000, in conformity with accounting principles generally accepted in the United States. /s/ ARTHUR ANDERSEN LLP - ------------------------ Tampa, Florida, March 4, 2002 23 CHICO'S FAS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands)
JANUARY 31, FEBRUARY 1, 2004 2003 ----------- ----------- ASSETS ------ CURRENT ASSETS: Cash and cash equivalents $ 15,676 $ 8,753 Marketable securities, at market 104,453 91,195 Receivables, less allowances for sales returns of $288 and $304, respectively 6,368 2,226 Inventories 54,896 44,908 Prepaid expenses 8,655 6,223 Deferred taxes 7,525 7,125 --------- --------- Total current assets 197,573 160,430 PROPERTY AND EQUIPMENT: Land and land improvements 5,976 5,166 Building and building improvements 25,014 19,668 Equipment, furniture and fixtures 100,589 71,769 Leasehold improvements 99,806 78,792 --------- --------- Total property and equipment 231,385 175,395 Less accumulated depreciation and amortization (57,660) (36,686) --------- --------- Property and equipment, net 173,725 138,709 DEFERRED TAXES -- 92 GOODWILL 60,114 -- OTHER INTANGIBLE ASSETS 34,043 -- OTHER ASSETS, NET 5,399 2,313 --------- --------- $ 470,854 $ 301,544 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 27,796 $ 24,991 Accrued liabilities 43,187 29,698 Current portion of deferred liabilities 599 171 --------- --------- Total current liabilities 71,582 54,860 NONCURRENT LIABILITIES: Deferred liabilities 12,713 6,551 Deferred taxes 11,724 -- --------- --------- Total noncurrent liabilities 24,437 6,551 --------- --------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, $.01 par value; 200,000 shares authorized and 87,537 and 85,282 shares issued and outstanding, respectively 875 853 Additional paid-in capital 98,586 63,986 Retained earnings 275,339 175,109 Accumulated other comprehensive income 35 185 --------- --------- Total stockholders' equity 374,835 240,133 --------- --------- $ 470,854 $ 301,544 ========= =========
[PICTURE] The accompanying notes are an integral part of these consolidated statements. [PICTURE] CHICO'S FAS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts)
FISCAL YEAR ENDED -------------------------------------------- JANUARY 31, FEBRUARY 1, FEBRUARY 2, 2004 2003 2002 ----------- ----------- ----------- Net sales by Company stores $737,918 $508,492 $362,443 Net sales by catalog and Internet 22,780 16,070 10,203 Net sales to franchisees 7,801 6,546 5,439 -------- -------- -------- NET SALES 768,499 531,108 378,085 Cost of goods sold 297,477 209,770 153,937 -------- -------- -------- GROSS PROFIT 471,022 321,338 224,148 General, administrative and store operating expenses 289,118 199,495 146,611 Depreciation and amortization 21,130 15,050 10,001 -------- -------- -------- INCOME FROM OPERATIONS 160,774 106,793 67,536 Interest income, net 888 883 507 -------- -------- -------- INCOME BEFORE INCOME TAXES 161,662 107,676 68,043 Income tax provision 61,432 40,917 25,856 -------- -------- -------- NET INCOME $100,230 $ 66,759 $ 42,187 ======== ======== ======== PER SHARE DATA: Net income per common share - basic $ 1.16 $ 0.80 $ 0.52 Net income per common and common equivalent share - diluted $ 1.14 $ 0.78 $ 0.50 Weighted average common shares outstanding - basic 86,403 83,309 80,365 Weighted average common and common equivalent shares outstanding - diluted 88,142 86,032 83,778
The accompanying notes are an integral part of these consolidated statements. 25 CHICO'S FAS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands)
COMMON STOCK ACCUMULATED --------------------- ADDITIONAL OTHER PAR PAID-IN RETAINED COMPREHENSIVE SHARES VALUE CAPITAL EARNINGS INCOME TOTAL --------- --------- --------- --------- ------------- --------- BALANCE, FEBRUARY 3, 2001 78,747 $ 788 $ 18,323 $ 66,163 $ 47 $ 85,321 Net income -- -- -- 42,187 -- 42,187 Unrealized gain on marketable securities, net -- -- -- -- 55 55 --------- Comprehensive income 42,242 Issuance of common stock 2,834 28 7,675 -- -- 7,703 Stock option compensation -- -- 45 -- -- 45 Tax benefit of stock options exercised -- -- 8,184 -- -- 8,184 --------- --------- --------- --------- --------- --------- BALANCE, FEBRUARY 2, 2002 81,581 816 34,227 108,350 102 143,495 Net income -- -- -- 66,759 -- 66,759 Unrealized gain on marketable securities, net -- -- -- -- 83 83 --------- Comprehensive income 66,842 Issuance of common stock 3,701 37 7,210 -- -- 7,247 Tax benefit of stock options exercised -- -- 22,549 -- -- 22,549 --------- --------- --------- --------- --------- --------- BALANCE, FEBRUARY 1, 2003 85,282 853 63,986 175,109 185 240,133 Net income -- -- -- 100,230 -- 100,230 Unrealized loss on marketable securities, net -- -- -- -- (150) (150) --------- Comprehensive income 100,080 Issuance of common stock 2,255 22 19,474 -- -- 19,496 Tax benefit of stock options exercised -- -- 15,126 -- -- 15,126 --------- --------- --------- --------- --------- --------- BALANCE, JANUARY 31, 2004 87,537 $ 875 $ 98,586 $ 275,339 $ 35 $ 374,835 ========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated statements. [PICTURE] CHICO'S FAS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS [In thousands]
FISCAL YEAR ENDED ------------------------------------- JANUARY 31, FEBRUARY 1, FEBRUARY 2, 2004 2003 2002 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 100,230 $ 66,759 $ 42,187 --------- --------- --------- Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization, cost of goods sold 1,970 1,093 406 Depreciation and amortization, other 21,130 15,050 10,001 Stock option compensation -- -- 45 Deferred tax expense (benefit) 1,336 (1,651) (1,816) Tax benefit of options exercised 15,126 22,549 8,184 Deferred rent expense, net 1,874 1,482 883 Loss on impairment and disposal of property and equipment 3,746 1,315 1,445 (Increase) decrease in assets, net of effects of acquisition -- Receivables, net (1,953) (143) 915 Inventories (4,658) (16,002) (4,511) Prepaid expenses and other, net (1,281) (1,691) (1,835) (Decrease) increase in liabilities, net of effects of acquisition -- Accounts payable (3,175) 9,000 3,134 Accrued liabilities 11,035 11,046 6,454 --------- --------- --------- Total adjustments 45,150 42,048 23,305 --------- --------- --------- Net cash provided by operating activities 145,380 108,807 65,492 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of marketable securities (166,855) (134,918) (56,396) Proceeds from sale of marketable securities 153,447 84,235 30,245 Acquisition, net of cash acquired (87,636) -- -- Purchases of property and equipment (52,300) (64,742) (37,437) --------- --------- --------- Net cash used in investing activities (153,344) (115,425) (63,588) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 15,231 7,247 7,703 Payments on capital leases (344) -- -- Principal payments on debt -- (5,155) (66) Deferred finance costs -- (98) (78) --------- --------- --------- Net cash provided by financing activities 14,887 1,994 7,559 --------- --------- --------- Net increase (decrease) in cash and cash equivalents 6,923 (4,624) 9,463 CASH AND CASH EQUIVALENTS, Beginning of period 8,753 13,377 3,914 --------- --------- --------- CASH AND CASH EQUIVALENTS, End of period $ 15,676 $ 8,753 $ 13,377 ========= ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $ 142 $ 285 $ 610 Cash paid for income taxes $ 47,855 $ 19,200 $ 17,658 NON-CASH INVESTING AND FINANCING ACTIVITIES: Common stock issued in acquisition $ 4,266 -- --
The accompanying notes are an integral part of these consolidated statements. 27 CHICO'S FAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2004 (In thousands, except share and per share amounts and where otherwise indicated) 1. BUSINESS ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES: BUSINESS ORGANIZATION The accompanying consolidated financial statements include the accounts of Chico's FAS, Inc., a Florida corporation, and its wholly-owned subsidiaries. The Company operates as a specialty retailer of exclusively designed, private label casual clothing and related accessories. The Company sells its products through traditional retail stores, catalog, a small franchise network and via the Internet at www.chicos.com. As of January 31, 2004, the Company's retail store system consisted of 557 stores located throughout the United States, the Virgin Islands and Puerto Rico, 545 of which are owned and operated by the Company, and 12 of which are owned and operated by franchisees. FISCAL YEAR The Company has a 52-53 week fiscal year ending on the Saturday closest to January 31. The periods presented in these financial statements are the fiscal years ended January 31, 2004 (fiscal 2003), February 1, 2003 (fiscal 2002) and February 2, 2002 (fiscal 2001). Fiscal 2003, 2002 and 2001 each contained 52 weeks. FRANCHISE OPERATIONS A summary of the changes in the number of the Company's franchise stores as compared to total Company-owned stores as of the end of fiscal 2003 and 2002 is as follows:
FISCAL 2003 FISCAL 2002 ----------- ----------- Franchise stores opened 0 1 Franchise stores in operation at fiscal year-end 12 12 Company-owned stores at fiscal year-end 545 366
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. SEGMENT INFORMATION The Company's brands, Chico's and White House | Black Market, have been aggregated into one reportable segment due to the similarities of the economic and operating characteristics of the operations represented by the Company's brands. [PICTURE] [PICTURE] MANAGEMENT ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates and assumptions made by management primarily impact the following key financial areas: INVENTORY VALUATION The Company identifies potentially excess and slow-moving inventories by evaluating turn rates and inventory levels in conjunction with the Company's overall growth rate. Excess quantities are identified through evaluation of inventory ageings, review of inventory turns and historical sales experiences, as well as specific identification based on fashion trends. Further, exposure to inadequate realization of carrying value is identified through analysis of gross margins and markdowns in combination with changes in the fashion industry. The Company provides lower of cost or market reserves for such identified excess and slow-moving inventories. INVENTORY SHRINKAGE The Company estimates its expected shrinkage of inventories between physical inventory counts by applying historical chain-wide average shrinkage experience rates to the related periods' sales volume. The historical rates are updated on a regular basis to reflect the most recent physical inventory shrinkage experience. SALES RETURNS The Company's policy is to honor customer returns at all times. Returns after 30 days of the original purchase, or returns without the original receipt, qualify for store credit only. The Company will, in certain circumstances, offer full customer refunds either after 30 days or without a receipt. The Company estimates its reserve for likely customer returns based on the average refund experience in relation to sales for the related period. SELF-INSURANCE The Company is self-insured for certain losses relating to workers' compensation, medical and general liability claims. Self-insurance claims filed and claims incurred but not reported are accrued based upon management's estimates of the aggregate liability for uninsured claims incurred using insurance industry benchmarks and historical experience. Although management believes it has the ability to adequately accrue for estimated losses related to claims, it is possible that actual results could significantly differ from recorded self-insurance liabilities. RECLASSIFICATIONS Reclassifications of certain prior-year balances were made in order to conform to the current-year presentation. CASH AND CASH EQUIVALENTS Cash and cash equivalents includes cash on hand and in banks and short-term highly liquid investments with original maturities of three months or less. 29 MARKETABLE SECURITIES Marketable securities are classified as available-for-sale and are carried at fair value, with the unrealized holding gains and losses, net of income taxes, reflected as a separate component of stockholders' equity until realized. For the purposes of computing realized and unrealized gains and losses, cost is determined on a specific identification basis. INVENTORIES In the fourth quarter of fiscal 2003, the Company changed its method of determining the cost of certain merchandise inventories from the last-in, first-out (LIFO) method to the weighted average cost method. Management believes that the weighted average cost method is a preferable method that better measures the cost of such inventories, results in a better matching of revenues and expenses and more accurately reflects the Company's financial position. The effect of this change was immaterial to the financial results of both the current and prior reporting periods of the Company and, therefore, did not require retroactive restatement of results for those prior periods. Purchasing, merchandising, distribution and product development costs are expensed as incurred, and are included in the accompanying consolidated statements of income as a component of cost of goods sold. PROPERTY AND EQUIPMENT Property and equipment is stated at cost. Depreciation of property and equipment is provided on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements are depreciated over the lease term plus one anticipated renewal, not to exceed 10 years. The Company's property and equipment is depreciated using the following estimated useful lives:
ESTIMATED USEFUL LIVES ---------------------- Land and land improvements 35 years Building and building improvements 20-35 years Equipment, furniture and fixtures 2-10 years Leasehold improvements 3-10 years or term of lease, if shorter
Maintenance and repairs of property and equipment are expensed as incurred, and major improvements are capitalized. Upon retirement, sale or other disposition of property and equipment, the cost and accumulated depreciation or amortization are eliminated from the accounts, and any gain or loss is charged to operations. The Company is obligated under capital leases for certain property and equipment that expire at various dates during the next five years. GOODWILL AND OTHER INTANGIBLE ASSETS The Company adopted the provisions of Statement of Financial Accounting Standard (SFAS) No. 142, "Goodwill and Other Intangible Assets" (SFAS 142), as of February 3, 2002. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead are tested for impairment at least annually in accordance with the provisions of SFAS 142. During fiscal 2003, the Company acquired a trademark intangible asset in connection with the Company's acquisition of The White House, Inc. (see Note 2). The value of the trademark was determined using a discounted cash flow method, based on the estimated future benefit to be received from the trademark. The Company will not amortize the trademark asset, as the trademark has an indefinite useful life. [PICTURE] [PICTURE] The Company has allocated the excess of the cost of The White House, Inc. acquisition over the estimated fair value of the identifiable net assets acquired to goodwill. In accordance with the provisions of SFAS 142, the Company is not amortizing the goodwill. The Company will perform its annual impairment tests of the acquired trademark and goodwill during fiscal 2004 and future years. ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS Long-lived assets are reviewed periodically for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. If future undiscounted cash flows expected to be generated by the asset are less than its carrying amount, an asset is determined to be impaired, and a loss is recorded for the amount by which the carrying value of the asset exceeds its fair value. INCOME TAXES The Company follows the liability method, which establishes deferred tax assets and liabilities for the temporary differences between the financial reporting bases and the tax bases of the Company's assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. Net deferred tax assets, whose realization is dependent on taxable earnings of future years, are recognized when a greater than 50 percent probability exists that the tax benefits will be realized sometime in the future. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments consist of cash and cash equivalents, marketable securities, short-term trade receivables and payables. The carrying values of cash and cash equivalents, marketable securities, trade receivables and trade payables equal fair value. REVENUE RECOGNITION Retail sales by Company stores are recorded at the point of sale and are net of estimated customer returns, sales discounts under our "Passport Club" loyalty program and Company issued coupons. Retail sales by catalog and Internet are recorded when shipments are made to catalog and Internet customers and are net of estimated customer returns. Net sales to franchisees are recorded when merchandise is shipped to franchisees and are net of estimated returns. VENDOR ALLOWANCES From time to time, the Company receives allowances and/or credits from certain of its vendors. The aggregate amount of such allowances and credits is immaterial to the Company's results of operations. STORE PRE-OPENING COSTS Operating costs (including store set-up, rent and training expenses) incurred prior to the opening of new stores are expensed as incurred and are included in general, administrative and store operating expenses in the accompanying consolidated statements of income. ADVERTISING COSTS Costs associated with advertising are charged to expense as incurred except for catalogs, which are amortized over the life of the catalog (typically less than six weeks). For fiscal 2003, 2002 and 2001, advertising costs of approximately $27.3 million, $18.8 million, and $12.8 million, respectively, are included in general, administrative and store operating expenses. 31 STOCK-BASED COMPENSATION PLANS In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 148, "Accounting for Stock-Based Compensation Transition and Disclosure" (SFAS 148). SFAS 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), to provide alternative methods of transition to the fair value method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure provisions of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS 148 does not amend SFAS 123 to require companies to account for their employee stock-based awards using the fair value method. However, the disclosure provisions are required for all companies with stock-based employee compensation, regardless of whether they utilize the fair value method of accounting described in SFAS 123 or the intrinsic value method described in Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). The Company uses the intrinsic value method for valuing its awards of stock options and recording the related compensation expense, if any, in accordance with APB 25. No stock-based employee compensation cost for stock options is reflected in net income for fiscal 2003 or 2002 as all options granted during the periods have exercise prices equal to the market value of the underlying common stock on the date of grant. Approximately $45.0 of compensation expense was recorded in fiscal 2001 related to options granted under the Company's Executive Officers' Program and is included in net income, as reported for the year then ended. The following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of SFAS 123 to all stock-based employee compensation.
FISCAL 2003 FISCAL 2002 FISCAL 2001 ----------- ----------- ----------- Net income, as reported $ 100,230 $ 66,759 $ 42,187 Deduct: Total stock-based employee compensation expense determined under fair value based methods for all awards, net of taxes 9,359 8,696 4,814 ----------- ----------- ----------- Net income, pro forma $ 90,871 $ 58,063 $ 37,373 =========== =========== =========== Net income per common share: Basic - as reported $ 1.16 $ 0.80 $ 0.52 Basic - pro forma $ 1.05 $ 0.70 $ 0.47 Diluted - as reported $ 1.14 $ 0.78 $ 0.50 Diluted - pro forma $ 1.03 $ 0.67 $ 0.45
For pro forma disclosure purposes, the fair value of each option granted has been estimated as of the grant date using the Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rate of 3.6, 4.8, and 5.1 percent for fiscal 2003, 2002 and 2001, respectively, expected life of seven years, no expected dividends, and expected volatility of 65, 68, and 73 percent for fiscal 2003, 2002 and 2001, respectively. The weighted average fair value of options granted during fiscal 2003, 2002 and 2001 was $15.37, $11.63, and $8.84, respectively. Options granted under the 1992 Stock Option Plan, the 1993 Stock Option Plan and the 2002 Omnibus Stock and Incentive Plan (excluding the non-employee director portion thereof) generally vest ratably over three years. The non-employee director option grants under the 2002 Omnibus Stock and Incentive Plan generally vest after six months. The term of all options granted is 10 years. [PICTURE] [PICTURE] COMMON STOCK SPLITS During fiscal 2002 and 2001, the Board of Directors (the Board) declared three common stock splits (collectively, the Stock Splits). On April 19, 2001, the Board declared a three-for-two stock split of the Company's common stock, payable in the form of a stock dividend on May 16, 2001, to shareholders of record as of the close of business on May 2, 2001. On December 19, 2001, the Board declared a three-for-two stock split of the Company's common stock, payable in the form of a stock dividend on January 18, 2002, to shareholders of record as of the close of business on December 31, 2001. On June 27, 2002, the Board declared a two-for-one stock split of the Company's common stock, payable in the form of a stock dividend on July 29, 2002, to shareholders of record as of the close of business on July 15, 2002. Accordingly, all historical weighted average share and per share amounts and all references to the number of common shares elsewhere in the consolidated financial statements and notes thereto have been restated to reflect the Stock Splits. Par value remains unchanged at $0.01. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE SFAS No. 128, "Earnings per Share" (SFAS 128), requires companies with complex capital structures that have publicly held common stock or common stock equivalents to present both basic and diluted earnings per share (EPS) on the face of the income statement. As provided by SFAS 128, basic EPS is based on the weighted average number of common shares outstanding and diluted EPS is based on the weighted average number of common shares outstanding plus the dilutive common equivalent shares outstanding during the period. The following is a reconciliation of the denominators of the basic and diluted EPS computations shown on the face of the accompanying consolidated statements of income as restated for the Stock Splits:
FISCAL 2003 FISCAL 2002 FISCAL 2001 ----------- ----------- ----------- Weighted average common shares outstanding - basic 86,402,532 83,308,829 80,365,350 Dilutive effect of stock options outstanding 1,739,372 2,723,223 3,412,986 ----------- ----------- ----------- Weighted average common and common equivalent shares outstanding - diluted 88,141,904 86,032,052 83,778,336 =========== =========== ===========
The following options were outstanding as of the end of the fiscal years but were not included in the computation of diluted EPS because the options' exercise prices were greater than the average market price of the common shares:
FISCAL 2003 FISCAL 2002 FISCAL 2001 ----------- ----------- ----------- Number of options 312,000 523,800 373,000 Exercise price $30.55-$38.50 $18.30-$21.42 $10.66-$ 13.34 Expiration date September 5, 2013 - June 25, 2012- May 23, 2010- January 26, 2014 December 16, 2012 January 2, 2012
33 NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS In January 2003, the FASB issued Financial Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities." A variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights, or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN 46 requires that if an entity has a controlling financial interest in a variable interest entity, the assets, liabilities and results of activities of the variable interest entity should be included in the consolidated financial statements of the entity. The provisions of FIN 46 were effective immediately for all arrangements entered into after January 31, 2003. For those arrangements entered into prior to February 1, 2003, the provisions of FIN 46 are effective for the first interim or annual period ending after December 15, 2003. Since the Company does not currently have any variable interest entities, the adoption of the provisions of FIN 46 did not have an impact on the Company's financial position or results of operations. 2. THE WHITE HOUSE, INC. ACQUISITION: On September 5, 2003, the Company acquired all of the outstanding common stock of The White House, Inc. (The White House) for approximately $93.2 million, consisting of approximately $88.9 million in cash (including acquisition costs of $3.0 million) and approximately $4.3 million in the Company's common stock represented by the issuance of approximately 151,000 shares of the Company's common stock. The Company funded the cash portion of the purchase price from current cash balances and from the sale of certain marketable securities. Of the cash consideration, $12.5 million was placed in a one-year escrow to cover certain indemnification obligations of the sellers. As a result of the transaction, The White House became a wholly-owned subsidiary of the Company. As of September 5, 2003, The White House operated 107 stores in 30 states, the Virgin Islands, Puerto Rico and the District of Columbia that sell high-quality fashion and basic merchandise assorted primarily in white and black and related shades. As a result of the acquisition, the Company believes that it can strengthen its position in the specialty retail market and continue its overall growth strategy. The transaction was accounted for under the purchase method of accounting and, accordingly, the results of operations of The White House have been consolidated in the Company's financial statements since the date of acquisition. The total purchase consideration has been allocated to the assets and liabilities acquired, including an identifiable intangible asset (trademark), based on their respective estimated fair values as summarized below. The allocation of the purchase price to the assets and liabilities acquired resulted in excess purchase consideration over the net assets and identifiable intangible asset acquired of $60.1 million and this excess has been assigned to goodwill. Such goodwill and the amounts allocated to the intangible asset are not expected to be deductible for tax purposes. The purchase price allocation is subject to change and will be finalized upon review and refinement of certain estimates. A summary of the allocation of the purchase price follows: Cash $ 1,280 Accounts receivable 2,189 Inventories 5,330 Other current assets 2,552 Property, plant and equipment 9,335 Intangible asset not subject to amortization-Trademark 34,000 Goodwill 60,114 -------- Total assets acquired 114,800 -------- Current liabilities 9,103 Noncurrent liabilities 1,221 Net deferred tax liability 11,295 -------- Total liabilities assumed 21,619 -------- Net assets acquired $ 93,181 ========

[PICTURE] [PICTURE] The following table presents unaudited pro forma results of operations for the fiscal years ended January 31, 2004 and February 1, 2003 as if the acquisition of The White House had occurred on February 2, 2003 and February 3, 2002, respectively. The unaudited pro forma information presented below is for illustrative purposes only and is not indicative of results that would have been achieved or results which may be achieved in the future:
FISCAL 2003 FISCAL 2002 ----------- ----------- Net sales $ 817,474 $ 598,064 Net income 101,021(1) 70,060 Net income per common share: Basic $ 1.17 $ 0.84 Diluted $ 1.14 $ 0.81
(1) Includes approximately $2.7 million (pre-tax) of nonrecurring charges related to the acquisition recorded by The White House in its historical results prior to September 5, 2003. 3. PROPERTY AND EQUIPMENT IMPAIRMENT: During fiscal 2003, the Company decided to conclude the Pazo test concept and initiated the closing/conversion process for the 10 Pazo stores. As of January 31, 2004, this process has essentially been completed. In connection with the decision to conclude the Pazo test concept, the Company completed an impairment review of Pazo's property and equipment. Upon completion of the review, the Company determined that the carrying value of certain Pazo assets exceeded their future undiscounted cash flows. As a result, the Company recorded an impairment charge of $2.9 million during fiscal 2003. The provision for the asset impairment is included in general, administrative and store operating expenses in the accompanying consolidated statements of income. 4. MARKETABLE SECURITIES: Marketable securities classified as available-for-sale consisted of the following:
JANUARY 31, FEBRUARY 1, 2004 2003 ----------- ----------- Municipal bonds, cost $ 104,418 $ 91,010 Municipal bonds, fair value 104,453 91,195 ----------- ----------- Unrealized gain $ 35 $ 185 =========== ===========
During fiscal 2003, the Company recorded a net unrealized loss of approximately $0.2 million. The Company believes that the unrealized loss is as a result of short-term swings in interest rates and that the unrealized loss is temporary. At January 31, 2004, approximately 44 percent of the Company's marketable securities mature within one year, 4 percent between one and five years, 5 percent between five and ten years, and the remainder with maturities greater than ten years will mature by 2032. 35 5. ACCRUED LIABILITIES: Accrued liabilities consisted of the following:
JANUARY 31, FEBRUARY 1, 2004 2003 ----------- ----------- Allowance for estimated customer returns, gift certificates and store credits outstanding $ 18,009 $ 10,136 Accrued payroll, bonuses and severance costs 11,003 8,004 Other 14,175 11,558 ----------- ----------- $ 43,187 $ 29,698 =========== ===========
6. INCOME TAXES: The Company's income tax provision consisted of the following:
FISCAL 2003 FISCAL 2002 FISCAL 2001 ----------- ----------- ----------- Current: Federal $ 52,798 $ 37,399 $ 24,394 State 7,298 5,169 3,278 Deferred: Federal 407 (1,451) (1,603) State 929 (200) (213) ----------- ----------- ----------- Total income tax provision $ 61,432 $ 40,917 $ 25,856 =========== =========== ===========
The reconciliation of the income tax provision based on the U.S. statutory federal income tax rate (35 percent) to the Company's income tax provision is as follows:
FISCAL 2003 FISCAL 2002 FISCAL 2001 ----------- ----------- ----------- Tax expense at the statutory rate $ 56,582 $ 37,687 $ 23,815 State income tax expense, net of federal tax benefit 4,850 3,230 2,041 ----------- ----------- ----------- Total income tax provision $ 61,432 $ 40,917 $ 25,856 =========== =========== ===========
Deferred tax assets and liabilities are recorded due to different carrying amounts for financial and income tax reporting purposes arising from cumulative temporary differences. These differences consist of the following as of January 31, 2004, and February 1, 2003:
JANUARY 31, 2004 FEBRUARY 1, 2004 ---------------- ---------------- Current: Accrued liabilities and allowances $ 6,264 $ 5,548 Inventories 1,261 1,577 ---------------- ---------------- $ 7,525 $ 7,125 ================ ================ Noncurrent: Other intangible assets $ (13,153) $ - Depreciation (3,139) (2,463) Lease obligations 2,548 1,739 Deferred compensation 2,020 816 ---------------- ---------------- $ (11,724) $ 92 ================ ================
Deferred tax assets at January 31, 2004 and February 1, 2003 totalled $12.1 million and $9.7 million, respectively. Deferred tax liabilities at January 31, 2004 and February 1, 2003 totalled $16.3 million and $2.5 million, respectively. [PICTURE] [PICTURE] 7. DEFERRED LIABILITIES: Deferred liabilities consisted of the following:
JANUARY 31, FEBRUARY 1, 2004 2003 ----------- ----------- Deferred rent $ 6,718 $ 4,575 Deferred compensation 5,316 2,147 Capital lease obligations 1,278 -- ----------- ----------- Total deferred liabilities 13,312 6,722 Less current portion (599) (171) ----------- ----------- $ 12,713 $ 6,551 =========== ===========
The Company has an unsecured revolving credit facility (the Credit Facility) with Bank of America, N.A., consisting of a total available commitment of $45 million, composed of a line of credit of $10 million (the Line) and a $35 million letter of credit sublimit. All borrowings under the Credit Facility bear interest at the LIBOR rate, plus an additional amount ranging from 0.80 percent to 2.90 percent adjusted quarterly based on the Company's performance per annum (a combined 1.90 percent at January 31, 2004). The Company is also required to pay, quarterly in arrears, a commitment fee of 0.10 percent per annum on the average daily unused portion of the Line. There are no compensating balance requirements associated with the Credit Facility. No borrowings are outstanding as of January 31, 2004 and February 1, 2003. The Credit Facility contains certain restrictions regarding additional indebtedness, business operations, liens, guaranties, transfers and sales of assets, and transactions with subsidiaries or affiliates. In addition, the Company must comply with certain quarterly restrictions (based on a rolling four-quarters basis) regarding net worth, leverage ratio, fixed charge coverage and current ratio requirements. The Company was in compliance with all covenants at January 31, 2004. Deferred rent represents the difference between operating lease obligations currently due and operating lease expense, which is recorded by the Company on a straight-line basis over the terms of its leases. Deferred compensation represents the deferred compensation liability payable to participants of the Chico's FAS, Inc. Deferred Compensation Plan (the Deferred Plan). See Note 10. 8. COMMITMENTS AND CONTINGENCIES: The Company leases retail store space and various office equipment under operating and capital leases expiring in various years through the fiscal year ending 2015. Certain of the leases provide that the Company may cancel the lease if the Company's retail sales at that location fall below an established level, and certain leases provide for additional rent payments to be made when sales exceed a base amount. Certain operating leases provide for renewal options for periods from three to five years at their fair rental value at the time of renewal. In the normal course of business, operating leases are generally renewed or replaced by other leases. Minimum future rental payments under noncancellable operating and capital leases (including leases with certain minimum sales cancellation clauses described below and exclusive of common area maintenance charges and/or contingent rental payments based on sales) as of January 31, 2004, are approximately as follows: 37
OPERATING LEASES CAPITAL LEASES ---------------- -------------- FISCAL YEAR ENDING: January 29, 2005 $ 46,213 $ 684 January 28, 2006 44,865 568 February 3, 2007 42,618 130 February 2, 2008 37,862 70 January 31, 2009 31,866 26 Thereafter 81,659 -- ---------------- -------------- Total minimum lease payments $ 285,083 1,478 ================ Less amounts representing interest (200) -------------- Present value of net minimum capital lease payment $ 1,278 ==============
A majority of the Company's new store operating leases contain cancellation clauses that allow the leases to be terminated at the Company's discretion, if certain minimum sales levels are not met within the first few years of the lease term. The Company has not historically exercised many of these cancellation clauses and, therefore, has included commitments for the full lease terms of such leases in the above table. For fiscal 2003, 2002 and 2001, total rent expense under the Company's operating leases was approximately $59.3 million, $42.2 million, and $30.8 million, respectively, including common area maintenance charges of approximately $6.6 million, $5.2 million, and $3.6 million, respectively, other rental charges of approximately $7.1 million, $5.0 million, and $3.4 million, respectively, and contingent rental expense of approximately $5.7 million, $4.0 million, and $3.4 million, respectively, based on sales. At January 31, 2004, the Company has approximately $11.8 million in commercial letters of credit outstanding (see Note 7), which had arisen in the normal course of business due to foreign purchase commitments. The Company was named as defendant in a putative class action suit filed in May 2003 in the Superior Court for the State of California, County of San Francisco. The Company filed an answer denying the material allegations of the Complaint. The Complaint alleges that the Company, in violation of California law, has in place a mandatory uniform policy that requires its employees to purchase and wear Chico's clothing and accessories as a condition of employment. It is the Company's position that no such mandatory uniform policy exists; the Company encourages but does not require its associates to wear Chico's clothing; although many Chico's associates choose to wear Chico's clothing, others do not. The parties are engaged in discovery, and the Company is continuing its investigation. No rulings on class certification have been made. The Company believes the case is without merit and intends to vigorously defend the litigation. The Company is not a party to any other legal proceedings, other than various claims and lawsuits arising in the normal course of business, none of which the Company believes should have a material adverse effect on its financial condition or results of operations. 9. STOCK OPTION PLANS AND CAPITAL STOCK TRANSACTIONS: 1992 STOCK OPTION PLAN During fiscal year 1992, the Board approved a stock option plan (the 1992 Plan), which reserved approximately 1,210,000 shares of common stock for future issuance under the 1992 Plan to eligible employees of the Company. The per share exercise price of each stock option is not less than the fair market value of the stock on the date of grant or, in the case of an employee owning more than 10 percent of the outstanding stock of the Company and to the extent incentive stock options, as opposed to nonqualified stock options, are issued, the price is not less than 110 percent of such fair market value. Also, the aggregate fair market value of the stock with respect to which incentive stock options are exercisable for the first time by an employee in any calendar year may not exceed $0.1 million. Options granted under the terms of the 1992 Plan generally vest evenly over three years and have a 10-year term. As of January 31, 2004, approximately 6,000 nonqualified options are outstanding under the 1992 Plan. [PICTURE] [PICTURE] 1993 STOCK OPTION PLAN During fiscal year 1993, the Board approved a stock option plan, as amended in fiscal 1999 (the 1993 Plan), which reserved approximately 7,010,000 shares of common stock for future issuance under the 1993 Plan to eligible employees of the Company. The terms of the 1993 Plan are essentially the same as the 1992 Plan. As of January 31, 2004, approximately 2,224,000 nonqualified options are outstanding under the 1993 Plan. INDEPENDENT DIRECTORS' PLAN In October 1998, the Board approved a stock option plan (the Independent Directors' Plan), which reserved 1,257,500 shares of common stock for future issuance to eligible independent directors of the Company. Options granted under the terms of the Independent Directors' Plan vest after six months and have a 10-year term. From the date of the adoption of the Independent Directors' Plan and until the 2002 Omnibus Stock and Incentive Plan was adopted, 402,500 options were granted under the Independent Directors' Plan. Since 1993 and prior to adoption of the Independent Directors' Plan, four independent directors of the Company had been granted a total of 651,000 nonqualified options through individual grants at exercise prices ranging from $0.93 to $1.42. Subsequent to the adoption of the Independent Directors' Plan, three independent directors of the Company were granted 135,000 nonqualified stock options through individual grants at exercise prices of $4.29 per share. As of January 31, 2004, approximately 330,000 of these individual grant nonqualified options and options under the Independent Directors' Plan are outstanding. 2002 OMNIBUS STOCK AND INCENTIVE PLAN In April 2002, the Board approved the Chico's FAS, Inc. 2002 Omnibus Stock and Incentive Plan (the Omnibus Plan), which initially reserved 4,855,140 shares of common stock for future issuance to eligible employees and directors of the Company. In accordance with the terms of the Omnibus Plan, shares of common stock that are represented by options granted under the Company's previously existing plans which are forfeited, expire or are cancelled without delivery of shares of common stock are added to the amounts reserved for issuance under the Omnibus Plan. During fiscal 2003 and fiscal 2002, 8,936 shares and 7,500 shares, respectively, of options on common stock were forfeited under previously existing plans. Also, during fiscal 2003, 126,162 shares issued under the Omnibus Plan were exercised resulting in a total of 4,745,414 shares remaining available for future issuance under the Omnibus Plan as of January 31, 2004. The Omnibus Plan provides for awards of nonqualified stock options, incentive stock options, restricted stock awards and restricted stock units. No new grants will be made under the Company's existing 1992 Plan, 1993 Plan or Independent Directors' Plan, and such existing plans will remain in effect only for purposes of administering options that were outstanding thereunder on the date the Omnibus Plan was approved by the Company's stockholders. As of January 31, 2004, approximately 1,442,000 nonqualified options are outstanding under the Omnibus Plan. EXECUTIVE OFFICERS' SUPPLEMENTARY STOCK OPTION PROGRAM During the fiscal year ended February 3, 2001, the Board approved an executive officers' supplementary stock option program (the Executive Officers' Program), which reserved 375,000 shares of common stock for future issuance to eligible executive officers of the Company. Options granted under the terms of the Executive Officers' Program vest after three years and have a 10-year term. As of January 31, 2004, all 375,000 shares have been granted under the Executive Officers' Program at exercise prices ranging from $3.40 to $5.10. Of the 375,000 shares granted, 45,000 shares were granted at exercise prices below fair market value. The granting of these shares resulted in stock compensation expense of approximately $45.0 in the accompanying consolidated statement of income in fiscal 2001. No compensation expense was recorded in fiscal 2003 or 2002. At January 31, 2004, there were no options outstanding under the Executive Officers' Program. 39 AGGREGATE STOCK OPTION ACTIVITY As of January 31, 2004, 4,002,128 nonqualified options are outstanding at a weighted average exercise price of $13.53 per share, and 3,303,411 remain available for future grants. Of the options outstanding, 1,710,190 options are exercisable. Stock option activity for fiscal 2003, 2002 and 2001, was as follows:
FISCAL 2003 FISCAL 2002 FISCAL 2001 ----------------------- ----------------------- --------------------- WEIGHTED- WEIGHTED- WEIGHTED- NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE OF EXERCISE OF EXERCISE OF EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ----------- -------- ----------- -------- ---------- -------- Outstanding, beginning of period 5,011,600 $ 8.75 7,251,226 $ 3.66 8,712,158 $2.40 Granted 1,069,450 23.09 1,435,266 16.66 1,927,000 8.84 Exercised (2,048,901) 6.87 (3,653,392) 1.78 (2,579,780) 2.21 Canceled or expired (30,021) 18.94 (21,500) 5.09 (808,152) 7.07 ----------- ----------- ---------- Outstanding, end of period 4,002,128 13.53 5,011,600 8.75 7,251,226 3.66 =========== =========== ========== Options exercisable, end of period 1,710,190 8.25 2,275,095 5.87 4,167,688 1.64
The following table summarizes information about stock options as of January 31, 2004:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------- ---------------------- WEIGHTED- AVERAGE WEIGHTED- WEIGHTED- REMAINING AVERAGE AVERAGE RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE - --------------- ----------- ------------ -------- ----------- -------- $ 0.36-$ 7.49 835,544 5.35 $ 2.35 835,544 $ 2.35 $ 7.50-$14.99 1,095,414 4.31 9.43 432,361 9.73 $15.00-$22.49 1,655,670 9.64 17.35 442,285 17.94 $22.50-$38.50 415,500 9.74 31.59 -- -- ---------- ---------- 4,002,128 8.49 13.53 1,710,190 8.25 ========== ==========
EMPLOYEE STOCK PURCHASE PLAN The Company has a noncompensatory employee stock purchase plan (ESPP) under which substantially all full-time employees are given the right to purchase up to 800 shares of the common stock of the Company two times a year at a price equal to 85 percent of the value of the stock immediately prior to the beginning of each purchase period. During fiscal 2003, 2002 and 2001, approximately 55,000, 48,000, and 260,000 shares, respectively, were purchased under the ESPP. The Company recognized no compensation expense for the issuance of these shares. [PICTURE] [PICTURE] 10. RETIREMENT PLANS: The Company has a 401(k) defined contribution employee benefit plan (the Plan) covering substantially all employees. Employees' rights to Company-contributed benefits vest fully upon completing five years of service, with incremental vesting in service years two through five, as specified in the Plan. Under the Plan, employees may contribute up to 20 percent of their annual compensation, subject to certain statutory limitations. The Company has elected to match employee contributions at 50 percent on the first 6 percent of the employees' contributions and can elect to make additional contributions over and above the mandatory match. For fiscal 2003, 2002 and 2001, the Company's costs under the Plan were approximately $1.2 million, $0.9 million, and $0.4 million, respectively. In April 2002, the Company adopted the Chico's FAS, Inc. Deferred Compensation Plan (the Deferred Plan) to provide supplemental retirement income benefits for a select group of management employees. Eligible participants may elect to defer up to 80 percent of their salary and 100 percent of their bonuses pursuant to the terms and conditions of the Deferred Plan. The Deferred Plan generally provides for payments upon retirement, death or termination of employment. In addition, the Company may make employer contributions to participants under the Deferred Plan. To date, no Company contributions have been made under the Deferred Plan. The amount of the deferred compensation liability payable to the participants is included in "deferred liabilities" in the accompanying consolidated balance sheet. A portion of these obligations are funded through the establishment of trust accounts held by the Company on behalf of the management group participating in the plan. The trust accounts are reflected in "other assets" in the accompanying consolidated balance sheet. 11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
NET INCOME PER COMMON NET INCOME PER AND COMMON NET GROSS NET COMMON SHARE- EQUIVALENT SHARE- SALES PROFIT INCOME BASIC DILUTED --------- ---------- -------- -------------- ------------------ FISCAL YEAR ENDED JANUARY 31, 2004: First quarter $ 168,985 $ 104,295 $ 23,367 $ 0.27 $ 0.27 Second quarter 173,436 107,603 24,466 0.28 0.28 Third quarter 210,569 129,367 26,759 0.31 0.30 Fourth quarter 215,509 129,757 25,637 0.29 0.29 FISCAL YEAR ENDED FEBRUARY 1, 2003: First quarter $ 130,454 $ 81,464 $ 19,777 $ 0.24 $ 0.23 Second quarter 125,068 75,479 16,388 0.20 0.19 Third quarter 137,261 82,376 15,544 0.19 0.18 Fourth quarter 138,325 82,020 15,050 0.18 0.17 FISCAL YEAR ENDED FEBRUARY 2, 2002: First quarter $ 93,233 $ 56,292 $ 12,379 $ 0.16 $ 0.15 Second quarter 89,492 53,685 11,091 0.14 0.13 Third quarter 93,978 55,542 8,900 0.11 0.11 Fourth quarter 101,382 58,629 9,818 0.12 0.12
41 [PICTURE] EXECUTIVE OFFICERS Scott A. Edmonds President Chief Executive Officer Charles J. Kleman Executive Vice President- Chief Operating Officer, Chief Financial Officer Secretary/Treasurer Patricia Murphy Kerstein Executive Vice President- Chief Merchandising Officer Mori C. MacKenzie Executive Vice President- Chief Stores Officer James P. Frain Executive Vice President- Chief Marketing Officer Barry I. Shapiro Senior Vice President- Distribution & Logistics Richard D. Sarmiento Senior Vice President-White House Patricia Darrow-Smith Senior Vice President- General Merchandise Manager-White House Michael J. Kincaid Vice President-Finance and Chief Accounting Officer Ajit Patel Vice President- Chief Information Officer [PICTURE] DIRECTORS Marvin J. Gralnick Chairman Helene B. Gralnick Formerly, Senior Vice President-Design & Concept Scott A. Edmonds President Chief Executive Officer Charles J. Kleman Executive Vice President- Chief Operating Officer Chief Financial Officer Secretary/Treasurer Verna K. Gibson Retailing Consultant Ross E. Roeder Chairman and Chief Executive Officer- Smart & Final, Inc. John W. Burden, III Retailing Consultant Betsy S. Atkins President and Chief Executive Officer- Baja Accordiant Ventures 43 [PICTURE] REPORTS ON FORM 10-K A copy of the Company's annual report to the Securities and Exchange Commission on Form 10-K will be sent to any shareholder without charge upon written request to Investor Relations at the mailing address or website address below: Chico's FAS, Inc. 11215 Metro Parkway Fort Myers, Florida 33912 Website: www.chicos.com Transfer Agent and Registrar: The Registrar and Transfer Company 10 Commerce Drive Cranford, New Jersey 07016 Legal Counsel: Trenam, Kemker, Scharf, Barkin, Frye, O'Neill & Mullis 101 E. Kennedy Blvd. Suite 2700 Tampa, Florida 33602 Independent Certified Public Accountants: Ernst & Young LLP 100 N. Tampa St. Suite 2200 Tampa, Florida 33602 Investor Relations: Integrated Corporate Relations, Inc. 24 Post Road East Westport, Connecticut 06880 (203) 222-9013 Annual Stockholders Meeting: Tuesday, June 22, 2004 at 2:00 p.m. Sanibel Harbour Resort Fort Myers, Florida 33908 [PICTURE] 45 [PICTURE] WHITE | BLACK HOUSE | MARKET The management team of White House | Black Market is very pleased and excited to be part of the Chico's organization and to be working with such a dynamic team of specialty retailers. There was much appeal to our joining forces with Chico's. In making our decision to move forward, White House | Black Market saw a great potential to secure important benefits. To begin with, the fit seemed right, with both organizations having clearly identifiable niches and strong customer followings. Additionally, the ability to take advantage of the experience and success that Chico's has had in sales, operations, merchandising, marketing, and development was very enticing as a means to position and grow White House | Black Market. Since we became a part of Chico's in September, the transition has gone very smoothly. Having completed the move of our administrative offices to Ft. Myers and having established ourselves in our own building on the Chico's headquarters campus, White House | Black Market believes it is now well positioned to achieve unparalleled growth and expanded national presence. We believe we now have the potential to see a chain of White House | Black Market stores numbering over 500 stores. We look to take greater advantage of our distinct, memorable and powerful brand as we become an even stronger player in the specialty apparel market. We want to continue to build upon a brand that not only is instantly recognized for its unique, classic white and black niche, but also is known for its current and stylish fashions and unwavering service standards. The ability to tap into the expertise and experience that Chico's has had over the past years presents tremendous opportunities for achieving the targeted growth for the White House | Black Market business and the brand. It has been a true pleasure to work with the entire team at Chico's during this transition. We look forward to a very successful and mutually beneficial relationship as we now move into this new era of growth for White House | Black Market. Most sincerely, /s/ Rick Sarmiento /s/ Patricia Darrow-Smith - --------------------- --------------------------- Rick Sarmiento Patricia Darrow-Smith President Executive Vice President- The White House, Inc. Chief Merchandising Officer The White House, Inc. [PICTURE] 47 [PICTURE] CHICO'S(R) ALABAMA Birmingham Foley** Huntsville Montgomery ARIZONA Chandler Glendale Mesa Phoenix Scottsdale Sedona Tempe** Tucson ARKANSAS Little Rock Rogers CALIFORNIA Bakersfield Brea Burlingame Calabasas Camarillo** Carlsbad Carmel Corte Madera Costa Mesa Danville Del Mar Emeryville Encino Fresno La Canada La Jolla Lafayette Laguna Beach Long Beach Los Angeles Los Gatos Manhattan Beach Marina del Rey Milpitas** Mission Viejo Monterey Newport Beach Ontario** Palm Desert Palm Springs Palo Alto Pasadena Pleasanton Rolling Hills Estates Sacramento San Diego San Francisco San Jose San Juan Capistrano San Mateo Santa Ana Santa Barbara Santa Monica Santa Rosa Sonoma Studio City Thousand Oaks Vacaville** Valencia Ventura Walnut Creek COLORADO Boulder Colorado Springs Denver Fort Collins Lakewood* Littleton CONNECTICUT Avon Fairfield Glastonbury Greenwich Mystic Ridgefield Southbury Stamford Uncasville Waterford West Hartford Westport Wilton DELAWARE Greenville Rehoboth Beach** FLORIDA Amelia Island Aventura Boca Raton Bonita Springs Brandon Captiva Clearwater Coral Gables Delray Beach Destin Ellenton** Estero** Fort Lauderdale Fort Myers Gainesville Jacksonville Key West Manalapan Marco Island Miami Miami Beach Naples Orlando Ormond Beach Palm Beach Gardens Ponte Vedra Beach Sanibel Sarasota St. Augustine** St. Petersburg Stuart Sunrise** Tampa Vero Beach Wellington West Palm Beach Winter Park GEORGIA Alpharetta Athens Atlanta Augusta Columbus Lawrenceville** Marietta Norcross Peachtree City Saint Simons Island IDAHO Boise ILLINOIS Chicago Deer Park Geneva Gurnee** Highland Park Hinsdale Naperville Northbrook Oakbrook Peoria River Forest Schaumburg Skokie Springfield Wheaton Wilmette INDIANA Fort Wayne Indianapolis Michigan City IOWA Davenport KANSAS Leawood Overland Park Prairie Village KENTUCKY Bowling Green* Lexington Louisville Paducah LOUISIANA Baton Rouge Lafayette Mandeville Metairie Monroe New Orleans MAINE Portland MARYLAND Annapolis Baltimore Bethesda Chevy Chase Columbia Frederick Gathersburg* Potomac Rockville Towson MASSACHUSETTS Acton Boston Braintree Burlington Canton Chestnut Hill Hyannis Longmeadow Marlborough Mashpee Natick Peabody Wellesley Wrentham** MICHIGAN Ann Arbor Birmingham Grand Rapids Grandville Grosse Pointe Holland Livonia Novi Okemos Petosky Rochester Hills Troy West Bloomfield MINNESOTA Edina Mall of America Maple Grove Rochester St. Paul Wayzata White Bear Lake Woodbury MISSISSIPPI Flowood Jackson Ridgeland MISSOURI Chesterfield Columbia Des Peres Kansas City St. Louis Springfield MONTANA Billings NEBRASKA Henderson Lincoln Omaha NEVADA Henderson Las Vegas NEW JERSEY Bridgewater Cherry Hill Denville Edgewater Hackensack Marlton Mount Laurel Paramus Princeton Ridgewood Sea Girt Short Hills Shrewsbury Westfield Westwood Woodcliff Lake NEW MEXICO Albuquerque Santa Fe NEW YORK Albany Bayside Buffalo Central Valley** Garden City Great Neck Manhattan Mount Kisco Riverhead** Rochester Southampton Stony Brook Syracuse White Plains Williamsville Woodbury NORTH CAROLINA Asheville Chapel Hill Charlotte Durham Greensboro Greenville Hickory Huntersville Raleigh Wilmington* Winston-Salem* OHIO Beachwood Chagrin Falls Cincinnati Cleveland Columbus Dayton Rocky River Upper Arlington West Chester Woodmere Worthington OKLAHOMA Edmond Norman Oklahoma City Tulsa OREGON Bend Eugene Gresham Lake Oswego Portland PENNSYLVANIA Allentown Ardmore Chestnut Hill Concordville Doylestown Glen Mills King of Prussia Lahaska Lancaster Manayunk North Wales Paoli Pittsburgh RHODE ISLAND Cranston Newport Smithfield SOUTH CAROLINA Charleston Columbia Greenville Hilton Head Mount Pleasant Myrtle Beach SOUTH DAKOTA Sioux Falls* TENNESSEE Franklin Germantown Johnson City Knoxville Memphis Nashville TEXAS Amarillo Arlington Austin College Station* Corpus Christi Dallas Fort Worth Friendswood Frisco Grapevine** Houston Hurst Kingwood Lubbock Midland Plano San Antonio Southlake Sugar Land Waco* Woodlands UTAH Provo Salt Lake City VERMONT Burlington VIRGINIA Alexandria Arlington Charlottesville Fairfax Fredericksburg Leesburg** Lynchburg McLean Norfolk Reston Richmond Virginia Beach Williamsburg Winchester Woodbridge** WASHINGTON Bellevue Issaquah* Redmond Seattle Spokane WASHINGTON D.C. Georgetown Union Station WISCONSIN Appleton Brookfield Fox Point Middleton Milwaukee Wauwatosa WYOMING Jackson Hole [*Coming Soon / **Outlet Store] (PHOTO) White Black House Market ALABAMA Birmingham ARIZONA Chandler Scottsdale Tucson CALIFORNIA Burlingame* Carlsbad Del Mar Glendale La Jolla Laguna Beach Manhattan Beach Mission Viejo Newport Beach Palm Desert Palo Alto Palos Verdes Pasadena Santa Rosa Walnut Creek Burlingame* Del Mar** Laguna Beach** Palm Desert** COLORADO Colorado Springs Littleton CONNECTICUT Danbury Glastonbury DELAWARE Greenville Rehoboth Beach FLORIDA Boca Raton Bonita Springs Coconut Grove Destin Ft. Lauderdale Ft. Myers Key West Miami Beach Naples North Miami Orlando Palm Beach Gardens Sarasota St. Petersburg Tampa West Palm Beach Coconut Grove** Marco Island* Naples** GEORGIA Alpharetta* Atlanta Buford Marietta Norcross HAWAII Lahaina Maui Oahu ILLINOIS Deerfield Deer Park Geneva Peoria KANSAS Leawood Overland Park KENTUCKY Louisville LOUISIANA Metairie New Orleans MARYLAND Annapolis Baltimore Towson Annapolis** MASSACHUSETTS Mashpee Commons* MICHIGAN East Lansing Rochester Hills Troy MINNESOTA Mall of America Maple Grove MISSOURI Chesterfield Kansas City St. Louis NEVADA Henderson* Las Vegas NEW JERSEY Edison Marlton Princeton NEW MEXICO Santa Fe NEW YORK White Plains Woodbury NORTH CAROLINA Charlotte Durham Huntersville Raleigh OHIO Cincinnati Upper Arlington Worthington OKLAHOMA Edmond* Tulsa PENNSYLVANIA King of Prussia Monroeville RHODE ISLAND Cranston SOUTH CAROLINA Charleston Greenville Hilton Head Mt. Pleasant TENNESSEE Franklin* TEXAS Ft. Worth Frisco Houston Plano San Antonio UTAH Salt Lake City VIRGINIA Norfolk Richmond WASHINGTON, D.C. Georgetown Union Station PUERTO RICO San Juan U.S. VIRGIN ISLANDS St. Thomas *Coming Soon **On Sale Location CHICO'S FAS, INC. 11215 METRO PARKWAY FORT MYERS, FLORIDA 33912 P. 239.277.6200 F. 239.277.5237 1.888.855.4986 WWW.CHICOS.COM EX-18 8 g88364exv18.txt EX-18 PREFERABILITY LETTER FROM ERNST & YOUNG LLP Exhibit 18 April 5, 2004 Mr. Michael J. Kincaid Vice President - Finance & Chief Accounting Officer Chico's FAS, Inc. 11215 Metro Parkway Ft. Myers, Florida 33912 Note 1 to the Consolidated Financial Statements of Chico's FAS, Inc. (the "Company") incorporated by reference in its Form 10-K for the year ended January 31, 2004, describes a change in the method of accounting for inventories from the last-in, first-out (LIFO) method to the weighted average cost method. There are no authoritative criteria for determining a "preferable" inventory accounting method based on the particular circumstances; however, we conclude that such change in method of accounting for inventories is to an acceptable alternative method which, based on your business judgment to make this change and for the stated reasons, is preferable in your circumstances. Very truly yours, /s/ Ernst & Young LLP --------------------- EX-21 9 g88364exv21.txt EX-21 SUBSIDIARIES OF THE REGISTRANT Exhibit 21 Subsidiaries of the Registrant Chico's Retail Services, Inc., a Florida corporation Chico's Distribution Services, LLC, a Georgia limited liability company Pazo, Inc., a Florida corporation Soma by Chico's, LLC, a Florida limited liability company The White House, Inc., a Maryland corporation EX-23 10 g88364exv23.txt EX-23 CONSENT OF ERNST & YOUNG LLP Exhibit 23 Consent of Independent Certified Public Accountants We consent to the incorporation by reference in this Annual Report (Form 10-K) of Chico's FAS, Inc. and in the Registration Statements: - - (Form S-8, No. 33-63822) pertaining to the 1992 Stock Option Plan, - - (Form S-8 Nos. 33-83840 and 333-86253) pertaining to the 1993 Stock Option Plan, - - (Form S-8 Nos. 333-51297, 333-69643 and 333-44678) pertaining to the Non-Employee Directors' Stock Option Program, - - (Form S-8 No. 333-83778) pertaining to the Deferred Compensation Program, - - (Form S-8 No. 333-88844) pertaining to the 2002 Omnibus Stock and Incentive Plan, - - (Form S-8 No. 333-54082) pertaining to the Executive Officers' Supplementary Stock Option Program, - - (Form S-8 No. 33-60524) pertaining to the 1993 Employee Stock Purchase Plan, - - (Form S-8 No. 333-69645) pertaining to the Non-Employee Directors' Stock Option Plan, and, - - (Form S-8 No. 333-88052) pertaining to the 2002 Employee Stock Purchase Plan, of our report dated February 27, 2004, with respect to the consolidated financial statements of Chico's FAS, Inc. incorporated by reference in the Annual Report (Form 10-K) for the year end January 31, 2004. /s/ Ernst & Young LLP - --------------------- Tampa, Florida April 5, 2004 EX-31.1 11 g88364exv31w1.txt EX-31.1 SECTION 302 CERTIFICATION OF CEO Exhibit 31.1 CHICO'S FAS, INC. AND SUBSIDIARIES CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION I, Scott A. Edmonds, certify that: 1. I have reviewed this annual report on Form 10-K of Chico's FAS, Inc. for the fiscal year ended January 31, 2004; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: April 9, 2004 /s/ Scott A. Edmonds - ------------------------------------------------ Name: Scott A. Edmonds Title: President and Chief Executive Officer EX-31.2 12 g88364exv31w2.txt EX-31.2 SECTION 302 CERTIFICATION OF CFO Exhibit 31.2 CHICO'S FAS, INC. AND SUBSIDIARIES CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION I, Charles J. Kleman, certify that: 1. I have reviewed this annual report on Form 10-K of Chico's FAS, Inc. for the fiscal year ended January 31, 2004; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: April 9, 2004 /s/ Charles J. Kleman - ------------------------------------------------ Name: Charles J. Kleman Title: Chief Operating Officer and Chief Financial Officer EX-32.1 13 g88364exv32w1.txt EX-32.1 SECTION 906 CERTIFICATION OF CEO Exhibit 32.1 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002 I, Scott A. Edmonds, President and Chief Executive Officer of Chico's FAS, Inc. (the "Company") certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Annual Report of the Company on Form 10-K for the fiscal year ended January 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report") fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Scott A. Edmonds ------------------------------------- Scott A. Edmonds President and Chief Executive Officer April 9, 2004 EX-32.2 14 g88364exv32w2.txt EX-32.2 SECTION 906 CERTIFICATION OF CFO Exhibit 32.2 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002 I, Charles J. Kleman, Chief Operating Officer and Chief Financial Officer of Chico's FAS, Inc. (the "Company") certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Annual Report of the Company on Form 10-K for the fiscal year ended January 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report") fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Charles J. Kleman ------------------------------------- Charles J. Kleman Chief Operating Officer and Chief Financial Officer April 9, 2004 -----END PRIVACY-ENHANCED MESSAGE-----


þ		ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 31, 2004

o		TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Florida		59-2389435
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)


Title of Class		Name of Exchange on Which Registered

Common Stock, Par Value $.01 Per Share		New York Stock Exchange


PART I
Page
Item 1.	Business	2
Item 2.	Properties	25
Item 3.	Legal Proceedings	26
Item 4.	Submission of Matters to a Vote of Security Holders	27
PART II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters	30
Item 6.	Selected Financial Data	31
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 8.	Financial Statements and Supplementary Data	32
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	32
Item 9A.	Controls and Procedures	32
PART III
Item 10.	Directors and Executive Officers of the Registrant	32
Item 11.	Executive Compensation	32
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	33
Item 13.	Certain Relationships and Related Transactions	33
Item 14.	Principal Accountant Fees and Services	33
PART IV
Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	34
EX-10.4 Letter Agreement with Marvin J. Gralnick
EX-10.8 Letter Agreement with Helene B. Gralnick
EX-10.13 Scott A. Edmonds Employment Agreement
EX-10.29 Chico's 2002 Employee Stock Purchase Plan
EX-13 Annual Report to Stockholders
EX-18 Preferability letter from Ernst & Young LLP
EX-21 Subsidiaries of the Registrant
EX-23 Consent of Ernst & Young LLP
EX-31.1 Section 302 Certification of CEO
EX-31.2 Section 302 Certification of CFO
EX-32.1 Section 906 Certification of CEO
EX-32.2 Section 906 Certification of CFO


	items of the private label Chico’s brand clothing are developed based upon historical sales data, anticipated future sales and perceived current and future fashion trends that will appeal to its target customer.

	The Chico’s brand product development and merchandising teams develop the in-house designs and design modifications. By conceptualizing and designing in-house and then contracting, for the most part, directly with manufacturers and providing some on-site quality control, the Company has been able to realize average initial gross profit margins for its Chico’s brand clothing and accessories that are higher than the industry average, while at the same time providing value to its customers.

	The distinctive nature of the Chico’s brand clothing is carried through in its sizing. Stores within the Chico’s brand incorporate international type sizing, utilizing sizes 0 (size 4-6), 1 (size 8-10), 2 (size 10-12), and 3 (size 14-16). As in the past, the Chico’s brand occasionally will offer one-size-fits-all and small, medium and large sizing for some items. The relaxed nature of clothing bearing the Chico’s name allows the Chico’s stores to utilize this unusual sizing and thus to offer a wide selection of clothing without having to invest in a large number of different sizes within a single style. The Company has recently added half sizes (sizes .5, 1.5, 2.5 and 3.5) to some of its pant styles, most notably jeans.

	White House \| Black Market. The White House \| Black Market brand clothing is made from natural and synthetic fabrics, including cotton, rayon, silk, polyester, tencel, microfibers and matte jersey, all in the classic and timeless colors of black and white and related shades. As is the case with the Chico’s brand, the accessories, such as handbags, belts and jewelry, including earrings, necklaces and bracelets, are specifically purchased and developed to coordinate with the colors and patterns of the White House \| Black Market brand clothing, enabling customers to easily enhance and individualize their wardrobe selections.

	Similar to the Chico’s brand, the clothing and accessories offered at the White House \| Black Market stores are both designed in-house and designed and developed in conjunction with the Company’s direct vendors and third party manufacturers, although, for the most part, the White House \| Black Market purchases from intermediaries rather than directly from the manufacturers. The merchandise is selected, enhanced and created so as to carry out the White House \| Black Market commitment to “make women feel beautiful” and to project a contemporary, feminine and youthful self-image. As is the case with the Chico’s brand, the style, pattern, color and fabric for individual items of White House \| Black Market brand clothing are selected based upon historical sales data, anticipated future sales and perceived current and future fashion trends that will appeal to its target customer.

	For the foreseeable future, the Company will continue to allow the White House \| Black Market vendors to assist the merchandising and creative teams in the design and development of the White House \| Black Market clothing and accessories. The Company intends to offer the assistance of the sourcing and product development teams for the Chico’s brand to the White House \| Black Market teams in the process of product development and sourcing, and, at the appropriate time, may transition the in-house design and sourcing process for its product offering to deal more directly with its manufacturers

	Sizing in White House \| Black Market stores is currently American sizes in the 0-14 range, which the Company believes is more appropriate for the target White House \| Black Market customer. As a result, the fit of the White House \| Black Market clothing tends to be comfortable, yet more styled to enhance the figure of a body-conscious woman.

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		Chico’s
		Company-Owned		Chico’s		Chico’s
		Front-Line		Company-Owned		Franchised		White House\|Black
		Stores		Outlet Stores		Stores		Market Stores		Total Stores

California			52		4				17		73
Florida			47		4		1		19		71
Texas			29		2				9		40
Georgia			14		1				7		22
Illinois			17		1				4		22
Virginia			17		2				3		22
New Jersey			17						3		20
North Carolina			14		1				4		19
Maryland			12						6		18
New York			13		2				2		17
Michigan			12				1		3		16
Arizona			10		1				4		15
Connecticut			13						2		15
Massachusetts			14		1						15
Pennsylvania			13						2		15
Ohio			11						3		14
Minnesota							9		2		11
South Carolina			7						4		11
Colorado			7		1				2		10
Missouri			7						3		10
Louisiana			6						2		8
Tennessee			8								8
Alabama			5		1				1		7
Nevada			3		1				2		6
Oklahoma			5						1		6
Oregon			6								6
Kansas			3						2		5
Kentucky			4						1		5
Utah			4						1		5
Washington			5								5
Wisconsin			5								5
Delaware			1		1				2		4
District of Columbia			2						2		4
New Mexico			3						1		4
Rhode Island			3						1		4
Hawaii									3		3
Indiana			2				1				3
Arkansas			2								2
Mississippi			2								2
Nebraska			2								2
U.S. Virgin Islands									2		2
Idaho			1								1
Iowa			1								1
Maine			1								1
Montana			1								1
Puerto Rico									1		1
Vermont			1								1
Wyoming			1								1

	Total		403		23		12		121		559



		Fiscal Year Ended

		January 29,			February 3,			February 2,			February 1,		January 31,
		2000			2001			2002			2003		2004
		(52 weeks)			(53 weeks)			(52 weeks)			(52 weeks)		(52 weeks)

Number of Company-Owned Stores
Stores at beginning of year*			154			191			239			300		366
	Opened**		40			51			64			66		74	***
	Acquired pursuant to The White House transaction		—			—			—			—		107
	Closed		(3	)		(3	)		(3	)		—		(2	)

Stores at end of year			191			239			300			366		545

Number of Franchise Stores
Stores at beginning of year			8			9			11			11		12
	Opened		1			2			—			1		—

Stores at end of year			9			11			11			12		12

Number of Total Stores			200			250			311			378		557	****


	*Marks and Applications Owned by Chico’s Retail Services, Inc.*


	Leases Expiring Each Year		Leases Expiring Each Year
Fiscal Year Ending	if No Renewals Exercised		if All Renewals Exercised

January 29, 2005		43		27
January 28, 2006		43		16
February 3, 2007		69		17
February 2, 2008 and thereafter		392		487


ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


			Years With
Name	Age		Company		Positions

Marvin J. Gralnick		69		20	Chairman of the Board and Director
Scott A. Edmonds		46		10	President, Chief Executive Officer and Director
Charles J. Kleman		53		15	Chief Operating Officer, Executive Vice President-Finance, Chief Financial Officer, Secretary, Treasurer and Director
Patricia Murphy Kerstein		60		6	Executive Vice President-Chief Merchandising Officer
Mori C. MacKenzie		54		8	Executive Vice President-Chief Stores Officer
James P. Frain		55		5	Executive Vice President-Chief Marketing Officer
Barry I. Shapiro		49		3	Senior Vice President-Distribution and Logistics
Richard D. Sarmiento		59		*	Senior Vice President-White House
Patricia Darrow-Smith		42		*	Senior Vice President-General Merchandise Manager-White House
Michael J. Kincaid		46		4	Vice President-Finance and Chief Accounting Officer
Ajit Patel		50		3	Vice President-Chief Information Officer


ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS


	Number of Record Holders
Title of Class	as of March 31, 2004

Common Stock, par value $.01 per share		1,224


ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


ITEM 1.	BUSINESS


ITEM 3.	LEGAL PROCEEDINGS


ITEM 6.	SELECTED FINANCIAL DATA


ITEM 9A.	CONTROLS AND PROCEDURES


ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS


ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K


(2)	The following Financial Statement Schedules are included herein:


	3.1*			Amended and Restated Articles of Incorporation, as amended (Filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-8 (Commission File No. 333-44678), as filed with the Commission on August 28, 2000)
	3.2*			Articles of Amendment of the Amended and Restated Articles of Incorporation (Filed as Exhibit 3.1 to the Company’s Form 10-Q for the quarter ended August 4, 2001, as filed with the Commission on August 30, 2001)
	3.3*			Certificate of Amendment of Amended and Restated Articles of Incorporation (Filed as Exhibit 3.1 to the Company’s Form 10-Q for the quarter ended August 3, 2002, as filed with the Commission on August 28, 2002)
	3.4*			Amended and Restated By-laws (Filed as Exhibit 3.5 to the Company’s Form 10-Q for the quarter ended April 4, 1993, as filed with the Commission on May 18, 1993)
	4.1*			Amended and Restated Articles of Incorporation, as amended (Filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-8 (Commission File No. 333-44678), as filed with the Commission on August 28, 2000)
	4.2*			Articles of Amendment of the Amended and Restated Articles of Incorporation (filed as Exhibit 3.1 to the Company’s Form 10-Q for the quarter ended August 4, 2001, as filed with the Commission on August 30, 2001)
	4.3*			Certificate of Amendment of Amended and Restated Articles of Incorporation (Filed as Exhibit 3.1 to the Company’s Form 10-Q for the quarter ended August 3, 2002, as filed with the Commission on August 28, 2002)
	4.4*			Amended and Restated By-laws (Filed as Exhibit 3.5 to the Company’s Form 10-Q for the quarter ended April 4, 1993, as filed with the Commission on May 18, 1993)


	4.5*			Form of specimen Common Stock Certificate (Filed as Exhibit 4.1 to the Company’s Form 10-Q for the quarter ended May 5, 2001, as filed with the Commission on June 7, 2001)
	10.1*			Employment Agreement between the Company and Marvin J. Gralnick, effective as of February 7, 2000 (Filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended July 29, 2000, as filed with the Commission on September 5, 2000)
	10.2*			Amendment No. 1 to Employment Agreement between the Company and Marvin J. Gralnick, effective as of September 26, 2001 (Filed as Exhibit 10.2 to the Company’s Form 10-K for the year ended February 2, 2002, as filed with the Commission on April 24, 2002)
	10.3*			Amendment No. 2 to Employment Agreement between the Company and Marvin J. Gralnick, effective as of September 3, 2003 (Filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended November 1, 2003, as filed with the Commission on December 3, 2003)
	10.4			Letter Agreement regarding employment of Marvin J. Gralnick dated March 1, 2004
	10.5*			Employment Agreement for Helene B. Gralnick, effective as of February 7, 2000 (Filed as Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended July 29, 2000, as filed with the Commission on September 5, 2000)
	10.6*			Amendment No. 1 to Employment Agreement between the Company and Helene B. Gralnick, effective as of September 26, 2001 (Filed as Exhibit 10.4 to the Company’s Form 10-K for the year ended February 2, 2002, as filed with the Commission on April 24, 2002)
	10.7*			Amendment No. 2 to Employment Agreement between the Company and Helene B. Gralnick, effective as of September 3, 2003 (Filed as Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended November 1, 2003, as filed with the Commission on December 3, 2003)
	10.8			Letter Agreement regarding employment of Helene B. Gralnick dated March 1, 2004
	10.9*			Employment Agreement for Charles J. Kleman (Filed as Exhibit 10.6.5 to the Company’s Form 10-Q for the quarter ended April 4, 1993, as filed with the Commission on May 18, 1993)
	10.10*			Amendment No. 1 to Employment Agreement between the Company and Charles J. Kleman, effective as of August 21, 2000 (Filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended October 28, 2000, as filed with the Commission on December 8, 2000)
	10.11*			Employment Agreement for Scott A. Edmonds (Filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended July 2, 1995, as filed with the Commission on August 14, 1995)
	10.12*			Amendment No. 1 to Employment Agreement between the Company and Scott A. Edmonds, effective as of August 21, 2000 (Filed as Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended October 28, 2000, as filed with the Commission on December 8, 2000)
	10.13			Employment Agreement between the Company and Scott A. Edmonds, effective as of September 3, 2003
	10.14*			Employment Agreement for Mori C. MacKenzie (Filed as Exhibit 10.4 to the Company’s Form 10-Q for the quarter ended October 1, 1995, as filed with the Commission on November 13, 1995)
	10.15*			Amendment No. 1 to Employment Agreement between the Company and Mori C. MacKenzie, effective as of August 21, 2000 (Filed as Exhibit 10.3 to the Company’s Form 10-Q for the quarter ended October 28, 2000, as filed with the Commission on December 8, 2000)
	10.16*			Employment Agreement between the Company and James P. Frain effective as of April 14, 2000 (Filed as Exhibit 10.11 to the Company’s Form 10-K for the year ended February 2, 2002, as filed with the Commission on April 24, 2002)
	10.17*			Amendment No. 1 to Employment Agreement between the Company and James P. Frain effective as of February 13, 2001 (Filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended November 3, 2001, as filed with the Commission on December 5, 2001)


	10.18*			Employment Agreement between the Company and Patricia A. Murphy, effective as of August 21, 2000 (Filed as Exhibit 10.4 to the Company’s Form 10-Q for the quarter ended October 28, 2000, as filed with the Commission on December 8, 2000)
	10.19*			Amendment No. 1 to Employment Agreement between the Company and Patricia A. Murphy, effective as of August 21, 2000 (Filed as Exhibit 10.11 to the Company’s Form 10-K for the year ended February 3, 2001, as filed with the Commission on April 30, 2001)
	10.20*			Employment Agreement between the Company and Tedford G. Marlow, dated August 28, 2000 (Filed as Exhibit 10.3 to the Company’s Form 10-Q for the quarter ended July 29, 2000, as filed with the Commission on September 5, 2000)
	10.21*			Separation and Release Agreement between the Company and Tedford G. Marlow, dated June 15, 2001 (Filed as Exhibit 10.16 to the Company’s Form 10-K for the year ended February 2, 2002, as filed with the Commission on April 24, 2002)
	10.22*			1992 Stock Option Plan (Filed as Exhibit 10.7 to the Company’s Registration Statement on Form S-1 (File No. 33-58134), as filed with the Commission on February 10, 1993, as amended)
	10.23*			First Amendment to 1992 Stock Option Plan (Filed as Exhibit 10.13 to the Company’s Form 10-K for the year ended January 2, 1994, as filed with the Commission on April 1, 1994)
	10.24*			1993 Stock Option Plan (Filed as Exhibit 10.14 to the Company’s Form 10-K for the year ended January 2, 1994, as filed with the Commission on April 1, 1994)
	10.25*			First Amendment to 1993 Stock Option Plan (Filed as Exhibit 10.9 to the Company’s Form 10-K for the year ended January 30, 1999, as filed with the Commission on April 28, 1999)
	10.26*			Second Amendment to 1993 Stock Option Plan (Filed as Exhibit 10.21 to the Company’s Form 10-K for the year ended February 2, 2002, as filed with the Commission on April 24, 2002)
	10.27*			2002 Omnibus Stock and Incentive Plan (Filed as Exhibit 10.22 to the Company’s Form 10-K for the year ended February 2, 2002, as filed with the Commission on April 24, 2002)
	10.28*			2002 Employee Stock Purchase Plan (Filed as Exhibit 10.28 to the Company’s Form 10-K for the year ended February 2, 2002, as filed with the Commission on April 24, 2002)
	10.29			Chico’s FAS, Inc. Amended and Restated 2002 Employee Stock Purchase Plan
	10.30*			Indemnification Agreement with Marvin J. Gralnick (Filed as Exhibit 10.9.1 to the Company’s Form 10-Q for the quarter ended July 4, 1993, as filed with the Commission on August 13, 1993)
	10.31*			Indemnification Agreement with Helene B. Gralnick (Filed as Exhibit 10.9.2 to the Company’s Form 10-Q for the quarter ended July 4, 1993, as filed with the Commission on August 13, 1993)
	10.32*			Indemnification Agreement with Charles J. Kleman (Filed as Exhibit 10.9.5 to the Company’s Form 10-Q for the quarter ended July 4, 1993, as filed with the Commission on August 13, 1993)
	10.33*			Indemnification Agreement with Verna K. Gibson (Filed as Exhibit 10.9.6 to the Company’s Form 10-Q for the quarter ended July 4, 1993, as filed with the Commission on August 13, 1993)
	10.34*			Indemnification Agreement with Scott A. Edmonds (Filed as Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended July 2, 1995, as filed with the Commission on August 14, 1995)
	10.35*			Indemnification Agreement with John W. Burden (Filed as Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended August 4, 2001, as filed with the Commission on August 30, 2001)
	10.36*			Indemnification Agreement with Ross E. Roeder (Filed as Exhibit 10.3 to the Company’s Form 10-Q for the quarter ended August 4, 2001, as filed with the Commission on August 30, 2001)
	10.37*			Sample Form of Franchise Agreement (Filed as Exhibit 10.13 to the Company’s Registration Statement on Form S-1 (File No. 33-58134) as filed with the Commission on February 10, 1993, as amended)
	10.38*			Sample Form of Territory Development Agreement (Filed as Exhibit 10.14 to the Company’s Registration Statement on Form S-1 (File No. 33-58134) as filed with the Commission on February 10, 1993, as amended)


	10.39*			Sample Form of Purchase Agreement (Filed as Exhibit 10.15 to the Company’s Registration Statement on Form S-1 (File No. 33-58134) as filed with the Commission on February 10, 1993, as amended)
	10.40*			Revolving Credit and Term Loan Agreement by and among Bank of America, N.A., the Company and the subsidiaries of the Company dated as of May 12, 2000 (Filed as Exhibit 10.4 to the Company’s Form 10-Q for the quarter ended July 29, 2000, as filed with the Commission on September 5, 2000)
	10.41*			First Amendment to Revolving Credit and Term Loan Agreement by and between Bank of America, N.A., the Company and the subsidiaries of the Company dated as of January 15, 2002 (Filed as Exhibit 10.40 to the Company’s Form 10-K for the year ended February 2, 2002, as filed with the Commission on April 24, 2002)
	10.42*			Restated Revolving Credit and Term Loan Agreement by and among Bank of America, N.A., the Company and the subsidiaries of the Company dated as of September 24, 2002 (Filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended November 2, 2002, as filed with the Commission on December 3, 2002)
	10.43*			Amendment and Restatement of the Chico’s FAS, Inc. Profit Sharing Plan (Filed as Exhibit 10.47 to the Company’s Form 10-Q for the quarter ended April 3, 1994, as filed with the Commission on May 10, 1994)
	10.44*			Nonemployee Stock Option Agreement by and between Chico’s FAS, Inc. and Verna K. Gibson dated effective May 15, 2000 (Filed as Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended May 5, 2001, as filed with the Commission on June 7, 2001)
	10.45*			Non-Employee Directors Stock Option Plan (Filed as Exhibit 10.49 to the Company’s Form 10-K for the year ended January 30, 1999, as filed with the Commission on April 28, 1999)
	10.46*			First Amendment to Chico’s FAS, Inc. Non-Employee Directors Stock Option Plan (Filed as Exhibit 10.51 to the Company’s Form 10-K for the year ended January 29, 2000, as filed with the Commission on April 25, 2000)
	10.47*			Chico’s FAS, Inc. Deferred Compensation Plan effective April 1, 2002 (Filed as Exhibit 10.53 to the Company’s Form 10-K for the year ended February 2, 2002, as filed with the Commission on April 24, 2002)
	10.48*			Lease Agreement between Joint Development Authority of Winder-Barrow County and Chico’s Real Estate, LLC dated as of March 25, 2002 (Filed as Exhibit 10.54 to the Company’s Form 10-K for the year ended February 2, 2002, as filed with the Commission on April 24, 2002)
	10.49*			Stock Purchase Agreement dated as of July 30, 2003 among Chico’s FAS, Inc., The White House, Inc., the stockholders of The White House, Inc. and the Sellers’ Representative (Filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended August 2, 2003, as filed with the Commission on August 27, 2003)
	13			Annual Report to Stockholders
	16.1*			Letter from Arthur Andersen LLP to the Securities and Exchange Commission dated July 1, 2002 regarding change in independent auditor (Filed as Exhibit 16.1 to the Company’s Form 8-K as filed with the Commission on July 1, 2002)
	18			Preferability letter from Ernst & Young LLP dated April 5, 2004 regarding change in accounting principle
	21			Subsidiaries of the Registrant
	23			Consent of Ernst & Young LLP
	31.1			Chico’s FAS, Inc. and Subsidiaries Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002- Chief Executive Officer
	31.2			Chico’s FAS, Inc. and Subsidiaries Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002- Chief Financial Officer


	32.1			Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2			Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



Signature	Title	Date


/s/ SCOTT A. EDMONDS Scott A. Edmonds	President and Chief Executive Officer, Director (Principal Executive Officer)	April 9, 2004

/s/ CHARLES J. KLEMAN Charles J. Kleman	Chief Operating Officer, Chief Financial Officer, Director (Principal Financial Officer)	April 9, 2004

/s/ MICHAEL J. KINCAID Michael J. Kincaid	Vice President — Finance and Chief Accounting Officer (Principal Accounting Officer)	April 9, 2004

/s/ MARVIN J. GRALNICK Marvin J. Gralnick	Chairman of the Board, Director	April 9, 2004

/s/ HELENE B. GRALNICK Helene B. Gralnick	Director	April 9, 2004

/s/ VERNA K. GIBSON Verna K. Gibson	Director	April 9, 2004

/s/ JOHN W. BURDEN, III John W. Burden, III	Director	April 9, 2004

/s/ ROSS E. ROEDER Ross E. Roeder	Director	April 9, 2004

/s/ BETSY S. ATKINS Betsy S. Atkins	Director	April 9, 2004