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Chico’s Brand President Departs as Earnings Fall Short of Estimates

A rough third quarter for sales and missed expectations for Chico’s FAS has led to a sharp drop in share price for the women’s clothing company.

And in a statement separate from the disappointing results, Chico’s said its brand president, Diane Ellis, has left the company. The Chico’s brand will be led by current CEO, Shelley Broader, as it searches for a replacement.

The brand attempted a refresh in February, in which it weighted merchandise and marketing toward “boho styles, bold colors and artisanal prints.” It also struck a deal to sell its products on Amazon.

Although the company acknowledges the strategy was successful in attracting new customers, it said classic “clean” silhouettes and basics suffered as a result. It may be one of the reasons, according to Chico’s, for the loss of its traditional customer base.

Chico’s FAS shares fell nearly 35 percent after the release of the Q3 earnings report Wednesday, and it closed the day at $4.79 after reaching $7.32 on Tuesday.

In a Nutshell: The company said its White House Black Market brand is carrying on with its repositioning and that merchandise margins had “improved significantly” thanks to less reliance on discounting and better full-price selling compared to 2017. Additionally, it announced that Chico’s Endless Aisle, a shared inventory platform, was connected to all stores in the quarter, giving the company a much-needed omnichannel component. It will allow customers to purchase online and add BOPIS capabilities to its e-commerce channels.

Another omnichannel improvement, Client Book, is set to provide business-facing clienteling tools that will allow store associates to create curated online “storefronts” for individual customers based on prior purchasing information, data that can then be passed on to online stylists for personalized recommendations. Chico’s expects to see a full rollout of the technology by the first quarter of 2019.

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Sales: Chico’s total sales were $499.9 million for the third quarter, compared to $532.3 million in Q3 of last year, a decrease of 6.1 percent. Taken further, the retailer says excluding the $9.1 million impact of the hurricanes in Q3 of FY2017, sales have actually dropped 7.7 percent.

This was primarily driven by a comparable sales decline of 6.8 percent and the net closure of 43 stores since Q3 of last year. Comparable sales were down thanks to a combination of decreased transaction count and lower average dollar sales numbers.

Comparable sales were down 10.2 percent at Chico’s, 5.1 percent at White House Black Market and 6.8 percent at Total Company compared to last year’s third quarter. Only Soma, an intimate apparel label, saw its comparable sales increase year-over-year, at 2.4 percent.

Earnings: Chico’s reported a net income of $6.5 million for the quarter, resulting in earnings of $0.05 per diluted share. In the same period last year, net income was $16.7 million and earnings were set at $0.13 per diluted share. For the year, overall, net income is at $52.3 million, compared to $73 million in 2017—earnings for the year are $0.41 per diluted share, compared to $0.57 from last year.

Earnings results included a favorable tax benefit of approximately $4.9 million from the Tax Cuts and Jobs Act of 2017.

CEO’s Take: Considering the disappointing results and the change in leadership, Chico’s CEO Shelley Broader’s message was one of immediate action and improvement. Stated improvements include adjusting spring assortments to “appropriately balance its merchandise architecture, reduce planned receipts and chase more classic merchandise.”

Additionally, the company said it would like to adjust inventory and marketing to be more inclusive of all customers, along with improving planning and allocation strategies to improve in-stock.

“Brand performance in the third quarter was mixed,” Broader said. “Soma again performed well and better than expectations, and White House Black Market is continuing its brand repositioning. However, our Chico’s brand did not deliver the sales we anticipated, which led to total Company results that were below expectations.”

“The initial emphasis that we selected for our Chico’s brand repositioning has not resonated with our broader target customer base,” Broader continued. “So, we are course correcting by implementing a performance improvement plan that includes brand leadership changes and adjustments to our product offering, marketing strategy and assortment architecture to better meet expectations for all customers who shop the Chico’s brand. Our attention is keenly focused on establishing a record of consistent top-line growth across all three of our brands.”