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Why Soma Could Be Big-Time Intimates Challenger

Chico’s FAS believes the Soma intimates brand could soon operate in stores and the women’s specialty apparel company is looking to expand its off-mall presence. But the company, which also operates the Chico’s and White House Black Market banners, told investors Friday that its go-forward strategy will be driven by a digital-first mindset.

The Fort Myers, Fla.-based company deployed new mobile apps for all three banners earlier this year after e-commerce traffic shot up 53 percent in 2021. And the company’s StyleConnect application, which enables store associates to communicate directly with online customers using a handheld device, now generates 10 percent of total digital sales and has already attracted 5.1 million shoppers. For the future, the company has even more tricks up its sleeve.

“We have digital cross-selling on our roadmap to offer Soma products directly to our Chico’s and White House Black Market customers in a targeted manner and vice versa,” Jay Topper, chief digital officer at Chico’s FAS, said. “This will have a meaningful impact on our customers lifetime value as proven out in our stores.”

Of course, the “digital-first” approach ties into Chico’s FAS’ store footprint, where the average digital spend trends 30 percent to 100 percent higher in markets where the company has a brick-and-mortar presence. Spend is 177 percent higher in Dallas and 60 percent above average in Lancaster, Penn.

In states with fewer stores, the company has piloted social selling through a team of virtual stylists who are not affiliated with a store, with the program showing positive results, Topper said.

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PJ Guido, the company’s chief financial officer, said just 31 percent of Chico’s, White House Black Market and Soma stores were located in malls at the end of fiscal 2021.

Soma popped up in Soho in February to launch its new Bodify bra.
Soma popped up in Soho in February to launch its new Bodify bra. Courtesy

“Going forward, we will continue to cultivate our fleet by actively managing locations and formats in markets where we want to be,” Guido said. “We are also migrating our portfolio from enclosed malls to open air lifestyle centers where we typically see higher traffic and sales. We’ve already shifted from 40 percent mall-based to less than a third and we’ll target 25 percent or less by fiscal 2024.”

Across its three banners of Chico’s, White House Black Market and Soma, the specialty retailer expects total revenues above $2.5 billion in fiscal 2024, which ends Feb. 1, 2025. This would represent a 38.1 percent increase over the 2021 fiscal year’s $1.81 billion in sales.

Included in the $2.5 billion total is the company’s expected digital revenues in excess of $1 billion, giving Chico’s FAS an approximately 40 percent e-commerce penetration.

The success of the company’s turnaround efforts could significantly benefit the company’s margins as well. Gross margins for fiscal 2024 are expected to reach 40 percent, which would be a 330-basis-point expansion from fiscal 2021’s 36.7 percent margin. Along those lines, operating margin is projected to reach 7.5 percent, a 380-basis-point improvement from last year’s 3.7 percent.

Earnings per share is forecast to grow at a compound annual growth rate (CAGR) of 15 percent through the end of 2024, with Chico’s FAS anticipating to generate approximately $400 million of cumulative cash flow from operations in that time.

The Chico’s and Soma brands expect sales on a three-year CAGR basis to grow in the low-to-mid teens, while the White House Black Market brand seen growing in the mid-to-high single digits.

Guido said the Chico’s FAS has “underinvested as a company the last several years,” and now plans to target 3.5 percent of sales in its future capital expenditures totals, which will be allocated equally across stores, digital and infrastructure.

In addition to the Soma store growth plans, the company will upgrade some of its unproductive stores across all brands and continue to close underperforming Chico’s and White House Black Market stores.

Chico’s said in its fourth quarter earnings call that in 2022, it expects to open up 30 Soma stores and close approximately 40 locations, which mostly comprise underperforming mall-based Chico’s and White House Black Market boutiques.

Soma Bodify bra
Soma Bodify bra Courtesy

To date, Chico’s FAS has negotiated more than $85 million of rent savings, resulting in fewer store closures than originally expected. Across banners, the retailer operated 1,266 total stores as of Jan. 29.

In line with the three-year plan, Chico’s FAS also affirmed its previously announced outlook for the fiscal 2022 first quarter and full year. Consolidated net sales are expected to remain within $485 million to $500 million for the first quarter, and total $2.09 billion to $2.12 billion for the full year. The retailer also projects first quarter earnings per diluted share of 7 cents to 11 cents with 2022 totals approaching a range of 40 cents to 50 cents per share.

Multi-channel customers grew by 17 percent in 2021 and now represent nearly 20 percent of the retailer’s consumer base. These shoppers spend more than 3X as much as single channel consumers, with multi-channel spenders totaling $540 per year, while in-store shoppers spend $180 and online shoppers spend $157. Across all consumers, average spend per individual jumped 16 percent year over year.

Helping the turnaround has been the company’s ability to expand average unit retail (AUR) prices, with the Chico’s brand seeing a 16 percent AUR improvement and White House Black Market AURs rising 26 percent on a two-year basis.

Molly Langenstein, Chico’s FAS CEO and president, cited NPD Group data showing that Chico’s grew 160 basis points faster than the specialty store market last year, with specific categories like knit shirts, pants, jeans and woven shirts outpacing the market.

“If you tick down a little deeper, the demographics are in our favor,” Langenstein said. “Chico’s is the No. 1 brand and market share among consumers aged 45-to-64 with household income over $75,000 compared to other specialty stores. From the NPD data that we know, baby boomers currently represent Chico’s largest customer group. In our internal data, we know that that group is spending more than any other demographic.”

Soma Bodify bra
Soma’s Bodify bra features patent-pending technologies Courtesy

White House Black Market also outpaced the specialty store market by 130 basis points last year, with knit shirts, pants and jeans outperforming the average. According to the NPD data, the nameplate is gaining an influx of new millennial customers and taking market share from department stores among consumers aged 45 and above with $100,000 in household income.

Soma, the fastest-growing brand for Chico’s FAS with ambitions to become a $1 billion label, added 1 million new customers in 2021. With 50 percent digital penetration, the intimates label is the No. 2 brand in market share among consumers aged 35 and up with a household income of $100,000, compared to other specialty stores, according to NPD data.

Bodify bra ‘closest thing to a custom fit’

Last month Soma popped up in Soho to give consumers a sneak peek at its new Bodify bra featuring several patent-pending technologies, developed after a survey of 1,500 women found rampant complaints about problems with their bras gapping, poking and sagging in the shoulder straps.

But the real crux of the matter is that “women’s bodies are in a constant state of change” with weight routinely fluctuating in any given month, Holly Wilson, Soma vice president of design, told Sourcing Journal.

The Bodify bra aims to address customer pain points with Flexicups that stretch to “adapt to your unique shape and size” with high-recovery material, Wilson said, describing the innovation as a “step above memory foam.”

Soma Bodify bra
Soma Bodify supports women’s fluctuating bodies Courtesy

Other design features address common fit problems as well. The bra’s “float away wire construction” means women who are fuller in the bust can fit into the intimate garment and allows air to circulate in a part of the body where breathability is a challenge, Wilson said. Like Soma’s other innovative bras, the Bodify eschews boning in favor of bonded side support that smooths the figure to “kind of take 10 pounds off your frame,” she added, describing the new arrival as “probably the closest thing you’ll see to a custom fit.”

Soma uses two to three fit models during product development and wear tests across the full size range with input from the technical team. “They’ll see anywhere from eight to 10 different sizes on at any given development period, just to make sure that it’s working,” Wilson said. “And we have a lot of women [employees] internally, which really helps.”