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Strong January Jolts Chico’s Q4

While apparel led revenue growth and more full-priced sales at Chico’s and White House Black Market (WHBM) for the full year, customers shopping at Chico’s FAS Inc. brands sprang for spring merchandise in January which drove full-price fourth quarter sales.

In a Nutshell: “The power of our three unique brands is driving growth through three powerful platforms, creating long-term connections and enabling our customers to interact with us in a seamless manner,” Molly Langenstein, president and CEO, said in a conference call to investors. “Our physical stores are community centers where our customers experience our products in the most exciting way possible.”

The company achieves strong store and digital sales growth, gross margin expansion and “solid expense leverage” last year, she said.

“These results demonstrate the power of our three brands and our product performance and reflect our team’s steadfast commitment to our four strategic pillars of being customer led, product obsessed, digital first and operationally excellent,” Langenstein said.

A strong start to 2023 pushed fourth-quarter performance to the high end of Chico’s outlook.

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“Across all three brands, customers responded to new spring product offerings which drove full price selling in the quarter,” she said. Full-price selling also lifted Chico’s second and third quarter performance last year.

Chico’s customers responded to the brand’s product and fashion newness, while WHBM shoppers favored “seasonless fabrics and product innovation to meet her work-from-anywhere needs and special occasion wear.” Langenstein said foundations performed well for Soma.

She said that customers at Chico’s and WHBM bought complete outfits and accessories instead of single items, which increased AUR (average unit retail) and basket size.

For the year, Langestein said customer count was up 5 percent, while spend per customer rose 12 percent. The average age of new customers is trending younger.

“Our lean inventory fueled faster sell-through rates, higher average unit retail and more full price sales throughout the year for all three brands,” Langenstein said.

The company ended the year with inventories totaling $276.8 million, a 14.4 percent decrease from $323.4 million in the prior year. The decline reflected a decrease in on-hand inventory of 6.2 percent and in-transit inventory of 28.5 percent due to optimized inventory management and shorter goods in-transit times versus the prior year, Chico’s said.

Gross margin for the quarter inched up to 34.9 percent from 34.5 percent, reflecting in part lower inbound freight costs, partially offset by higher raw material costs.

During the year, the company opened 27 free-standing Soma stores, and refreshed 43 Chico’s, WHBM and Soma doors. The company closed 24 locations in 2022, down from the initial target of 40 as it improved productivity and profitability. Chico’s FAS ended the year with 1,269 locations. It could close up to 20 additional locations in 2023.

While inbound freight costs are coming down, the cost of shipping to customers is creeping up, chief financial officer PJ Guido told investors. Raw material costs are still high and expected to stay that way this year. Guido said the company will continue investing in differentiated fabrics that allow “us to price for innovation and drive AUR higher.”

Net Sales: For the three months ended Jan. 28, total net sales rose 6 percent to $524.1 million from $496.3 million in the same year-ago quarter, while comparable sales rose 6.1 percent that was driven by an increase in transaction count and partially offset by a decrease in the average dollar sale.

By brand, sales at Chico’s were up 14 percent to $243 million from $213.7 million, with comparable sales up 16.1 percent. Categories that did well in the quarter were sweaters and woven tops, pants, denim and dresses. At White House Black Market, they were essentially flat at $152.5 million from $151.9 million, although comps rose 1.9 percent. “Versatile tailoring with feminine detail in seasonal fabrics drove the business in key categories,” Langenstein said, adding that pants, denim, jackets, woven tops and dresses were key categories. And at intimates banner Soma, sales were down 2 percent while comps fell 5 percent. “We continue to make investments in cutting edge product and innovation and comfort solutions in panties, sleep, active and especially bras,” she said.

Digital sales grew 16 percent for the year, and represented 41 percent of total company revenue.

For the full year, net sales jumped 18 percent to $2.14 billion from $1.81 billion in the prior year.

Earnings: For the quarter, net income was down 30 percent to $7.49 million, or 6 cents a diluted share, from $10.7 million, or 9 cents, in the year-ago period.

For the first quarter, the company guided total net sales to between $535 million to $550 million, with diluted earnings per share (EPS) between 26 cents to 30 cents. The gross margin rate was guided to 41.3 percent for the quarter.

For Fiscal 2023, which includes an additional 53rd week, net sales were guided to the range of $2.22 billion to $2.25 billion, with diluted EPS between 79 cents and 91 cents.

For the year, net income more than doubled to $109 million, or 88 cents a diluted share, from $46.2 million, or 37 cents, in the prior year.

CEO’s Take: “At each brand, we are focused on elevating AUR and driving full price sales growth,” Langenstein said. “At both apparel brands, customers continue to respond to our elevated fashion and product offerings in nearly every apparel category, demonstrating that product enhancement and innovation are moving the brands forward and that customers appreciate higher quality and are receptive to paying for value and solutions.”