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Chico’s to Close 40 Stores

Chico’s FAS Inc.’s first-quarter sales rose 40 percent as the women’s specialty retailer plans to shut down 40 stores.

In a Nutshell: “We view our current real estate footprint as a strategic asset and competitive advantage given our prime locations across the U.S., and we plan to optimize this advantage over the coming years,” chief financial officer PJ Guido told Wall Street analysts during a conference call on Tuesday. Chico’s ended the first quarter operating 1,264 locations, compared with 1,264 in the same 2019 period.

“Despite this 10 percent reduction in the store fleet, total sales were 4.5 percent above the first quarter of 2019,” he said.

The company will open up to 30 new free-standing Soma stores and plans to close 40 mall-based Chico’s and White House Black Market locations. The company closed less than 40 last year after working out favorable lease deals with landlords and originally planning up to 50, Guido said.

“After achieving a successful turnaround, our team is focused on delivering our three-year growth plan, and great progress is underway,” CEO Molly Langenstein said.

Each brand is focused on driving AUR (average unit retail) and full-price sales growth. New customers are trending younger company-wide. Price increases haven’t affected customer behavior, according to Langenstein. The company is working to reduce promotions and freshen up the assortment.

White House Black Market customers “enthusiastically responded to versatile dressing in seasonless fabrics,” Langenstein said. At Chico’s, key items were no-iron shirts, the Travelers Collection and bottoms in pants and denim featuring the So Slimming bottom and 360-fit panel. Soma sales were led by the launch of Bodify, a Smart Bra using first-to-market technology that “adjusts to a woman’s individual body measurement as they fluctuate throughout the month,” she said. The company is driving sales of core items at Soma to offset a slowdown in lounge and cozy categories.

Net Sales: For the three months ended April 30, sales jumped 39.4 percent to $540.9 million from $388 million. The retailer said comparable sales rose 40.6 percent, partially offset by 29 permanent store closures since last year’s first quarter. The improvement was due to an increase in transaction count and higher average dollar sale, Chico’s said.

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Guido said that comparable sales growth surpassed 2019 levels by 11 percent. “This performance was driven by the newness and innovation of our assortments and enhanced marketing efforts that drove full-price selling,” he said.

By division, Chico’s gained 49.4 percent to $264.5 million from $177.0 million, while comparable sales rose 52 percent. White House Black Market rose 62.5 percent to $169.0 million from $104.0 million, with a 65 percent comparable sales increase. Soma sales improved 0.5 percent to $107.4 million from $106.9 million.

Inventories at the end of the quarter totaled $325.6 million, or a 55.3 percent increase reflecting elevated on-hand merchandise to align with higher consumer demand, increased in-transit goods to offset expected global supply chain delays, a rise in basics and replenishment items and higher average unit costs. Citing Chico’s as an example, Guido said in-transit inventory represents summer and early fall assortments to satisfy planned demand for the second quarter through the end of the year. On-hand inventories are in line with the total sales growth for each brand, he added.

The gross margin rate rose to 40.0 percent, exceeding first quarter outlook by 230 basis points and outperforming the year-ago rate by 730 basis point.

Earnings: Net income for the quarter was $34.9 million, or 28 cents a diluted share, against a net loss of $8.9 million, or 8 cents, a year ago.

Wall Street was expecting adjusted diluted EPS of 9 cents on revenue of $490.1 million.

For the second quarter, the retailer guided diluted EPS to the range of 21 cents to 26 cents on consolidated net sales of $535 million to $550 million.

For the year, the retailer raise guidance to reflect first quarter results and now expects diluted EPS at between 64 cents to 74 cents, on consolidated net sales between $2.13 billion to $2.16 billion. That’s up from prior guidance of EPS at 40 cents to 50 cents and net sales at $2.09 billion to $2.12 billion from March when fourth quarter results were posted.

CEO’s Take: “During the quarter, we had exceptional gross margin performance driven by strength in full-price sales, higher AURs, and improved leverage of occupancy costs on higher sales despite increases in raw materials,” Langenstein said. “We actively manage the production calendar, inventory flow, and the supply chain challenges to assure goods arrived on time while controlling freight costs. We are focusing on continually improving our sourcing logistics and operational processes to help drive efficiencies.”