Chico's FAS earnings down amid hurricanes
Casey LoganThree hurricanes impacted sales at Chico’s FAS in the third quarter.
That was a major takeaway Tuesday as the Fort Myers-based company announced earnings results before the stock market opened.
For the 13 weeks ended Oct. 28, the company reported net income of $16.7 million, or 13 cents per share, compared to net income of $23.6 million, or 18 cents per share, for the third quarter a year ago.
Results include the unfavorable impact of three hurricanes (Harvey, Irma and Maria) of about $5 million after-tax, as well as expenses from restructuring and strategic charges, including those related to Boston Proper, of $2.8 million after-tax. The company completed the sale of the Boston Proper brand in January 2016.
Chico’s FAS has three brands: Chico’s, White House Black Market and Soma. It operates 1,474 stores in the U.S. and Canada and sells merchandise through franchise locations in Mexico.
Despite the hurricanes, CEO and President Shelley Broader said in an earnings call that the results of the quarter were in line with expectations.
“We are pleased with the progress on our strategic initiatives to better address customer needs and transform our business,” she said. “The company’s performance shows that we are continuing to benefit from our organizational changes and our operating efficiency initiatives.”
Those improvements include expansion of special sizes, the broadening of customer engagement online and in store, and the creation of alternative sales channels.
The company added a new channel called chicosofftherack.com, which Broader described as an “exclusively made-for-outlet division” that can increase brand awareness.
Broader thanked employees for their response to the challenges brought by the hurricanes.
For the third quarter, net sales were $532.3 million compared to $596.9 million a year ago. The decline of 10.8 percent primarily reflects a comparable sales decline of 8.2 percent, driven by lower average dollar sales and a decline in transactions.
Broader said there was a significant decline in traffic and sales in September due to the hurricanes and a changing marketing strategy, adding a healthy rebound occurred in October.
The hurricanes resulted in reduced operating hours or the temporary closure of more than 300 stores, as well as a decline in direct-to-customer sales. The impact to income from operations due to lower net sales, impairment charges and other incremental hurricane-related expenses was about $10 million.
“The hurricanes clearly had an impact to our overall sales volumes,” said Todd Vogensen, chief financial officer.
Broader, noting she is approaching her two-year anniversary leading the company, said she is close to completing implementation of her revitalization plan. The plan is in its last phase: building a sustainable revenue stream.
“We are making important improvements across our brands,” she said.
Diane Ellis, Broader noted, just celebrated her one-year anniversary as head of the Chico’s brand.
“We have seen her influence over the entire assortment,” Broader said, adding later: “We’ve now come to a full cycle with new leadership at Chico’s. Under Diane’s leadership, the new real leader at Chico’s is the customer. We’ve started to see some exciting rebounding with that customer.”
Broader noted that plus-size assortments were added to Chico’s and White House Black Market in October and “our customers are buzzing.”
Chico’s FAS has enhanced a tool that allows sales associates to access “actionable analytics,” which improves inventory turn and helps customers, and the company has improved access to gift cards online.
The Chico’s brand, after careful analysis, has returned to more fashion basics after determining it was too trend driven.
Broader referenced the outside hurricane and the inside hurricane, noting the company isn’t afraid to make changes quickly. She was speaking particularly to a stronger shift to digital marketing.
Digital marketing, according to Vogensen, has been a “much better return on investment for us, compared to TV.”
The White House Black Market brand did not meet expectations for the quarter. The brand has a new head of design and is working to correct the assortment mix.
At Soma, new brand president Mary van Praag is focusing on merchandise improvements. For the holidays “we’re working to make gift-giving easy,” Broader said.
“We know there is more work to be done,” Broader said in concluding remarks. “We remain committed to driving our top line. Our team is focused on long-term growth and the success of this business.”
For the fourth quarter, the company expects comparable sales to be down in the high single-digits.
The company is going into the quarter “clean on inventory,” Vogensen said. “We’re in a position to be able to increase our full price sales and decrease our clearance.”
The company’s balance sheet remains strong, with $186 million in cash and short-term investments and $72 million in debt.
A major part of the company’s strategy remains “investing in stores through relocation, refreshes and remodels to elevate the brand,” he said.
In 2018, Vogensen said the company will continue to improve operating efficiency after reducing expenses by $100 million over the past 18 months.
“We believe cost savings are not a one-time event,” he said.
Also Tuesday, the company announced that its board of directors declared a quarterly cash dividend of 8.25 cents per share of its common stock, a 3.1 percent increase over the dividend rate from December 2016. The dividend is payable on Dec. 18, to Chico’s FAS shareholders of record at the close of business on Dec. 4.
Chico’s stock (NYSE: CHS) fell 26 cents or 3.1 percent on Tuesday. The stock closed at $7.89.
Connect with this reporter: email clogan@news-press.com and follow on Twitter @caseylo