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Chico’s FAS’ Comeback Includes $18 Million Profit

Chico’s FAS continues to make progress in its comeback strategy.

The Fort Myers, Fla.-based retailer — parent company to the Chico’s, White House Black Market, Soma and TellTale brands — revealed quarterly earnings Tuesday morning before the market opened, improving on top and bottom lines thanks to strength across the portfolio. The company set its fourth quarter consolidated net sales outlook between $495 million and $510 million, as a result.

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“The third quarter represents our best third-quarter earnings performance since 2016,” Molly Langenstein, chief executive officer and president of Chico’s FAS, said in a statement. “We delivered robust year-over-year comparable sales growth across all three brands, produced our best third-quarter gross margin performance since 2014 and continued our disciplined expense management. This performance clearly demonstrates the extraordinary progress we are making against our turnaround plan.

“We are a digital-first, customer-led company with a clear path for profitable growth,” the CEO continued. “We have three unique brands, each with their own opportunities for expanding their customer bases, market share and sales. We continue to improve our operating performance, strengthen our balance sheet and build our team and infrastructure. We believe we are poised to generate shareholder value over the long term and look forward to continued success ahead.”

For the three-month period ending Oct. 30, total revenues increased 29 percent to nearly $454 million, up from more than $351 million last year. Total comparable sales were up at the retailer’s three largest brands, compared with 2020, or up 27.9 percent for the company, driven by gains both in stores and through the company’s e-commerce businesses, the CEO said.

“The sales growth was propelled by meaningful enhancements in product and marketing, which continued to significantly drive full-price selling,” Langenstein added. “Customers are enthusiastically responding to our elevated quality and styling at both Chico’s and White House Black Market, as indicated by our third quarter comparable sales growth of 23 percent and 33 percent, respectively, on meaningfully lower inventory levels. At both apparel brands, we achieved significantly faster sell-through rates, increased productivity, more full-priced sales and higher maintained margins.

“Soma posted a 30 percent comparable sales increase over last year’s third quarter and a remarkable 44 percent increase over the third quarter of 2019, marking five consecutive quarters of comparable sales growth at Soma,” she continued. “To continue driving the Soma business forward, we have invested in inventory, capital and staffing to position us to capture additional market share and to become one of the largest intimate apparel brands in the U.S.”

Other growth drivers during the quarter included denim, women’s woven tops and jackets at Chico’s and White House Black Market, as well as continued strength in Soma’s innerwear and sleepwear categories.

The company logged $18.2 million in profits, compared with losses of $55.8 million a year earlier, as a result.

Chico’s FAS ended the quarter with $99 million in long-term debt and more than $134 million in cash and cash equivalents. The retailer also ended the quarter with 1,279 stores and said it obtained approximately $22 million in rent reductions during the first nine months of the year. That’s on top of the $65 million in reductions and abatements last year.

“We believe these renegotiated store leases will provide an occupancy tailwind and will further enhance store profitability,” the company said in a statement.

But some investors remained skeptical over continued supply chain headwinds that are plaguing the entire retail industry. Still, shares of Chico’s FAS close up 3.6 percent to $5.75 apiece Tuesday.

“Obviously, we have seen higher ocean cost, ocean cargo as well as air freight, so the total impact in the [third] quarter was roughly 350 basis points, or just over $50 million,” Langenstein told analysts on Tuesday morning’s conference call. “In the fourth quarter, we do expect it to continue to roughly that, around 300 basis points to 400 basis points, of the impact.

“I would note that the best defense to higher raw material, higher freight cost, has been higher full-price selling and turning our inventories faster,” the CEO continued. “So, our business model is geared toward digesting those costs. But we’ll continue to navigate it. It is a headwind; we do expect it to continue….We do expect this headwind going into 2022. So likely to be with us for a while.

“For nearly two years we have been managing through many COVID-19 challenges,” Langenstein added. “We have been operating and then assessing, aligning, anticipating and actioning our model and we will continue to do so, remaining diligent to make sure that we make swift decisions to move us forward. I mentioned this because we have had efficiencies in the way that we’ve been managing the supply chain, and in the third quarter the supply chain did not materially limit our ability to be able to meet demand. In fact, if you look at the entire COVID-19 period during this timeline we’ve been able to grow all three brands, satisfy customer demand and elevate our liquidity and cash flow. We’ve been able to deliver higher margins and also have a softer landing in the cost of goods with supply chain challenges, because the product is materially different than it was three years ago.”

Shares of Chico’s FAS are up more than 263 percent, year-over-year.