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Chico's EPS In Line, Sales Slump

Zacks Equity Research

Driven by robust sales performance and improved margins, U.S. based specialty retailer, Chico's FAS Inc. (CHS) reported fourth-quarter fiscal 2012 earnings per share of 20 cents per share, up 33.3% from the year-ago quarter's adjusted earnings of 15 cents and in line with the Zacks Consensus Estimate.

For fiscal 2012, Chico’s reported record earnings of $1.09 per share, surging 29.8% from 84 cents earned in fiscal 2011, while meeting the Zacks Consensus Estimate.

Sales Report

Net sales climbed 14.5% year over year to $651.9 million in the fourth quarter of fiscal 2012 but missed the Zacks Consensus Estimate of $664.0 million. Top line in the quarter mainly benefited from a comparable store sales (comps) increase of 3.7% as well as the opening of 101 new stores that led to square footage growth of 8.1%.

Comps gains in the quarter resulted from the favorable response received for the company’s fashionable merchandise and its innovative marketing plans. In the reported quarter, Chico's/Soma Intimates brands' comparable store sales increased 2.3% and White House Black Market (:WHBM) comparable store sales improved 6.3%.

For fiscal 2012, the company gained 17.5% year over year, with net sales of $2,581.1 million. However, sales results for the year fell short of the Zacks Consensus Estimate of $2,592.0 million.

Quarter’s Operational Performance

Gross profit for this Zacks Rank #4 company jumped 16.4% to $346.7 million while gross margin expanded 90 basis points (bps) from the year-ago quarter to 53.2%, largely due to higher full-price selling and effectual inventory management, which were partially offset by increased incentives.

Selling, general and administrative (SG&A) expenses in the reported quarter were $296.1 million, up 14.3% from the year-ago level. However, as a percentage of sales, SG&A expenses contracted 10 bps from the prior-year quarter to 45.4%, primarily due to sales leverage impact on marketing and store expenses, partially offset by increased incentive expenses.

Adjusted operating income (excluding acquisition and integration charges) was $50.6 million compared with $38.7 million recorded in the fourth quarter of 2011, while operating margin came in at 7.8%, an increase of 100 bps primarily due to increased gross margin and lower operating expenses.

Financial Update

Cash and marketable securities as of Feb 2, 2013, were $329.4 million, compared with $247.9 million as of Jan 28, 2012. At the end of fiscal 2012, inventories reflected an improvement of 6.4% to 206.8 million from $194.5 million as of the end of fiscal 2011, which was in line with the forecasted sales growth.

The company spent $70.1 million during the fourth quarter to buy back 3.9 million shares under its ongoing $200.0 million share repurchase program authorized in Nov 2011. This brought the company’s total share repurchases for the year to 6.3 million shares worth about $107.5 million.

Concurrent to its earnings release, Chico’s announced a new $300 million authorization to buy back shares. This new authorization will be effective from Mar 1, 2013, and will replace the company’s previous $200 million program that was approved in Nov 2011. With the new program in vogue, the company announced that its Nov 2011 authorization stands cancelled with about $67.7 million remaining under the plan.

Separately, the company announced a cash dividend of 5.5 cents per share, an increase of 4.8% over the dividend paid in Mar 2012. The dividend will be paid on Apr 1, 2013 to the shareholders of record as of Mar 18, 2013.


Going forward, Chico’s maintains its goal to formulate financial targets which reflect sustainable and robust growth metrics. Taking a long-term view, the company expects to provide sustained value to its shareholders by delivering low double-digit percentage sales growth and mid-teen percentage earnings per share growth over a reasonable span of time.

In sync with the above mentioned goals, the company has highlighted a number of strategic initiatives for 2013 that will help boost future growth. Some of these initiatives include omni-channel capabilities, expansion into Canada, and opening its first Boston Proper stores.

Stocks performing well among the apparel/shoe retailers include Express Inc. (EXPR), which has a Zacks Rank #1 (Strong Buy), Foot Locker Inc. (FL) and Gap Inc. (GPS), both of which have a Zacks Rank #2 (Buy).

Read the Full Research Report on GPS

Read the Full Research Report on FL

Read the Full Research Report on CHS

Read the Full Research Report on EXPR

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