Chico's Outperforms, Guides FY12 - Analyst Blog


Chico's FAS Inc. ( CHS ) reported robust earnings for the fourth quarter and full-year 2011. The company's quarterly earnings per share of 15 cents surpassed the Zacks Consensus Estimate by 4 cents. Moreover, quarterly earnings surged 25% from the prior-year quarter's earnings of 12 cents per share.

For fiscal 2011, the company reported earnings per share of 84 cents, up 31% from the year-ago earnings of 64 cents per share and above the Zacks Consensus Estimate of 80 cents per share. Including one-time costs related to acquisition and integration, the company's GAAP earnings per share for fiscal 2011 came in at 82 cents per share.

Net income in the fourth quarter was $25.1 million compared with $20.7 million in the prior-year quarter. Adjusted net income for fiscal 2011 was 144.4 million compared with $115.4 million earned last year.


Net sales in the fourth quarter were $569.2 million, up 19.8% year over year from $475 million in the prior-year quarter. The increase in its top line reflected a comparable sales increase of 8.7%, a square footage growth of 8.7% and $28.5 million in sales for Boston Proper. Moreover, fourth-quarter net sales also beat the Zacks Consensus Estimate of $547 million.

Chico's reported fiscal 2011 net sales of $2,196.4 million, up 15.3% from the year-ago net sales of $1,905 million, beating the Zacks Consensus Estimate of $2,174 million.

Comparable Store Sales

Including direct-to-consumer sales consolidated comparable store sales in the quarter crept up 8.7% from a 4.5% increase in the prior-year quarter. The increase was driven by a surge in both average dollar sale and transaction count. In the fourth quarter, Chico's/Soma Intimates brands' comparable store sales increased 5.5% and White House|Black Market (WHBM) comparable store sales spiked 15.4%.

Operational Update

Cost of goods sold in the quarter increased 22% to $271.3 million, while gross profit jumped 17.9% to $297.9 million. However, gross margin declined 90 basis points from the prior-year quarter to 52.3%, largely due to planned strategic use of Chico's brand inventory for traffic-driving promotions during the fourth quarter and the inclusion of Boston Proper's results, partially offset by higher margins at the WHBM and Soma Intimates brands.

Selling, general and administrative (SG&A) expenses in the fourth quarter were $259.3 million, up 16.7% from the prior-year quarter. However, as a percentage of sales, SG&A expenses contracted 130 basis points from the prior-year quarter to 45.5%, primarily due to sales leverage impact on store expenses and the inclusion of Boston Proper's results, partially offset by increased marketing expenses.

Operating income, excluding acquisition and integration costs, was $38.7 million compared with $30.5 million in fourth-quarter 2010 while operating margin came in at 6.8%, an increase of 40 basis points.

Financial Update

Cash and marketable securities as of January 28, 2012 were $247.9 million compared with $548.7 million as of January 29, 2011. During the year, the company used the cash to acquire Boston Proper for $213 million, fund capital expenditures to the tune of $132 million, buyback 14 million shares for an aggregate $183 million and toward dividend payments of $34 million. 

As of fiscal year-end 2011, total inventories were $194.5 million compared with $159.8 million as of year-end 2010.

Share Repurchase

During the fourth quarter, Chico's bought back shares worth $25 million, or 2.4 million shares, under its $200.0 million share repurchase program authorized in November 2011.

Store Update

The company's Chico's brand currently operates 601 boutiques and 84 outlet stores, White House Black Market runs 363 boutiques and 27 outlet stores, and Soma Intimates operates 169 boutiques and 17 outlet stores - cumulatively a total of 1,261 stores. The company has operations in 48 states, the District of Columbia, the U.S. Virgin Islands and Puerto Rico.


In fiscal 2012, Chico's expects net sales, including Boston Proper, to increase in the mid teens percentage rate to roughly $2.5 billion. Comparable store sales for the year is projected to increase in the mid-single-digit rate, with store square footage growing nearly 9% and an additional sales of $30 million coming from the 53 rd week included in fiscal 2012.

The company expects gross margin for fiscal 2012 to be down 50 basis points, with the same rate of decline also expected for SG&A expense, as a percentage of sales. Effective tax rate for the year is projected to be about 38%.

Inventories at the end of fiscal 2012 are estimated to be in line with sales growth, while capital expenditures for the year is expected to approximately $150 million.

Chico's closest peer Nordstrom Inc. ( JWN ) posted earnings growth of 6.7% to reach $1.11 per share in the fourth quarter of fiscal 2011. Earnings per share also beat the Zacks Consensus Estimate by a penny primarily driven by double-digit growth in total revenue.

Chico's shares maintain a Zacks #3 Rank, which translates into a short-term Hold rating. Our long-term recommendation on the stock remains 'Neutral'.

CHICOS FAS INC ( CHS ): Free Stock Analysis Report
NORDSTROM INC ( JWN ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: CHS , JWN

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