Chico's FAS Inc. (CHS) reported first-quarter 2011 earnings of 26 cents per share, beating the Zacks Consensus Estimate by a penny. Moreover, the results compare favorably with 20 cents earned in the first quarter of 2010.
Net income was $45.9 million compared with $35.4 million in the prior-year quarter. The improvement in quarterly performance of the company was primarily driven by strong growth in top line and improved margin.
Sales
Net sales in the first quarter of 2011 were $537.2 million, up 11.5% year over year from $481.6 million in the prior-year period. The top-line advance reflects an 11.4% increase in Chico's/Soma Intimates sales of $374.9 million compared with the prior-year quarter coupled with a 12.0% increase in White House Black Market (WHBM) sales to $162.2 million. However, net sales missed the Zacks Consensus Estimate of $542.0 million.
Comparable Store Sales
Including direct-to-consumer sales consolidated comparable store sales in the quarter crept up 7.7% from the prior-year quarter. Chico's/Soma Intimates brands' comparable store sales improved 7.8%. Meanwhile, WHBM comparable store sales inched up 7.4%.
Operational Update
Cost of goods sold in the quarter increased 9.7% to $219.5 million. However, gross margin improved 60 basis points from the prior-year quarter to 59.1%, largely due to increased margins at Chico's and WHBM frontline stores.
Selling, general and administrative expenses were $244.8 million in the first quarter, up from $226.5 million in the prior-year quarter. Increase of $12.3 million in store and direct operating costs related to 85 new stores opened in the past twelve months and the planned increase in promotional activity resulted in the cost spike.
Higher occupancy expenses associated with the opening of stores, store labor costs and higher promotional activity led to the increase in store and direct operating expenses to $180.1 million in the reported quarter. Operating income was $72.8 million compared with $55.1 million in first-quarter 2010 while operating margin came in at 13.6%, an increase of 210 basis points.
Financial Update
Cash and cash equivalents at the end of first-quarter 2011 increased $123.4 million from $32.7 million at the end of first-quarter 2010.
In the quarter, net cash from operations came in at $77.0 million compared with $79.5 million for the same period last year. Purchases of property and equipment were $16.2 million compared with $15.4 million in the prior-year period.
Dividend and Share Repurchase
The board of directors of Chico's FAS declared a quarterly cash dividend of 5 cents per share to shareholders of record as of June 13, 2011. The dividend will be payable on June 27, 2011.
The company has repurchased shares worth $36.3 million under its $200.0 million share repurchase program authorized in August 2010. Currently, the company has remaining $145.4 million under its authorized share repurchase program.
Store Update
The company's Chico's brand currently operates 595 boutique and 71 outlet stores, White House Black Market runs 350 boutiques and 24 outlet stores, and Soma Intimates operates 134 boutique stores and 10 outlet stores – cumulatively a total of 1,184 stores. The company has operations in 48 states, the District of Columbia, the U.S. Virgin Islands and Puerto Rico.
Chico's FAS Inc., headquartered in Fort Myers, Florida, designs and retails private label, casual-to-dressy clothing, intimates, complementary accessories, and other non-clothing gift items in the United States, the U.S. Virgin Islands, and Puerto Rico. The company offers its products under the Chico's, White House Black Market (WH/BM) and Soma brands.
The company's nearest competitor Nordstrom Inc. (JWN) recently posted earnings growth of 32.7% to reach 69 cents per share in the first quarter of fiscal 2011.
Chico'sshares 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
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