Chico's FAS Inc. (CHS) reported second-quarter 2011 earnings of 25 cents per share, beating the Zacks Consensus Estimate by a penny. Moreover, the quarterly earnings surged 47.0% from the prior-year quarter's earnings of 17 cents per share.
Net income was $43.4 million compared with $30.5 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 second quarter of 2011 were $551.4 million, up 18.5% year over year from $465.4 million in the prior-year period. The top-line advance reflects an increase of 17.1% in Chico's/Soma Intimates sales of $374.3 million compared with the prior-year quarter coupled with a rise of 21.6% in White House Black Market (WHBM) sales to $177.1 million. Moreover, net sales also beat the Zacks Consensus Estimate of $536.0 million.
Comparable Store Sales
Including direct-to-consumer sales consolidated comparable store sales in the quarter crept up 12.8% from the prior-year quarter. Chico's/Soma Intimates brands' comparable store sales improved 11.9%. Meanwhile, WHBM comparable store sales spiked 14.9%.
Operational Update
Cost of goods sold in the quarter increased 17.4% to $242.1 million. However, gross margin improved 40 basis points from the prior-year quarter to 56.1%, largely due to increased margins at Chico's and WHBM frontline stores.
Selling, general and administrative (SG&A) expenses were $240.4 million in the second quarter, up from $211.8 million in the prior-year quarter. However, as a percentage of sales, SG&A expenses improved 190 basis points to 43.6% from 45.5% in the prior-year quarter, primarily due to higher sales leverage on store personnel and occupancy costs, partially offset by higher performance based compensation.
Operating income was $69.0 million compared with $47.4 million in second-quarter 2010 while operating margin came in at 12.5%, an increase of 230 basis points.
Financial Update
Cash and cash equivalents at the end of second-quarter 2011 increased to $56.1 million from $17.6 million at the end of second-quarter 2010.
Year-to-date, net cash from operations came in at $122.5 million compared with $109.9 million for the same period last year. Purchases of property and equipment were $56.3 million compared with $34.4 million in the prior-year period.
Dividend and Share Repurchase
The company has repurchased shares worth $61.2 million under its $200.0 million share repurchase program authorized in August 2010. Currently, the company has remaining $84.2 million under its authorized share repurchase program.
Store Update
The company's Chico's brand currently operates 598 boutique and 78 outlet stores, White House Black Market runs 354 boutiques and 25 outlet stores, and Soma Intimates operates 150 boutique stores and 16 outlet stores – cumulatively a total of 1,221 stores. The company has operations in 48 states, the District of Columbia, the U.S. Virgin Islands and Puerto Rico.
Separate Story
In a separate story, Chico's FAS announced that it is going to acquire Boca Raton, Florida-based Boston Proper, a leading direct-to-consumer retailer of women's high-end apparel and accessories for a total sum of $205.0 million. The transaction will be funded by the company's available cash balance and is expected to close within 45 days from now. The deal will help Chico's to enhance its market share in direct-to consumer channel.
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 21.2% to reach 80 cents per share in the second quarter of fiscal 2011.
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'.
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