Chico's FAS Inc. (CHS) reported third-quarter 2011 earnings of 18 cents per share, missing the Zacks Consensus Estimate by couple of cents. However, the quarterly earnings increased 13% from the prior-year quarter's earnings of 16 cents per share.
On a reported basis, including one time items, the company reported earnings of 16 cents per share.
In a separate story, Chico's FAS announced that it has completed the acquisition of 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 million. The deal will help Chico's to boost its market share in direct-to-consumer channel.
Quarter in Detail
During the quarter, net sales increased 11.5% to $538.5 million from $483 million in the prior-year period. The top-line advance reflects an increase of 5.8% in Chico's/Soma Intimates sales of $357.2 million coupled with a rise of 17.2% in White House Black Market (WHBM) sales to $170.3 million. However, net sales came below the Zacks Consensus Estimate of $548 million.
Growth in average dollar sale and increased transaction count facilitated consolidated comparable store sales to increase 3.7% in the quarter. Chico's/Soma Intimates brands' comparable store sales registered a marginal increase of 0.6%. Meanwhile, WHBM comparable store sales climbed 11%.
Cost of goods sold in the quarter increased 14% to $237 million, while gross profit marked a 9.6% rise to $301.5 million during the quarter. The company in order to mitigate soft sales increased discount on Chico's brand, driving gross margin to contract by 100 basis points from the prior-year quarter to 56%.
Adjusted operating income was $47 million compared with $44.2 million in third-quarter 2010 while operating margin came in at 8.7%, a decrease of 40 basis points. However, on a reported basis, including one time items, operating income came in at $42 million.
Financial Update
Cash and cash equivalents at the end of third-quarter 2011 increased to $49.5 million from $21.9 million at the end of third-quarter 2010.
Year-to-date, net cash from operations came in at $181 million compared with $176.9 million for the same period last year. Purchases of property and equipment were $98.2 million compared with $58.5 million in the prior-year period.
Share Repurchase and Dividend
Chico’s, which faces stiff competition from Nordstrom Inc. (JWN), repurchased 4.7 million shares for $60 million during the quarter. Moreover, the company announced a new $200.0 million share repurchase program. The new program overrides the previous authorization, which had $24.2 million remaining under it.
Going forward, the company also announced a quarterly cash dividend of 5 cents a share. The dividend will be payable on December 19, 2011to shareholders of record as of December 5, 2011.
Guidance Update
Moving ahead, the company expects total net sales to increase in the mid-teens for the fourth quarter of 2011 with a mid single-digit increase in comparable sales.
Moreover, gross margin is expected to decline in the range of 100 to 200 basis points during the fourth quarter of 2011 in comparison to the same period last year.
Store Update
The company's Chico's brand currently operates 599 boutique and 82 outlet stores, White House Black Market runs 358 boutiques and 25 outlet stores, and Soma Intimates operates 168 boutique stores and 17 outlet stores – cumulatively a total of 1,249 stores. The company has operations in 48 states, the District of Columbia, the U.S. Virgin Islands and Puerto Rico.
Chico’s plans to open 16 boutiques and outlets, while closing 15 boutiques in the fourth quarter of 2011.
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.
Currently, we maintain a long-term ‘Neutral’ rating on the stock. Moreover, Chico's has a Zacks #3 Rank, which translates into a short-term 'Hold' rating.
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