U.S. based specialty retailer, Chico's FAS Inc. (CHS) reported first-quarter fiscal 2013 earnings of 32 cents per share that came in line with the year-ago quarter but fell short of the Zacks Consensus Estimate of 36 cents.
Sales Report
Net sales climbed 3.1% year over year to $670.7 million in the quarter but missed the Zacks Consensus Estimate of $712.0 million. Top line in the quarter mainly benefited from the opening of 114 new stores that led to square footage growth of 9.0%.
Comparable-store sales (comps) in the quarter remained flat against a 9.6% increase reported in the year-ago quarter. During the quarter, comps mainly suffered due to an unseasonably cold weather as well as strong year-ago comparisons. Sales at the company’s stores benefited from higher transaction count, fully offset by lower average dollar sales.
In the reported quarter, Chico's/Soma Intimates brands' comparable store sales declined 2.8% while White House Black Market (WHBM) comparable store sales improved 6.4%.
Quarter’s Operational Performance
Gross profit for this Zacks Rank #3 (Hold) company jumped 2.2% to $386.8 million while gross margin contracted 50 basis points (bps) from the year-ago quarter to 57.7%. The decline in gross margin was largely due to increased promotion of seasonal merchandise in an unusually cold spring season and investment to implement the new distribution automation, slightly offset by lower incentives.
Selling, general and administrative (SG&A) expenses in the reported quarter were $304.9 million, up 4.5% from the year-ago level. However, as a percentage of sales, SG&A expenses expanded 70 bps from the prior-year quarter to 45.5%, primarily due to increased occupancy and marketing expenses as a percent of net sales, offset by lower incentive expenses.
Operating income was $81.0 million compared with $86.4 million in the year-ago quarter, while operating margin came in at 12.1%, marking a decline of 120 bps.
Financial Update
Cash and marketable securities as of May 4, 2013, were $288.4 million, compared with $340.5 million as of Apr 28, 2012. At the end of the first quarter, inventories reflected an increase of 13.9% to $243.5 million from $213.7 million as of the end of the year-ago quarter. During the quarter, the company made a capital expenditure of $34.6 million, which was mainly related to its ongoing store growth initiatives.
The company spent $60 million during the quarter to buy back 3.4 million shares under its ongoing $300 million share repurchase program authorized in Feb 2013. Currently, the company has authorization worth nearly $240 million remaining under its share repurchase program.
Outlook
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 the opening of its first Boston Proper stores. For fiscal 2013, Chico’s expects capital expenditures to be approximately $140 million.
Other Stocks to Consider
Stocks performing well among the apparel/shoe retailers include New York & Company Inc. (NWY), which has a Zacks Rank #1 (Strong Buy), Pacific Sunwear of California Inc. (PSUN) and Gap Inc. (GPS), both of which have a Zacks Rank #2 (Buy).
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