Fort Myers, FL-based specialty retailer, Chico's FAS Inc. (CHS) posted third-quarter fiscal 2014 earnings per share of 17 cents, below the Zacks Consensus Estimate of 18 cents and down 22.7% from the year-ago comparable period earnings of 22 cents.
The decline in bottom line was mainly due to higher costs and expenses as well as negative comparable-store sales (comps) reported in the quarter.
Net sales increased 1.5% year over year to $665.6 million in the quarter. The increase in the top line was mainly driven by the opening of 87 net new stores over the last 12 months offset by a decline in comparable-store sales. However, net sales lagged the Zacks Consensus Estimate of $673 million.
Quarter in Detail
Comps in the quarter fell 1.6% against a 1.4% decline registered in the year-ago quarter. The decline was due to a fall in average dollar sale offset by a rise in transaction counts.
In the reported quarter, Chico's/Soma Intimates comps fell 1.6% against a 3.3% decline in the prior-year quarter. White House | Black Market (WHBM) brands' same-store sales declined 1.4% on top of a 2.5% decline registered last year.
Gross profit fell marginally to $363.8 million from $364 million reported in the year-ago quarter, while gross margin contracted 80 basis points (bps) from the year-ago quarter to 54.7%. The decline in gross margin was primarily due to increased promotion in order to sell seasonal merchandise.
Selling, general and administrative (SG&A) expenses in the reported quarter were $321.6 million, up 4.2% from the year-ago level. As a percentage of sales, SG&A expenses rose 120 bps from the prior-year quarter to 48.3% primarily because of lower sales in relation to sales expenses, investments in strategic initiatives and cycling the reversal of incentive compensation in fiscal 2013.
Operating income came in at $42.2 million contrary to a loss of $17 million reported in the year-ago quarter. Prior-year results included an impairment charge related to the Boston Proper non-cash goodwill and trade name.
Financial Update
Chico’s ended the quarter with cash and marketable securities of $191.2 million, compared with $249.8 million in the year-ago quarter.
Shareholders’ equity totaled $980.3 million as of Nov 1, 2014. During the first three quarters of fiscal 2014, the company has generated $181.1 million of cash from operational activities.
In the third quarter, the company’s capital expenditures were about $35 million, invested mainly toward opening new stores as per its ongoing strategic initiatives. For fiscal 2014, the company expects capital expenditures to be nearly $125—$130 million, of which, about $30 million will be spent toward its strategic plans.
During the quarter, the company returned over $11 million to shareholders in the form of quarterly dividends. However, the company did not buy back any shares in the quarter.
Store Update
During the quarter, this retailer of women’s clothing and accessories opened 38 new stores. As of Nov 1, 2014, Chico’s operated 1,557 stores across the United States and Canada.
The company now anticipates opening about 60 to 70 new stores in fiscal 2015, down from its previous forecast of 70 to 80 stores. This will include about 20 to 22 Chico’s stores, 10 to 13 White House Black Market stores, 19 to 22 Soma stores, 4 to 6 Boston Proper outlets and about 7 locations in Canada.
Other Stocks to Consider
Currently, Chico’s carries a Zacks Rank #3 (Hold). Some better-ranked apparel/shoe retailers include American Eagle Outfitters Inc. (AEO), Foot Locker, Inc. (FL) and Zumiez Inc. (ZUMZ), all carrying a Zacks Rank #2 (Buy).
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