Chico's FAS, Inc. Reports Fourth Quarter and Fiscal Year 2016 Results

Thirteen Weeks Ended

Fifty-Two Weeks Ended

January 28, 2017

January 30, 2016

January 28, 2017

January 30, 2016

Chico's

(4.8)

%

(1.7)

%

(5.3)

%

(2.0)

%

White House Black Market

(0.6)

%

(7.4)

%

(2.8)

%

(2.5)

%

Soma

0.4

%

2.1

%

0.5

%

3.1

%

Total Company

(2.5)

%

(3.2)

%

(3.7)

%

(1.5)

%

Chico's FAS, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Loss)

(Unaudited)

 (in thousands, except per share amounts)

Thirteen Weeks Ended

Fifty-Two Weeks Ended

January 28, 2017

January 30, 2016

January 28, 2017

January 30, 2016

Amount

% of
Sales

Amount

% of
Sales

Amount

% of
Sales

Amount

% of
Sales

Net sales:

Chico's

$

290,763

48.4

$

305,094

48.3

$

1,285,830

51.9

$

1,363,792

51.3

White House Black Market

212,615

35.4

215,197

34.1

846,035

34.2

874,879

32.9

Soma

97,411

16.2

94,569

15.0

344,545

13.9

334,916

12.6

Boston Proper

—

0.0

16,750

2.6

—

0.0

87,048

3.2

Total net sales

600,789

100.0

631,610

100.0

2,476,410

100.0

2,660,635

100.0

Cost of goods sold

387,392

64.5

414,221

65.6

1,529,574

61.8

1,633,764

61.4

Gross margin

213,397

35.5

217,389

34.4

946,836

38.2

1,026,871

38.6

Selling, general and administrative expenses

191,990

31.9

217,208

34.4

775,107

31.2

878,699

33.0

Goodwill and trade name impairment

—

0.0

—

0.0

—

0.0

112,455

4.3

Restructuring and strategic charges

—

0.0

14,623

2.3

31,027

1.3

48,801

1.8

Income (loss) from operations

21,407

3.6

(14,442)

(2.3)

140,702

5.7

(13,084)

(0.5)

Interest expense, net

(499)

(0.1)

(449)

(0.1)

(1,973)

(0.1)

(1,870)

0.0

Income (loss) before income taxes

20,908

3.5

(14,891)

(2.4)

138,729

5.6

(14,954)

(0.5)

Income tax provision (benefit)

7,400

1.3

6,200

1.0

47,500

1.9

(16,900)

(0.6)

Net income (loss)

$

13,508

2.2

$

(21,091)

(3.4)

$

91,229

3.7

$

1,946

0.1

Per share data:

Net income (loss) per common share-basic

$

0.10

$

(0.16)

$

0.69

$

0.01

Net income (loss) per common and common equivalent share–diluted

$

0.10

$

(0.16)

$

0.69

$

0.01

Weighted average common shares outstanding–basic

126,489

135,275

128,995

138,366

Weighted average common and common equivalent shares outstanding–diluted

126,905

135,275

129,237

138,741

Dividends declared per share

$

0.08

$

0.0775

$

0.32

$

0.31

Chico's FAS, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands)

January 28,
2017

January 30,
2016

ASSETS

Current Assets:

Cash and cash equivalents

$

142,135

$

89,951

Marketable securities, at fair value

50,370

50,194

Inventories

232,363

233,834

Prepaid expenses and accounts receivable

50,350

45,660

Income tax receivable

2,408

29,157

Assets held for sale

—

16,525

Total Current Assets

477,626

465,321

Property and Equipment, net

477,185

550,953

Other Assets:

Goodwill

96,774

96,774

Other intangible assets, net

38,930

38,930

Other assets, net

18,479

14,074

Total Other Assets

154,183

149,778

$

1,108,994

$

1,166,052

     LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable

$

116,378

$

129,343

Current debt

16,250

10,000

Other current and deferred liabilities

170,232

158,788

Total Current Liabilities

302,860

298,131

Noncurrent Liabilities:

Long-term debt

68,535

82,219

Deferred liabilities

118,543

130,743

Deferred taxes

9,883

15,171

Total Noncurrent Liabilities

196,961

228,133

Stockholders' Equity:

Preferred stock

—

—

Common stock

1,288

1,355

Additional paid-in capital

452,756

435,881

Treasury stock, 26,418 shares at January 28, 2017 and 18,307 shares at January 30, 2016

(386,094)

(289,813)

Retained earnings

541,251

492,325

Accumulated other comprehensive (loss) income

(28)

40

Total Stockholders' Equity

609,173

639,788

$

1,108,994

$

1,166,052

Chico's FAS, Inc. and Subsidiaries

Condensed Consolidated Cash Flow Statements

(Unaudited)

 (in thousands)

Fifty-Two Weeks Ended

January 28,
2017

January 30,
2016

Cash Flows From Operating Activities:

Net income

$

91,229

$

1,946

Adjustments to reconcile net income to net cash provided by operating activities —

Goodwill and intangible impairment charges, pre-tax

—

112,455

Depreciation and amortization

109,251

118,800

Deferred tax benefit

(8,427)

(34,415)

Stock-based compensation expense

21,249

30,062

Excess tax benefit from stock-based compensation

(604)

(3,084)

Deferred rent and lease credits

(18,811)

(21,741)

Loss on disposal and impairment of property and equipment

10,523

23,744

Changes in assets and liabilities:

Inventories

1,472

(6,719)

Prepaid expenses and other assets

(7,565)

358

Income tax receivable

26,749

(28,562)

Accounts payable

(13,015)

(12,101)

Accrued and other liabilities

18,659

16,248

Net cash provided by operating activities

230,710

196,991

Cash Flows From Investing Activities:

Purchases of marketable securities

(50,717)

(52,668)

Proceeds from sale of marketable securities

50,508

129,000

Purchases of property and equipment, net

(47,836)

(84,841)

Proceeds from sale of land

16,217

—

Proceeds from sale of Boston Proper net assets

—

9,000

Net cash (used in) provided by investing activities

(31,828)

491

Cash Flows From Financing Activities:

Proceeds from borrowings

—

124,000

Payments on borrowings

(7,500)

(31,500)

Proceeds from issuance of common stock

4,359

10,613

Excess tax benefit from stock-based compensation

604

3,084

Dividends paid

(42,254)

(43,729)

Repurchase of common stock

(101,878)

(302,849)

Net cash used in financing activities

(146,669)

(240,381)

Effects of exchange rate changes on cash and cash equivalents

(29)

(501)

Net increase (decrease) in cash and cash equivalents

52,184

(43,400)

Cash and Cash Equivalents, Beginning of period

89,951

133,351

Cash and Cash Equivalents, End of period

$

142,135

$

89,951

Supplemental Detail on Earnings Per Share Calculation

In accordance with accounting guidance, unvested share-based payment awards that include non-forfeitable rights to dividends, whether paid or unpaid, are considered participating securities. As a result, such awards are required to be included in the calculation of earnings per common share pursuant to the "two-class" method. For the Company, participating securities are composed entirely of unvested restricted stock awards and performance-based restricted stock units ("PSUs") that have met their relevant performance criteria.

Earnings per share is determined using the two-class method when it is more dilutive than the treasury stock method. Basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects the dilutive effect of potential common shares from non-participating securities such as stock options and PSUs. For the thirteen weeks and fifty-two weeks ended January 28, 2017 and January 30, 2016, potential common shares were excluded from the computation of diluted EPS to the extent they were antidilutive.

The following unaudited table sets forth the computation of basic and diluted earnings per share shown on the face of the accompanying condensed consolidated statements of income (loss) (in thousands, except per share amounts):

Thirteen Weeks Ended

Fifty-Two Weeks Ended

January 28,
2017

January 30,
2016

January 28,
2017

January 30,
2016

Numerator

Net income (loss)

$

13,508

$

(21,091)

$

91,229

$

1,946

Net income and dividends declared allocated to participating securities

(258)

—

(1,915)

—

Net income (loss) available to common shareholders

$

13,250

$

(21,091)

$

89,314

$

1,946

Denominator

Weighted average common shares outstanding – basic

126,489

135,275

128,995

138,366

Dilutive effect of non-participating securities

416

—

242

375

Weighted average common and common equivalent shares outstanding – diluted

126,905

135,275

129,237

138,741

Net income (loss) per common share*:

Basic

$

0.10

$

(0.16)

$

0.69

$

0.01

Diluted

$

0.10

$

(0.16)

$

0.69

$

0.01

SEC Regulation G - The Company reports its consolidated financial results in accordance with generally accepted accounting principles (GAAP). However, to supplement these consolidated financial results, management believes that certain non-GAAP results should be considered in addition to, not as a substitute for, GAAP measures. These non-GAAP measures exclude results related to non-continuing Boston Proper operations as well as certain strategic charges.

A reconciliation of net income (loss) and earnings per diluted share on a GAAP basis to net income and earnings per diluted share on a non-GAAP basis for the thirteen weeks and fifty-two weeks ended January 28, 2017 and January 30, 2016 is presented in the table below:

Thirteen Weeks Ended

Fifty-Two Weeks Ended

January 28,
2017

January 30,
2016

January 28,
2017

January 30,
2016

Net income (loss):

GAAP basis

$

13,508

$

(21,091)

$

91,229

$

1,946

Goodwill and intangible impairment charges, net of tax

—

17,365

—

88,350

Restructuring and strategic charges, net of tax

—

9,081

19,422

30,305

Boston Proper operating loss, net of tax

—

4,666

—

12,904

Tax benefit related to the disposition of Boston Proper

—

(3,830)

(3,979)

(27,609)

Non-GAAP adjusted basis

$

13,508

$

6,191

$

106,672

$

105,896

Net income (loss) per diluted share:

GAAP basis

$

0.10

$

(0.16)

$

0.69

$

0.01

Goodwill and intangible impairment charges, net of tax

—

0.13

—

0.63

Restructuring and strategic charges, net of tax

—

0.07

0.15

0.21

Boston Proper operating loss, net of tax

—

0.03

—

0.09

Tax benefit related to the disposition of Boston Proper

—

(0.02)

(0.03)

(0.19)

Non-GAAP adjusted basis

$

0.10

$

0.05

$

0.81

$

0.75

*Due to the differences between quarterly and year-to-date weighted average share counts and the effect of quarterly rounding to the nearest cent per diluted share, the year-to-date calculation of GAAP and non-GAAP diluted EPS may not equal the sum of the quarters.

SEC Regulation G - The Company reports its consolidated financial results in accordance with GAAP. However, to supplement these consolidated financial results, management believes that certain non-GAAP results, which exclude results from non-continuing Boston Proper operations, may provide a more meaningful measure on which to compare the Company's results of operations between periods.

The tables below present a reconciliation of selected consolidated financial data on a GAAP basis to selected consolidated financial data on a non-GAAP adjusted basis, reflecting certain adjustments as identified in the footnotes to the table and excluding Boston Proper:

Chico's FAS, Inc. and Subsidiaries

Fiscal 2015 Reconciliation of Reported to Adjusted Selected Non-GAAP Consolidated Financial Data

(Unaudited)

(in thousands)

As Reported

Thirteen Weeks Ended

Fifty-Two Weeks Ended

January 30, 2016

January 30, 2016

Amount

% of Sales

Amount

% of Sales

Net Sales

$

627,400

100.0

$

2,642,309

100.0

Cost of goods sold

308,863

49.2

1,211,552

45.9

Gross margin

318,537

50.8

1,430,757

54.1

Selling, general and administrative expenses

318,356

50.7

1,282,585

48.5

Subtotal

181

0.1

148,172

5.6

Boston Proper⁽⁴⁾

Thirteen Weeks Ended

Fifty-Two Weeks Ended

January 30, 2016

January 30, 2016

Amount

% of Sales

Amount

% of Sales

Net Sales

$

15,671

100.0

$

80,972

100.0

Cost of goods sold

11,790

75.2

49,863

61.6

Gross margin

3,881

24.8

31,109

38.4

Selling, general and administrative expenses

11,394

72.7

51,889

64.1

Subtotal

(7,513)

(47.9)

(20,780)

(25.7)

Adjustments, excluding Boston Proper

Thirteen Weeks Ended

Fifty-Two Weeks Ended

January 30, 2016

January 30, 2016

Amount

% of Sales

Amount

% of Sales

Net Sales⁽¹⁾

$

3,131

0.5

$

12,249

0.5

Store occupancy expense⁽²⁾

95,601

15.2

379,742

14.3

Shipping expense⁽³⁾

8,923

1.4

32,427

1.2

Cost of goods sold

104,524

16.6

412,169

15.5

Gross margin

(101,393)

(16.1)

(399,920)

(15.0)

Selling, general and administrative expenses

(101,393)

(16.1)

(399,920)

(15.0)

Subtotal

—

—

—

—

As Adjusted, Non-GAAP

Thirteen Weeks Ended

Fifty-Two Weeks Ended

January 30, 2016

January 30, 2016

Amount

% of Sales

Amount

% of Sales

Net Sales

$

614,860

100.0

$

2,573,586

100.0

Cost of goods sold

401,597

65.3

1,573,858

61.2

Gross margin

213,263

34.7

999,728

38.8

Selling, general and administrative expenses

205,569

33.4

830,776

32.3

Subtotal

7,694

1.3

168,952

6.5

⁽¹⁾ Adjustments to net sales represent the correction of an immaterial error in the classification of shipping revenue, which was previously classified within SG&A.

⁽²⁾ Adjustments to store occupancy expense represent the reclassification of store occupancy expenses, which were previously classified within SG&A.

⁽³⁾ Adjustments to shipping expense represent a change in accounting policy to present shipping expenses within cost of goods sold, which were previously reported within SG&A.

⁽⁴⁾ Boston Proper amounts do not reflect reclassification adjustments for net sales, gross margin and selling, general and administrative expenses.

Chico's FAS, Inc. and Subsidiaries

Store Count and Square Footage

Thirteen Weeks Ended January 28, 2017

(Unaudited)

October 29,
2016

New Stores

Closures

January 28,
2017

Store count:

Chico's frontline boutiques

594

1

(8)

587

Chico's outlets

117

—

(1)

116

Chico's Canada

4

—

—

4

WHBM frontline boutiques

425

1

(3)

423

WHBM outlets

71

—

—

71

WHBM Canada

6

—

—

6

Soma frontline boutiques

274

2

(1)

275

Soma outlets

19

—

—

19

Boston Proper frontline boutiques

—

—

—

—

Total Chico's FAS, Inc.

1,510

4

(13)

1,501

October 29,
2016

New Stores

Closures

Other changes in SSF

January 28,
2017

Net selling square footage (SSF):

Chico's frontline boutiques

1,624,232

2,601

(20,103)

—

1,606,730

Chico's outlets

293,646

—

(2,191)

—

291,455

Chico's Canada

9,695

—

—

—

9,695

WHBM frontline boutiques

990,269

1,940

(7,455)

—

984,754

WHBM outlets

148,457

—

—

—

148,457

WHBM Canada

14,891

—

—

—

14,891

Soma frontline boutiques

517,994

3,565

(2,101)

487

519,945

Soma outlets

35,637

—

—

—

35,637

Boston Proper frontline boutiques

—

—

—

—

—

Total Chico's FAS, Inc.

3,634,821

8,106

(31,850)

487

3,611,564

As of January 28, 2017 the Company also sold merchandise through 91 international franchise locations.

Chico's FAS, Inc. and Subsidiaries

Store Count and Square Footage

Fifty-Two Weeks Ended January 28, 2017

(Unaudited)

January 30,
2016

New Stores

Closures

January 28,
2017

Store count:

Chico's frontline boutiques

604

4

(21)

587

Chico's outlets

117

—

(1)

116

Chico's Canada

4

—

—

4

WHBM frontline boutiques

429

4

(10)

423

WHBM outlets

71

—

—

71

WHBM Canada

6

—

—

6

Soma frontline boutiques

269

8

(2)

275

Soma outlets

18

1

—

19

Boston Proper frontline boutiques

—

—

—

—

Total Chico's FAS, Inc.

1,518

17

(34)

1,501

January 30,
2016

New Stores

Closures

Other changes in SSF

January 28,
2017

Net selling square footage (SSF):

Chico's frontline boutiques

1,652,991

10,157

(56,063)

(355)

1,606,730

Chico's outlets

293,646

—

(2,191)

—

291,455

Chico's Canada

9,695

—

—

—

9,695

WHBM frontline boutiques

991,164

8,861

(21,002)

5,731

984,754

WHBM outlets

148,457

—

—

—

148,457

WHBM Canada

14,891

—

—

—

14,891

Soma frontline boutiques

507,805

14,573

(3,663)

1,230

519,945

Soma outlets

33,792

1,845

—

—

35,637

Boston Proper frontline boutiques

—

—

—

—

—

Total Chico's FAS, Inc.

3,652,441

35,436

(82,919)

6,606

3,611,564

As of January 28, 2017 the Company also sold merchandise through 91 international franchise locations.