Cost Reduction, Operating Efficiency Initiatives May Boost Chico's Q2 Results

(RTTNews) - Women's specialty retailer Chico's FAS Inc. (CHS) is scheduled to release its second-quarter numbers before the bell on Wednesday, August 31, with analysts polled by Thomson Reuters expecting earnings of $0.22 per share on revenue of $632.06 million. Analysts' estimate typically exclude certain special items.

As the company expects the challenging macro environment to continue in the second quarter, it has been taking actions to improve its profitability. Chico's believes its cost reduction and operating efficiency initiatives will position it to be more nimble and responsive to customers' needs.

In the last quarter...

Despite the challenged macro trends, the company claims its effective marketing campaigns and its customers enabled it to drive higher traffic to its stores compared with overall apparel and accessory mall traffic.

For the thirteen weeks ended April 30, 2016, the company reported net income of $31.1 million or $0.23 per share compared to $32.5 million or $0.22 per share in the prior year period.

First-quarter adjusted net income was $33.4 million or $0.25 per share versus $44.5 million or $0.30 per share in the same period of last year.

Net sales were $643.0 million compared to $697.8 million in last year's first quarter. This decrease of 7.9% included $25.3 million related to Boston Proper. Excluding Boston Proper from fiscal 2015, net sales dropped 4.4%, primarily reflecting a decline in comparable sales of 4.2% and 15 net store closures. The 4.2% decrease in comparable sales for the first quarter followed a 0.1% decrease in last year's first quarter, and reflected reduced average dollar sale and slightly lower transaction count.

New Strategic Plan

In May, Chico's FAS announced new initiatives to improve its supply chain, enhance its marketing efforts and leverage non-merchandise procurement. The new initiatives are expected to reduce complexity and standardize processes across the organization, thereby improving the company's ability to respond in real-time to changes in customer demand for merchandise. The new initiatives are expected to generate about $50 million - $70 million in annualized savings.

The new cost cutting actions are in addition to the previously announced realignment of the company's marketing and digital commerce functions. That realignment, announced April 25, places the decision makers directly into the company's three brands and is expected to generate $14 million in annualized savings.

Combined, the marketing realignment and new initiatives are estimated to generate $65 million - $85 million in annual savings. The company anticipates generating $15 million of these costs savings in fiscal 2016, and expects these initiatives to be fully implemented during 2017.