Leaner Inventories, Full-Price Selling Buoy Chico’s
Chico’s FAS reported mixed second-quarter results this week, with inventory levels down, helped in part by improved supply chain trends.
In a Nutshell: With the exception of intimates brand Soma, sales were down at both the Chico’s and White House|Black Market (WHBM) brands.
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According to Dana Telsey, chief investment officer at Telsey Advisory Group, the earnings results “reflected weaker sales and higher expenses.”
“For all three brands, full-price sales remain healthy, and we attracted new customers and gained market share,” Molly Langenstein, Chico’s CEO, said in a conference call on Tuesday. She added that the retailer “expanded average unit retail at both Chico’s and Soma.” Healthy full-price sales were also a trend in the first quarter.
Chicos’ apparel customers continued to favor head-to-toe dressing, ranging from casual to dressy, Langenstein said, noting that Soma’s customers responded to innovative new products. Strapless bras, panties and sleepwear were categories that continued to outperform year-ago levels. WHBM customers responded to new fabric innovation and fashion offerings.
“As we mentioned last quarter, our fashion inventory levels were depleted due to high demand. The second quarter was a transition quarter. And as we enter the fall season, our inventory levels are more in line with demand,” Langenstein said.
Inventories at the end of the quarter totaled $300.2 million, down 11.4 percent due to normalized supply chain conditions that “resulted in significantly lower in-transit inventories,” the company said.
“We began the fall season with fresh inventory,” Langenstein said, noting that new fall inventory was up 12 percent and spring and summer inventory down 12 percent versus last year. “We see customers responding to our trend-right product in August.”
She said that the company’s customers are “more focused on fashion-elevated product, and newness, rather than value and pricing.”
One plus for the company is its redesigned loyalty program, which is now a year old. “Nearly 90 percent of our apparel customers and nearly 80 percent of all new customers are enrolled in the new program,” she said, adding that these customers generate the vast majority of the company’s revenues.
And while digital is the hub for all product offerings, the company’s social stylists connect customers to the brands and drive growth within the store and digital channels. “Social stylists are gaining traction, the sales for stylists are growing month after month,” she said.
Langenstein said new Chico’s FAS customers grew 7 percent, comprised of an over 13 percent increase at Chico’s, a gain of almost 6 percent at WHBM and up 4 percent at Soma. She said this data is important because of the long tenure of Chico’s FAS customers: almost 12 years at Chico’s, nine years at WHBM, and six years at Soma.
She said the company will continue to diligently focus on operations to generate healthy cash flow and deliver a strong bottom line. “And we continually work to drive efficiencies and reduce expenses in our sourcing, logistics and operational areas,” Langenstein said.
As of July 29 when the quarter ended, the company operated a total of 1,258 stores in a mix of mall, open air and outlet doors. By banner, there were 604 Chico’s locations, 375 WHBM stores and 279 Soma doors.
Net Sales: For the quarter, net sales fell 2.4 percent to $545.1 million from $558.7 million a year ago.
“For the last 12 months, [digital] sales represented 41 percent of total company revenue,” Langenstein said.
By brand, the Chico’s brand sales slipped 2.7 percent to $274.2 million and at WHBM were down 5.4 percent to $150.0 million. Soma saw sales rise 2.1 percent to $120.9 million.
For the six months, net sales were down 1.8 percent to $1.08 billion from $1.1 billion in the year-ago period.
Earnings: Net income for the quarter jumped 41.4 percent to $59.3 million, or 49 cents a diluted share, from $42 million, or 34 cents, a year ago. On an adjusted basis, diluted earnings per share (EPS) was 28 cents.
Wall Street was expecting adjusted diluted EPS of 27 cents on revenue of $554.9 million.
For the third quarter, the company guided diluted EPS at between 8 cents to 12 cents on net sales estimated at between $505 million to $525 million.
For Fiscal 2023, diluted EPS was forecast at between 87 cents to 95 cents, including a non-cash tax benefit, on net sales estimated at between $2.15 billion to $2.18 billion.
For the six months, net income rose 29 percent to $99.2 million, or 81 cents a diluted share, from $76.9 million, for 62 cents, in the same year-ago period.
CEO’s Take: “We delivered a net sales increase of 2.1 percent at Soma, a modest decline at Chico’s and a sequential improvement over last quarter at White House|Black Market. For all three brands, full-price sales remained healthy, and we attracted new customers and gained market share,” Langenstein said.
