Management’s Discussion and Analysis of Financial Condition and Results of
Operations (“MD&A”) should be read in conjunction with the unaudited condensed
consolidated financial statements and notes thereto included in this Quarterly
Report on Form 10-Q (“this Form 10-Q”) and in our Annual Report on Form 10-K for
the fiscal year ended January 29, 2022, filed with the Securities and Exchange
Commission (“SEC”) on March 15, 2022 (“2021 Annual Report on Form 10-K”).
Executive Overview
Chico’s FAS is a Florida-based fashion company founded in 1983 on Sanibel
Island, Florida. The Company reinvented the fashion retail experience by
creating fashion communities anchored by service, which put the customer at the
center of everything we do. As one of the leading fashion retailers in North
America, Chico’s FAS is a company of three unique brands – Chico’s®, White House
Black Market® (“WHBM”) and Soma® – each thriving in their own white space,
founded by women, led by women, providing solutions that millions of women say
give them confidence and joy. We sometimes refer to our Chico’s and WHBM brands
collectively as our “Apparel Group.” Our distinct lifestyle brands serve the
needs of fashion-savvy women with household incomes in the moderate to high
income level. We earn revenue and generate cash through the sale of merchandise
in our domestic retail stores, our various Company-operated e-commerce websites,
social commerce, our call center (which takes orders for all of our brands),
through unaffiliated franchise partners and through third-party channels.
We utilize an integrated, omnichannel approach to managing our business. We
want our customers to experience our brands holistically and to view the various
commerce channels we operate as a single, integrated experience rather than as
separate sales channels operating independently. This approach allows our
customers to browse, purchase, return or exchange our merchandise through
whatever sales channel and at whatever time is most convenient. As a result, we
track total sales and comparable sales on a combined basis.
Our growth strategy is supported by the “power of three” unique brands and the
“power of three” commerce channels. Our physical stores serve as community
centers for entertainment, self-discovery and a home for interactions with our
store associate stylists and bra experts. Our digital stores serve as a first
impression of our brands and an efficient platform to teach and inspire our
customers about our merchandise. Our social brand ambassadors, which are a
combination of store associates, social media platform hosts and hyperlocal
social stylists who arrange events within their communities, are an additional
connection between our physical stores and digital.
Business Highlights
The Company’s highlights for the thirteen weeks ended April 30, 2022 (the “first
quarter”) include:
•Strong first quarter results: Chico’s FAS posted $0.28 net income per diluted
share for the first quarter, driven by comparable sales growth of 40.6%,
meaningful gross margin expansion and diligent expense control.
•Continued improving sales performance at Chico’s: The positive sales trajectory
continued at Chico’s, evidenced by the strong 52% first quarter increase in
comparable sales versus the thirteen weeks ended May 1, 2021 (“last year’s first
quarter”). Customers responded enthusiastically to product innovation and
solutions offering fit, comfort and wearability, including products like denim,
the No IronTM shirt franchise, So Slimming® bottoms and the TravelersTM
collection. Compared to the thirteen weeks ended May 4, 2019 (the “first quarter
of fiscal 2019”), Chico’s delivered sales gains on leaner inventory, achieved
higher sell-through rates on regular price and drove increased average unit
retail.
•Continued improving sales performance at WHBM: WHBM continued to deliver
exceptional sales gains, posting a 65% comparable sales increase in the first
quarter versus last year’s first quarter. Customers responded to versatile
dressing in seasonless fabrics, including timeless tailoring, premium denim and
inspiring dresses. WHBM continued its diligent inventory discipline with on-hand
inventory levels below pre-pandemic levels, driving higher productivity,
elevated full-price sales and positive comparable sales versus the first quarter
of fiscal 2019.
•Continued market share gains at Soma: Soma posted a first quarter net sales
increase of 0.5%, driven largely by the foundations business and partially
offset by the slowdown in lounge and cozy categories. The strong foundations
business was fueled by the launch of BodifyTM, a Smart BraTM utilizing
first-to-market technology. Data from market research firm NPD Group Inc. shows
that Soma’s growth continues to outpace the market in non-sport bras and panties
for the first quarter.
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•Enhanced marketing continued to drive traffic and bring new customers to all
three brands: Chico’s FAS continued to elevate its marketing, focusing resources
on digital storytelling and influencers. Strategic marketing is driving more
customers to the Company’s brands, with total customer count up nearly 15% over
last year’s first quarter and the average age of new customers continuing to
trend younger.
•Improved gross margin: The first quarter gross margin rate rose to 40.0%,
exceeding first quarter outlook by 230 basis points and outperforming last
year’s first quarter by 730 basis points. Higher average unit retail and
full-price sales combined with occupancy leverage offset elevated raw material
and freight costs.
•Ongoing cost discipline: Selling, general and administrative expenses (“SG&A”)
declined to 31.6% of net sales, an improvement of 300 basis points over last
year’s first quarter, reflecting the impact of sales leverage and the ongoing
benefit of cost savings initiatives implemented in prior years.
Financial Results
Income per diluted share for the first quarter was $0.28 compared to loss per
diluted share of $0.08 for last year’s first quarter.
Select Financial Results
The following table depicts select financial results for the thirteen weeks
ended April 30, 2022 and May 1, 2021:
Thirteen Weeks Ended
April 30, 2022 May 1, 2021
(in millions, except per share amounts)
Net sales $ 541 $ 388
Income (loss) from operations 45 (8)
Net income (loss) 35 (9)
Net income (loss) per common and common equivalent share –
diluted 0.28 (0.08)
Current Trends
The ongoing pandemic has resulted in significant challenges across our business
starting in March 2020 and is expected to continue to disrupt our business
operations in fiscal 2022 to varying degrees. In response to the pandemic, many
of our markets imposed limitations, varying by market and in frequency, on the
access to the Company’s store fleet, including temporary store closures and/or a
reduction in hours, staffing and capacity. We continue to focus on evolving
consumer demand emerging from the pandemic experience and have accelerated our
transformation to a digital-first company, fast-tracking numerous innovation and
technology investments across all three of our brands. Even as governmental
restrictions become relaxed and markets are primarily open, we expect continued
uncertainty and volatility on our business operations, operating results and
operating cash flows as the ongoing economic impacts and health concerns
associated with the pandemic continue to affect consumer behavior, spending
levels and shopping preferences.
The Company remains confident that it currently has sufficient liquidity to
repay its obligations as they become due for the foreseeable future as the
Company continues to drive operational efficiency and effectiveness, including
executing on its cost saving initiatives announced in fiscal 2020 to mitigate
the macro challenges of the pandemic. However, the extent to which the pandemic
impacts our business operations, financial results, and liquidity will depend on
numerous evolving factors that we may not be able to accurately predict or
assess, including the duration and scope of the pandemic; our response to and
ability to mitigate the impact of the pandemic; the negative impact the pandemic
has on global and regional economies and economic activity, including the
duration and magnitude of its impact on unemployment rates and consumer
discretionary spending; its short- and longer-term impact on the levels of
consumer confidence; the ability of our suppliers, vendors and customers to
successfully address the impacts of the pandemic; supply chain disruptions;
actions governments, businesses and individuals take in response to the
pandemic; and how quickly economies recover after the pandemic subsides.
Fiscal 2022 Second Quarter and Updated Full Year Outlook
For the fiscal 2022 second quarter, the Company currently expects:
•Consolidated net sales of $535 million to $550 million;
•Gross margin rate as a percent of net sales of 38.7% to 39.4%;
•SG&A expenses as a percent of net sales of 31.2% to 31.6%;
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•Effective income tax rate of 26.0%; and
•Earnings per diluted share of $0.21 to $0.26.
For the fiscal 2022 full year, the Company currently expects:
•Consolidated net sales of $2,130 million to $2,160 million;
•Gross margin rate as a percent of net sales of 38.3% to 38.6%;
•SG&A expenses as a percent of net sales of 32.6% to 32.9%;
•Effective income tax rate of 26.0%;
•Earnings per diluted share of $0.64 to $0.74; and
•Capital and cloud-based expenditures of approximately $65 million to $70
million.
Key Performance Indicators
In assessing the performance of our business, we consider a variety of key
performance and financial measures to evaluate our business, develop financial
forecasts and make strategic decisions. These key measures include comparable
sales, gross margin as a percent of sales, diluted income (loss) per share and
return on net assets (“RONA”). In light of the pandemic, we have shifted our
focus to effectively manage our liquidity position, including aligning our
operating cost structure with expected sales. We will continue to evaluate our
other key performance and financial measures in addition to our liquidity
position. The following describes these measures.
Liquidity
Liquidity is measured through cash flow, which is the measure of cash provided
by or used in operating, investing and financing activities. We believe that as
a result of the Company’s extensive measures to mitigate the impact of the
pandemic discussed above, we were able to, and continue to, effectively manage
our liquidity position.
Comparable Sales
Comparable sales is an omnichannel measure of the amount of sales generated
from products the Company sells directly to the consumer relative to the amount
of sales generated in the comparable prior-year period. Comparable sales is
defined as sales from stores open for the preceding twelve months, including
stores that have been expanded, remodeled or relocated within the same general
market and includes online and catalog sales, and beginning in the third quarter
of fiscal 2019, includes international sales. The comparable sales calculation
excludes the negative impact of stores closed four or more days. The Company
views comparable sales as a key performance indicator to measure the performance
of our business, however, we are not providing comparable sales figures for last
year’s first quarter compared to the thirteen weeks ended May 2, 2020 (the
“first quarter of fiscal 2020”) as we do not believe it is a meaningful measure
due to the varying degrees of business disruptions and periods of store closures
and/or stores operating at reduced hours as a result of the pandemic during
fiscal 2020.
Gross Margin as a Percentage of Net Sales
Gross margin as a percentage of net sales is computed as gross margin divided
by net sales. We believe gross margin as a percentage of net sales is a primary
metric to measure the performance of our business as it is used to determine the
value of incremental sales, and to guide pricing and promotion decisions.
Diluted Income (Loss) per Share
Income (loss) per share is determined using the two-class method when it is
more dilutive than the treasury stock method. Basic income (loss) per share is
computed by dividing net income available to common shareholders by the
weighted-average number of common shares outstanding during the period,
including participating securities. Diluted income (loss) per share reflects the
dilutive effect of potential common shares from non-participating securities
such as stock options, performance stock units and restricted stock units.
Whereas basic income (loss) per share serves as an indicator of the Company’s
profitability, we believe diluted income (loss) per share is a key performance
measure because it gauges the Company’s quality of income (loss) per share
assuming all potential common shares from non-participating securities are
exercised.
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Return on Net Assets
RONA is defined as (a) net income (loss) divided by (b) the “five-point
average” (based on balances at the beginning of the first quarter plus the final
balances for each quarter of the fiscal year) of net working capital less cash
and marketable securities plus fixed assets. We believe RONA is a primary metric
as it helps to determine how well the Company is utilizing its assets. As such,
a higher RONA could indicate that the Company is using its assets and working
capital efficiently and effectively.
Our Business Strategy
Our overall business strategy is focused on building a collection of distinct
high-performing retail brands primarily serving the fashion needs of women with
moderate to high household income levels.
In fiscal 2020, the Company took actions to rapidly transform into a
digital-first company, fast-tracking numerous innovation and digital technology
investments, and we continued those investments during fiscal 2021. We have also
enhanced our marketing efforts to drive traffic and new customers to our brands,
while retaining newly acquired customers at a meaningfully higher rate than the
pre-pandemic year of fiscal 2019.
The primary function of the Company is the production and procurement of
beautiful merchandise that delivers the brand promise and brand positioning of
each of our brands and resonates with customers. To that end, we continue to
strengthen our merchandise and design capabilities and enhance our sourcing and
supply chain to deliver product in a timely manner to our customers while also
concentrating on improvements to the quality and aesthetic of our merchandise.
Over the long term, we may build our brand portfolio by organic development or
acquisition of other specialty retail concepts if research indicates that the
opportunity complements our current brands and is appropriate and in the best
interest of our shareholders.
We pursue improving the performance of our brands by building our omnichannel
capabilities, growing our online presence, managing our store base, executing
marketing plans, effectively leveraging expenses, considering additional sales
channels and markets, and optimizing the merchandise offerings of each of our
brands. We continue to invest heavily in our omnichannel capabilities so our
customers can fully experience our brands in the manner they choose.
We view our stores and Company-operated e-commerce websites as a single,
integrated sales function rather than as separate, independently operated sales
channels. As a result, we maintain a shared inventory platform for our primary
operations, allowing us to fulfill orders for all channels from our distribution
center (“DC”) in Winder, Georgia. Our domestic customers can return merchandise
to a store or to our DC, regardless of the original purchase location. Using our
enhanced “Locate” tool, we ship in-store orders from other locations directly to
the customer, expediting delivery times while reducing our shipping costs. In
addition, our shared inventory system, Endless Aisle, enables customers to make
purchases online and ship from store. In fiscal 2019, we completed the
implementation of our Buy On-Line, Pick-up In-Store (BOPIS) capability across
all our brands, further enhancing our omnichannel capabilities, and in fiscal
2020, we completed the implementation of StyleConnectTM and MY CLOSETTM, our
proprietary digital styling software tools that enable us to communicate
directly with the majority of our customers, to drive the frontline business to
digital fulfillment.
We seek to acquire new customers and retain existing customers by leveraging
existing customer-specific data and through targeted marketing, including
digital marketing, social media, television, catalogs and mailers. We seek to
optimize the potential of our brands with innovative product offerings,
potential new merchandise opportunities, and brand extensions that enhance the
current offerings, as well as through our continued emphasis on our trademark
“Most Amazing Personal Service” standard. We also will continue to consider
potential alternative sales channels for our brands, including international
franchise, wholesale, licensing and other opportunities.
We continue to leverage our digital investments to convert single-channel
customers to be omnichannel, or multi-channel, customers, as the average
omnichannel customer spends more than three times the average single-channel
customer.
We have four clearly defined strategic pillars that have guided our turnaround
strategy since 2019 and will continue to guide us in the future.
1. Customer led;
2.Product obsessed;
3.Digital-first; and
4.Operationally excellent.
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Results of Operations
Thirteen Weeks Ended April 30, 2022 Compared to the Thirteen Weeks Ended May 1,
2021
Net Income (Loss) and Income (Loss) per Diluted Share
For the first quarter, the Company reported net income of $35 million, or $0.28
per diluted share, compared to a net loss of $9 million, or $0.08 loss per
diluted share, in last year’s first quarter.
Net Sales
The following table depicts net sales by Chico’s, WHBM and Soma in dollars and
as a percentage of total net sales for the thirteen weeks ended April 30, 2022
and May 1, 2021:
Thirteen Weeks Ended
April 30, 2022 May 1, 2021
(dollars in millions) (1)
Chico’s $ 264 48.9 % $ 177 45.6 %
WHBM 169 31.2 104 26.8
Soma 107 19.9 107 27.6
Total Net Sales $ 541 100.0 % $ 388 100.0 %
(1) May not foot due to rounding.
For the first quarter, net sales were $541 million compared to $388 million in
last year’s first quarter. This 39.4% improvement primarily reflects a
comparable sales increase of 40.6%, partially offset by 29 permanent store
closures since last year’s first quarter. The 40.6% comparable sales improvement
was driven by an increase in transaction count and higher average dollar sale.
The following table depicts comparable sales percentages by Chico’s, WHBM and
Soma for the first quarter:
Thirteen Weeks Ended (1)
April 30, 2022
Chico’s 52.0 %
WHBM 64.8
Soma (1.4)
Total Company 40.6
(1) The Company is not providing comparable sales figures for last year’s first
quarter compared to the first quarter of fiscal 2020 as we do not believe it
is a meaningful measure due to the significant impacts of the pandemic during
fiscal 2020.
Cost of Goods Sold/Gross Margin
The following table depicts cost of goods sold and gross margin in dollars and
gross margin as a percentage of total net sales for the thirteen weeks ended
April 30, 2022 and May 1, 2021:
Thirteen Weeks Ended
April 30, 2022 May 1, 2021
(dollars in millions)
Cost of goods sold $ 324 $ 261
Gross margin 217 127
Gross margin percentage 40.0 % 32.7 %
For the first quarter, gross margin was $217 million, or 40.0% of net sales,
compared to $127 million, or 32.7% of net sales, in last year’s first quarter.
The 730 basis point improvement in gross margin rate primarily reflects higher
average unit retail and full price sales combined with occupancy leverage that
offset elevated raw material and freight costs.
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Selling, General and Administrative Expenses
The following table depicts SG&A, which includes store and direct operating
expenses, marketing expenses and National Store Support Center (“NSSC”)
expenses, in dollars and as a percentage of total net sales for the thirteen
weeks ended April 30, 2022 and May 1, 2021:
Thirteen Weeks Ended
April 30, 2022 May 1, 2021
(dollars in millions)
Selling, general and administrative expenses $ 171 $ 134
Percentage of total net sales 31.6 % 34.6 %
For the first quarter, SG&A was $171 million, or 31.6% of net sales, compared
to $134 million, or 34.6% of net sales, for last year’s first quarter, primarily
reflecting sales leverage and the ongoing benefit of cost savings initiatives.
Income Taxes
For the first quarter, the $9.5 million income tax provision resulted in an
effective tax rate of 21.4% compared to a $0.3 million income tax benefit, or
effective tax rate of 3.3%, for last year’s first quarter. The 21.4% effective
tax rate for the first quarter primarily reflects a favorable share-based
compensation benefit and reduction in future reversing deferred tax liabilities.
The 3.3% effective tax rate for last year’s first quarter primarily reflects a
change in the valuation allowance and favorable state audit settlements, offset
by share-based compensation expense and a provision for state income and foreign
withholding taxes.
Cash, Marketable Securities and Debt
At the end of the first quarter, cash and marketable securities totaled $104
million compared to $102 million at the end of last year’s first quarter. Debt
at the end of the first quarter totaled $99 million compared to $149 million at
the end of last year’s first quarter.
Inventories
At the end of the first quarter, inventories totaled $326 million compared to
$210 million at the end of last year’s first quarter. The $116 million, or
55.3%, increase from last year’s first quarter primarily reflects elevated
on-hand inventories to align with higher consumer demand, an increase in
in-transit inventories due to extended in-transit times in the global supply
chain, strategic investments in basics and replenishment inventories, and higher
average unit costs.
Income Tax Receivable
At the end of the first quarter, our unaudited condensed consolidated balance
sheet reflected an $11 million income tax receivable related to the recovery of
Federal income taxes paid in prior years and other tax law changes as a result
of the Coronavirus Aid, Relief, and Economic Security Act.
Liquidity and Capital Resources
The Company’s material cash requirements include amounts outstanding under
operating leases; open purchase orders for inventory and other operating
expenses in the normal course of business; contractual commitments for future
capital expenditures; long-term debt obligations; and interest payments on
long-term debt. Our ongoing capital requirements will continue to be primarily
for enhancing and expanding our omnichannel capabilities, including investments
in our stores; information technology; and supply chain.
In response to the pandemic, the Company has taken actions to reinforce its
financial position and liquidity. Specific actions include: significantly
reducing capital and expense structures, centralizing key functions to create a
more nimble organization to better align costs with expected sales; suspending
the quarterly dividend commencing April 2020; aligning inventory receipts with
expected demand; partnering with suppliers and vendors to reduce operating costs
and extend payment terms; and reviewing real estate and actively negotiating
with landlords to deliver rent relief in the form of reductions, abatements and
other concessions. In October 2020 and February 2022, the Company amended and
extended its credit facility to strengthen its liquidity and enhance its
financial stability.
The Company anticipates satisfying its material cash requirements from its cash
flows from operating activities, our cash on hand, capacity within our credit
facility and other liquidity options.
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The following table summarizes cash flows for the year-to-date period April 30,
2022 compared to last year’s year-to-date period May 1, 2021:
Thirteen Weeks Ended
April 30, 2022 May 1, 2021
(dollars in millions) (1)
Net cash used in operating activities $ (0.2) $ (4)
Net cash used in investing activities (3) (2)
Net cash used in financing activities (8) (1)
Net decrease in cash and cash equivalents $ (11) $ (7)
(1) May not foot due to rounding.
Operating Activities
Net cash used in operating activities for the year-to-date period of fiscal 2022
was $0.2 million compared to $4 million in last year’s year-to-date period. The
change in net cash used in operating activities primarily reflects higher net
income, partially offset by elevated inventories and payment of the Company’s
fiscal 2021 incentive compensation plan.
Investing Activities
Net cash used in investing activities for the year-to-date period of fiscal 2022
was $3 million compared to $2 million in last year’s year-to-date period,
reflecting a $1 million increase in capital spend.
Financing Activities
Net cash used in financing activities for the year-to-date period of fiscal 2022
was $8 million compared to $1 million in last year’s year-to-date period,
primarily reflecting $7 million in payments of tax withholding related to the
vesting of share-based awards.
Credit Facility
On February 2, 2022, the Company and certain material domestic subsidiaries
entered into Amendment No. 2 (the “Amendment”) to its credit agreement (as
amended, the “Credit Agreement”) originally entered into on August 2, 2018 and
amended October 30, 2020, by and among the Company, certain material domestic
subsidiaries as co-borrowers and guarantors, Wells Fargo Bank, National
Association (“Wells Fargo Bank”), as Agent, letter of credit issuer and swing
line lender, and certain lenders party thereto. Our obligations under the Credit
Agreement are guaranteed by the guarantors and are secured by a first priority
lien on certain assets of the Company and certain material domestic
subsidiaries, including inventory, accounts receivable, cash deposits, certain
insurance proceeds, real estate, fixtures and certain intellectual property. The
Credit Agreement provides for a five-year asset-based senior secured revolving
loan (“ABL”) and letter of credit facility of up to $285.0 million, maturing
February 2, 2027. The interest rate applicable to Term Secured Overnight
Financing Rate (“SOFR”) Loans drawn under the ABL is equal to Term SOFR plus
1.60% (subject to a further decrease to Term SOFR plus 1.35% or an increase to
Term SOFR plus 1.85% based upon average quarterly excess availability under the
ABL). The Credit Agreement also provides for a $15.0 million first-in last-out
(“FILO”) loan. The interest rate applicable to the FILO is equal to Term SOFR
plus 3.60% (subject to a further decrease to Term SOFR plus 3.35% or an increase
to Term SOFR plus 3.85% based on average quarterly excess availability under the
FILO). However, for any ABL or FILO with a SOFR interest rate period of six
months, the interest rate applicable to the ABL and FILO is increased by 30
basis points.
The Credit Agreement contains customary representations, warranties, and
affirmative covenants, as well as customary negative covenants, that, among
other things restrict, subject to certain exceptions, the ability of the Company
and certain of its domestic subsidiaries to: (i) incur liens, (ii) make
investments, (iii) issue or incur additional indebtedness, (iv) undergo
significant corporate changes, including mergers and acquisitions, (v) make
dispositions, (vi) make restricted payments, (vii) prepay other indebtedness and
(viii) enter into certain other restrictive agreements. The Company may pay cash
dividends and repurchase shares under its share buyback program, subject to
certain thresholds of available borrowings based upon the lesser of the
aggregate amount of commitments under the Credit Agreement and the borrowing
base, determined after giving effect to any such transaction or payment, on a
pro forma basis. In addition, the Company must pay a commitment fee per annum on
the unused portion of the commitments under the Credit Agreement.
As of April 30, 2022, $99.0 million in net borrowings were outstanding under the
Credit Agreement. Availability under the Credit Agreement is determined based
upon a monthly borrowing base calculation which includes eligible credit card
receivables, real estate and inventory, less outstanding borrowings, letters of
credit and certain designated reserves. As of
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April 30, 2022, the available additional borrowing capacity under the Credit
Agreement was approximately $187.0 million, inclusive of the current loan cap of
$30.0 million.
Store and Franchise Activity
During the thirteen weeks ended April 30, 2022, we had 2 permanent store
closures, consisting of 1 Chico’s store and 1 WHBM store. As of April 30, 2022,
the Company’s franchise operations consisted of 59 international retail
locations in Mexico and 2 domestic airport locations.
Stores continue to be an important part of our omnichannel strategy, and digital
sales are higher in markets where we have a retail presence, but we intend to
optimize our real estate portfolio, reflecting our emphasis on digital and our
priority for higher profitability standards. We will continue to adjust our
store base to align with these standards, primarily as leases come due, lease
kickouts are available, or buyouts make economic sense. We closed 2
underperforming locations during the thirteen weeks ended April 30, 2022 and
ended the first quarter with 1,264 boutiques. The Company anticipates closing a
total of approximately 40 stores in fiscal 2022, which primarily includes
underperforming, mall-based Chico’s and WHBM boutiques. We also plan to invest
in opening up to 30 Soma stores in fiscal 2022. We will continue to evaluate our
store base in light of economic conditions and our business strategy and may
adjust the openings and closures as conditions require or as opportunities
arise.
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations
are based upon the condensed consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of condensed consolidated financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenue, expenses and related disclosure of contingent
assets and liabilities. We base our estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. Management has discussed the development and
selection of these critical accounting estimates with the Audit Committee of our
Board of Directors and believes the assumptions and estimates, as set forth in
our 2021 Annual Report on Form 10-K, are significant to reporting our results of
operations and financial position. There have been no material changes to our
critical accounting estimates as disclosed in our 2021 Annual Report on Form
10-K.
Forward-Looking Statements
This Form 10-Q may contain statements concerning our current expectations,
assumptions, plans, estimates, judgments and projections about our business and
our industry and other statements that are not historical facts. These are
“forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. In most cases, words or phrases such as “aim,”
“anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “target,”
“will,” “plans,” “path,” “should,” “assumptions,” “outlook” and similar
expressions identify forward-looking statements. These forward-looking
statements are based largely on information currently available to our
management and are subject to various risks and uncertainties that could cause
actual results to differ materially from historical results or those expressed
or implied by such forward-looking statements. Although we believe our
expectations are based on reasonable estimates and assumptions, they are not
guarantees of performance. There is no assurance that our expectations will
occur or that our estimates or assumptions will be correct, and we caution
investors and all others not to place undue reliance on such forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, those described in Item 1A, “Risk Factors” in our most
recent Annual Report on Form 10-K and, from time to time, in Item 1A, “Risk
Factors” of our Quarterly Reports on Form 10-Q and the following:
•the effects of the pandemic, including uncertainties about its depth and
duration, new variants of COVID-19 that have emerged, the speed, efficacy and
availability of vaccines and treatments, its impact on general economic
conditions, human capital management, consumer behavior and discretionary
spending, the effectiveness of any actions taken in response to the pandemic,
and the impact of the pandemic on our manufacturing operations and shipping
costs and timelines;
•the ability of our suppliers, logistics providers, vendors and landlords, to
meet their obligations to us in light of financial stress, labor shortages,
liquidity challenges, bankruptcy filings by other industry participants, and
supply chain and other disruptions;
•increases in unemployment rates;
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•increases in labor shortages and our ability to sufficiently staff our retail
stores;
•changes in general economic conditions, including, but not limited to, consumer
confidence and consumer spending patterns;
•the impact of inflation on consumer spending;
•market disruptions including pandemics or significant health hazards, severe
weather conditions, natural disasters, terrorist activities, financial crises,
political crises, war and other military conflicts (including the ongoing
military conflict between Russia and Ukraine) or other major events, or the
prospect of these events, including their impact on consumer spending;
•shifts in consumer behavior, and our ability to adapt, identify and respond to
new and changing fashion trends and customer preferences, and to coordinate
product development with buying and planning;
•changes in the general or specialty retail or apparel industries, including
significant decreases in market demand and the overall level of spending for
women’s private branded clothing and related accessories;
•our ability to secure and maintain customer acceptance of in-store and online
concepts and styles;
•increased competition in the markets in which we operate, including our ability
to remain competitive with customer shipping terms and costs;
•decreases in customer traffic at our stores;
•fluctuations in foreign currency exchange rates and commodity prices;
•significant increases in the costs of manufacturing, raw materials,
transportation, importing, distribution, labor and advertising;
•decreases in the quality of merchandise received from suppliers and increases
in delivery times for receiving such merchandise;
•our ability to appropriately manage our store fleet, including the closing of
underperforming stores and opening of new stores, and our ability to achieve the
expected results of any such store openings or store closings;
•our ability to appropriately manage inventory and allocation processes and
leverage targeted promotions;
•our ability to maintain cost saving discipline;
•our ability to operate our retail websites in a profitable manner;
•our ability to successfully identify and implement additional sales and
distribution channels;
•our ability to successfully execute and achieve the expected results of our
business, brand strategies, brand awareness programs, and merchandising and
marketing programs including, but not limited to, the Company’s turnaround
strategy, retail fleet optimization plan, sales initiatives, multi-channel
strategies and five operating priorities which are: 1) continuing our ongoing
digital transformation; 2) further refining product through fit, quality, fabric
and innovation in each of our brands; 3) driving increased customer engagement
through marketing; 4) maintaining our operating and cost discipline; and 5)
further enhancing the productivity of our real estate portfolio;
•our ability to utilize our NSSC, DC and other support facilities in an
efficient and effective manner;
•our reliance on sourcing from foreign suppliers and significant adverse
economic, labor, political or other shifts (including adverse changes in
tariffs, taxes or other import regulations, particularly with respect to China,
or legislation prohibiting certain imports from China);
•U.S. and foreign governmental actions and policies and changes thereto;
•the continuing performance, implementation and integration of our management
information systems;
•our ability to successfully update our information systems;
•the impact of any system failure, cyber security or other data security
breaches, including any security breaches resulting in the theft, transfer, or
unauthorized disclosure of customer, employee, or company information;
•our ability to comply with applicable domestic and foreign information security
and privacy laws, regulations and technology platform rules or other obligations
related to data privacy and security;
•our ability to attract, hire, train, motivate and retain qualified employees in
an inclusive environment;
•our ability to successfully recruit leadership or transition members of our
senior management team;
•future unsolicited offers to buy the Company and actions of activist
shareholders and others and our ability to respond effectively;
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•our ability to secure and protect our intellectual property rights and to
protect our reputation and brand images;
•unanticipated obligations or changes in estimates arising from new or existing
litigation (including settlements thereto), income taxes and other regulatory
proceedings;
•unanticipated adverse changes in legal, regulatory or tax laws; and
•our ability to comply with the terms of our Credit Agreement, including the
restrictive provisions limiting our flexibility in operating our business and
obtaining credit on commercially reasonable terms.
These factors should be considered in evaluating forward-looking statements
contained herein. All forward-looking statements that are made or attributable
to us are expressly qualified in their entirety by this cautionary notice. The
forward-looking statements included herein are only made as of the date of this
Form 10-Q. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
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