Chico’s FAS, Inc. (CHS) reported second-quarter 2010 earnings of 17 cents per share, in line with the Zacks Consensus Estimate. The result also compares favorably with 10 cents earned in the second quarter of 2009. Net income was $30.5 million, compared with $18.0 million in the prior-year quarter.
Sales
Net sales in the second quarter 2010 were $465.4 million, up 10% year-over-year from $419.9 million in the prior year period. The advance reflects a 9% year-over-year increase in Chico’s/Soma Intimates sales coupled with a 16% year-over-year increase in White House Black Market (WHBM) sales. Net sales were, however, lower than the Zacks Consensus Estimate of $470.0 million. Direct-to-consumer sales were $27.6 million, up 36% year-over-year.
Comparable store sales
Consolidated comparable store sales in the quarter increased 6.4%, compared with a 1.3% increase in the prior-year quarter. Chico’s/Soma Intimates brands’ comparable store sales increased 4.3% compared with a 0.4% increase in second quarter 2009. Meanwhile, WHBM comparable store sales increased 11.2%, compared with a 3.7% increase in the year-ago quarter.
Operational Update
Cost of goods sold in the quarter increased 9% year over year to $188.8 million. Gross margin increased 70 basis points year over year to 55.7%, largely due to higher margins for the WHBM brand and continued gross margin improvement at Chico’s outlet stores resulting from increased penetration of made-for-outlet products. However, a lower merchandise margin at Chico’s front-line stores, primarily due to higher markdowns in July, was a partial offset.
Selling, general and administrative expenses were $211.8 million in the second quarter, up from $207.0 million in the prior year quarter. Increase in store and direct operating costs related to 50 new stores opened in the past twelve months and the planned increase in marketing expenses contributed to the hike.
Higher occupancy expenses, store labor costs and higher credit card fees associated with the opening of stores and higher sales volume led to the increase in store and direct operating expenses to $164.9 million in the reported quarter.
Operating income was $47.8 million, compared with $24.0 million in second-quarter 2009.
Financial Update
Cash and cash equivalents at the end of second quarter 2010 declined to $17.6 million from $44.1 million at the end of second quarter 2010.
Net cash from operation for the first half of 2010 was $109.9 million, compared with $144.4 million in the first half of 2009, largely due to changes in working capital partially offset by higher net income.
Purchases of property and equipment in the first half of 2010 declined to $34.4 million from $36.2 million in the prior-year period.
Dividend
The Board of Directors of Chico’s FAS declared a quarterly cash dividend of 4 cents per share to the shareholders of record on September 7, 2010. The dividend will be payable on September 21.
The Board also authorized a share repurchase of up to $200 million of the outstanding common stock through January 2013. The company expects to fund the repurchase program from cash on hand. The timing, actual number and value of shares to be bought back will depend on the performance of Chico’s stock price and other market conditions.
Store Update
The company’s Chico’s brand currently operates 598 boutique and 53 outlet stores, White House Black Market runs 337 boutiques and 18 outlet stores, and Soma Intimates operates 105 boutique stores and 7 outlet stores – a total of 1,128 stores. The company has operations in 48 states, the District of Columbia, the U.S. Virgin Islands and Puerto Rico.
CHICOS FAS INC (CHS): Free Stock Analysis Report
Zacks Investment Research
