Chico’s FAS Inc. (CHS) reported fourth-quarter 2010 earnings of 12 cents per share, trailing by a penny the Zacks Consensus Estimate of 13 cents. The results, however, compare favorably with 10 cents earned in the fourth quarter of 2010. Net income was $20.7 million, compared with $17.5 million in the prior-year quarter.

For fiscal 2010, the company reported earnings per share of 65 cents, up from the prior-year figure of 44 cents a share. However, earnings again missed by a whisker the Zacks Consensus Estimate of 66 cents a share.

Sales

Net sales in the fourth quarter 2010 were $475.0 million, up 9.0% year over year from $435.7 million in the prior-year period. The top-line advance reflects a 8.8% year-over-year increase in Chico’s/Soma Intimates sales coupled with a 9.4% year-over-year increase in White House Black Market (WHBM) sales. Direct-to-consumer (DTC) sales were up 47% year over year. Net sales beat the Zacks Consensus Estimate of $473.0 million.

Comparable Store Sales

Consolidated comparable store sales in the quarter crept up 1.1%. Chico’s/Soma Intimates brands’ comparable store sales improved 1.2%. Meanwhile, WHBM comparable store sales inched up 0.9%. Including direct-to-consumer sales, consolidated comparable sales jumped 4.5% for the quarter.

Operational Update

Cost of goods sold in the quarter increased 12.4% year over year to $222.3 million. Gross margin decreased 140 basis points year over year to 53.2%, largely due to increased markdowns at WHBM frontline stores and higher promotional activity in the DTC channel.  However, perked up margins at outlet stores offered a partial offset.

Selling, general and administrative expenses were $222.2 million in the fourth quarter, up from $211.9 million in the prior-year quarter. Increase of $6.2 million in store and direct operating costs related to 71 new stores opened in the past twelve months and the planned increase in promotional activity resulted in the cost spike

Higher occupancy expenses associated with the opening of stores, store labor costs and higher promotional activity led to the increase in store and direct operating expenses to $170.7 million in the reported quarter. Operating income was $30.5 million, compared with $26.1 million in fourth-quarter 2009 while operating margin came in at 6.4%, an increase of 40 basis points.

Financial Update

Cash and cash equivalents at the end of fourth-quarter 2010 declined to $14.7 million from $37.0 million at the end of fourth-quarter 2009.

In fiscal 2010, net cash from operations came in at $239.6 million, compared with $215.4 million for the same period last year. Purchases of property and equipment were $73.0 million compared with $67.9 million in the prior-year period.

Capital expenditures for fiscal 2011 are expected to range between $110 and $120 million on new stores, information technology and other infrastructure cost.

Dividend

The board of directors of Chico’s FAS declared a quarterly cash dividend of 5 cents per share to shareholders of record as of March 14, 2011. The dividend will be payable on March 28, 2011. The dividend represents an increase of 25% from the prior quarterly dividend of 4 cents a share.

Guidance

The company expects fiscal 2011 net sales to increase at a low teen percentage rate.

Store Update

The company’s Chico’s brand currently operates 596 boutique and 65 outlet stores, White House Black Market runs 342 boutiques and 21 outlet stores, and Soma Intimates operates 120 boutique stores and 8 outlet stores – cumulatively a total of 1,152 stores. The company has operations in 48 states, the District of Columbia, the U.S. Virgin Islands and Puerto Rico.

Chico’s FAS Inc., headquartered in Fort Myers, Florida, designs and retails private label, casual-to-dressy clothing, intimates, complementary accessories, and other non-clothing gift items in the United States, the U.S. Virgin Islands, and Puerto Rico.  The company offers its products under the Chico’s, White House Black Market (WH/BM), and Soma brands.

The company’s nearest competitor Nordstrom Inc. (JWN) recently posted earnings growth of 35.1% to reach $1.04 per share in the fourth quarter of fiscal 2010.

 
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