The accompanying unaudited condensed consolidated financial statements of Chico’s FAS, Inc. and its wholly-owned subsidiaries (collectively, the “Company”) have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and notes required by accounting principles generally accepted in the U.S. (“U.S. GAAP”) for complete financial statements. In the opinion of management, such interim financial statements reflect all normal, recurring adjustments considered necessary to present fairly the condensed consolidated financial position, the results of operations and cash flows for the interim periods presented. All significant intercompany balances and transactions have been eliminated in consolidation. For further information, refer to the consolidated financial statements and notes thereto for the fiscal year ended January 31, 2015,30, 2016, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 9, 2015.8, 2016.

As used in this report, all references to “we,” “us,” “our,” and “the Company,” refer to Chico’s FAS, Inc. and all of its wholly-owned subsidiaries.

Our fiscal years end on the Saturday closest to January 31 and are designated by the calendar year in which the fiscal year commences. Operating results for the thirteen weeks and thirty-nine weeks ended October 31, 201529, 2016 are not necessarily indicative of the results that may be expected for the entire year.

In July 2015, the Financial Accounting Standards Board ("FASB") issued ASU No. 2015-11, Simplifying the Measurement of Inventory (Topic 330). The amendments, which apply to inventory that is measured using any method other than the last-in, first-out (LIFO) or retail inventory method, require that entities measure inventory at the lower of cost or net realizable value. ASU 2015-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016 and should be applied on a prospective basis. We are currently assessing the potential impact of adopting this ASU, but do not, at this time, anticipate a material impact to our consolidated results of operations, financial position or cash flows.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The update outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. ASU 2014-09 requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. In August 2015, the FASB approved a one year deferral of the effective date, to make it effective for annual and interim reporting periods beginning after December 15, 2017. The standard allows for either a full retrospective or a modified retrospective transition method. The FASB has issued subsequent ASUs related to ASU No. 2014-09, which detail amendments to the ASU, implementation considerations, narrow-scope improvements and practical expedients. We are currently assessing the new standard and all related ASUs and its potential impact to our consolidated results of operations, financial position and cash flows.

In connection with the restructuring program, we evaluated our domestic store portfolio and strategic activities, inidentified approximately 175 stores for closure, with 90 stores across our brands, including 20 Boston Proper stores, closed through the third quarter of fiscal 2015 we continued our evaluation of our domestic store portfolio and increased the number of under-performing stores identified for closure to 170-175, including the Boston Proper stores. Through the third quarter of 2015, 33 stores across our brands have been closed. We plan to close an additional 40 stores, including 20 Boston Proper stores, in fiscal 2015, with the remainder to be closed in fiscal 2016 and 2017.2016. As a result, we expect to incur additional cash charges related to lease termination expenses of approximately $10.0 million.$1.7 million through fiscal 2017 related to these future closures.

The provision for income taxes is based on a current estimate of the annual effective tax rate and is adjusted as necessary for quarterly events. Our effective income tax rate may fluctuate from quarter to quarter as a result of a variety of factors, including changes in our assessment of certain tax contingencies, valuation allowances, changes in tax law, outcomes of administrative audits, the impact of discrete items, and the mix of earnings.

For the thirteen weeks ended October 29, 2016 and October 31, 2015, and November 1, 2014 the effective tax rate was 22.9% and (55.7)% and 37.4%, respectively. For the thirteen weeks ended October 29, 2016, the income tax provision was $7.0 million compared to the income tax benefit of $14.6 million for the thirteen weeks ended October 31, 2015. The favorability in the effective tax rate for the third quarter of 2016 primarily reflects an additional tax benefit related to the disposition of Boston Proper's stock and the realization of income tax credits in 2016. The income tax benefit for the third quarter of 2015 of $14.6 million and effective tax rate of (55.7)% primarily reflected the tax benefit related to the disposition of Boston Proper's stock and the impact of the Boston Proper goodwill and trade name impairment on the annual effective tax rate.

For the thirty-nine weeks ended October 29, 2016, the income tax provision of $40.1 million and effective tax rate of 34.0% primarily reflected the pre-tax net lossincome during the periodyear and the additional tax creditsbenefit related to the fiscal 2014 federaldisposition of Boston Proper's stock and the realization of income tax return, partially offset by the impact of the Boston Proper goodwill impairment on the annual effective tax rate.

For the thirty-ninethirteen weeks weeks ended October 29, 2016 and October 31, 2015, and November 1, 2014, 1.30.7 million and 0.60.3 million potential shares of common stock, respectively, were excluded from the diluted per share calculation relating to non-participating securities, because the effect of including these potential shares was antidilutive.

For the thirteenthirty-nine weeks ended October 29, 2016 and October 31, 2015, and November 1, 2014, 0.30.9 million and 0.51.3 million potential shares of common stock, respectively, were excluded from the diluted per share calculation relating to non-participating securities, because the effect of including these potential shares was antidilutive.

Our financial instruments consist of cash, money market accounts, marketable securities, assets held in our non-qualified deferred compensation plan, accounts receivable and payable, and debt. Cash, accounts receivable and accounts payable are carried at cost, which approximates their fair value due to the short-term nature of the instruments. Refer to Note 11 for the fair value of the Company's outstanding debt instruments.

Marketable securities are classified as available-for-sale and as of October 31, 201529, 2016 generally consist of corporate bonds, U.S. government agencies, municipal securities, and commercial paper with $26.0$25.4 million of securities with maturity dates within one year or less and $21.3$25.0 million with maturity dates over one year and less than two years.

We consider all marketable securities available-for-sale, including those with maturity dates beyond 12 months, and therefore classify these securities within current assets on the condensed consolidated balance sheets as they are available to support current operational liquidity needs. Marketable securities are carried at fair value, with the unrealized holding gains and losses, net of income taxes, reflected in accumulated other comprehensive income until realized. For the purposes of computing realized and unrealized gains and losses, cost is determined on a specific identification basis.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. Entities are required to use a three-level hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date. The three levels are defined as follows: 

We measure certain financial assets at fair value on a recurring basis, including our marketable securities, which are classified as available-for-sale securities, certain cash equivalents, specifically our money market accounts, and assets held in our non-qualified deferred compensation plan. The money market accounts are valued based on quoted market prices in active markets. Our marketable securities are generally valued based on other observable inputs for those securities (including market corroborated pricing or other models that utilize observable inputs such as interest rates and yield curves) based on information provided by independent third party pricing entities, except for U.S. government securities which are valued based on quoted market prices in active markets. The investments in our non-qualified deferred compensation plan are valued using quoted market prices and are included in other assets on our condensed consolidated balance sheets.

From time to time, we measure certain assets at fair value on a non-recurring basis, including evaluation of long-lived assets, goodwill and other intangible assets for impairment using company-specific assumptions which would fall within Level 3 of the fair value hierarchy. The carrying value of the current assets and liabilities held for sale related to the the Boston Proper DTC business approximate their fair value due to their short-term nature. We estimate the fair value of other assets held for sale using market values for similar assets which would fall within Level 2 of the fair value hierarchy. During fiscal 2015, we recorded $128.1 million in pre-tax impairment charges related to assets measured at fair value on a non-recurring basis, comprised of $48.9 million in Boston Proper goodwill impairment, $39.4 million pre-tax in Boston Proper trade name impairment, $24.2 million in Boston Proper customer relationship intangible impairment, $13.9 million in property and equipment impairment charges related to Boston Proper and a $1.7 million loss recognized on Boston Proper DTC assets held for sale.

To assess the fair value of Boston Proper goodwill in the second quarter of fiscal 2015,long-term debt, we utilized an income approach, which incorporated market assumptions. Inputs used to calculate the fair value based on the income approach primarily included estimatedutilize a discounted future cash flowsflow model using current borrowing rates for the DTC business, discounted at a rate that approximates a rate that would be

Fair value calculations contain significant judgments and estimates, which may differ from actual results due to, among other things, economic conditions, changes to the business model or changes in operating performance.

During the quarter ended October 31, 2015,29, 2016, we did not make any transfers between Level 1 and Level 2 financial assets.instruments. Furthermore, as of October 29, 2016, January 30, 2016 and October 31, 2015, January 31, 2015 and November 1, 2014, we did not have any Level 3 cash equivalents or marketable securities.financial instruments. We conduct reviews on a quarterly basis to verify pricing, assess liquidity, and determine if significant inputs have changed that would impact the fair value hierarchy disclosure.

On May 4,In fiscal 2015, we entered into a credit agreement (the "Agreement") among the Company, JPMorgan Chase Bank, N.A. as Administrative Agent, Bank of America, N.A., as Syndication Agent and the Lenders party hereto. Our obligations under the Agreement are guaranteed by certain of our material U.S. subsidiaries. The Agreement provides"Agreement) providing for a term loan commitment in the amount of $100.0 million and a revolving credit facility of which $100.0 million was drawn at closing,million. The term loan and maturesrevolving credit facility mature on May 4, 2020 payable in quarterly installments, as defined in the Agreement, with the remainder due at maturity. The Agreement also provides for a $100.0 million revolving credit facility, of which $24.0 million was drawn at closing and was repaid in the second quarter of 2015. The revolving credit facility matures on May 4, 2020. The Agreement has borrowing options which accrue interest by reference, at our election, at either an adjusted eurodollar rate tied to LIBOR or an Alternate Base Rate plus an interest rate margin, as defined in the Agreement. The Agreement contains customary representations, warranties, and affirmative covenants, including the requirement to maintain certain financial ratios. The Company was in compliance with the applicable ratio requirements and other covenants at October 31, 2015.

The following table provides details on our debt outstanding as of October 29, 2016, January 30, 2016 and October 31, 2015, January 31, 2015 and November 1, 2014:2015:

In December 2013,During the thirty-nine weeks ended October 29, 2016, we announced a $300.0repurchased 6.5 million shares, under our share repurchase authorization, and immediately prior toprogram announced in November 2015 at a total cost of approximately $76.3 million. As of October 29, 2016, the execution of the accelerated stock repurchase agreements ("ASR Agreements") described below, we had $290.0Company has $183.7 million remaining under the existing authority.share repurchase program. However, we have no continuing obligation to repurchase shares under this authorization, and the timing, actual number and value of any additional shares to be purchased will depend on the performance of our stock price, market conditions and other considerations.

In March 2015, we entered into ASR Agreements2016, the Company was named as a defendant in Cunningham v. Chico’s FAS, Inc., a putative class action filed in the Superior Court of California, County of San Diego. Given the overlap with eachthe claims alleged in the Ackerman case, described above, the Court initially stayed the Cunningham case pending final approval of Merrill Lynch, Pierce, Fennerthe Ackerman settlement. In October 2016, the parties agreed to lift the stay and Smith Incorporated ("Merrill Lynch")to resolve the matter as an individual action. The Court has since dismissed the case. The settlement amount was immaterial.

In June 2016, the Company was named as a defendant in Rodems v. Chico’s FAS, Inc., a putative class action filed in the Superior Court of California, County of Fresno. Plaintiff sought to represent current and former nonexempt employees of Chico’s stores in California. The Complaint alleged many of the same Labor Code violations as agentAckerman, described above. As a result, the court stayed the matter pending final approval of the Ackerman proposed settlement. The Company and the plaintiff subsequently agreed to a lifting of the stay and a filing of an amended complaint in early November, and the Company removed the case to the United State District Court for Merrill Lynch International,the Eastern District of California on November 9, 2016. In the proposed First Amended Complaint, the plaintiff makes similar claims of Labor Code violations against the Company but does not seek to represent a putative class or make class action allegations. The Company disputes the allegations of the First Amended Complaint and, J.P. Morgan Securities, LLC ("JP Morgan")at this time, does not expect that this case will have a material adverse effect on the Company’s consolidated financial condition or results of operation.

On July 28, 2016, the Company was named as a defendant in Calleros v. Chico’s FAS, Inc., as agenta putative class action filed in the Superior Court of California, County of Santa Barbara. Plaintiff alleges that the Company failed to comply with California law requiring it to provide consumers cash for JPMorgan Chase Bank, N.A., to purchase $250.0 million in outstanding shares of our common stock. Under the ASR Agreements, we madegift cards with a payment of approximately $125.0 million to each of Merrill Lynch and JP Morgan and received from each of them an initial delivery of approximately 5.35 million common shares. Thestored value of less than $10.00. The Company believes that the initial shares receivedmatter is not appropriate for class treatment; however, it is not possible to predict whether it will be permitted to proceed as a class or the size of the putative class, and no assurance can be given that the Company will be successful in its defense of this action on the datemerits or otherwise. Because class determinations have not been made, the Company is unable to estimate any potential loss or range of purchase was approximately $187.5 million. Inloss were it to lose on the second quarter of fiscal 2015, Merrill Lynch and JP Morgan delivered an additional 3.9 million shares upon completionmerits of the ASR Agreements, valuedcase. However, the case is scheduled for voluntary mediation on November 28, 2016, and, at approximately $62.5 million.

Other than as noted above, we are not currently a party to any legal proceedings other than claims and lawsuits arising in the second quarternormal course of fiscal 2015.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and notes thereto and our 20142015 Annual Report to Stockholders.

We are a leading omni-channel specialty retailer of women’s private branded, sophisticated, casual-to-dressy clothing, intimates, complementary accessories, and other non-clothing items operating under the Chico’s, White House | Black Market (“WH|BM”WHBM”), Soma and Boston ProperSoma brand names. We earn revenues and generate cash through the sale of merchandise in our domestic and international retail stores, on our various websites, through our call center which takes orders for all of our brands, and through an unaffiliated franchise partner in Mexico.

We utilize an integrated omni-channel approach to managing our business. WeFor each of our brands, we want our customers to experience our brands, not a channel within our brands, and view ourthe brand, through all of its various sales channels, as an integrated experience, rather than viewing it through a single integrated process rather thanchannel (such as separate sales channels operating independently.the store or the website). This approach allows our customers to browse, purchase, return, or exchange our merchandise through whatever sales channel and at whatever time is most convenient for her.convenient. As a result, we track total sales and comparable sales on a combined basis.

Net sales for the year-to-date period of fiscal 20152016 were $2.015$1.876 billion, a decrease of 0.2%7.5% compared to $2.018$2.029 billion in last year’s year-to-date period. Net income for the year-to-date period of fiscal 20152016 was $23.0$77.7 million, or $0.16$0.58 per diluted share, compared to net income of $96.5$23.0 million, or $0.63$0.16 per diluted share in last year'syear. Results for the year-to-date period.period of fiscal 2016 include restructuring and strategic charges of $19.4 million after-tax, or $0.15 per diluted share, primarily consisting of severance, proxy solicitation costs, and outside services, partially offset by an additional tax benefit on the disposition of Boston Proper's stock of $4.0 million, or $0.03 per diluted share. Results for the year-to-date period of fiscal 2015 include the impact of Boston Proper non-cash goodwill and intangibletrade name impairment charges of $71.0 million after-tax, or $0.50 per diluted share, restructuring and strategic charges of $21.2 million after-tax, or $0.15 per diluted share, primarily related to property and equipment impairment charges, employee-related costs and lease termination charges, of $21.2 million after-tax, or $0.15 per diluted share, a tax benefit related to the expected disposition of Boston Proper's stock of $23.8 million, or $0.17 per diluted share, and the impact ofoperating loss related to Boston Proper's operating lossProper of $8.2 million, after tax, or $0.06 per diluted share. The change in earnings per share also reflects a decrease in net income, partially offset by the impact of approximately 14.610.2 million shares repurchased since the end of the third quarter last year, all of which were repurchased in fiscal 2015.year.

Our overall business strategy is focused on building and cultivating a portfolio of high-performing retail brands serving the fashion needs of women 35 years and older. In the near term, weWe are focused on increasing the sales volume and profitability of our existing brands.brands through our four focus areas: (1) evolving the customer experience, (2) strengthening our brands' positions, (3) leveraging actionable retail science, and (4) sharpening our financial principles. Over the long term, we may build our brand portfolio by considering the organic development or acquisition of other specialty retail concepts when ourif research indicates that the opportunity complements our current brands and is appropriate and in the best interest of the shareholders.

We pursue the growth of the brands in our portfolio by building our omni-channel capabilities, which includes managing our store base and our growing online presence, executing innovative marketing plans, effectively leveraging expenses and optimizing the potential of each of our three brands. As part of our continuous efforts to improve our overall strategy while seeking to enhance and support our long-term growth,We have invested heavily in fiscal 2014, we initiated new capital allocation and cost reduction initiatives that are focused on advancing our omni-channel capabilities in order to improveallow customers to fully experience our brands, through more than one channel. In essence, we view our various sales channels as a single, integrated process rather than as separate sales channels operating independently. To that end, we often refer to our brands' respective websites as "our largest store" within the brand.

The following table depicts net sales by Chico’s, WH|BM,WHBM, Soma and Boston Proper in dollars and as a percentage of total net sales for the thirteen weeks ended October 29, 2016 and October 31, 2015 and November 1, 2014:2015:

The following table depicts comparable sales percentages by Chico's, WH|BMWHBM and Soma for the thirteen weeks ended October 29, 2016 and October 31, 2015 and November 1, 2014:2015:

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 October 29, 2016 and October 31, 2015 and November 1, 2014:2015:

For the third quarter of fiscal 2015,2016, gross margin was $350.5$230.3 million, or 38.6%, compared to $363.8$249.2 million, or 38.6%, in last year’s third quarter. GrossWhen excluding Boston Proper from fiscal 2015, gross margin was 54.7%decreased 40 basis points in fiscal 2016 compared to gross margin of net sales, in line with the same period$244.2 million, or 39.0% last year. This decrease in gross margin rate primarily reflects an improvement in merchandise margin, which was more than offset by deleverage of occupancy costs and an increase in incentive compensation.

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 October 29, 2016 and October 31, 2015 and November 1, 2014:2015:

For the third quarter of fiscal 2015,2016, SG&A was $327.6$188.4 million compared to $321.6$226.3 million in last year’syear's third quarter. SG&A was 51.1%31.6% of net sales, a 280350 basis point increasedecrease from last year’syear's third quarter, primarily reflecting sales deleverage as well asdue a reduction in marketing spend in fiscal 2016, $11.5 million of SG&A related to Boston Proper in fiscal 2015, and savings in store labor, partially offset by an increase in store occupancy and point-of-sale implementation costs.incentive compensation.

In fiscal 2014, we initiated a restructuring program, including the acceleration of domestic store closures and an organizational realignment, to ensure that resources are aligned with long-term growth initiatives, including omni-channel. During the first quarter of fiscal 2016, we announced an expansion of our restructuring program to further align the organizational structure with long-term growth initiatives, including transition of executive leadership, and to reduce COGS and SG&A through strategic initiatives. These strategic initiatives include realigning marketing and digital commerce, improving supply chain efficiency, and reducing non-merchandise and marketing expenses. We have continued to execute on our cost reduction and operating efficiency initiatives, including an organizational redesign in the third quarter of fiscal 2016 which clarified roles, responsibilities and processes across our brands and shared service center.

In connection with this effort, in the third quarter of fiscal 2015,2016, we recorded pre-tax restructuring and strategic charges of $3.1totaling $10.8 million, primarily consisting of $2.1outside services related to cost reduction and operating efficiency initiatives, compared to $3.1 million in the third quarter of fiscal 2015, primarily consisting of Boston Proper lease termination charges. The after-tax impact of the restructuring and strategic charges in the third quarter totaled $6.8 million, or $0.05 per diluted share, compared to $1.9 million, or $0.01 per diluted share.share in fiscal 2015.

The following table depicts net sales by Chico’s, WH|BM,WHBM, Soma and Boston Proper in dollars and as a percentage of total net sales for the thirty-nine weeks ended October 29, 2016 and October 31, 2015 and November 1, 2014:2015: