UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended May 1, 2021April 30, 2022
OR
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-16435
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Chico's FAS, Inc. |
(Exact name of registrant as specified in its charter) |
| | | | | | | | |
Florida | | 59-2389435 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
11215 Metro Parkway, Fort Myers, Florida 33966
(Address of principal executive offices)
239-277-6200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, Par Value $0.01 Per Share | CHS | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
| | | | | | | | | | | | | | | | | | | | |
Large accelerated filer | | ☐☑ | | Accelerated filer | | ☑☐ |
Non-accelerated filer | | ☐ | | Smaller reporting company | | ☐ |
| | | | Emerging growth company | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
At May 31, 2021,30, 2022, the registrant had 122,601,626125,143,408 shares of Common Stock, $0.01 par value per share, outstanding.
CHICO'S FAS, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE
FISCAL THIRTEEN WEEKS ENDED MAY 1, 2021APRIL 30, 2022
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
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ITEM 1. | FINANCIAL STATEMENTS |
CHICO'S FAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF LOSSINCOME (LOSS)
(Unaudited)
(Dollars in thousands, except per share amounts)
| | | Thirteen Weeks Ended | | | Thirteen Weeks Ended | |
| | May 1, 2021 | | May 2, 2020 | | | April 30, 2022 | | May 1, 2021 | |
| | | Amount | | % of Sales | | Amount | | % of Sales | | | Amount | | % of Sales | | Amount | | % of Sales | |
Net Sales | Net Sales | $ | 387,961 | | | 100.0 | % | | $ | 280,264 | | | 100.0 | % | | Net Sales | $ | 540,915 | | | 100.0 | % | | $ | 387,961 | | | 100.0 | % | |
Cost of goods sold | Cost of goods sold | 261,166 | | | 67.3 | | | 291,359 | | | 104.0 | | | Cost of goods sold | 324,350 | | | 60.0 | | | 261,166 | | | 67.3 | | |
Gross Margin | Gross Margin | 126,795 | | | 32.7 | | | (11,095) | | | (4.0) | | | Gross Margin | 216,565 | | | 40.0 | | | 126,795 | | | 32.7 | | |
Selling, general and administrative expenses | Selling, general and administrative expenses | 134,319 | | | 34.6 | | | 130,171 | | | 46.4 | | | Selling, general and administrative expenses | 171,158 | | | 31.6 | | | 134,319 | | | 34.6 | | |
Goodwill and intangible impairment charges | 0 | | | 0.0 | | | 113,180 | | | 40.4 | | | |
| Loss from Operations | (7,524) | | | (1.9) | | | (254,446) | | | (90.8) | | | |
| Income (Loss) from Operations | | Income (Loss) from Operations | 45,407 | | | 8.4 | | | (7,524) | | | (1.9) | | |
Interest expense, net | Interest expense, net | (1,705) | | | (0.5) | | | (344) | | | (0.1) | | | Interest expense, net | (975) | | | (0.2) | | | (1,705) | | | (0.5) | | |
Loss before Income Taxes | (9,229) | | | (2.4) | | | (254,790) | | | (90.9) | | | |
Income tax benefit | (300) | | | (0.1) | | | (76,500) | | | (27.3) | | | |
Net Loss | $ | (8,929) | | | (2.3) | % | | $ | (178,290) | | | (63.6) | % | | |
Income (Loss) before Income Taxes | | Income (Loss) before Income Taxes | 44,432 | | | 8.2 | | | (9,229) | | | (2.4) | | |
Income tax provision (benefit) | | Income tax provision (benefit) | 9,500 | | | 1.7 | | | (300) | | | (0.1) | | |
Net Income (Loss) | | Net Income (Loss) | $ | 34,932 | | | 6.5 | % | | $ | (8,929) | | | (2.3) | % | |
Per Share Data: | Per Share Data: | | | | | | | | | Per Share Data: | | | | | | | | |
Net loss per common share - basic | $ | (0.08) | | | $ | (1.55) | | | | |
Net loss per common and common equivalent share – diluted | $ | (0.08) | | | $ | (1.55) | | | | |
Net income (loss) per common share - basic | | Net income (loss) per common share - basic | $ | 0.29 | | | $ | (0.08) | | | |
Net income (loss) per common and common equivalent share – diluted | | Net income (loss) per common and common equivalent share – diluted | $ | 0.28 | | | $ | (0.08) | | | |
Weighted average common shares outstanding – basic | Weighted average common shares outstanding – basic | 116,689 | | | 115,574 | | | | Weighted average common shares outstanding – basic | 118,993 | | | 116,689 | | | |
Weighted average common and common equivalent shares outstanding – diluted | Weighted average common and common equivalent shares outstanding – diluted | 116,689 | | | 115,574 | | | | Weighted average common and common equivalent shares outstanding – diluted | 123,311 | | | 116,689 | | | |
The accompanying notes are an integral part of these condensed consolidated statements.
3
CHICO'S FAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSINCOME (LOSS)
(Unaudited)
(In thousands)
| | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | |
| May 1, 2021 | | May 2, 2020 | | | | |
Net loss | $ | (8,929) | | | $ | (178,290) | | | | | |
Other comprehensive loss: | | | | | | | |
Unrealized losses on marketable securities, net of taxes | (34) | | | (137) | | | | | |
Foreign currency translation adjustment | 0 | | | (132) | | | | | |
Comprehensive loss | $ | (8,963) | | | $ | (178,559) | | | | | |
| | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | |
| April 30, 2022 | | May 1, 2021 | | | | |
Net income (loss) | $ | 34,932 | | | $ | (8,929) | | | | | |
Other comprehensive income (loss): | | | | | | | |
Unrealized losses on marketable securities, net of taxes | — | | | (34) | | | | | |
| | | | | | | |
Comprehensive income (loss) | $ | 34,932 | | | $ | (8,963) | | | | | |
The accompanying notes are an integral part of these condensed consolidated statements.
4
CHICO'S FAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except per share amounts)
| | | May 1, 2021 | | January 30, 2021 | | May 2, 2020 | | April 30, 2022 | | January 29, 2022 | | May 1, 2021 |
ASSETS | ASSETS | | | | | | ASSETS | | | | | |
Current Assets: | Current Assets: | | Current Assets: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 83,874 | | | $ | 90,791 | | | $ | 89,841 | | Cash and cash equivalents | $ | 104,131 | | | $ | 115,105 | | | $ | 83,874 | |
Marketable securities, at fair value | Marketable securities, at fair value | 18,511 | | | 18,559 | | | 27,755 | | Marketable securities, at fair value | — | | | — | | | 18,511 | |
Inventories | Inventories | 209,668 | | | 203,983 | | | 273,126 | | Inventories | 325,565 | | | 323,389 | | | 209,668 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 39,701 | | | 30,565 | | | 35,848 | | Prepaid expenses and other current assets | 53,024 | | | 41,871 | | | 39,701 | |
Income tax receivable | Income tax receivable | 57,513 | | | 58,140 | | | 66,834 | | Income tax receivable | 12,737 | | | 13,698 | | | 57,513 | |
| Total Current Assets | Total Current Assets | 409,267 | | | 402,038 | | | 493,404 | | Total Current Assets | 495,457 | | | 494,063 | | | 409,267 | |
Property and Equipment, net | Property and Equipment, net | 223,898 | | | 241,370 | | | 285,714 | | Property and Equipment, net | 184,240 | | | 195,332 | | | 223,898 | |
Right of Use Assets | Right of Use Assets | 554,795 | | | 586,061 | | | 612,161 | | Right of Use Assets | 439,896 | | | 463,077 | | | 554,795 | |
Other Assets: | Other Assets: | | Other Assets: | |
Goodwill | Goodwill | 16,360 | | | 16,360 | | | 16,360 | | Goodwill | 16,360 | | | 16,360 | | | 16,360 | |
Other intangible assets, net | Other intangible assets, net | 5,000 | | | 5,000 | | | 6,164 | | Other intangible assets, net | 5,000 | | | 5,000 | | | 5,000 | |
Other assets, net | Other assets, net | 21,038 | | | 24,049 | | | 42,901 | | Other assets, net | 19,648 | | | 23,005 | | | 21,038 | |
Total Other Assets | Total Other Assets | 42,398 | | | 45,409 | | | 65,425 | | Total Other Assets | 41,008 | | | 44,365 | | | 42,398 | |
| | $ | 1,230,358 | | | $ | 1,274,878 | | | $ | 1,456,704 | | | $ | 1,160,601 | | | $ | 1,196,837 | | | $ | 1,230,358 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | |
Current Liabilities: | Current Liabilities: | | Current Liabilities: | |
Accounts payable | Accounts payable | $ | 128,230 | | | $ | 116,506 | | | $ | 140,396 | | Accounts payable | $ | 161,058 | | | $ | 180,828 | | | $ | 128,230 | |
Current lease liabilities | Current lease liabilities | 184,296 | | | 194,551 | | | 190,811 | | Current lease liabilities | 150,476 | | | 172,506 | | | 184,296 | |
| Other current and deferred liabilities | Other current and deferred liabilities | 116,764 | | | 120,729 | | | 108,707 | | Other current and deferred liabilities | 139,148 | | | 134,051 | | | 116,764 | |
| Total Current Liabilities | Total Current Liabilities | 429,290 | | | 431,786 | | | 439,914 | | Total Current Liabilities | 450,682 | | | 487,385 | | | 429,290 | |
Noncurrent Liabilities: | Noncurrent Liabilities: | | Noncurrent Liabilities: | |
Long-term debt | Long-term debt | 149,000 | | | 149,000 | | | 149,000 | | Long-term debt | 99,000 | | | 99,000 | | | 149,000 | |
Long-term lease liabilities | Long-term lease liabilities | 480,537 | | | 515,797 | | | 520,323 | | Long-term lease liabilities | 355,851 | | | 381,081 | | | 480,537 | |
Other noncurrent and deferred liabilities | Other noncurrent and deferred liabilities | 11,936 | | | 11,863 | | | 6,630 | | Other noncurrent and deferred liabilities | 2,290 | | | 7,867 | | | 13,249 | |
Deferred taxes | 1,313 | | | 1,313 | | | 30 | | |
| Total Noncurrent Liabilities | Total Noncurrent Liabilities | 642,786 | | | 677,973 | | | 675,983 | | Total Noncurrent Liabilities | 457,141 | | | 487,948 | | | 642,786 | |
Commitments and Contingencies (see Note 14) | 0 | | 0 | | 0 | |
Commitments and Contingencies (see Note 10) | | Commitments and Contingencies (see Note 10) | 0 | | 0 | | 0 |
Shareholders’ Equity: | Shareholders’ Equity: | | Shareholders’ Equity: | |
Preferred stock, $0.01 par value; 2,500 shares authorized; 0 shares issued and outstanding | 0 | | | 0 | | | 0 | | |
Common stock, $0.01 par value; 400,000 shares authorized; 163,863 and 161,032 and 160,883 shares issued respectively; and 122,566 and 119,735 and 119,586 shares outstanding, respectively | 1,226 | | | 1,197 | | | 1,196 | | |
Preferred stock, $0.01 par value; 2,500 shares authorized; no shares issued and outstanding | | Preferred stock, $0.01 par value; 2,500 shares authorized; no shares issued and outstanding | — | | | — | | | — | |
Common stock, $0.01 par value; 400,000 shares authorized; 166,458 and 163,823 and 163,863 shares issued respectively; and 125,161 and 122,526 and 122,566 shares outstanding, respectively | | Common stock, $0.01 par value; 400,000 shares authorized; 166,458 and 163,823 and 163,863 shares issued respectively; and 125,161 and 122,526 and 122,566 shares outstanding, respectively | 1,251 | | | 1,225 | | | 1,226 | |
Additional paid-in capital | Additional paid-in capital | 500,453 | | | 498,488 | | | 493,140 | | Additional paid-in capital | 504,977 | | | 508,654 | | | 500,453 | |
Treasury stock, at cost, 41,297 shares, respectively | Treasury stock, at cost, 41,297 shares, respectively | (494,395) | | | (494,395) | | | (494,395) | | Treasury stock, at cost, 41,297 shares, respectively | (494,395) | | | (494,395) | | | (494,395) | |
Retained earnings | Retained earnings | 150,968 | | | 159,765 | | | 341,563 | | Retained earnings | 240,945 | | | 206,020 | | | 150,968 | |
Accumulated other comprehensive gain (loss) | 30 | | | 64 | | | (697) | | |
Accumulated other comprehensive gain | | Accumulated other comprehensive gain | — | | | — | | | 30 | |
Total Shareholders’ Equity | Total Shareholders’ Equity | 158,282 | | | 165,119 | | | 340,807 | | Total Shareholders’ Equity | 252,778 | | | 221,504 | | | 158,282 | |
| | $ | 1,230,358 | | | $ | 1,274,878 | | | $ | 1,456,704 | | | $ | 1,160,601 | | | $ | 1,196,837 | | | $ | 1,230,358 | |
The accompanying notes are an integral part of these condensed consolidated statements.
5
CHICO'S FAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands, except per share amounts)
| | | Thirteen Weeks Ended | | Thirteen Weeks Ended |
| | Common Stock | | Additional Paid-in Capital | | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Gain (Loss) | | | | Common Stock | | Additional Paid-in Capital | | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Gain | | |
| | | Shares | | Par Value | | Shares | | Amount | | Total |
BALANCE, January 29, 2022 | | BALANCE, January 29, 2022 | 122,526 | | | $ | 1,225 | | | $ | 508,654 | | | 41,297 | | | $ | (494,395) | | | $ | 206,020 | | | $ | — | | | $ | 221,504 | |
| Net income | | Net income | — | | | — | | | — | | | — | | | — | | | 34,932 | | | — | | | 34,932 | |
| Issuance of common stock | | Issuance of common stock | 4,197 | | | 42 | | | 101 | | | — | | | — | | | — | | | — | | | 143 | |
Dividends on common stock | | Dividends on common stock | — | | | — | | | — | | | — | | | — | | | (7) | | | — | | | (7) | |
Repurchase of common stock & tax withholdings related to share-based awards | | Repurchase of common stock & tax withholdings related to share-based awards | (1,562) | | | (16) | | | (7,641) | | | — | | | — | | | — | | | — | | | (7,657) | |
Share-based compensation | | Share-based compensation | — | | | — | | | 3,863 | | | — | | | — | | | — | | | — | | | 3,863 | |
BALANCE, April 30, 2022 | | BALANCE, April 30, 2022 | 125,161 | | | $ | 1,251 | | | $ | 504,977 | | | 41,297 | | | $ | (494,395) | | | $ | 240,945 | | | $ | — | | | $ | 252,778 | |
| | Shares | | Par Value | | Additional Paid-in Capital | | Shares | | Amount | | Retained Earnings | | Accumulated Other Comprehensive Gain (Loss) | | Total | | | | | | | | | | | | | | | | |
BALANCE, January 30, 2021 | BALANCE, January 30, 2021 | 119,735 | | | $ | 1,197 | | | 41,297 | | | $ | (494,395) | | | $ | 165,119 | | BALANCE, January 30, 2021 | 119,735 | | | $ | 1,197 | | | $ | 498,488 | | | 41,297 | | | $ | (494,395) | | | $ | 159,765 | | | $ | 64 | | | $ | 165,119 | |
| Net loss | Net loss | — | | | — | | | — | | | — | | | — | | | (8,929) | | | — | | | (8,929) | | Net loss | — | | | — | | | — | | | — | | | — | | | (8,929) | | | — | | | (8,929) | |
Unrealized losses on marketable securities, net of taxes | Unrealized losses on marketable securities, net of taxes | — | | | — | | | — | | | — | | | — | | | — | | | (34) | | | (34) | | Unrealized losses on marketable securities, net of taxes | — | | | — | | | — | | | — | | | — | | | — | | | (34) | | | (34) | |
| Issuance of common stock | Issuance of common stock | 3,125 | | | 32 | | | (31) | | | — | | | — | | | — | | | — | | | 1 | | Issuance of common stock | 3,125 | | | 32 | | | (31) | | | — | | | — | | | — | | | — | | | 1 | |
Dividends on common stock | Dividends on common stock | — | | | — | | | — | | | — | | | — | | | 132 | | | — | | | 132 | | Dividends on common stock | — | | | — | | | — | | | — | | | — | | | 132 | | | — | | | 132 | |
Repurchase of common stock & tax withholdings related to share-based awards | Repurchase of common stock & tax withholdings related to share-based awards | (294) | | | (3) | | | (819) | | | — | | | — | | | — | | | — | | | (822) | | Repurchase of common stock & tax withholdings related to share-based awards | (294) | | | (3) | | | (819) | | | — | | | — | | | — | | | — | | | (822) | |
Share-based compensation | Share-based compensation | — | | | — | | | 2,815 | | | — | | | — | | | — | | | — | | | 2,815 | | Share-based compensation | — | | | — | | | 2,815 | | | — | | | — | | | — | | | — | | | 2,815 | |
BALANCE, May 1, 2021 | BALANCE, May 1, 2021 | 122,566 | | | $ | 1,226 | | | $ | 500,453 | | | 41,297 | | | $ | (494,395) | | | $ | 150,968 | | | $ | 30 | | | $ | 158,282 | | BALANCE, May 1, 2021 | 122,566 | | | $ | 1,226 | | | $ | 500,453 | | | 41,297 | | | $ | (494,395) | | | $ | 150,968 | | | $ | 30 | | | $ | 158,282 | |
| BALANCE, February 1, 2020 | 118,418 | | | $ | 1,184 | | | $ | 492,129 | | | 41,297 | | | $ | (494,395) | | | $ | 531,602 | | | $ | (428) | | | $ | 530,092 | | |
Cumulative effect of adoption of ASU 2016-13 | — | | | — | | | — | | | — | | | — | | | (838) | | | — | | | (838) | | |
BALANCE, February 1, 2020, as adjusted | 118,418 | | | 1,184 | | | 492,129 | | | 41,297 | | | (494,395) | | | 530,764 | | | (428) | | | 529,254 | | |
Net loss | — | | | — | | | — | | | — | | | — | | | (178,290) | | | — | | | (178,290) | | |
Unrealized losses on marketable securities, net of taxes | — | | | — | | | — | | | — | | | — | | | — | | | (137) | | | (137) | | |
Foreign currency translation adjustment | — | | | — | | | — | | | — | | | — | | | — | | | (132) | | | (132) | | |
Issuance of common stock | 1,454 | | | 15 | | | 237 | | | — | | | — | | | — | | | — | | | 252 | | |
Dividends on common stock ($0.09 per share) | — | | | — | | | — | | | — | | | — | | | (10,911) | | | — | | | (10,911) | | |
Repurchase of common stock & tax withholdings related to share-based awards | (286) | | | (3) | | | (930) | | | — | | | — | | | — | | | — | | | (933) | | |
Share-based compensation | — | | | — | | | 1,704 | | | — | | | — | | | — | | | — | | | 1,704 | | |
BALANCE, May 2, 2020 | 119,586 | | | $ | 1,196 | | | $ | 493,140 | | | 41,297 | | | $ | (494,395) | | | $ | 341,563 | | | $ | (697) | | | $ | 340,807 | | |
The accompanying notes are an integral part of these condensed consolidated statements.
6
CHICO'S FAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
| | | Thirteen Weeks Ended | | Thirteen Weeks Ended |
| | May 1, 2021 | | May 2, 2020 | | April 30, 2022 | | May 1, 2021 |
Cash Flows from Operating Activities: | Cash Flows from Operating Activities: | | | | Cash Flows from Operating Activities: | | | |
Net loss | $ | (8,929) | | | $ | (178,290) | | |
Adjustments to reconcile net loss to net cash used in operating activities: | | |
Goodwill and intangible impairment charges | 0 | | | 113,180 | | |
Inventory write-offs | 0 | | | 43,101 | | |
Net income (loss) | | Net income (loss) | $ | 34,932 | | | $ | (8,929) | |
Adjustments to reconcile net income (loss) to net cash used in operating activities: | | Adjustments to reconcile net income (loss) to net cash used in operating activities: | |
| Depreciation and amortization | Depreciation and amortization | 13,432 | | | 17,777 | | Depreciation and amortization | 11,590 | | | 13,432 | |
Non-cash lease expense | Non-cash lease expense | 47,737 | | | 51,018 | | Non-cash lease expense | 44,131 | | | 47,737 | |
| Right of use asset impairment | 0 | | | 2,442 | | |
| Loss on disposal and impairment of property and equipment, net | Loss on disposal and impairment of property and equipment, net | 31 | | | 18,637 | | Loss on disposal and impairment of property and equipment, net | 1,968 | | | 31 | |
Deferred tax benefit | Deferred tax benefit | 10 | | | (22,067) | | Deferred tax benefit | (430) | | | 10 | |
Share-based compensation expense | Share-based compensation expense | 2,815 | | | 1,704 | | Share-based compensation expense | 3,863 | | | 2,815 | |
| Changes in assets and liabilities: | Changes in assets and liabilities: | | Changes in assets and liabilities: | |
Inventories | Inventories | (5,685) | | | (69,490) | | Inventories | (2,176) | | | (5,685) | |
Prepaid expenses and other assets | Prepaid expenses and other assets | (37) | | | 3,748 | | Prepaid expenses and other assets | (6,449) | | | (37) | |
Income tax receivable | Income tax receivable | 627 | | | (59,703) | | Income tax receivable | 961 | | | 627 | |
Accounts payable | Accounts payable | 11,900 | | | 5,966 | | Accounts payable | (19,483) | | | 11,900 | |
Accrued and other liabilities | Accrued and other liabilities | (4,190) | | | (7,537) | | Accrued and other liabilities | (1,182) | | | (4,190) | |
Lease liability | Lease liability | (62,111) | | | (19,119) | | Lease liability | (67,908) | | | (62,111) | |
Net cash used in operating activities | Net cash used in operating activities | (4,400) | | | (98,633) | | Net cash used in operating activities | (183) | | | (4,400) | |
Cash Flows from Investing Activities: | Cash Flows from Investing Activities: | | | | Cash Flows from Investing Activities: | | | |
Purchases of marketable securities | Purchases of marketable securities | (139) | | | (5,191) | | Purchases of marketable securities | — | | | (139) | |
Proceeds from sale of marketable securities | Proceeds from sale of marketable securities | 140 | | | 41,156 | | Proceeds from sale of marketable securities | — | | | 140 | |
Purchases of property and equipment | Purchases of property and equipment | (1,697) | | | (6,464) | | Purchases of property and equipment | (2,571) | | | (1,697) | |
| Net cash (used in) provided by investing activities | (1,696) | | | 29,501 | | |
Net cash used in investing activities | | Net cash used in investing activities | (2,571) | | | (1,696) | |
Cash Flows from Financing Activities: | Cash Flows from Financing Activities: | | | | Cash Flows from Financing Activities: | | | |
Proceeds from borrowings | 0 | | | 106,500 | | |
| Payments of debt issuance costs | | Payments of debt issuance costs | (706) | | | — | |
Proceeds from issuance of common stock | Proceeds from issuance of common stock | 1 | | | 252 | | Proceeds from issuance of common stock | 143 | | | 1 | |
Dividends paid | 0 | | | (10,686) | | |
| | Payments of tax withholdings related to share-based awards | Payments of tax withholdings related to share-based awards | (822) | | | (933) | | Payments of tax withholdings related to share-based awards | (7,657) | | | (822) | |
Net cash (used in) provided by financing activities | (821) | | | 95,133 | | |
Effects of exchange rate changes on cash and cash equivalents | 0 | | | (132) | | |
Net (decrease) increase in cash and cash equivalents | (6,917) | | | 25,869 | | |
Net cash used in financing activities | | Net cash used in financing activities | (8,220) | | | (821) | |
| Net decrease in cash and cash equivalents | | Net decrease in cash and cash equivalents | (10,974) | | | (6,917) | |
Cash and Cash Equivalents, Beginning of period | Cash and Cash Equivalents, Beginning of period | 90,791 | | | 63,972 | | Cash and Cash Equivalents, Beginning of period | 115,105 | | | 90,791 | |
Cash and Cash Equivalents, End of period | Cash and Cash Equivalents, End of period | $ | 83,874 | | | $ | 89,841 | | Cash and Cash Equivalents, End of period | $ | 104,131 | | | $ | 83,874 | |
| Supplemental Disclosures of Cash Flow Information: | Supplemental Disclosures of Cash Flow Information: | | Supplemental Disclosures of Cash Flow Information: | |
Cash paid for interest | Cash paid for interest | $ | 1,529 | | | $ | 676 | | Cash paid for interest | $ | 1,480 | | | $ | 1,529 | |
Cash received for income taxes, net | Cash received for income taxes, net | $ | (873) | | | $ | (166) | | Cash received for income taxes, net | $ | (6) | | | $ | (873) | |
The accompanying notes are an integral part of these condensed consolidated statements.
7
CHICO'S FAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and where otherwise indicated)
(Unaudited)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements of Chico's FAS, Inc., a Florida corporation, and its wholly-owned subsidiaries (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. 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. The fiscal year ended January 30, 202129, 2022 balance sheet data was derived from audited consolidated financial statements. For further information, refer to the consolidated financial statements and notes thereto for the fiscal year ended January 30, 2021,29, 2022, included in the Company's Annual Report on Form 10-K for the fiscal year ended January 30, 202129, 2022 filed with the Securities and Exchange Commission ("SEC") on March 9, 15, 2022 ("2021 ("2020 Annual Report on Form 10-K").
As used in this report, all references to "we," "us," "our", "the Company" and "Chico's FAS," 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 ended May 1, 2021April 30, 2022 are not necessarily indicative of the results that may be expected for the entire year.
COVID-19 Pandemic Update
The COVID-19novel strain of coronavirus (‘‘COVID-19’’) pandemic (the "pandemic"‘‘COVID-19 pandemic’’ or the ‘‘pandemic’’) has resulted in significant challenges across our business since March 2020. Many2020 and is expected to continue to disrupt our business operations for 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'sCompany’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 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 becomehave relaxed and markets reopen,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.preferences and cause disruptions to the supply chain and increase our raw materials and freight costs. Due to the above circumstance,uncertainty over the Company’s results of operations for the thirteen weeks ended May 1, 2021 are not necessarily indicativeduration and severity of the results to be expected foreconomic and operational impacts of the fullpandemic, the material adverse impact of the pandemic may continue throughout our fiscal year.year 2022.
Reclassifications
Certain reclassifications have been made to the prior period's financial statements to enhance the comparability with the current year's financial statements. As a result, certain line items have been amended in the unaudited condensed consolidated balance sheets and unaudited condensed consolidated statements of cash flows to conform to the current period's presentation.
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The pandemic has had a significant material adverse impact on our business operations, operating results and operating cash flows since March 2020. The Company assessed the impact that the pandemic has had on our estimates, assumptions and accounting policies and made additional disclosures, if and as necessary.
Exit of Canada Frontline Operations
On July 30, 2020, Chico’s FAS Canada, Co., an immaterial subsidiary of the Company, filed for bankruptcy with the Ontario, Canada office of the Superintendent in Bankruptcy. This action resulted in the permanent closure of 4 Chico’s and 6 White House Black Market ("WHBM") boutiques in Ontario, Canada. The permanent closure of the Canadian boutiques, which constitute all of the Company’s Canadian boutiques, was part of the Company’s cost-savings measures taken to mitigate the impact of the pandemic during fiscal 2020 and address the operational and financial challenges associated with operating in Canada. In connection with this effort, in the second quarter of fiscal 2020, we exited our Canada frontline operations and recorded on a net basis a non-material charge, including the realization of a cumulative foreign currency translation adjustment.
Adoption of New Accounting Pronouncements
In December 2019,There were no new accounting pronouncements adopted by the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2019-12, SimplifyingCompany during the Accounting for Income Taxes ("ASU 2019-12"), which eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. This guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company adopted this new guidance in the first quarter of fiscal 2021. The adoption of ASU 2019-12 did not have a material impact on our unaudited condensed consolidated financial statements.thirteen weeks ended April 30, 2022.
In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848) (“ASU 2021-01”). The amendments in ASU 2021-01 provide optional expedients and exceptions for applying Generally Accepted Accounting Principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of the reference rate reform. This guidance is effective upon issuance (January 7, 2021). The Company adopted this new guidance in the first quarter of fiscal 2021. The adoption of ASU 2021-01 did not have a material impact on our unaudited condensed consolidated financial statements.
2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company currently has no material recent accounting pronouncements yet to be adopted.
3. GOODWILL AND INTANGIBLE IMPAIRMENT CHARGES
Goodwill and other indefinite-lived intangible assets are assessed for impairment at least annually. We perform our annual impairment test during the fourth quarter, or more frequently when circumstances indicate carrying values may not be recoverable. In assessing the possibility that a reporting unit’s fair value has been reduced below its carrying amount due to the occurrence of events or circumstances between annual impairment testing dates, we consider various macroeconomic, industry-specific and Company-specific factors, including: (i) severe adverse industry or economic trends; (ii) significant Company-specific actions; (iii) current, historical or projected deterioration of the Company’s financial performance; or (iv) a sustained decrease in the Company’s market capitalization.
During the thirteen weeks ended May 2, 2020 ("last year's first quarter"), the Company experienced a significant decline in its market capitalization and disruptions to its operations as a result of the pandemic. Consequently, the Company reduced its level of forecasted earnings for fiscal 2020 and future periods across all of its brands. In light of the decline in the Company's stock price and market capitalization, the Company concluded that these factors, among other factors, represented impairment indicators which required the Company to test its goodwill and indefinite-lived intangible assets for impairment during last year's first quarter.
The Company performed its valuation of its goodwill and indefinite-lived intangible assets using a quantitative approach as of April 4, 2020 (the "interim test"), which was the last day in the second month of last year's first quarter. The valuation of the Company's goodwill and indefinite-lived intangible assets was determined with the assistance of an independent valuation firm using the income approach (discounted cash flow ("DCF") method) and relief from royalty method, respectively. We applied a 100% weighting to the income approach as we were able to provide detailed forecasts for the foreseeable future to perform a DCF analysis. We did not utilize a market approach in the fair value assessment of the reporting units as the implied EBITDA or sales multiples from the market approach did not yield reasonable fair values given the volatile market conditions at the time of the assessment. Furthermore, the Company’s publicly traded market capitalization was reconciled to the sum of the fair values of the reporting units estimated using the income approach described above. The fair value of our trademark was determined using an approach that values the Company’s cash savings from having a royalty-free license compared to the market rate it would pay for access to use the trademark.
Changes in key assumptions and the resulting reduction in projected future cash flows included in the interim test resulted in a decrease in the fair values of our Chico's and White House Black Market ("WHBM") reporting units such that their fair values were less than their carrying values. As a result, the Company recognized the following pre-tax goodwill impairment charges during last year's first quarter: a charge of $20.0 million at the Chico's reporting unit and a charge of $60.4 million at the WHBM reporting unit, reducing the carrying value of goodwill to 0 for the WHBM reporting unit. In addition, the Company recognized pre-tax impairment charges during last year's first quarter to write down the carrying values of its other indefinite-lived intangible assets to their fair values as follows: $28.0 million of our WHBM trademark and $4.8 million of our Chico's franchise rights. These impairment charges are included in goodwill and intangible impairment charges in the accompanying unaudited condensed consolidated statements of loss.
The Company evaluated the need to perform an interim impairment test for its goodwill and indefinite-lived intangible assets during the thirteen weeks ended May 1, 2021 (the "first quarter"). We considered macroeconomic, industry-specific and Company-specific factors in addition to the estimates and assumptions used in our most recently completed goodwill and indefinite-lived intangible assets analysis. Based on review of both quantitative and qualitative factors, we determined that we currently do not have a triggering event that would require an interim impairment test of goodwill and indefinite-lived intangible assets, and accordingly, we did 0t record any goodwill and intangible impairment charges during the first quarter.
The following table details the changes in goodwill and other indefinite-lived intangible assets, net: | | | | | | | | | | | | | | | | | |
| May 1, 2021 |
| Gross Carrying Amount | | Accumulated Impairment Charge | | Net Carrying Amount |
| |
Goodwill: | | | | | |
Chico's reporting unit | $ | 36,403 | | | $ | (20,043) | | | $ | 16,360 | |
WHBM reporting unit | 60,371 | | | (60,371) | | | 0 | |
| $ | 96,774 | | | $ | (80,414) | | | $ | 16,360 | |
| | | | | |
Other intangible assets: | | | | | |
WHBM trademark | $ | 34,000 | | | $ | (29,000) | | | $ | 5,000 | |
Chico's franchise rights | 4,930 | | | (4,930) | | | 0 | |
| $ | 38,930 | | | $ | (33,930) | | | $ | 5,000 | |
| | | | | |
| January 30, 2021 |
| Gross Carrying Amount | | Accumulated Impairment Charge | | Net Carrying Amount |
| |
Goodwill: | | | | | |
Chico's Reporting Unit | $ | 36,403 | | | $ | (20,043) | | | $ | 16,360 | |
WHBM Reporting Unit | 60,371 | | | (60,371) | | | 0 | |
| $ | 96,774 | | | $ | (80,414) | | | $ | 16,360 | |
| | | | | |
Other intangible assets: | | | | | |
WHBM trademark | $ | 34,000 | | | $ | (29,000) | | | $ | 5,000 | |
Chico's franchise rights | 4,930 | | | (4,930) | | | 0 | |
| $ | 38,930 | | | $ | (33,930) | | | $ | 5,000 | |
| | | | | |
| May 2, 2020 |
| Gross Carrying Amount | | Accumulated Impairment Charge | | Net Carrying Amount |
| |
Goodwill: | | | | | |
Chico's Reporting Unit | $ | 36,403 | | | $ | (20,043) | | | $ | 16,360 | |
WHBM Reporting Unit | 60,371 | | | (60,371) | | | 0 | |
| $ | 96,774 | | | $ | (80,414) | | | $ | 16,360 | |
| | | | | |
Other intangible assets: | | | | | |
WHBM trademark | $ | 34,000 | | | $ | (28,000) | | | $ | 6,000 | |
Chico's franchise rights | 4,930 | | | (4,766) | | | 164 | |
| $ | 38,930 | | | $ | (32,766) | | | $ | 6,164 | |
4. LONG-LIVED ASSET IMPAIRMENT CHARGES RELATED TO THE PANDEMIC
Long-lived assets, including definite-lived intangibles, are reviewed periodically for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company uses market participant rent assumptions to calculate the fair value of right of use ("ROU") assets and discounted future cash flows of the asset or asset group using projected financial information and a discount rate that approximates the cost of capital of a market participant to quantify fair value for other long-lived assets. The asset group is defined as the lowest level for which identifiable cash flows are available and largely independent of the cash flows of other groups of assets, which for our retail stores, is primarily at the store level.
During last year's first quarter, the Company experienced varying degrees of business disruptions as a result of the pandemic, which had a material adverse impact on our business operations and operating results and operating cash flows during fiscal 2020. Consequently, the Company reduced its level of forecasted earnings for fiscal 2020 and future periods across all of its brands. In light of the temporary closure of all its stores across North America during last year's first quarter and lower-than-expected earnings for fiscal 2020 and future periods, the Company concluded that these factors, among other factors, represented impairment indicators which required the Company to test certain of its long-lived assets and operating lease assets for impairment during last year's first quarter.
As a result of the impact of the pandemic during last year's first quarter, we completed an evaluation of certain long-lived assets, primarily leasehold improvements, at certain underperforming stores for indicators of impairment and consequently, recorded pre-tax impairment charges of approximately $18.5 million during last year's first quarter, which is included in cost of goods sold in the accompanying unaudited condensed consolidated statements of loss. These charges reduced the net carrying value of certain long-lived assets to their estimated fair value, as determined using a DCF model.
During the first quarter, the Company considered whether events or changes in circumstances existed that would indicate the carrying amount of long-lived assets at retail stores may not be recoverable. Based on a review of both quantitative and qualitative factors, only a small number of underperforming stores had triggering events and were assessed for impairment during the first quarter. Pre-tax impairment charges for long-lived assets at retail stores during the first quarter were immaterial.
As a result of the impact of the pandemic during last year's first quarter, we completed an evaluation of our operating lease assets at certain underperforming stores for indicators of impairment, and consequently, recorded pre-tax impairment charges of approximately $2.4 million during last year's first quarter, which is included in cost of goods sold within the accompanying unaudited condensed consolidated statements of loss. We did 0t record impairment charges related to our operating lease assets during the first quarter.
5. INVENTORY
We use the moving average cost method to determine the cost of merchandise inventories. We identify potentially excess and slow-moving inventories by evaluating inventory aging, turn rates and inventory levels in conjunction with our overall sales trend. Further, inventory realization exposure is identified through analysis of gross margins and markdowns in combination with changes in current business trends. We record excess and slow-moving inventories at net realizable value.
Inventory write-offs for last year's first quarter were $43.1 million, which was primarily the result of changes in the market for those inventories and the resulting slowdown in sell through rates due to the impact of the pandemic during last year's first quarter. We did 0t record inventory write-offs during the first quarter other than adjustments in ordinary course which are presented in inventories in the accompanying unaudited condensed consolidated statements of cash flows.
6.3. REVENUE RECOGNITION
Disaggregated Revenue
The following table disaggregates our operating segment revenue by brand, which we believe provides a meaningful depiction of the nature of our revenue. Amounts shown include licensing and wholesale revenue, which is not a significant component of total revenue, and is aggregated within the respective brands in the table below.
| | | Thirteen Weeks Ended | | | Thirteen Weeks Ended | |
| | May 1, 2021 | | May 2, 2020 | | | April 30, 2022 | | May 1, 2021 | |
Chico's | Chico's | $ | 177,021 | | | 45.6 | % | | $ | 131,437 | | | 46.9 | % | | Chico's | $ | 264,466 | | | 48.9 | % | | $ | 177,021 | | | 45.6 | % | |
WHBM | WHBM | 104,047 | | | 26.8 | | | 83,920 | | | 29.9 | | | WHBM | 169,029 | | | 31.2 | | | 104,047 | | | 26.8 | | |
Soma | Soma | 106,893 | | | 27.6 | | | 64,907 | | | 23.2 | | | Soma | 107,420 | | | 19.9 | | | 106,893 | | | 27.6 | | |
| Total Net Sales | Total Net Sales | $ | 387,961 | | | 100.0 | % | | $ | 280,264 | | | 100.0 | % | | Total Net Sales | $ | 540,915 | | | 100.0 | % | | $ | 387,961 | | | 100.0 | % | |
Contract Liability
Contract liabilities in the unaudited condensed consolidated balance sheets are comprised of obligations associated with our gift card and customer loyalty programs. As of April 30, 2022, January 29, 2022 and May 1, 2021, January 30, 2021 and May 2, 2020, contract liabilities primarily consisted of gift cards of $35.3$36.7 million, $40.4$43.5 million and $36.2$35.3 million, respectively.
DuringFor the first quarter,thirteen weeks ended April 30, 2022, the Company recognized $11.5 million of revenue that was previously included in the gift card contract liability as of January 29, 2022. For the thirteen weeks ended May 1, 2021, the Company recognized $10.0 million of revenue that was previously included in the gift card contract liability as of January 30, 2021. During last year's first quarter, the Company recognized $8.0 million of revenue that was previously included in the gift card contract liability as of February 1, 2020. The contract liability for our loyalty program was not material as of April 30, 2022, January 29, 2022 or May 1, 2021, January 30, 2021 or May 2, 2020.2021.
Performance Obligation
For the thirteen weeks ended April 30, 2022 and May 1, 2021, and May 2, 2020, revenue recognized from performance obligations related to prior periods waswere not material. Revenue to be recognized in future periods related to performance obligations is not expected to be material.
7.4. LEASES
We lease retail stores, a limited amount of office space and certain equipment under operating leases expiring in various years through the fiscal year ending 2030.2032. All of our leases have been classified as operating leases and are recognized and measured as such.
Certain operating leases provide for renewal options that are at a pre-determined period and rental value. Furthermore, certain leases provide that we may cancel the lease if our retail sales at that location fall below an established level. Within the first few years of the initial lease term, a majority of our store operating leases contain cancellation clauses that allow the leases to be terminated at our discretion, if certain minimum sales levels are not met. In the normal course of business, operating leases are typically renewed or replaced by other leases.
Escalation of operating lease payments of certain leases depend on an existing index or rate, such as the consumer price index or the market interest rate. These are considered variable lease payments and are included in lease payments when the escalation is known.
The Company deferred substantially all rent payments due in the months of April, May and June 2020 and made reduced rent payments beginning in July 2020 where and when applicable. In April 2020, the FASB granted a practical expedient permitting an entity to choose to forgo the evaluation of the enforceable rights and obligations of the original lease contract, specifically in situations where rent concessions have been agreed to with landlords as a result of the pandemic. Instead, the entity may account for pandemic-related rent concessions, whatever their form (e.g. rent deferral, abatement or other) either: a) as if they were part of the enforceable rights and obligations of the parties under the existing lease contract; or b) as lease modifications. During the first quarter and last year's first quarter,thirteen weeks ended May 1, 2021, we received concessions from certain landlords in the form of rent deferrals, rent abatements and other lease or rent modifications as a result of the ongoing impact of the pandemic. In accordance with the practical expedient allowed by the FASB, the Company has elected to treat all pandemic-related rent concessions and related amendments, including pandemic-related lease amendments that extended the lease term, as lease modifications under ASC 842, Leases. In addition, the Company continued recording lease expense during deferral periods, as applicable, in accordance with its existing policies.
Operating lease expense was as follows:
| | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | |
| May 1, 2021 | | May 2, 2020 | | | | |
Operating lease cost (1) | $ | 55,406 | | | $ | 61,005 | | | | | |
| | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | |
| April 30, 2022 | | May 1, 2021 | | | | |
Operating lease cost (1) | $ | 53,415 | | | $ | 55,406 | | | | | |
(1) Includes approximately $9.8$9.5 million and $8.6$9.8 million in variable lease costs for the thirteen weeks ended April 30, 2022 and May 1, 2021, and May 2, 2020, respectively.
Supplemental balance sheet information related to operating leases was as follows:
| | | May 1, 2021 | | January 30, 2021 | | May 2, 2020 | | April 30, 2022 | | January 29, 2022 | | May 1, 2021 |
Right of use assets | Right of use assets | $ | 554,795 | | | $ | 586,061 | | | $ | 612,161 | | Right of use assets | $ | 439,896 | | | $ | 463,077 | | | $ | 554,795 | |
| Current lease liabilities | Current lease liabilities | $ | 184,296 | | | $ | 194,551 | | | $ | 190,811 | | Current lease liabilities | $ | 150,476 | | | $ | 172,506 | | | $ | 184,296 | |
Long-term lease liabilities | Long-term lease liabilities | 480,537 | | | 515,797 | | | 520,323 | | Long-term lease liabilities | 355,851 | | | 381,081 | | | 480,537 | |
Total operating lease liabilities | Total operating lease liabilities | $ | 664,833 | | | $ | 710,348 | | | $ | 711,134 | | Total operating lease liabilities | $ | 506,327 | | | $ | 553,587 | | | $ | 664,833 | |
| Weighted Average Remaining Lease Term (years) | Weighted Average Remaining Lease Term (years) | 4.3 | | 4.5 | | 4.7 | Weighted Average Remaining Lease Term (years) | 3.9 | | 4.0 | | 4.3 |
| Weighted Average Discount Rate (1) | Weighted Average Discount Rate (1) | 4.8 | % | | 4.9 | % | | 5.5 | % | Weighted Average Discount Rate (1) | 4.4 | % | | 4.5 | % | | 4.8 | % |
(1) The incremental borrowing rate used by the Company is based on the rate at which the Company could borrow funds using its credit rating for a collateralized loan of similar term to the lease. The weighted average discount rate represents a weighted average of the incremental borrowing rate for each lease weighted based on the remaining fixed lease obligations.
Supplemental cash flow information related to operating leases was as follows:
| | | Thirteen Weeks Ended | | | Thirteen Weeks Ended |
| | May 1, 2021 | | May 2, 2020 | | | April 30, 2022 | | May 1, 2021 |
Cash paid for amounts included in the measurement of lease liabilities: | Cash paid for amounts included in the measurement of lease liabilities: | | | | | Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash outflows | Operating cash outflows | $ | 62,111 | | | $ | 19,119 | | (1) | Operating cash outflows | $ | 67,908 | | | $ | 62,111 | |
Right of use assets obtained in exchange for lease obligations, non-cash | Right of use assets obtained in exchange for lease obligations, non-cash | 8,522 | | | 7,885 | | | Right of use assets obtained in exchange for lease obligations, non-cash | 14,786 | | | 8,522 | |
(1) The Company suspended rental payments in April 2020 as a result of the impact of the pandemic during last year's first quarter.
Maturities of operating lease liabilities as of May 1, 2021April 30, 2022 were as follows:
| | | | | |
Fiscal Year Ending: | |
January 29, 202228, 2023 | $ | 161,892 | |
January 28, 2023 | 189,742128,276 | |
February 4, 2024 | 145,728156,454 | |
February 1, 2025 | 102,716112,490 | |
January 31, 2026 | 65,53372,465 | |
January 30, 2027 | 45,256 | |
Thereafter | 71,75743,071 | |
Total future minimum lease payments | $ | 737,368558,012 | |
Less imputed interest | (72,535)(51,685) | |
Total | $ | 664,833506,327 | |
8.5. SHARE-BASED COMPENSATION
For the thirteen weeks ended April 30, 2022 and May 1, 2021, and May 2, 2020, share-based compensation expense was $2.8$3.9 million and $1.7$2.8 million, respectively. As of May 1, 2021,April 30, 2022, approximately 7.36.6 million shares remain available for future grants of equity awards under our 2020 Omnibus Stock and Incentive Plan.
Restricted Stock Awards
Restricted stock awards vest in equal annual installments over a three-year period from the date of grant, except for a restricted stock award granted to our then Chief Executive Officer in fiscal 2019, which vests over a four-year period from the date of grant, and restricted stock awards granted in March 2021, which vest 50% one year from the date of grant, 30% two years from the date of grant and 20% three years from the date of grant.
Restricted stock award activity duringfor the first quarterthirteen weeks ended April 30, 2022 was as follows:
| | | Number of Shares | | Weighted Average Grant Date Fair Value | | Number of Shares | | Weighted Average Grant Date Fair Value |
Unvested, beginning of period | Unvested, beginning of period | 3,419,645 | | | $ | 3.75 | | Unvested, beginning of period | 5,140,240 | | | $ | 3.18 | |
Granted | Granted | 3,262,250 | | | 2.58 | | Granted | 2,344,218 | | | 4.74 | |
Vested | Vested | (909,325) | | | 4.96 | | Vested | (2,078,875) | | | 3.04 | |
Forfeited | Forfeited | (133,587) | | | 2.93 | | Forfeited | (133,428) | | | 3.47 | |
Unvested, end of period | Unvested, end of period | 5,638,983 | | | 2.89 | | Unvested, end of period | 5,272,155 | | | 3.92 | |
Restricted Stock Units
Restricted stock units vest 100% one year from the date of grant with certain rights to defer settlement in shares of our common stock, except for restricted stock units granted in March 2021, which vest 50% one year from the date of grant, 30% two years from the date of grant and 20% three years from the date of grant, and restricted stock units granted in March 2022, which vest in equal annual installments over a three-year period from the date of grant.
Restricted stock unit activity duringfor the first quarterthirteen weeks ended April 30, 2022 was as follows:
| | | Number of Shares | | Weighted Average Grant Date Fair Value | | Number of Shares | | Weighted Average Grant Date Fair Value |
Unvested, beginning of period | Unvested, beginning of period | 163,930 | | | $ | 2.49 | | Unvested, beginning of period | 647,350 | | | $ | 2.38 | |
Granted | Granted | 500,000 | | | 2.56 | | Granted | 47,468 | | | 4.74 | |
| Vested | | Vested | (250,000) | | | 2.56 | |
| Unvested, end of period | Unvested, end of period | 663,930 | | | 2.54 | | Unvested, end of period | 444,818 | | | 2.54 | |
Performance-based Restricted Stock Units
During the first quarter,thirteen weeks ended April 30, 2022, we granted performance-based restricted stock units ("PSUs") contingent upon the achievement of Company-specific performance goals during the three fiscal years 20212022 through 2023.2024. Any units earned as a result of the achievement of the performance goals of the PSUs will vest three years from the date of grant and will be settled in shares of our common stock.
Performance-based restricted stock unitPSU activity duringfor the first quarterthirteen weeks ended April 30, 2022 was as follows:
| | | Number of Units/ Shares | | Weighted Average Grant Date Fair Value | | Number of Units/ Shares | | Weighted Average Grant Date Fair Value |
Unvested, beginning of period | Unvested, beginning of period | 2,782,457 | | | $ | 2.04 | | Unvested, beginning of period | 3,734,207 | | | $ | 2.24 | |
Granted | Granted | 1,129,500 | | | 2.59 | | Granted | 1,082,050 | | | 3.85 | |
| Vested | | Vested | (1,697,130) | | | 1.16 | |
Forfeited | Forfeited | (128,170) | | | 1.75 | | Forfeited | (389,687) | | | 2.83 | |
Unvested, end of period | Unvested, end of period | 3,783,787 | | | 2.21 | | Unvested, end of period | 2,729,440 | | | 3.46 | |
9.6. INCOME TAXES
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 across jurisdictions.
For the first quarterthirteen weeks ended April 30, 2022 and last year's first quarter,May 1, 2021, the Company's effective tax rate was 3.3%21.4% and 30.0%3.3%, respectively. The effective tax rate of 3.3%21.4% for the first quarter wasthirteen weeks ended April 30, 2022 primarily impacted byreflects a favorable share-based compensation benefit and reduction in future reversing deferred tax liabilities. The 3.3% effective tax rate for the thirteen weeks ended May 1, 2021 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. The 30.0% effective tax rate for last year's first quarter was primarily impacted by the benefits provided by the enactment of the Coronavirus Aid, Relief and Economic Security ("CARES") Act, which was slightly reduced by the unfavorable impact of the Company’s book goodwill impairment and share-based compensation expense.
As of May 1, 2021,April 30, 2022, our unaudited condensed consolidated balance sheet reflected a $54.5an $11.4 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 CARESCoronavirus Aid, Relief, and Economic Security Act.
10. LOSS7. INCOME (LOSS) PER SHARE
In accordance with relevant accounting guidance, unvested share-based payment awards that include non-forfeitable rights to dividends, whether paid or unpaid, are considered participating securities. As a result, such awards are required to be included in the calculation of lossincome (loss) per common share pursuant to the "two-class" method. For the Company, participating securities are comprised entirely of unvested restricted stock awards granted prior to fiscal 2020.
Net lossincome (loss) per share is determined using the two-class method when it is more dilutive than the treasury stock method. Basic net lossincome (loss) per share is computed by dividing net lossincome (loss) available to common shareholders by the weighted-average number of common shares outstanding during the period, including participating securities. Diluted net lossincome (loss) per share reflects the dilutive effect of potential common shares from non-participating securities such as restricted stock awards granted after fiscal 2019, stock options, PSUs and restricted stock units.
The following table sets forth the computation of net lossincome (loss) per basic and diluted share shown on the face of the accompanying condensed consolidated statements of loss:income (loss):
| | | Thirteen Weeks Ended | | | Thirteen Weeks Ended | |
| | May 1, 2021 | | May 2, 2020 | | | April 30, 2022 | | May 1, 2021 | |
| Numerator | Numerator | | | | | Numerator | | | | |
Net loss | $ | (8,929) | | | $ | (178,290) | | | |
Net income (loss) | | Net income (loss) | $ | 34,932 | | | $ | (8,929) | | |
Net income and dividends declared allocated to participating securities | Net income and dividends declared allocated to participating securities | 0 | | | (358) | | | Net income and dividends declared allocated to participating securities | (178) | | | — | | |
Net loss available to common shareholders | $ | (8,929) | | | $ | (178,648) | | | |
Net income (loss) available to common shareholders | | Net income (loss) available to common shareholders | $ | 34,754 | | | $ | (8,929) | | |
Denominator | Denominator | | | | | Denominator | | | | |
Weighted average common shares outstanding – basic | Weighted average common shares outstanding – basic | 116,689,409 | | | 115,573,801 | | | Weighted average common shares outstanding – basic | 118,993,187 | | | 116,689,409 | | |
Dilutive effect of non-participating securities | Dilutive effect of non-participating securities | 0 | | | 0 | | | Dilutive effect of non-participating securities | 4,318,246 | | | — | | |
Weighted average common and common equivalent shares outstanding – diluted | Weighted average common and common equivalent shares outstanding – diluted | 116,689,409 | | | 115,573,801 | | | Weighted average common and common equivalent shares outstanding – diluted | 123,311,433 | | | 116,689,409 | | |
Net loss per common share: | | | | | |
Net income (loss) per common share: | | Net income (loss) per common share: | | | | |
Basic | Basic | $ | (0.08) | | | $ | (1.55) | | | Basic | $ | 0.29 | | | $ | (0.08) | | |
Diluted | Diluted | $ | (0.08) | | | $ | (1.55) | | | Diluted | $ | 0.28 | | | $ | (0.08) | | |
For the thirteen weeks ended April 30, 2022 and May 1, 2021, and May 2, 2020, 1.20.1 million and 0.41.2 million potential shares of common stock, respectively, were excluded from the diluted lossincome (loss) per common share calculation relating to non-participating securities, because the effect of including these potential shares was antidilutive.
11.8. FAIR VALUE MEASUREMENTS
Our financial instruments generally 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, less reserves for credit losses as applicable, which approximates their fair value due to the short-term nature of the instruments.
Marketable securities are classified as available-for-sale and as of May 1, 2021 generally consisthas historically consisted of corporate bonds, commercial paper, U.S. government agencies and municipal securities. We did not have marketable securities with $18.5 millionas of securities with maturity dates within one year or less and $0.0 million with maturity dates over one year and less than two years.April 30, 2022.
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 unaudited condensed consolidated balance sheets, as applicable, as they arewere 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 gain (loss) until realized, and any credit risk related losses recognized in net income (loss) during the period incurred. 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 asseta set 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:
| | | | | | | | | | | |
| Level 1 | — | Unadjusted quoted prices in active markets for identical assets or liabilities |
| | | |
| Level 2 | — | Unadjusted quoted prices in active markets for similar assets or liabilities; or Unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active; or Inputs other than quoted prices that are observable for the asset or liability |
| | | |
| Level 3 | — | Unobservable inputs for the asset or liability |
Assets Measured on a Recurring Basis
We measure certain financial assets at fair value on a recurring basis, including our marketable securities, as applicable, 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.plan, as applicable. 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 unaudited condensed consolidated balance sheets.
Assets Measured on a Nonrecurring Basis
From time to time, we measure certain assets at fair value on a nonrecurring basis when carrying value exceeds fair value. This includes the 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. Assets that are measured at fair value on a nonrecurring basis are remeasured when carrying value exceeds fair value. Carrying value after impairment approximates fair value.
We assess the carrying amount of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company uses market participant rents and a market participant discount rate to calculate the fair value of ROU assets. The Company uses discounted future cash flows of the asset or asset group using a discount rate that approximates the cost of capital of a market participant to quantify fair value for other long-lived assets within the asset group, which are primarily leasehold improvements. The asset group is defined as the lowest level for which identifiable cash flows are available and largely independent of the cash flows of other groups of assets, which for our retail stores, is primarily at the store level.
To assess the fair value of goodwill, we have historically utilized both an income approach and a market approach. Inputs used to calculate the fair value based on the income approach primarily include estimated future cash flows,
discounted at a rate that approximates the cost of capital of a market participant. Inputs used to calculate the fair value based on the market approach include identifying sales and EBITDA multiples based on guidelines for similar publicly traded companies and recent transactions.
To assess the fair value of trademarks, we utilize a relief from royalty approach. Inputs used to calculate the fair value of the trademarks primarily include future sales projections, discounted at a rate that approximates the cost of capital of a market participant and an estimated royalty rate.
The following tables presents quantitative information about Level 3 significant unobservable inputs for the WHBM trademark, long-lived assets and operating lease assets at retail stores for impairment charges incurred during the period indicated.
| | | | | | | | | | | | | | | | | | | |
| Thirteen Weeks Ended May 2, 2020 | | |
| Valuation Technique | | Unobservable Input | | Range (Weighted Average) |
| | | | | | | |
WHBM Trademark | Relief from royalty | | Weighted-average cost of capital | | 11% to 13% | | |
| | | Long-term revenue growth rate | | -2.5% to 0% | | |
Long-lived assets at retail stores (1)
| Discounted cash flow | | Weighted-average cost of capital | | 9.5% to 11.5% | | |
| | | Long-term revenue growth rate | | -10% to 15% | | |
(1) Specifically relates to only those locations which had impairment charges related to the pandemic during fiscal 2020.
| | | | | | | | | | | | | | | | | | | |
| Fifty-Two Weeks Ended January 30, 2021 |
| Valuation Technique | | Unobservable Input | | | Range (Weighted Average) |
| | | | | | | |
WHBM Trademark | Relief from royalty | | Weighted-average cost of capital | | | | 13% to 15% |
| | | Long-term revenue growth rate | | | | -1% to 16% |
Long-lived assets at retail stores and operating lease assets (1)
| Discounted cash flow | | Weighted-average cost of capital | | | | 11% to 13% |
| | | Long-term revenue growth rate | | | | 2% to 53% |
(1) Specifically relates to only those locations which had impairment charges related to the pandemic during fiscal 2020.
As of April 30, 2022, January 29, 2022 and May 1, 2021, January 30, 2021 and May 2, 2020, our revolving loan and letter of credit facility approximates fair value as this instrument has a variable interest rate which approximates current market rates (Level 2 criteria).
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. The most sensitive assumptions in our estimates include short and long-term revenue recoverability rates as a result of the pandemic, which could impact future impairment charges.
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.
In accordance with the provisions of the guidance, we categorized our financial assets and liabilities which are valued on a recurring and nonrecurring basis, based on the priority of the inputs to the valuation technique for the instruments, as follows:
| | | | | Fair Value Measurements at the End of the Reporting Date Using | | Thirteen Weeks Ended May 1, 2021 | | | | Fair Value Measurements at the End of the Reporting Date Using | |
| | Balance as of May 1, 2021 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total Impairment (1) | | Balance as of April 30, 2022 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | |
Recurring fair value measurements: | Recurring fair value measurements: | | | | | | | | | | Recurring fair value measurements: | | | | | | | | |
Current Assets | Current Assets | | Current Assets | | |
Cash equivalents: | Cash equivalents: | | Cash equivalents: | | |
Money market accounts | Money market accounts | $ | 6,864 | | | $ | 6,864 | | | $ | 0 | | | $ | 0 | | | Money market accounts | $ | 25,403 | | | $ | 25,403 | | | $ | — | | | $ | — | | |
Marketable securities: | | |
Corporate bonds | 18,511 | | | 0 | | | 18,511 | | | 0 | | | |
| Total recurring fair value measurements | | Total recurring fair value measurements | $ | 25,403 | | | $ | 25,403 | | | $ | — | | | $ | — | | |
| | | | | Fair Value Measurements at the End of the Reporting Date Using | |
| | | Balance as of January 29, 2022 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | |
Recurring fair value measurements: | | Recurring fair value measurements: | | | | | | | | |
Current Assets | | Current Assets | | |
Cash equivalents: | | Cash equivalents: | | |
Money market accounts | | Money market accounts | $ | 25,396 | | | $ | 25,396 | | | $ | — | | | $ | — | | |
| | Noncurrent Assets | Noncurrent Assets | | Noncurrent Assets | | |
Deferred compensation plan | Deferred compensation plan | 6,023 | | | 6,023 | | | 0 | | | 0 | | | Deferred compensation plan | 6,233 | | | 6,233 | | | — | | | — | | |
Total recurring fair value measurements | Total recurring fair value measurements | $ | 31,398 | | | $ | 12,887 | | | $ | 18,511 | | | $ | 0 | | | Total recurring fair value measurements | $ | 31,629 | | | $ | 31,629 | | | $ | — | | | $ | — | | |
| | | | Fair Value Measurements at the End of the Reporting Date Using | | Fifty-Two Weeks Ended January 30, 2021 | | Fair Value Measurements at the End of the Reporting Date Using | |
| | Balance as of January 30, 2021 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total Impairment | | Balance as of May 1, 2021 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | |
Recurring fair value measurements: | Recurring fair value measurements: | | | | | | | | | | Recurring fair value measurements: | | | | | | | | |
Current Assets | Current Assets | | Current Assets | | |
Cash equivalents: | Cash equivalents: | | Cash equivalents: | | |
Money market accounts | Money market accounts | $ | 36,809 | | | $ | 36,809 | | | $ | 0 | | | $ | 0 | | | Money market accounts | $ | 6,864 | | | $ | 6,864 | | | $ | — | | | $ | — | | |
Marketable securities: | Marketable securities: | | Marketable securities: | | |
| Corporate bonds | Corporate bonds | 18,559 | | | 0 | | | 18,559 | | | 0 | | | Corporate bonds | 18,511 | | | — | | | 18,511 | | | — | | |
| Noncurrent Assets | Noncurrent Assets | | Noncurrent Assets | | |
Deferred compensation plan | Deferred compensation plan | 8,993 | | | 8,993 | | | 0 | | | 0 | | | Deferred compensation plan | 6,023 | | | 6,023 | | | — | | | — | | |
Total recurring fair value measurements | Total recurring fair value measurements | $ | 64,361 | | | $ | 45,802 | | | $ | 18,559 | | | $ | 0 | | | Total recurring fair value measurements | $ | 31,398 | | | $ | 12,887 | | | $ | 18,511 | | | $ | — | | |
Nonrecurring fair value measurements: | | | | | | | | | |
Noncurrent Assets | | |
Goodwill | $ | 16,360 | | | $ | 0 | | | $ | 0 | | | $ | 16,360 | | | $ | (80,414) | | |
Trademark | 5,000 | | | 0 | | | 0 | | | 5,000 | | | (29,000) | | |
Long-lived assets | 7,090 | | | 0 | | | 5,990 | | | 1,100 | | (2) | (29,669) | | |
Operating lease assets | 88,488 | | | 0 | | | 0 | | | 88,488 | | (2) | (4,795) | | |
Total nonrecurring fair value measurements | $ | 116,938 | | | $ | 0 | | | $ | 5,990 | | | $ | 110,948 | | | $ | (143,878) | | |
| | | Fair Value Measurements at the End of the Reporting Date Using | | Thirteen Weeks Ended May 2, 2020 | |
| | Balance as of May 2, 2020 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total Impairment | |
Recurring fair value measurements: | | | | | | | | | | |
Current Assets | | |
Cash equivalents: | | |
Money market accounts | $ | 27,320 | | | $ | 27,320 | | | $ | 0 | | | $ | 0 | | | |
Marketable securities: | | |
| Corporate bonds | 27,755 | | | 0 | | | 27,755 | | | 0 | | | |
| Noncurrent Assets | | |
Deferred compensation plan | 6,983 | | | 6,983 | | | 0 | | | 0 | | | |
Total recurring fair value measurements | $ | 62,058 | | | $ | 34,303 | | | $ | 27,755 | | | $ | 0 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Nonrecurring fair value measurements: | | | | | | | | | |
Noncurrent Assets | | | | | | | | | |
Goodwill | $ | 16,360 | | | $ | 0 | | | $ | 0 | | | $ | 16,360 | | | $ | (80,414) | |
Trademark | 6,000 | | | 0 | | | 0 | | | 6,000 | | | (28,000) | |
Long-lived assets | 1,232 | | | 0 | | | 0 | | | 1,232 | | (2) | (18,493) | |
| | | | | | | | | |
Total nonrecurring fair value measurements | $ | 23,592 | | | $ | 0 | | | $ | 0 | | | $ | 23,592 | | | $ | (126,907) | |
(1) Impairment charges for assets evaluated for impairment on a nonrecurring basis were not material during the first quarter.
(2) The fair value of $1.1 million, $88.5 millionthirteen weeks ended April 30, 2022 and $1.2 million specifically relates to only those locations which had asset impairment charges related toMay 1, 2021 and for the pandemic.fifty-two weeks ended January 29, 2022.
12.9. DEBT
On October 30, 2020,February 2, 2022, the Company and certain material domestic subsidiaries entered into Amendment No. 12 (the "Amendment") to its credit agreement (as amended, the "Agreement""Credit Agreement"), dated as of 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 October 30, 2025.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 AgreementFILO is equal to atTerm 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 Company's option, eitherFILO). However, for any ABL or FILO with a baseSOFR interest rate determined by referenceperiod of six months, the interest rate applicable to the federal funds rate, or a LIBOR with a floor of 75ABL and FILO is increased by 30 basis points, plus in each case an interest rate margin. The Company expects borrowings to be at a LIBOR, plus an interest rate margin. In addition, the Company will pay a commitment fee per annum on the unused portion of the commitments under the Agreement.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 May 1, 2021, our outstanding debt consisted of $149.0April 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 May 1, 2021,April 30, 2022, the available additional borrowing capacity under the Credit Agreement was approximately $73.7$187.0 million, inclusive of $29.3 millionthe current loan cap of excess availability.$30.0 million.
As of May 1, 2021,April 30, 2022, deferred financing costs of $4.1$4.0 million was outstanding related to the Credit Agreement and is presented in other current assets in the accompanying unaudited condensed consolidated balance sheet.
13.10. COMMITMENTS AND CONTINGENCIES
WeIn February 2021, the Company was named as a defendant in Mercedes Haldy, et al. v. White House Black Market, Inc. (‘‘WHBM’’), et al., a putative class action filed in the Superior Court of California, Orange County, and subsequently removed to the United States District Court, Central District of California (‘‘Haldy’’). The Haldy complaint alleges numerous violations of California law related to payment of wages and other compensation, meal periods, rest periods, and wage statements, among other things. Plaintiff seeks to represent a class of current and former nonexempt employees of WHBM and Chico’s stores in California.
In August 2021, the Company was named as a defendant in Margarita Hernandez v. Chico’s FAS, Inc., et al., a putative class action filed in the Superior Court of California, Orange County seeking to represent a class of current and former nonexempt employees of Chico’s, WHBM and Soma stores in California (‘‘Hernandez’’). The Hernandez complaint alleges many of the same wage and labor violations as the Haldy complaint and seeks the same relief.
During a mediation in September 2021, the Company reached an agreement in principle to settle the above cases. A Memorandum of Understanding was entered into by all parties as of October 18, 2021 and a full settlement agreement was executed by all parties as of January 10, 2022. On May 19, 2022, the Superior Court of California entered an Order granting the parties' unopposed motion for preliminary approval of the class settlement, and set October 14, 2022 as the hearing date for final approval of the settlement.Based on the foregoing, the Company does not expect that the resolution of these cases will have a material adverse effect on its business, results of operations or consolidated financial statements, but if the settlement agreement is not approved by the respective courts, the ultimate resolution of these cases could have a material adverse effect on the Company’s results of operations or consolidated financial statements.
Other than as noted above, we are not currently a party to any material legal proceedings other than claims and lawsuits arising in the normal course of our business. All such matters are subject to uncertainties, and outcomes may not be predictable. Consequently, the ultimate aggregate amounts of monetary liability or financial impact with respect to theseother matters as of May 1, 2021April 30, 2022 are not estimable. However, while such matters could affect our consolidated operating results when resolved in future periods, management believes that upon final disposition, any monetary liability or financial impact to us would not be material to our annual consolidated financial statements.
| | | | | |
ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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 30, 2021,29, 2022, filed with the SECSecurities and Exchange Commission ("SEC") on March 9, 15, 2022 ("2021 ("2020 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 35 years and older.with household incomes in the moderate to high income level. We earn revenue and generate cash through the sale of merchandise in our domestic and international 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 retailcommerce 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.
ExitOur growth strategy is supported by the "power of Canada Frontline Operationsthree" 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.
On JulyBusiness Highlights
The Company's highlights for the thirteen weeks ended April 30, 2020,2022 (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 FAS Canada, Co., an immaterial subsidiary of the Company, filed for bankruptcy with the Ontario, Canada office of the Superintendent in Bankruptcy. This action resulteddelivered 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 permanent closurefirst 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 four Chico’sfiscal 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 six White House Black Market ("WHBM") boutiquespartially offset by the slowdown in Ontario, Canada.lounge and cozy categories. The permanent closurestrong 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 Canadian boutiques, which constitutemarket in non-sport bras and panties for the first quarter.
•Enhanced marketing continued to drive traffic and bring new customers to all ofthree 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 Canadian boutiques, is partbrands, with total customer count up nearly 15% over last year’s first quarter and the average age of the Company’s ongoing cost-savings measures takennew customers continuing to mitigatetrend 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 novel strainongoing benefit of coronavirus ("COVID-19") pandemic (the "pandemic") and addresscost savings initiatives implemented in prior years.
Financial Results
Income per diluted share for the operational and financial challenges associated with operating in Canada. In connection with this effort, in the secondfirst quarter was $0.28 compared to loss per diluted share of fiscal 2020, we exited our Canada frontline operations and recorded on a net basis a non-material charge, including the realization of a cumulative foreign currency translation adjustment.$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 and May 2, 2020:2021:
| | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | |
| May 1, 2021 | | May 2, 2020 | | | | |
| (in millions, except per share amounts) |
Net sales | $ | 388 | | | $ | 280 | | | | | |
| | | | | | | |
Significant non-cash charges (1): | | | | | | | |
Inventory write-offs (2) | — | | | 43 | | | | | |
Long-lived store asset impairment (2)(3) | — | | | 18 | | | | | |
Right of use store asset impairment (2) | — | | | 2 | | | | | |
| | | | | | | |
Goodwill impairment (2) | — | | | 80 | | | | | |
Indefinite-lived asset impairment (2) | — | | | 33 | | | | | |
Loss from operations | (8) | | | (254) | | | | | |
Net loss | (9) | | | (178) | | | | | |
Net loss per common and common equivalent share - diluted | (0.08) | | | (1.55) | | | | | |
(1) All significant charges relate to the impact of the pandemic. Less significant charges that may have been incurred are not reflected in the table above.
(2) Presented pre-tax.
(3) Primarily includes impairment on leasehold improvements at certain underperforming stores.
Financial Results
Loss per diluted share for the thirteen weeks ended May 1, 2021 (the "first quarter") was $0.08 compared to loss per diluted share of $1.55 for the thirteen weeks ended May 2, 2020 ("last year's first quarter"). Last year's first quarter net loss includes $135 million in significant after-tax non-cash charges as a result of the pandemic. | | | | | | | | | | | | | | | |
| 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 sincestarting in March 2020. Many2020 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'sCompany’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 begin to reopen,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.
Business HighlightsFiscal 2022 Second Quarter and Updated Full Year Outlook
The Company’s firstFor the fiscal 2022 second quarter, highlights include:the Company currently expects:
•Continued extraordinaryConsolidated net sales growth at Soma: Soma posted sales growth of 65% over the last year’s first quarter and a 39% comparable sales growth over the thirteen weeks ended May 4, 2019 (the “first quarter of fiscal 2019”). According$535 million to market research firm NPD, Group Inc., for the 12 months ended April 2021, Soma's growth exceeded that of the U.S. apparel market, was in the top ten brands for non-sport bras and panties, and was in the top five brands in the sleepwear market. We believe this is compelling evidence Soma is well positioned and on track to accelerate market share gains.$550 million;
•ImprovingGross margin rate as a percent of net sales performance at Chico’s and White House Black Market (“WHBM”): Chico’s and WHBM are continuingof 38.7% to benefit from improvements in styling and quality. We’ve embraced the comfort culture and developed innovative fabrics and technology to provide comfort features. The bottoms business in both apparel brands was strong. Inventories are lean and demand outpaced supply. Inventory productivity is high, strategically fueling more full price sales.39.4%;
•Enhanced marketing continuedSG&A expenses as a percent of net sales of 31.2% to drive traffic as well as new customers: Chico’s FAS continues to elevate its marketing efforts with digital storytelling, social influencers and organic social efforts. Enhanced marketing initiatives are driving new customer acquisition across all three brands, with new and reactivated customers growing on a monthly basis in the first quarter. The average age of new customers continues to drop, reinforcing the runway for all three brands.
•Strong balance sheet: The Company ended the first quarter with more than $102 million in cash and marketable securities. Borrowings on the $300 million credit facility remain unchanged at $149 million.
•Improved gross margin: Gross margin rate improved to 32.7% in the first quarter, exceeding each quarter’s performance in fiscal 2020.
•Continued cost discipline: Selling, general and administrative (“SG&A”) expenses were essentially flat year-over-year and declined to a 34.6% rate for the first quarter, an improvement over the fourth quarter fiscal 2020 rate of 35.3%, reflecting continued cost discipline and the ongoing benefit of cost savings realized last year.31.6%;
•Obtained additional meaningful rent reductions: In the first quarterEffective income tax rate of fiscal 2021, Chico's FAS obtained additional rent reduction commitments from landlords of $10 million; this is in addition to the $65 million of reductions26.0%; and abatements negotiated during fiscal 2020.
•Shop-in-shops: Soma shop-in-shops successfully opened inside Chico’s stores and are exceeding expectations. 47 shop-in-shops will be open by mid-June 2021.Earnings per diluted share of $0.21 to $0.26.
Fiscal 2021 Outlook
GivenFor the ongoing market volatility and related uncertainty caused by the pandemic,fiscal 2022 full year, the Company is not providing specific fiscal 2021 guidance at this time.
The Company is, however, providing information on its planning expectations for the fiscal 2021 full year. At this time, the Companycurrently expects:
•Consolidated year-over-year net sales improvement between 28%of $2,130 million to 34%;$2,160 million;
•Gross margin rate improvement of 18 to 20 percentage points over last fiscal year;
•SG&A as a percent of net sales of 38.3% to improve 50038.6%;
•SG&A expenses as a percent of net sales of 32.6% to 600 basis points year-over-year;32.9%;
•Effective income tax rate of 26.0%;
•Earnings per diluted share of $0.64 to $0.74; and
•Income tax expenseCapital and cloud-based expenditures of approximately $0.5$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 lossincome (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 has historically viewedviews comparable sales as a key performance indicator to measure the performance of our business, however, we are not providing comparable sales figures for thelast year's first quarter compared to last year’s firstthe thirteen weeks ended May 2, 2020 (the "first quarter of fiscal 2020") as we do not believe it is not a meaningful measure due to the significant impactvarying degrees of business disruptions and periods of store closures and/or stores operating at reduced hours as a result of the pandemic during last year’s first quarter, including temporary store closures in the second half of last year's first quarter.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 LossIncome (Loss) per Share
LossIncome (loss) per share is determined using the two-class method when it is more dilutive than the treasury stock method. Basic lossincome (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 lossincome (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 lossincome (loss) per share serves as an indicator of the Company's profitability, we believe diluted lossincome (loss) per share is a key performance measure because it gauges the Company's quality of lossincome (loss) per share assuming all potential common shares from non-participating securities are exercised.
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 35 and older.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.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 are further strengtheningcontinue to strengthen our merchandise and design capabilities and enhancingenhance 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 theour 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”“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 STYLECONNECTStyleConnectSMTM and MY CLOSETTM, our proprietary digital styling software tools that enablesenable 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 improvedinnovative 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 nearly 3.5 times more than athree times the average single-channel customer.
In orderWe have four clearly defined strategic pillars that have guided our turnaround strategy since 2019 and will continue to maximizeguide us in the opportunities in each of our brands, we are targeting five key focus areas for 2021:future.
1.Continuing our ongoing digital transformation; Customer led;
2.Further refining product through fit, quality, fabric and innovation in each of our brands;Product obsessed;
3.Driving increased customer engagement through marketing;Digital-first; and
4.Maintaining our operating and cost discipline; and
5.Further enhancing the productivity of our real estate portfolio.Operationally excellent.
Results of Operations
Thirteen Weeks Ended May 1, 2021April 30, 2022 Compared to the Thirteen Weeks Ended May 2, 20201, 2021
Net LossIncome (Loss) and LossIncome (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, compared to a net loss of $178 million, or $1.55 loss per diluted share, in last year's first quarter. Results for last year's first quarter includes $177 million in significant after-tax non-cash charges related to the impact of the pandemic and is reflected in the financial statements as $64 million in cost of goods sold and $113 million in goodwill and intangible impairment charges.
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 and2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 2, 2020:
| | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen Weeks Ended |
| May 1, 2021 | | May 2, 2020 |
| | | |
| (dollars in millions) |
| | | | | | | |
Chico's | $ | 177 | | | 45.6 | % | | $ | 131 | | | 46.9 | % |
WHBM | 104 | | | 26.8 | | | 84 | | | 29.9 | |
Soma | 107 | | | 27.6 | | | 65 | | | 23.2 | |
| | | | | | | |
Total Net Sales | $ | 388 | | | 100.0 | % | | $ | 280 | | | 100.0 | % |
not foot due to rounding.For the first quarter, net sales were $388$541 million compared to $280$388 million in last year's first quarter. This 38.4% increase39.4% improvement primarily reflects the impacta comparable sales increase of temporary store closures during last year’s first quarter,40.6%, partially offset by 39 net29 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 thelast year’s first quarter compared to last year’sthe first quarter of fiscal 2020 as we do not believe it is not a meaningful measure due to the significant impactimpacts of the pandemic during last year’s first quarter, including temporary store closures in the second half of last year’s first quarter.
fiscal 2020.
Cost of Goods Sold/Gross Margin
The following table depicts cost of goods sold ("COGS") 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 and May 2, 2020:2021:
| | | Thirteen Weeks Ended | | Thirteen Weeks Ended |
| | May 1, 2021 | | May 2, 2020 | | April 30, 2022 | | May 1, 2021 |
| | | (dollars in millions) | | (dollars in millions) |
Cost of goods sold | Cost of goods sold | $ | 261 | | | $ | 291 | | Cost of goods sold | $ | 324 | | | $ | 261 | |
Gross margin | Gross margin | 127 | | | (11) | | Gross margin | 217 | | | 127 | |
Gross margin percentage | Gross margin percentage | 32.7 | % | | (4.0) | % | Gross margin percentage | 40.0 | % | | 32.7 | % |
For the first quarter, gross margin was $127$217 million, or 32.7%40.0% of net sales, compared to $(11)$127 million, or (4.0)%32.7% of net sales, in last year's first quarter. The year-over-year730 basis point improvement in gross margin rate primarily reflects the impact of inventory write-offshigher average unit retail and store impairments as a result of the pandemic in last year’s first quarter, improvedfull price sales combined with occupancy leverage of occupancy costs with rising salesthat offset elevated raw material and margin expansion as a result of less promotional activity.freight costs.
Selling, General and Administrative Expenses
The following table depicts SG&A, expenses, 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 and May 2, 2020:2021:
| | | Thirteen Weeks Ended | | Thirteen Weeks Ended |
| | May 1, 2021 | | May 2, 2020 | | April 30, 2022 | | May 1, 2021 |
| | | (dollars in millions) | | (dollars in millions) |
Selling, general and administrative expenses | Selling, general and administrative expenses | $ | 134 | | | $ | 130 | | Selling, general and administrative expenses | $ | 171 | | | $ | 134 | |
Percentage of total net sales | Percentage of total net sales | 34.6 | % | | 46.4 | % | Percentage of total net sales | 31.6 | % | | 34.6 | % |
For the first quarter, SG&A expenses were $134was $171 million, or 34.6%31.6% of net sales, compared to $130$134 million, or 46.4%34.6% of net sales, for last year's first quarter, primarily reflecting continuedsales leverage and the ongoing benefit of cost savings initiatives and sales leverage.initiatives.
Income Taxes
For the first quarter, the $0.3$9.5 million income tax benefitprovision resulted in an effective tax rate of 3.3%21.4% compared to 30.0%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 thelast 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. The 30.0% effective tax rate for last year's first quarter was primarily impacted by the benefits provided by the enactment of the CARES Act, which was slightly reduced by the unfavorable impact of the Company’s book goodwill impairment and share-based compensation expense.
Cash, Marketable Securities and Debt
At the end of the first quarter, cash and marketable securities totaled $102$104 million compared to $118$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 remaining unchanged fromat the end of last year’s first quarter.
Inventories
At the end of the first quarter, inventories totaled $210$326 million compared to $273$210 million at the end of last year's first quarter. This $63The $116 million, or 23.2%55.3%, decreaseincrease from last year’s first quarter primarily reflects conservative inventory managementelevated on-hand inventories to better align inventorywith 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 assortments with consumer demand.replenishment inventories, and higher average unit costs.
Income Tax Receivable
At the end of the first quarter, our unaudited condensed consolidated balance sheet reflected a $55an $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 CARESCoronavirus Aid, Relief, and Economic Security Act.
Adoption of New Accounting Pronouncements
As discussed in Note 1 to our unaudited condensed consolidated financial statements included in this Form 10-Q, we adopted Accounting Standards Update ("ASU") 2019-02, Simplifying the Accounting for Income Taxes and ASU 2021-01, Reference Rate Reform (Topic 848) as of January 31, 2021. Adoption of ASU 2019-02 and ASU 2021-01 did not have a material impact on our unaudited condensed consolidated financial statements.
Recently Issued Accounting Pronouncements
See Note 2 to our unaudited condensed consolidated financial statements included in this Form 10-Q for a description of certain newly issued accounting pronouncements which may impact our financial statements in future reporting periods, as applicable.
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 also 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 and marketable securities on hand, capacity within our credit facility and other liquidity options.
The following table summarizes cash flows for the year-to-date period May 1, 2021April 30, 2022 compared to last year's year-to-date period May 2, 2020:1, 2021:
| | | | | | | | | | | |
| Thirteen Weeks Ended |
| May 1, 2021 | | May 2, 2020 |
| (dollars in millions) |
Net cash used in operating activities | $ | (4) | | | $ | (99) | |
Net cash (used in) provided by investing activities | (2) | | | 30 | |
Net cash (used in) provided by financing activities | (1) | | | 95 | |
| | | |
Net (decrease) increase in cash and cash equivalents | $ | (7) | | | $ | 26 | |
| | | | | | | | | | | |
| 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 20212022 was $4$0.2 million compared to $99$4 million in last year's year-to-date period. The change in net cash used in operating activities primarily reflects conservative inventory management and timing ofhigher net income, taxes, partially offset by rent settlements.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 20212022 was $2$3 million compared to net cash provided by investing activities of $30$2 million in last year's year-to-date period, reflecting a $36$1 million decreaseincrease in net proceeds from the sale of marketable securities, partially offset by reduced capital spend.
Financing Activities
Net cash used in financing activities for the year-to-date period of fiscal 20212022 was $1$8 million compared to net cash provided by financing activities of $95$1 million in last year's year-to-date period, primarily reflecting $107$7 million in proceeds from borrowings in last year's year-to-date period, partially offset by an $11 million dividend payment in last year's first quarter.payments of tax withholding related to the vesting of share-based awards.
Credit Facility
On October 30, 2020,February 2, 2022, the Company and certain material domestic subsidiaries entered into Amendment No. 12 (the "Amendment") to its credit agreement (as amended, the "Agreement""Credit Agreement"), dated as of 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"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$285.0 million, maturing October 30, 2025.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$15.0 million first-in last-out ("FILO") loan. The interest rate applicable to the AgreementFILO is equal to atTerm 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 Company's option, eitherFILO). However, for any ABL or FILO with a baseSOFR interest rate determined by referenceperiod of six months, the interest rate applicable to the federal funds rate, or a LIBOR with a floor of 75ABL and FILO is increased by 30 basis points, plus in each case an interest rate margin. The Company expects borrowings to be at a LIBOR, plus an interest rate margin. In addition, the Company will pay a commitment fee per annum on the unused portion of the commitments under the Agreement.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 May 1, 2021, $149April 30, 2022, $99.0 million in net borrowings were outstanding under the Agreement, and is reflected as long-term debt in the unaudited condensed balance sheet included in this Form 10-Q.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 May 1, 2021,
April 30, 2022, the available additional borrowing capacity under the Credit Agreement was approximately $73.7$187.0 million, inclusive of $29.3 millionthe current loan cap of excess availability.
The Company is currently evaluating the impact that the pending discontinuation of, or transition away from, LIBOR will have on the Agreement. We have been in discussions with Wells Fargo Bank, regarding this and do not currently expect the transition to have a significant impact on our unaudited condensed consolidated financial statements.$30.0 million.
Store and Franchise Activity
During the first quarter,thirteen weeks ended April 30, 2022, we had 92 permanent store closures, consisting of 41 Chico's stores, 4 WHBM storesstore and 1 SomaWHBM store. As of May 1, 2021,April 30, 2022, the Company's franchise operations consisted of 6659 international retail locations in Mexico and 2 domestic airport locations.
In fiscal 2018, the Company announced a retail fleet optimization plan to rebalance the mix between our physical store presence and our digital network. We have continued to refine that strategy, particularly in light of the pandemic.
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 continue rationalizingoptimize our real estate portfolio, reflecting our emphasis on digital and our priority for higher profitability standards. We have closed 9 underperforming locations since the beginning of fiscal 2021 and ended the first quarter with 1,293 boutiques. We will continue to shrinkadjust our store base to align with these standards, primarily as leases come due, lease kickouts are available, or buyouts make economic sense. However,We closed 2 underperforming locations during the thirteen weeks ended April 30, 2022 and ended the first quarter with the uncertainty1,264 boutiques. The Company anticipates closing a total of the pandemic, we intendapproximately 40 stores in fiscal 2022, which primarily includes underperforming, mall-based Chico's and WHBM boutiques. We also plan to continuouslyinvest in opening up to 30 Soma stores in fiscal 2022. We will continue to evaluate the appropriateour 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 Policies and 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 policies and estimates with the Audit Committee of our Board of Directors and believes the assumptions and estimates, as set forth in our 20202021 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 policiesestimates as disclosed in our 20202021 Annual Report on Form 10-K.
Forward-Looking Statements
This Form 10-Q may contain certainstatements 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 Section 27A of the Private Securities Litigation Reform Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements reflect our current views with respect to certain events that could have an effect on our future financial performance, including but without limitation, statements regarding our plans, objectives, and the future success of our store concepts and business initiatives. These statements may address items such as future sales and sales initiatives, business strategies and strategic initiatives, including our digital strategy, environmental, social and governance program details, customer traffic, gross margin expectations, SG&A expense expectations, including statements about the pandemic and the expected impact of actions we have taken in response thereto, expected savings, operating margin expectations, earnings or loss per share expectations, planned store openings, closings and expansions, proposed business ventures, new channels of sales or distribution, expected impact of ongoing litigation, future stock repurchase plans, the anticipated sale of the corporate plane, future plans to pay dividends, future comparable sales, future product sourcing plans, future inventory levels, including the ability to leverage inventory management and targeted promotions, planned marketing expenditures, planned capital expenditures and future cash needs.
These statements relate to expectations concerning matters that are not historical fact and may include the1995. In most cases, words or phrases such as “will,“aim,” “anticipates,” “believes,” “could,” “should,“estimates,” “expects,” “believes,“intends,” “anticipates,“target,” “will,” “plans,” “intends,"path," “should,” “estimates,“assumptions,” “approximately,” “our planning assumptions,” “future outlook”“outlook” and similar expressions. Except for historical information, matters discussed in this Form 10-Q areexpressions identify forward-looking statements. These forward-looking statements are based largely on information currently available to our management and on our current expectations, assumptions, plans, estimates, judgments and projections about our business and our industry, 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 and there are a number of known and unknown risks, uncertainties, contingencies and other factors (many of which are outside our control) that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Accordingly, thereperformance. There is no assurance that our expectations will in fact, 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 2020most recent Annual Report on Form 10-K thisand, from time to time, in Item 1A, “Risk Factors” of our Quarterly Reports on Form 10-Q and the following:
The financial strength of retailing in particular and the economy in general; the extent of financial difficulties or economic uncertainty that may be experienced by customers; •the effects of the pandemic, including uncertainties about its depth and duration, new variants of COVID-19 that have emerged, and the speed, efficacy and availability of vaccinevaccines and treatment developments, as well as the impacts totreatments, its impact on general economic conditions, and the economic slowdown affectinghuman capital management, consumer behavior and discretionary spending, (during and after the pandemic) and ongoing temporary store restrictions (including reduced hours or capacity) due to government mandates, and the effectiveness of store reopenings, cost reduction initiatives (including our ability to effectively restructure our lease portfolio to obtain further rent relief), and otherany actions taken in response to the pandemic, and the financial impact of certain provisions of the CARES Act; pandemic on our manufacturing operations and shipping costs and timelines;
•the ability of our third-party business partners, including our suppliers, logistics providers, vendors and landlords, to meet their obligations to us in light of financial stress, staffinglabor shortages, liquidity challenges, bankruptcy filings by other industry participants, and other disruptions due to the pandemic; the impact of the pandemic on our manufacturing operations in China; the exiting of store operations in Canadasupply chain and other future permanent store closures; changesdisruptions;
•increases in the general or specialty or apparel industries; significant shifts in consumer behavior; our ability to secure and maintain customer acceptance of styles and in-store and online concepts; the ability to leverage inventory management and targeted promotions; the ability to effectively manage our inventory and allocation processes; the extent and nature of competition in the markets in which we operate; the ability to remain competitive with customer shipping terms and costs pertaining to product deliveries and returns; the extent of the market demand and overall level of spending for women's private branded clothing and related accessories; the effectiveness of our brand strategies, awareness and marketing programs; the ability to coordinate product development with buying and planning; the quality and timeliness of merchandise received from suppliers; changes in the costs of manufacturing, raw materials, transportation, distribution, labor and advertising; the availability of quality store sites; our ability to manage our store fleet and the risk that our investments in merchandise or marketing initiatives may not deliver the results we anticipate; our ability to successfully navigate the increasing use of online retailers for fashion purchases and the pressure that puts on traffic and transactions in our physical stores; the ability to operate our own retail websites in a manner that produces profitable sales; the ability to successfully identify and implement additional sales and distribution channels; the ability to successfully execute our business strategies and particular strategic initiatives (including, but not limited to, the Company’s organizational restructure, retail fleet optimization plan and five fiscal 2021 operating priorities which are: continuing our ongoing digital transformation; further refining product through fit, quality, fabric and innovation; driving increased customer engagement through marketing;unemployment rates;
•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), sales initiatives and multi-channel strategies, customer traffic, and to achieve the expected results from them; the continuing performance, implementation and integration of management information systems; the impact of any systems failures, cyber security or other data or security breaches, including any security breaches that result in theft, transfer, or unauthorized disclosure of customer, employee, or company information or portfolio;
•our compliance with domestic and foreign information security and privacy laws and regulations in the event of such an incident; the ability to hire, train, motivate and retain qualified sales associates, managerial employees and other employees in an inclusive environment; the successful recruitment of leadership and the successful transition of new members to our senior management team; uncertainties regarding future unsolicited offers to buy the Company and our ability to respond effectively to them as well as to actions of activist shareholders and others; changes in the political environment that create consumer uncertainty; significant changes to product import and distribution costs (such as unexpected consolidation in the freight carrier industry); the ability to utilize our distribution centerNSSC, DC and other support facilities in an efficient and effective manner; the ability to secure and protect trademarks and other intellectual property rights and to protect our reputation and brand images; the risk that natural disasters, public health crises, political uprisings, uncertainty or unrest, or other catastrophic events could adversely affect our operations and financial results; the impact of unanticipated changes in legal, regulatory or tax laws; the risks and uncertainties that are related to
•our reliance on sourcing from foreign suppliers includingand significant adverse economic, labor, political or other shifts (including the impact ofadverse 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 governmental policiesthe 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 towards foreign countries; currency exchange ratestransition 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;
•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 similar factors.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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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The market risk of our financial instruments as of May 1, 2021April 30, 2022 has not significantlymaterially changed since January 30, 2021.29, 2022. We are exposed to market risk from changes in interest rates on any future indebtedness and our marketable securities and from foreign currency exchange rate fluctuations.
Our exposure to interest rate risk relates in part to our credit agreementCredit Agreement with our bank. On October 30, 2020, we entered into Amendment No. 1 (the "Amendment") to our credit agreement (as amended, the "Agreement"), asWells Fargo Bank, which is further discussed in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Item 1, Note 139 to the accompanying unaudited condensed consolidated financial statements included in this Form 10-Q. The interest rate applicable to Term 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 which matures on October 30, 2025, has borrowing options which accruealso provides for a $15.0 million FILO loan. The interest at our election, at either a base rate determined by referenceapplicable to the federal funds rate,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 margin, or LIBOR, plus anperiod of six months, the interest rate margin, as defined inapplicable to the Agreement.ABL and FILO is increased by 30 basis points. As of May 1, 2021, $149April 30, 2022, $99 million in borrowings were outstanding under the Credit Agreement and is reflected as long-term debt in the accompanying unaudited condensed consolidated balance sheet. Due to the 75 basis points LIBOR floor under the Agreement, anAn increase in market interest rates of 100 basis points would increase interest expense in the amount of approximately $2.5$4.8 million over the remaining term of the loan.
The Company is currently evaluating the impact that the pending discontinuation of, or transition away from, LIBOR will have on the Agreement. We have been in discussions with Wells Fargo Bank, National Association regarding this and do not expect the move to have a significant impact on our unaudited condensed consolidated financial statements.
Our investment portfolio is maintained in accordance with our investment policy which identifies allowable investments, specifies credit quality standards and limits the credit exposure of any single issuer. Our investment portfolio consistshas historically consisted of cash equivalents and marketable securities which primarily includesincluded corporate bonds.The We did not have marketable securities portfolio as of May 1, 2021 consisted of $18.5 million of securities with maturity dates within one year or less and $0.0 million with maturity dates over one year and less than or equal to two years.April 30, 2022. We consider all securities available-for-sale including those with maturity dates beyond 12 months, and therefore classifyclassified these securities, as applicable, as short-term investments within current assets on the condensed consolidated balance sheets as they are available to support current operational liquidity needs. As of May 1, 2021, an increase or decrease of 100 basis points in interest rates would not have a material effect on the fair value of our marketable securities portfolio.
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ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.
As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of management, including our Chief Executive Officer and Interim Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based upon that evaluation, the Chief Executive Officer and Interim Chief Financial Officer concluded that, as of the end of such period, our disclosure controls and procedures were effective in providing reasonable assurance in timely alerting them to material information relating to us (including our consolidated subsidiaries) and that information required to be disclosed in our reports is recorded, processed, summarized and reported as required to be included in our periodic SEC filings.
Changes in Internal Controls
There were no significant changes in our internal controls or in other factors that could significantly affect our disclosure controls and procedures subsequent to the date of the above referenced evaluation. Furthermore, there was no change in our internal controlcontrols over financial reporting or in other factors during the quarterly period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Information regarding legal proceedings is incorporated by reference from Note 1410 to our unaudited condensed consolidated financial statements included in this Form 10-Q under the heading "Commitments and Contingencies."
In addition to the other information discussed in this report, the factors described in Part I, Item 1A. “Risk Factors” in our 20202021 Annual Report on Form 10-K should be considered as they could materially affect our business, financial condition or future results. There have been no significantmaterial changes with respect to the risks described in our 20202021 Annual Report on Form 10-K but these are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may adversely affect our business, financial condition or operating results.
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ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
The following table sets forth information concerning our purchases of common stock for the periods indicated (amounts in thousands, except share and per share amounts):
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Period | Total Number of Shares Purchased (a) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans (b) | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Publicly Announced Plans |
January 31, 2021 - February 27, 2021 | — | | | $ | — | | | — | | | $ | 55,192 | |
February 28, 2021 - April 3, 2021 | 254,512 | | | | 2.75 | | | — | | | | 55,192 | |
April 4, 2021 - May 1, 2021 | 39,491 | | | | 2.98 | | | — | | | | 55,192 | |
Total | 294,003 | | | | 2.78 | | | — | | | | |
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Period | Total Number of Shares Purchased (a) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans (b) | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Publicly Announced Plans |
January 30, 2022- February 26, 2022 | — | | | $ | — | | | — | | | $ | 55,192 | |
February 27, 2022 - April 2, 2022 | 1,525,827 | | | | 4.90 | | | — | | | | 55,192 | |
April 3, 2022 - April 30, 2022 | 35,909 | | | | 5.15 | | | — | | | | 55,192 | |
Total | 1,561,736 | | | | 4.90 | | | — | | | | |
(a) Total number of shares purchased consists of 294,0031,561,736 shares of restricted stock repurchased in connection with employee tax withholding obligations under employee compensation plans, which are not purchases under any publicly announced plan.
(b) In November 2015, we announced a $300 million share repurchase plan. There was approximately $55.2 million remaining under the program as of the end of the first quarter. The repurchase program has no specific termination date and will expire when we have repurchased all securities authorized for repurchase thereunder, unless terminated earlier by our Board of Directors. The Company has 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.
(a)The following documents are filed as exhibits to this Form 10-Q:
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| Exhibit 10.1 | | Employment letter agreement between the Company and Joseph R. Topper, Jr.,Amendment No. 2 to Credit Agreement, dated as of March 9, 2021February 2, 2022, by and among Chico’s FAS, Inc., certain of its subsidiaries and Wells Fargo Bank, National Association and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K, as filed with the Commission on February 4, 2022) |
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| Exhibit 10.2 | | |
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| Exhibit 10.3 | | |
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| Exhibit 10.4 | | |
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| Exhibit 10.5 | | |
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| Exhibit 31.1 | | |
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| Exhibit 31.2 | | |
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| Exhibit 32.1 | | |
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| Exhibit 32.2 | | |
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| Exhibit 101 | | The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended May 1, 2021,April 30, 2022, formatted in Inline XBRL: (i) Condensed Consolidated Statements of Loss,Income (Loss), (ii) Condensed Consolidated Statements of Comprehensive Loss,Income (Loss), (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Shareholders' Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags. |
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| Exhibit 104 | | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended May 1, 2021,April 30, 2022, formatted in Inline XBRL (included within Exhibit 101). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | | | | CHICO'S FAS, INC. |
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Date: | June 9, 20218, 2022 | | | | By: | /s/ Molly Langenstein |
| | | | | | Molly Langenstein |
| | | | | | Chief Executive Officer, President and Director |
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Date: | June 8, 2022 | | | | By: | | | /s/ Patrick J. Guido |
| | | | | | Patrick J. Guido |
| | | | | | Executive Vice President, Chief Financial Officer |
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Date: | June 9, 20218, 2022 | | | | By: | /s/ David M. Oliver |
| | | | | | David M. Oliver |
| | | | | | Interim Chief Financial Officer and Senior Vice President - Finance, Controller and Chief Accounting Officer |