FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT

CHICO’SChico’s FAS, Inc.

11215 Metro Parkway, Fort Myers, Florida 33912

239-277-6200

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, and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yesþ Noo

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.

At May 26, 2003,24, 2004, there were 85,748,92489,144,053 shares outstanding of Common Stock, $.01 par value per share.

CHICO’SFAS, Inc. and Subsidiaries

See Accompanying Notes.

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CHICO’SFAS, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
May 1, 2004
(Unaudited)
(in thousands, except share and per share amounts)

Note 3. Net Income Per Share

Basic EPSEarnings Per Share (EPS) is based uponon the weighted average number of common shares outstanding and diluted EPS is based uponon the weighted average number of common shares outstanding plus the dilutive effect of stock optionscommon equivalent shares outstanding during the period. The following is a reconciliation of the denominators of the basic and diluted EPS computations shown on the face of the accompanying consolidated statements of income:

Note 4. Goodwill and Intangible Assets

     The Company’s goodwill and indefinite-lived intangible asset are reviewed annually for impairment or more frequently if impairment indicators arise. The annual valuation will be performed during the fourth quarter of each year. The changes in the carrying amount of goodwill for the quarter ended May 1, 2004 is as follows:

     The purchase price allocation is subject to further adjustment and will be finalized upon review and refinement of certain estimates.

Note 5. Accounting Developments

     The Company currently applies APB 25 and related interpretations in accounting for its stock-based compensation plans. In March 2004, the Financial Accounting Standards Board (FASB) issued the Exposure Draft, “Share-Based Payment – an amendment of Statements No. 123 and 95” (Proposed Statement of Financial Accounting Standards). The Proposed Statement would replace existing requirements under SFAS 123 and APB 25. Under the Proposed Statement, all equity-based awards to employees would be required to be recognized in the income statement based on their fair value. The Exposure Draft is projected to be finalized in late 2004 and, if so finalized and adopted, would be effective for the Company beginning in 2005. The Company is currently assessing the impact on the Company’s financial statements of the adoption of the Exposure Draft, if issued in final form by the FASB.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

General

     Chico’s FAS, Inc. (together with its subsidiaries, the “Company”) is a specialty retailer of exclusively designed, private label, sophisticated, casual-to-dressy clothing, complementary accessories, and other non-clothing gift items under the Chico’s and White House | Black Market brand names.

     Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the accompanying unaudited consolidated financial statements and notes thereto and the Company’s 2003 Annual Report to Stockholders.

Overview

     Factors that will be critical to determining the Company’s future success include, among others, managing the overall growth strategy, including the ability to open and operate stores effectively, maximizing efficiencies in the merchandising, product development and sourcing processes, maintaining high standards for customer service and assistance, maintaining the newness, fit and comfort in the merchandise offerings, and generating cash to fund the Company’s expansion needs. In order to monitor the Company’s success in regards to these critical success factors, the Company’s senior management monitors certain key performance indicators, including:

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Comparable store sales growth– For the thirteen week period ended May 1, 2004, the Company’s comparable store sales growth (sales from stores open for at least twelve full months, including stores that have been expanded or relocated within the same general market) reached 20.1%. This increase represents the third consecutive quarter of comparable store sales growth of at least 20%, as well as 26 out of the last 28 quarterly periods with at least double digit increases in comparable store sales. The Company believes that comparable store sales growth is a critical success factor and a positive indication of the Company’s ability to manage its expansion and its ability to open and operate stores effectively.

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Positive operating cash flow– For the thirteen week period ended May 1, 2004 (the “current period”), cash flow from operations totaled $64 million compared with $36 million for the prior thirteen week period ended May 3, 2003 (the “prior period”). Although over half the increase in operating cash flow was attributable to the tax benefit from an unusual volume of stock option exercises, the remaining cash flow increase was still quite impressive, representing a growth of over 20%. The Company believes that a key strength of its business is the ability to consistently generate cash. Strong cash flow generation is critical to the future success of the Company, not only to support the general operating needs of the Company, but also to fund capital expenditures related to new store openings, fund implementation of state of the art information systems and to fund strategic acquisitions. See further discussion of the Company’s cash flows in the Liquidity and Capital Resources section.

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Passport Club– Management believes that a significant indicator of the Company’s emphasis on personalized customer service and the success of its marketing initiatives is the growth of its loyalty program, the “Passport Club.” In the current period, the Company added approximately 90,000 permanent Passport Club members and approximately 370,000 preliminary Passport Club members. The Company believes that the continued growth of its Passport Club indicates that the

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Company is still generating strong interest from new customers, many of whom tend to become long term loyal customers due in large part to the Company’s commitment to personalized customer service.

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Quality of merchandise offerings –To monitor and maintain the acceptance of its merchandise offerings, the Company monitors sell-through levels, inventory turns, gross margins and markdown rates on a classification and style level. Although the Company does not disclose these statistics for competitive reasons, these reviews help identify comfort, fit and newness issues at an early date and help the Company plan future product development and buying.

     For the thirteen weeks ended May 1, 2004 (the “current period”), the Company reported net sales, operating income and net income of $257 million, $57 million and $36 million, respectively, up 52.0%, 53.1% and 52.6%, from the comparable period in the prior fiscal year (the “prior period”). The Company’s gross margin increased to 62.2% for the current period from 61.7% in the prior period, but this gain was offset in large part by an increase in the Company’s general, administrative and store operating expenses as a percentage of net sales to 37.3% for the current period from 36.9% in the prior period.

Results of Operations – Thirteen Weeks Ended May 3, 20031, 2004 Compared to the Thirteen Weeks Ended May 4, 2002.3, 2003.

Net Sales. Net

     The following table shows net sales by Company-owned stores, net sales by catalog and Internet and net sales to franchisees in dollars and as a percentage of total net sales for the thirteen weeks ended May 1, 2004 and May 3, 2003 (the current period) increased by $36.2 million, or 28.9% over net(amounts in thousands):

     Net sales by Company-owned stores forhave increased in the comparable thirteen weeks ended May 4, 2002 (the prior period). The increase was the result of a comparable Company store net sales increase of $9.7 million and $26.5 million additional salescurrent period from the prior period primarily due to new stores not yet includedstore openings, as well as the current trend of double-digit increases in the Company’s comparable store base.net sales (including stores within the comparable store base that have been expanded or relocated within the same general market). A summary of the factors impacting year-over-year sales increases is provided in the table below:

     All of the net sales from White House | Black Market stores since the date of acquisition on September 5, 2003 and through the end of the current period and all of the net sales from the Company’s

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now discontinued Pazo store concept during the current and prior period are included in new store sales for the current and prior period; no such sales are included in comparable store sales.

Net sales by catalog and Internet for the current period (which only included Chico’s merchandise) increased by $2.1$0.4 million, or 58.7%7.0%, compared to net sales by catalog and Internet for the prior period. TheIt is believed that the increase was believed to be principally attributable to the increased page count and number of catalog mailings and additional television spots in the current period versus the prior period.period, but was substantially less than the percentage increase in overall sales primarily as a result of an unexpected level of catalog and Internet sales in the prior period attributable to an unsolicited yet welcome public promotion of certain of the Company’s products by a national celebrity.

Net sales to franchisees for the current period increased by approximately $254,000,$0.4 million, or 15.8%19.4%, compared to net sales to franchisees for the prior period. The increase in net sales to franchisees was primarily due to the openinga net increase in purchases by existing franchisees and is consistent with percentage increases in net sales to franchisees experienced in fiscal 2003 over fiscal 2002.

Cost of a new franchise location by an existing franchisee.

Goods Sold/Gross Profit.Gross

     The following table shows cost of goods sold and gross profit in dollars and the related gross profit percentages for the current period was $104.3 million, or 61.7% of net sales, compared with $81.5 million, or 62.4% of net sales, for the prior period.thirteen weeks ended May 1, 2004 and May 3, 2003 (amounts in thousands):

     The decreaseimprovement in the gross profit percentage during the current period resulted primarily from increased markdownsimproved margins at the Chico’s frontline and, to a lesser extent, from improved margins at the outlet stores. This improvement resulted in large part from improved initial merchandise markups on new products at the Chico’s frontline stores in the current period as a percent of net sales in the Company’s front-line division. The Company believes this increase in markdown rate was caused by unusually low markdowns inversus the prior period and a change in the Company’s markdown strategy whereby the Company does not believesignificantly increased its first markdown at the increase inChico’s frontline stores to accelerate the clearance of markdown rate initems and thus reduce the current periodextent of second markdowns. Management is necessarily indicativestill evaluating the long-term viability of this new markdown strategy. To a lesser degree, the markdown rate that is expected in future periods. However, markdown rates are the result of many factors, including among other matters general economic conditions and customer acceptance ofimprovement resulted from operating efficiencies associated with the Company’s new merchandise. Althoughdistribution center (which costs are included in the Company’s cost of goods sold). These improvements in the gross margins experienced thus far atprofit percentage were offset, in part, by the new Pazo division have beenWhite House | Black Market stores sales, which carry a lower gross profit percentage than the Chico’s division, there has been little impact on overall gross margins becausefrontline stores, and an increase in product development costs, as a percentage of the relatively small sales, volume experienced in the startup months of Pazo.primarily due to White House | Black Market.

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General, Administrative and Store Operating Expenses.ExpensesGeneral,

     The following table shows general, administrative and store operating expenses increased to $62.3 million, or 36.9%in dollars and as a percentage of total net sales for the thirteen weeks ended May 1, 2004 and May 3, 2003 (amounts in the current period from $46.4 million, or 35.6% of net sales, in the prior period.thousands):

     The increase in general, administrative and store operating expenses was, for the most part, the result of increases in the Company’s store operating expenses, including associate compensation, occupancy and other costs associated with additional store openings, the acquisition of the White House | Black Market stores in the third quarter of fiscal 2003 and, to a lesser degree, an increase in marketing expenses. The increase in theseexpenses and other general corporate infrastructure costs to support the Company’s rapid growth. General, administrative and store operating expenses as a percentage of net sales was principally due to increased Company store expenses as a percent of sales in the current period versus40 basis points over the prior period primarily due to cost reductions put in place incosts associated with White House | Black Market store operating expenses which run substantially higher than Chico’s frontline stores as a percentage of sales. To a lesser degree, the prior year related to the events of September 11th, additional expensesincrease as a percentage of sales incurred inwas attributable to the current period frominterim continuation of the White House | Black Market corporate headquarters and related functions (which are expected to be phased out over the next several quarters), costs associated with the Company’s new Pazo divisionSarbanes-Oxley initiatives and a planned increaseincreased compensation costs to support the overall growth of the Company. These increases were partially offset by decreases in direct marketingChico’s store operating expenses as a percentage of net sales over the prior period due primarily to 4.9% inleverage associated with the Company’s current period from 4.3% in the prior period. As indicated in the Company’s Form 10-K, the Company plans to maintain an overall annual direct marketing budgetcomparable store sales increase of between 3.5% and 4.0% of its net sales.20.1%.

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Depreciation and Amortization. Depreciation and amortization increased to $4.6 million, or 2.7% of net sales in the current period from $3.3 million, or 2.5% of net sales, in the prior period. The increase in depreciation and amortization was principally due to capital expenditures related to new, remodeled and expanded stores.

Interest Income, Net. The Company had net interest income during the current period of approximately $303,000 versus approximately $154,000 in the prior period. The increase in net interest income was primarily a result of the Company’s increased cash and marketable securities position.

Net Income. As a result of the factors discussed above,

     The following table shows net income reflects an increasein dollars and as a percentage of 18.2% to $23.4 million in the current period fromtotal net income of $19.8 million in the prior period. The income tax provision represented an effective rate of approximately 38%sales for the currentthirteen weeks ended May 1, 2004 and prior period.May 3, 2003 (amounts in thousands):

Comparable Company Store Net Sales

Comparable Company store net sales increased by 7.8%20.1% in the current period when compared to the comparable prior period. Comparable Company store net sales data is calculated based on the change in net sales of currently open Company-owned stores that have been operated as a Company store for at least thirteentwelve full months, including stores that have been expanded or relocated within the same general market area (approximately five miles).

     The comparable store percentagespercentage reported above include 27includes 24 stores that were expanded or relocated within the last twelve months from the beginning of the prior period by an average of 8391,066 net selling square feet. If the stores that were expanded and relocated had been excluded from the comparable

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Company-owned store base, the increase in comparable Company-owned store net sales would have been 6.1%19.3% for the current period.period (versus 20.1% as reported). The Company does not consider the effect to be material to the overall comparable store sales results and believes the inclusion of expanded stores in the comparable store net sales to be an acceptable practice, consistent with the practice followed by the Company in prior periods and by many other retailers. The comparable store percentages reported above do not include any of the White House | Black Market stores. These stores are treated by the Company as new stores acquired in fiscal 2003 and will not be included in the comparable store computation until they have been under the ownership of the Company for at least twelve full months.

The Company believes that the increase in comparable Company store net sales in the current period resulted from the continuing effort to focus the Company’s product development, merchandise planning, buying and marketing departments on Chico’s target customer. The Company also believes that the look, fit and pricing policy of the Company’s products wereproduct was in line with the needs of the Company’s target customer, andcustomer. In addition, the Company believes that the increase in comparable store sales was also fueled by a coordinated marketing plan, which includes increased national and regional television advertising, national magazine advertising, increased direct mailings of catalogs, including an increased page count in each catalog, a larger database of existing customers for such mailings and the success of the Company’s frequent shopper club (the “Passport Club”). To a lesser degree, the Company believes the increase was due to continued store-level training efforts associated with ongoing training programs.programs and the Company’s overall ability to maintain its high standards for customer service and assistance.

Liquidity and Capital Resources

The Company’s primary ongoing capital requirements are for funding capital expenditures for new, expanded, relocated and remodeled stores and increased merchandise inventories. Also, to a lesser degree, during fiscal 2003,2004, the Company has experienced and will continue to experience, the need for working capital to address the conversionlaunching of its new test concept, Soma by Chico’s, whose stores are expected to open during the third quarter of fiscal 2004.

     The following table shows the Company’s capital resources as of May 1, 2004 and May 3, 2003 (amounts in thousands):

     Working capital increased from May 3, 2003 to May 1, 2004 primarily due to the Company’s ability to generate significant cash from operating activities (in large part due to the Company’s strong comparable store sales) to more than satisfy the Company’s investment in capital expenditures. The significant components of the Company’s former distribution center into office spaceworking capital are cash and cash equivalents, marketable securities and inventories, reduced by accounts payable and accrued liabilities.

     Based on past performance and current expectations, the acquisitionCompany believes that its cash and installation of new software packages (seecash equivalents, marketable securities and cash generated from operations will satisfy the Company’s Form 10-K forworking capital needs, capital expenditures (see “New Store Openings” discussed below), commitments and other liquidity requirements associated with the fiscal year ended February 1, 2003 for more details).Company’s operations through at least the next 12 months.

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Operating Activities

During     Net cash provided by operating activities was $63.5 million and $36.3 million for the first three months of the current fiscal year (fiscal 2003)thirteen weeks ended May 1, 2004 and the first three months of the prior fiscal year (fiscal 2002),May 3, 2003, respectively. The cash provided by operating activities for both periods was due to the Company’s primary source ofnet income adjusted for non-cash charges and changes in working capital was cash flow from operations of $36.3 millionsuch as:

     In addition, in the current period, versus an increasecash flow from operating activities was significantly increased from a tax benefit of $7.3$21.5 million related to the exercise of employee stock options.

Investing Activities

     Net cash used in investing activities was $72.8 million and $26.9 million for the prior period, an increasethirteen weeks ended May 1, 2004 and May 3, 2003, respectively.

     The Company’s investment in accrued income taxes of $12.5 million incapital expenditures during the current period versus an increase of $10.9 million in the prior period, and an increase in depreciation of $1.5 million over depreciation in the prior period. These increases were offset by an increase in receivables of $1.2 million in the current period versus an increase of $0.6 million in the prior period, a decrease in accounts payable in the current period of $2.6 million versus an increase of $5.6 million in the prior period, a decrease in accrued liabilities of $1.9 million in the current period versus a decrease of $0.2 million in the prior period, and an increase in deferred tax assets of $1.4 million in the current period versus an increase of $1.1 million in the prior period.

The Company invested $17.0 million in the current period in capital expenditures primarily related to the planning and opening of new, relocated, remodeled and expanded CompanyChico’s and White House | Black Market stores including its initial 10 Pazo stores ($14.011.5 million), the acquisition and initialdistribution center infrastructure costs ($1.4 million), installation costs associated with new software packages and systems integration of the White House | Black Market ($1.51.3 million), and other miscellaneous capital expenditures including($2.2 million).

     The Company invested $56.3 million, net in marketable securities during the conversion of the old distribution center into office space ($1.5 million). During the same period incurrent period. In the prior fiscal year,period, the Company invested $19.5$9.9 million, net in marketable securities.

Financing Activities

     Net cash provided by financing activities was $15.7 million and $2.8 million for the thirteen weeks ended May 1, 2004 and May 3, 2003, respectively. The Company received proceeds in both periods from the issuance of common stock related to current and former employee option exercises and employee participation in its employee stock purchase plan. During the current period, the Company satisfied the remaining balances due on capital expenditures primarily associated with theleases assumed as a result of The White House acquisition and initial costs of equipping the new distribution center in Georgia ($8.8 million), the acquisition and initial installation costs associated with new software packages ($1.9 million) and with the planning and opening of new, relocated, remodeled and expanded Company stores.totaling $1.3 million.

During the first three months of the current fiscal year, sixtwelve of the Company’s twentytwenty-four officers, its two non-officer inside directors, and three of its threefour independent directors exercised an aggregate of 391,5061,485,365 stock options at per share exercise prices ranging from $0.9307$0.7777 to $10.80$18.505 and several employees and former employees exercised an aggregate of 44,75773,130 options at prices ranging from $0.361$0.3610 to $14.61.$18.505. Also, during this period, the Company sold 30,34047,455 shares of common stock during the March offering period under its employee stock purchase plan at a price of $15.36.$36.34. The proceeds from these issuances of stock, exclusive of the tax benefit realized by the Company, amounted to approximately $2.8$17.0 million.

The Company invested $9.9 million, net, in marketable securities. In the prior year, the Company invested $11.9 million in marketable securities and repaid $33,000 in existing debt.13

New Store Openings

The Company plans to open a minimum of approximately 70-75between 85 and 95 net new Company-owned new stores in fiscal 2003,2004, of which 3122 were open as of May 26, 2003.24, 2004. The Company believes that the liquidity needed for its planned new store growth (including the launch of its new concept, Soma by Chico’s), continuing remodel/expansion program, conversion of the former distribution center, continued installation of new software packages, and maintenance of proper

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inventory levels associated with this growth will be funded primarily from cash flow from operations and its existing strong existing cash and marketable securities balances. The Company further believes that this liquidity will be sufficient, based on the above, to fund anticipated capital needs over the near-term. Given the Company’s existing cash and marketable securities balances and the capacity included in its bank credit facilities, the Company does not believe that it would need to seek other sources of financing to conduct its operations or pursue its expansion plans even if cash flow from operations should prove to be less than anticipated or if there should arise a need for additional letter of credit capacity due to establishing new and expanded sources of supply, or if the Company were to increase the number of new CompanyCompany-owned stores planned to be opened in future periods.

Seasonality and Inflation

Although the operations of the Company are influenced by general economic conditions, the Company does not believe that inflation has had a material effect on the results of operations during the current or prior periods. The Company does not consider its business to be seasonal.

Critical Accounting Policies and Estimates

     The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The critical accounting matters that are particularly important to the portrayal of the Company’s financial condition and results of operations and require some of management’s most difficult, subjective and complex judgments are described in detail in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2004. The preparation of consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to customer product returns, inventories, income taxes, insurance reserves, contingencies and litigation. The Company bases its 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. There have been no material changes in the critical accounting policies during the thirteen weeks ended May 1, 2004.

Certain Factors That May Affect Future Results

This Form 10-Q may contain certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect the current views of the Company with respect to certain events that could have an effect on the Company’s future financial performance.performance, including but without limitation, statements regarding the impact of the acquisition of The White House, Inc. and the launch of the Soma by Chico’s concept. The statements may address items such as future sales, gross profit expectations, planned store openings, closings and expansions, future comparable store sales, future product sourcing plans, inventory

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levels, planned marketing expenditures, planned capital expenditures and future cash needs. In addition, from time to time, the Company may issue press releases and other written communications, and representatives of the Company may make oral statements, which contain forward-looking information.

These statements, including those in this Form 10-Q and those in press releases or made orally, may include the words “expects,” “believes,” and similar expressions. Except for historical information, matters discussed in such oral and written statements, including this Form 10-Q, are forward-looking statements. These forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from historical results or those currently anticipated. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and beginning on page 21 of the Company’s most recent Form 10-K filed with the Securities and Exchange Commission on April 9, 2004.

These potential risks and uncertainties include the financial strength of retailing in particular and the economy in general, the extent of financial difficulties that may be experienced by customers, the ability of the Company to secure and maintain customer acceptance of Chico’s styles (including without limitation styles of White House | Black Market), the propriety of inventory mix and sizing, the quality of merchandise received from vendors, the extent and nature of competition in the markets in which the Company operates, the extent of the market demand and overall level of spending for women’s private label clothing and related accessories, the adequacy and perception of customer service, the ability to coordinate product development with buying and planning, the ability of the Company’s suppliers to timely produce and deliver clothing and accessories, the changes in the costs of manufacturing, labor and advertising, the rate of new store openings (including without limitation White House | Black Market and Soma by Chico’s new store openings), the buying public’s acceptance of the PazoCompany’s new store concept, the performance, implementation and integration of management information systems, the ability to hire, train, energize and retain qualified sales associates and other employees, the availability of quality store sites, the ability to hire and train qualified managerial employees, the ability to effectively and efficiently establish and operate catalog and Internet sales, the ability to secure and protect trademarks and other intellectual property rights, the ability to transition the Company’s distribution operations to the newly acquired facility in Georgia and to effectively and efficiently integrate and operate the newly acquired facility,White House | Black Market division, risks associated with terrorist activities and other risks. In addition, there are

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potential risks and uncertainties that are peculiar to the Company’s reliance on sourcing from foreign vendors, including the impact of work stoppages, transportation delays and other interruptions, political or civil instability, foreign currency fluctuations, imposition of and changes in tariffs and import and export controls such as import quotas, changes in governmental policies in or towards foreign countries and other similar factors.

The forward-looking statements included herein are only made as of the date of this Quarterly Report ofon Form 10-Q. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Litigation

In the normal course of business, the Company is subject to proceedings, lawsuits and other claims including proceedings under laws and government regulations relating to labor, product, intellectual property and other matters, including the matter described in Item 1 of Part II of this Quarterly Report on Form 10-Q. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. Consequently, the ultimate aggregate amount of monetary liability or financial impact with respect to these matters at May 3, 2003,1, 2004, cannot be ascertained. Although these matters could affect the operating results of any one quarter when resolved in future periods, and although there can be no

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assurance with respect thereto, management believes that, after final disposition, any monetary liability or financial impact to the Company would not be material to the annual consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The market risk of the Company’s financial instruments as of May 3, 20031, 2004 has not significantly changed since February 1, 2003.January 31, 2004. The Company is exposed to market risk from changes in interest rates on any future indebtedness and its indebtedness.marketable securities. The Company’s exposure to interest rate risk relates in part to its revolving line of credit with its bank; however, as of May 3, 2003,1, 2004, the Company did not have any outstanding borrowings on its line of credit and, given its strong liquidity position, does not expect to utilize its line of credit in the foreseeable future except for its continuing use of the letter of credit facility portion thereof.

ITEM 4. CONTROLS AND PROCEDURES

Within     As of the 90 days prior toend of the date ofperiod covered by this report, an evaluation was carried out under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act Rule 13a-14.of 1934, as amended). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of such period, the Company’s disclosure controls and procedures arewere effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company was named as defendant in a putative class action suit filed in September 2001May 2003 in the Superior Court for the State of California, for the County of Orange. This suit, Carmen Davis vs.San Francisco, Charissa Villanueva v. Chico’s FAS, Inc., was filed by the plaintiff, seeking to represent all other Company assistant store managers, sales associates and hourly employees in California from September 21, 1997 to the present. The Company responded by seeking to dismiss the complaint and strike selected claims in order to either eliminate the litigation or gain greater clarity as to the basis for the plaintiff’s action. In response, the plaintiff filed an amended complaint on February 15, 2002, which differs in a numberanswer denying the material allegations of material respects from the original complaint.Complaint. The amended complaint allegedComplaint alleges that the Company, failed to pay overtime wages and failed to provide rest breaks and meal periods. The action sought “class action” status and sought unspecified monetary damages. Following preliminary settlement discussions, the parties attended a mediation on October 14, 2002, at which the parties reached a settlement on a class-wide basis. The settlement provides for a common fund out of which settlement awards to class members and the costs of the settlement will be paid. The parties prepared a settlement agreement, which was lodged with the Court. The settlement agreement states that the settlement is not an admission of liability and that the Company continues to deny liability for any of plaintiff’s claims. Subsequent to year end, the Court heard the plaintiff’s motion for preliminary approval of the settlement. The Court granted the motion and ordered that the parties give notice of the settlement to the class members. Once notice is given, class members will have sixty days to file claim forms to participate in the settlement or to file exclusion forms to opt out of the settlement. On September 16, 2003, the Court will hold a settlement fairness hearing for the purpose of determining whether to give final approval to the settlement. If final approval is given, and no appeals challenging the settlement are filed, the Company will pay the settlement sums to class members who have filed valid claims and also will pay amounts owing for attorney’s fees, costs and other expenses of the settlement. The settlement provides for a release of all covered claims by class members who do not opt out of the settlement. The Company does not believe the outcome of this will have a material impact on the Company’s results of operations or financial condition.

Chico’s has learned that a former employee filed a lawsuit in Superior Court in California alleging that, in violation of California law, the Company has in place a mandatory uniform policy that requires its employees to purchase and wear Chico’s clothing and accessories as a condition of employment. Chico’s has not yet been served with this lawsuit. However, Chico’s understandsIt is the Company’s position that the former employee purports to represent a class of employees who have allegedly been injured by such policy. Nono such mandatory uniform policy exists at Chico’s. Chico’sexists; the Company encourages but does not require its employeesassociates to wear Chico’s clothing. Althoughclothing; although many Chico’s associates choose to wear Chico’s clothing, at work, others do not. Thus, Chico’sThe parties are engaged in discovery, and the Company is continuing its investigation. No rulings on class certification have been made. The Company believes that the lawsuitcase is without merit and if the former employee elects to proceed with such action, Chico’s intends to vigorously defend against these baseless allegations.the litigation.

Chico’s     The Company is not a party to any other legal proceedings, other than various claims and lawsuits arising in the normal course of the Company’s business, none of which the Company believes should have a material adverse effect on its financial condition or results of operations.

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

During the quarter ended May 3, 2003, the Company filed a current report on Form 8-K dated April 10, 2003 to report the issuance of a press release commenting on the First Quarter Earnings outlook.