Chico's Fas (CHS) 10-Q 2022 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 29, 2022

OR

☐ 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

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) (Zip Code)

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 November 14, 2022, the registrant had 125,069,318 shares of Common Stock, $0.01 par value per share, outstanding.

1

CHICO'S FAS, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

FOR THE

FISCAL THIRTEEN AND THIRTY-NINE WEEKS ENDED OCTOBER 29, 2022

TABLE OF CONTENTS

PART I – Financial Information
Item 1.	Financial Statements:
	Condensed Consolidated Statements of Income for the Thirteen and Thirty-Nine Weeks Ended October 29, 2022 (Unaudited) and October 30, 2021 (Unaudited)	3
	Condensed Consolidated Statements of Comprehensive Income for the Thirteen and Thirty-Nine Weeks Ended October 29, 2022 (Unaudited) and October 30, 2021 (Unaudited)	4
	Condensed Consolidated Balance Sheets – October 29, 2022 (Unaudited), January 29, 2022 (Audited), and October 30, 2021 (Unaudited)	5
	Condensed Consolidated Statements of Shareholders’ Equity for the Thirteen and Thirty-Nine Weeks Ended October 29, 2022 (Unaudited) and October 30, 2021 (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the Thirty-Nine Weeks Ended October 29, 2022 (Unaudited) and October 30, 2021 (Unaudited)	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30
PART II – Other Information
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 6.	Exhibits	32
Signatures		33

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PART I – FINANCIAL INFORMATION 

ITEM 1. FINANCIAL STATEMENTS

CHICO'S FAS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Dollars in thousands, except per share amounts)

	Thirteen Weeks Ended								Thirty-Nine Weeks Ended
	October 29, 2022				October 30, 2021				October 29, 2022				October 30, 2021
	Amount		% of Sales		Amount		% of Sales		Amount		% of Sales		Amount		% of Sales
Net Sales	$	518,332	100.0	%	$	453,644	100.0	%	$	1,617,967	100.0	%	$	1,313,664	100.0	%
Cost of goods sold	310,892		60.0		269,205		59.3		962,448		59.5		820,973		62.5
Gross Margin	207,440		40.0		184,439		40.7		655,519		40.5		492,691		37.5
Selling, general and administrative expenses	175,841		33.9		162,469		35.8		520,296		32.1		442,637		33.7
Income from Operations	31,599		6.1		21,970		4.9		135,223		8.4		50,054		3.8
Interest expense, net	(1,080)		(0.2)		(1,744)		(0.4)		(3,111)		(0.2)		(5,170)		(0.4)
Income before Income Taxes	30,519		5.9		20,226		4.5		132,112		8.2		44,884		3.4
Income tax provision	5,900		1.2		2,000		0.5		30,600		1.9		9,400		0.7
Net Income	$	24,619	4.7	%	$	18,226	4.0	%	$	101,512	6.3	%	$	35,484	2.7	%
Per Share Data:
Net income per common share - basic	$	0.20			$	0.15			$	0.84			$	0.30
Net income per common and common equivalent share – diluted	$	0.20			$	0.15			$	0.82			$	0.29
Weighted average common shares outstanding – basic	120,333				117,304				119,776				117,005
Weighted average common and common equivalent shares outstanding – diluted	124,887				123,166				124,016				121,897

The accompanying notes are an integral part of these condensed consolidated statements.

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CHICO'S FAS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 29, 2022		October 30, 2021		October 29, 2022		October 30, 2021
Net income	$	24,619	$	18,226	$	101,512	$	35,484
Other comprehensive loss:
Unrealized losses on marketable securities, net of taxes	(233)		(10)		(228)		(64)
Comprehensive income	$	24,386	$	18,216	$	101,284	$	35,420

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)

	October 29, 2022		January 29, 2022		October 30, 2021
ASSETS
Current Assets:
Cash and cash equivalents	$	117,726	$	115,105	$	134,458
Marketable securities, at fair value	23,017		—		3,006
Inventories	304,127		323,389		277,738
Prepaid expenses and other current assets	47,208		41,871		51,841
Income tax receivable	15,430		13,698		13,125
Total Current Assets	507,508		494,063		480,168
Property and Equipment, net	183,153		195,332		199,853
Right of Use Assets	432,018		463,077		494,808
Other Assets:
Goodwill	16,360		16,360		16,360
Other intangible assets, net	5,000		5,000		5,000
Other assets, net	18,890		23,005		25,413
Total Other Assets	40,250		44,365		46,773
	$	1,162,929	$	1,196,837	$	1,221,602
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	107,400	$	180,828	$	172,897
Current lease liabilities	157,687		172,506		177,563
Other current and deferred liabilities	155,133		134,051		140,982
Total Current Liabilities	420,220		487,385		491,442
Noncurrent Liabilities:
Long-term debt	69,000		99,000		99,000
Long-term lease liabilities	346,560		381,081		415,458
Other noncurrent and deferred liabilities	2,612		7,867		8,147
Total Noncurrent Liabilities	418,172		487,948		522,605
Commitments and Contingencies (see Note 10)
Shareholders’ Equity:
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; 166,326 and 163,823 and 163,806 shares issued respectively; and 125,029 and 122,526 and 122,509 shares outstanding, respectively	1,250		1,225		1,225
Additional paid-in capital	510,374		508,654		505,419
Treasury stock, at cost, 41,297 shares, respectively	(494,395)		(494,395)		(494,395)
Retained earnings	307,536		206,020		195,306
Accumulated other comprehensive loss	(228)		—		—
Total Shareholders’ Equity	324,537		221,504		207,555
	$	1,162,929	$	1,196,837	$	1,221,602

The accompanying notes are an integral part of these condensed consolidated statements.

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CHICO'S FAS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited)

(In thousands, except per share amounts)

	Thirteen Weeks Ended
	Common Stock			Additional Paid-in Capital		Treasury Stock			Retained Earnings		Accumulated Other Comprehensive Gain (Loss)
	Shares	Par Value				Shares	Amount						Total
BALANCE, July 30, 2022	125,184	$	1,252	$	508,105	41,297	$	(494,395)	$	282,910	$	5	$	297,877
Net income	—	—		—		—	—		24,619		—		24,619
Unrealized losses on marketable securities, net of taxes	—	—		—		—	—		—		(233)		(233)
Issuance of common stock	3	—		83		—	—		—		—		83
Dividends on common stock	—	—		—		—	—		7		—		7
Repurchase of common stock & tax withholdings related to share-based awards	(158)	(2)		(978)		—	—		—		—		(980)
Share-based compensation	—	—		3,164		—	—		—		—		3,164
BALANCE, October 29, 2022	125,029	$	1,250	$	510,374	41,297	$	(494,395)	$	307,536	$	(228)	$	324,537
BALANCE, July 31, 2021	122,565	$	1,226	$	503,168	41,297	$	(494,395)	$	177,077	$	10	$	187,086
Net income	—	—		—		—	—		18,226		—		18,226
Unrealized losses on marketable securities, net of taxes	—	—		—		—	—		—		(10)		(10)
Issuance of common stock	94	—		(1)		—	—		—		—		(1)
Dividends on common stock	—	—		—		—	—		3		—		3
Repurchase of common stock & tax withholdings related to share-based awards	(150)	(1)		(895)		—	—		—		—		(896)
Share-based compensation	—	—		3,147		—	—		—		—		3,147
BALANCE, October 30, 2021	122,509	$	1,225	$	505,419	41,297	$	(494,395)	$	195,306	$	—	$	207,555

The accompanying notes are an integral part of these condensed consolidated statements.

6

CHICO'S FAS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited)

(In thousands, except per share amounts)

	Thirty-Nine Weeks Ended
	Common Stock			Additional Paid-in Capital		Treasury Stock			Retained Earnings		Accumulated Other Comprehensive Gain (Loss)
	Shares	Par Value				Shares	Amount						Total
BALANCE, January 29, 2022	122,526	$	1,225	$	508,654	41,297	$	(494,395)	$	206,020	$	—	$	221,504
Net income	—	—		—		—	—		101,512		—		101,512
Unrealized losses on marketable securities, net of taxes	—	—		—		—	—		—		(228)		(228)
Issuance of common stock	4,258	43		196		—	—		—		—		239
Dividends on common stock	—	—		—		—	—		4		—		4
Repurchase of common stock & tax withholdings related to share-based awards	(1,755)	(18)		(8,797)		—	—		—		—		(8,815)
Share-based compensation	—	—		10,321		—	—		—		—		10,321
BALANCE, October 29, 2022	125,029	$	1,250	$	510,374	41,297	$	(494,395)	$	307,536	$	(228)	$	324,537
BALANCE, January 30, 2021	119,735	$	1,197	$	498,488	41,297	$	(494,395)	$	159,765	$	64	$	165,119
Net income	—	—		—		—	—		35,484		—		35,484
Unrealized losses on marketable securities, net of taxes	—	—		—		—	—		—		(64)		(64)
Issuance of common stock	3,242	33		(33)		—	—		—		—		—
Dividends on common stock	—	—		—		—	—		57		—		57
Repurchase of common stock & tax withholdings related to share-based awards	(468)	(5)		(1,872)		—	—		—		—		(1,877)
Share-based compensation	—	—		8,836		—	—		—		—		8,836
BALANCE, October 30, 2021	122,509	$	1,225	$	505,419	41,297	$	(494,395)	$	195,306	$	—	$	207,555

The accompanying notes are an integral part of these condensed consolidated statements.

7

CHICO'S FAS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Thirty-Nine Weeks Ended
	October 29, 2022		October 30, 2021
Cash Flows from Operating Activities:
Net income	$	101,512	$	35,484
Adjustments to reconcile net income to net cash provided by operating activities:
Inventory write-offs	826		374
Depreciation and amortization	33,350		39,662
Non-cash lease expense	137,184		139,116
Loss on disposal and impairment of property and equipment, net	1,804		1,432
Deferred tax benefit	(381)		190
Share-based compensation expense	10,321		8,836
Changes in assets and liabilities:
Inventories	18,436		(74,129)
Prepaid expenses and other assets	(2,591)		(13,830)
Income tax receivable	(1,732)		45,015
Accounts payable	(73,120)		56,503
Accrued and other liabilities	13,583		16,643
Lease liability	(155,561)		(166,990)
Net cash provided by operating activities	83,631		88,306
Cash Flows from Investing Activities:
Purchases of marketable securities	(26,376)		(269)
Proceeds from sale of marketable securities	3,083		15,753
Purchases of property and equipment	(21,207)		(8,246)
Proceeds from sale of assets	2,772		—
Net cash (used in) provided by investing activities	(41,728)		7,238
Cash Flows from Financing Activities:
Payments on borrowings	(30,000)		(50,000)
Payments of debt issuance costs	(706)		—
Proceeds from issuance of common stock	239		—
Payments of tax withholdings related to share-based awards	(8,815)		(1,877)
Net cash used in financing activities	(39,282)		(51,877)
Net increase in cash and cash equivalents	2,621		43,667
Cash and Cash Equivalents, Beginning of period	115,105		90,791
Cash and Cash Equivalents, End of period	$	117,726	$	134,458
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	3,686	$	4,590
Cash (paid) received for income taxes, net	$	(26,426)	$	42,084

The accompanying notes are an integral part of these condensed consolidated statements.

8

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 29, 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 29, 2022, included in the Company's Annual Report on Form 10-K for the fiscal year ended January 29, 2022 filed with the Securities and Exchange Commission ("SEC") on March 15, 2022 ("2021 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 and thirty-nine weeks ended October 29, 2022 are not necessarily indicative of the results that may be expected for the entire year.

COVID-19 Pandemic Update

The novel strain of coronavirus (‘‘COVID-19’’) pandemic (the ‘‘COVID-19 pandemic’’ or the ‘‘pandemic’’) resulted in significant challenges across our business since March 2020 and is expected to continue to impact our business operations for the remainder of 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’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 have relaxed and markets 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 and cause disruptions to the supply chain and increase our raw materials and freight costs. Due to the uncertainty over the duration and severity of the economic and operational impacts of the pandemic, the adverse impacts of the pandemic may continue throughout our fiscal 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 to conform to the current period's presentation.

Adoption of New Accounting Pronouncements

There were no new accounting pronouncements adopted by the Company during the thirteen and thirty-nine weeks ended October 29, 2022.

2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

    The Company currently has no material recent accounting pronouncements yet to be adopted.

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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								Thirty-Nine Weeks Ended
	October 29, 2022				October 30, 2021				October 29, 2022				October 30, 2021
Chico's	$	255,341	49.3	%	$	203,505	44.9	%	$	801,584	49.5	%	$	601,914	45.8	%
WHBM	157,451		30.4		138,159		30.4		485,061		30.0		364,250		27.7
Soma	105,540		20.3		111,980		24.7		331,322		20.5		347,501		26.5
Total Net Sales	$	518,332	100.0	%	$	453,644	100.0	%	$	1,617,967	100.0	%	$	1,313,664	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 October 29, 2022, January 29, 2022 and October 30, 2021, contract liabilities primarily consisted of gift cards of $31.9 million, $43.5 million and $32.4 million, respectively.

    For the thirteen and thirty-nine weeks ended October 29, 2022, the Company recognized $7.0 million and $27.0 million, respectively, of revenue that was previously included in the gift card contract liability as of January 29, 2022. For the thirteen and thirty-nine weeks ended October 30, 2021, the Company recognized $3.0 million and $18.7 million, respectively, of revenue that was previously included in the gift card contract liability as of January 30, 2021. The contract liability for our loyalty program was not material as of October 29, 2022, January 29, 2022 or October 30, 2021.

Performance Obligation

    For the thirteen and thirty-nine weeks ended October 29, 2022 and October 30, 2021, revenue recognized from performance obligations related to prior periods were not material. Revenue to be recognized in future periods related to performance obligations is not expected to be material.

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 2033. 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.

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 thirteen and thirty-nine weeks ended October 30, 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 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

10

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				Thirty-Nine Weeks Ended
	October 29, 2022		October 30, 2021		October 29, 2022		October 30, 2021
Operating lease cost (1)	$	55,608	$	53,448	$	163,271	$	164,195

(1) The thirteen and thirty-nine weeks ended October 29, 2022, includes $9.7 million and $28.5 million, respectively, in variable lease costs. The thirteen and thirty-nine weeks ended October 30, 2021, includes $9.5 million and $28.7 million, respectively, in variable lease costs.

Supplemental balance sheet information related to operating leases was as follows:

	October 29, 2022			January 29, 2022			October 30, 2021
Right of use assets	$	432,018		$	463,077		$	494,808
Current lease liabilities	$	157,687		$	172,506		$	177,563
Long-term lease liabilities	346,560			381,081			415,458
Total operating lease liabilities	$	504,247		$	553,587		$	593,021
Weighted Average Remaining Lease Term (years)	4.1			4.0			4.1
Weighted Average Discount Rate (1)	5.0		%	4.5		%	4.5		%

(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:

	Thirty-Nine Weeks Ended
	October 29, 2022		October 30, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows	$	155,561	$	166,990
Right of use assets obtained in exchange for lease obligations, non-cash	88,484		27,510

Maturities of operating lease liabilities as of October 29, 2022 were as follows:

Fiscal Year Ending:
January 28, 2023	$	49,988
February 4, 2024	172,974
February 1, 2025	128,373
January 31, 2026	85,693
January 30, 2027	56,845
Thereafter	74,454
Total future minimum lease payments	$	568,327
Less imputed interest	(64,080)
Total	$	504,247

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5. SHARE-BASED COMPENSATION

For the thirty-nine weeks ended October 29, 2022 and October 30, 2021, share-based compensation expense was $10.3 million and $8.8 million, respectively. As of October 29, 2022, approximately 6.8 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 for the thirty-nine weeks ended October 29, 2022 was as follows:

	Number of Shares	Weighted Average Grant Date Fair Value
Unvested, beginning of period	5,140,240	$	3.18
Granted	2,745,698	4.80
Vested	(2,709,403)	3.29
Forfeited	(532,942)	3.68
Unvested, end of period	4,643,593	4.01

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 for the thirty-nine weeks ended October 29, 2022 was as follows:

	Number of Shares	Weighted Average Grant Date Fair Value
Unvested, beginning of period	647,350	$	2.38
Granted	47,468	4.74
Vested	(288,600)	2.66
Unvested, end of period	406,218	2.46

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Performance-based Restricted Stock Units

During the thirty-nine weeks ended October 29, 2022, we granted performance-based restricted stock units ("PSUs") contingent upon the achievement of Company-specific performance goals during the three fiscal years 2022 through 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.

PSU activity for the thirty-nine weeks ended October 29, 2022 was as follows:

	Number of Units/ Shares	Weighted Average Grant Date Fair Value
Unvested, beginning of period	3,734,207	$	2.24
Granted	1,127,256	3.90
Vested	(1,697,130)	1.16
Forfeited	(489,106)	3.10
Unvested, end of period	2,675,227	3.46

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 thirteen weeks ended October 29, 2022 and October 30, 2021, the Company's effective tax rate was 19.3% and 9.9%, respectively. The effective tax rate of 19.3% for the thirteen weeks ended October 29, 2022 primarily reflects a fiscal 2021 provision to return benefit resulting from changes in estimates due to the reversal of a valuation allowance related to fiscal 2021 temporary differences. The 9.9% effective tax rate for the thirteen weeks ended October 30, 2021 primarily reflects a change in estimate from the second quarter of fiscal 2021 due to an increase in annual projected deferred tax assets on which a full valuation allowance existed, offset by a fiscal 2020 provision to return benefit resulting from changes in estimates due to the reversal of a valuation allowance related to fiscal 2020 temporary differences and the rate differential provided by the Coronavirus Aid, Relief, and Economic Security ("CARES") Act.

For the thirty-nine weeks ended October 29, 2022 and October 30, 2021, the Company's effective tax rate was 23.2% and 20.9%, respectively. The effective tax rate of 23.2% for the thirty-nine weeks ended October 29, 2022 primarily reflects a fiscal 2021 provision to return benefit due to the reversal of a valuation allowance related to fiscal 2021 temporary differences and a favorable share-based compensation benefit. The 20.9% effective tax rate for the thirty-nine weeks ended October 30, 2021 primarily reflects an annual projected deferred tax assets on which a full valuation allowance existed, offset by a fiscal 2020 provision to return benefit due to the reversal of a valuation allowance related to fiscal 2020 temporary differences, the rate differential provided by the CARES Act and favorable state audit settlements.

As of October 29, 2022, our unaudited condensed consolidated balance sheet reflected an $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 CARES Act.

7. INCOME 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 income 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 income per share is determined using the two-class method when it is more dilutive than the treasury stock method. Basic net income 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 net income 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.

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The following table sets forth the computation of net income per basic and diluted share shown on the face of the accompanying condensed consolidated statements of income:

	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 29, 2022		October 30, 2021		October 29, 2022		October 30, 2021
Numerator
Net income	$	24,619	$	18,226	$	101,512	$	35,484
Net income allocated to participating securities	(47)		(123)		(370)		(313)
Net income available to common shareholders	$	24,572	$	18,103	$	101,142	$	35,171
Denominator (000's)
Weighted average common shares outstanding – basic	120,333		117,304		119,776		117,005
Dilutive effect of non-participating securities	4,554		5,862		4,239		4,892
Weighted average common and common equivalent shares outstanding – diluted	124,887		123,166		124,016		121,897
Net income per common share:
Basic	$	0.20	$	0.15	$	0.84	$	0.30
Diluted	$	0.20	$	0.15	$	0.82	$	0.29

For the thirteen weeks ended October 29, 2022 and October 30, 2021, 0.1 million and 0.1 million potential shares of common stock, respectively, were excluded from the diluted income per common share calculation relating to non-participating securities, because the effect of including these potential shares was antidilutive.

For the thirty-nine weeks ended October 29, 2022 and October 30, 2021, 0.1 million and 0.2 million potential shares of common stock, respectively, were excluded from the diluted income per common share calculation relating to non-participating securities, because the effect of including these potential shares was antidilutive.

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 October 29, 2022, consisted of U.S. government agencies, corporate bonds and commercial paper, with $13.8 million of securities with maturity dates within one year or less and $9.2 million with maturity dates over one year.

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 were 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 until realized, and any credit risk related losses recognized in net income 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 a 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.

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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, 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.

As of October��29, 2022, January 29, 2022 and October 30, 2021, 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:

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			Fair Value Measurements at the End of the Reporting Date Using
	Balance as of October 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:
Current Assets
Cash equivalents:
Money market accounts	$	42,596	$	42,596	$	—	$	—
Marketable securities:
U.S. government agencies	3,479		—		3,479		—
Corporate bonds	10,709		—		10,709		—
Commercial paper	8,829		—		8,829		—
Deferred compensation plan	4,776		4,776		—		—
Total recurring fair value measurements	$	70,389	$	47,372	$	23,017	$	—
			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:
Current Assets
Cash equivalents:
Money market accounts	$	25,396	$	25,396	$	—	$	—
Noncurrent Assets
Deferred compensation plan	6,233		6,233		—		—
Total recurring fair value measurements	$	31,629	$	31,629	$	—	$	—
			Fair Value Measurements at the End of the Reporting Date Using
	Balance as of October 30, 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:
Current Assets
Cash equivalents:
Money market accounts	$	22,388	$	22,388	$	—	$	—
Marketable securities:
Corporate bonds	3,006		—		3,006		—
Noncurrent Assets
Deferred compensation plan	6,317		6,317		—		—
Total recurring fair value measurements	$	31,711	$	28,705	$	3,006	$	—

Impairment charges for assets evaluated for impairment on a nonrecurring basis were not material during the thirty-nine weeks ended October 29, 2022 and October 30, 2021 and for the fifty-two weeks ended January 29, 2022.

9. DEBT

On February 2, 2022, the Company and certain material domestic subsidiaries entered into Amendment No. 2 (the "Amendment") to its credit agreement (as amended, the "Credit Agreement") 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 February 2, 2027. The interest rate applicable to Term Secured Overnight Financing Rate ("SOFR")

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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 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 period of six months, the interest rate applicable to the ABL and FILO is increased by 30 basis 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 October 29, 2022, $69.0 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 October 29, 2022, the available additional borrowing capacity under the Credit Agreement was approximately $188.0 million, inclusive of the current loan cap of $30.0 million.

As of October 29, 2022, deferred financing costs of $3.5 million were outstanding related to the Credit Agreement and is presented in other current assets in the accompanying unaudited condensed consolidated balance sheet.

10. COMMITMENTS AND CONTINGENCIES

In 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 alleged numerous violations of California law related to payment of wages and other compensation, meal periods, rest periods, and wage statements, among other things. Plaintiff sought 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 alleged many of the same wage and labor violations as the Haldy complaint and sought 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. On October 25, 2022, the Court issued an Order Granting Final Approval of the Settlement and the Company considers the above cases to be resolved. Subsequent to October 29, 2022 the settlement amount was timely transferred to the fund administrator for distribution to participating class members. The resolution of these cases did not have a material adverse effect on the Company’s business, 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 other matters as of October 29, 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.

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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 29, 2022, filed with the Securities and Exchange Commission ("SEC") on March 15, 2022 ("2021 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 with household incomes in the moderate to high income level. We earn revenue and generate cash through the sale of merchandise in our domestic retail stores, our various Company-operated e-commerce websites, social commerce, our call center (which takes orders for all of our brands) and through unaffiliated franchise partners.

    We utilize an integrated, omnichannel approach to managing our business. We want our customers to experience our brands holistically and to view the various commerce 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.

Our growth strategy is supported by the "power of three" 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.

Business Highlights

The Company's highlights for the thirteen weeks ended October 29, 2022 (the "third quarter") include:

•Consistent strong results: Chico's FAS posted $0.20 net income per diluted share for the third quarter, driven by strong comparable sales growth and selling, general and administrative expenses (“SG&A”) leverage. This performance was more than 30% over the thirteen weeks ended October 30, 2021 (“last year’s third quarter”) and the seventh consecutive quarter of year-over-year double-digit earnings growth.

•Powerful portfolio performance: For the third quarter, total Chico’s FAS net sales grew 14.3% and comparable sales increased 16.5% versus last year’s third quarter, led by the Company’s apparel brands. Chico’s and WHBM comparable sales grew 28.8% and 17.0%, respectively, in the third quarter versus last year’s third quarter.

•Solid operating income growth: Third quarter income from operations was $31.6 million, or 6.1% of net sales, compared to $22.0 million, or 4.9% of net sales, in last year’s third quarter, driven by strong sales growth and SG&A leverage, partially offset by higher raw material costs.

•Strong balance sheet: The Company ended the third quarter with $140.7 million in cash and marketable securities, after repaying $30.0 million of long-term debt during the quarter.

•Marketing drove traffic and new customers: Chico's FAS continued to elevate its marketing, focusing more resources on digital. Strategic marketing efforts continue to drive more customers to the Company’s brands, with total year-over-year customer count up high-single digits, spend per customer up over last year’s third quarter and the average age of new customers continuing to trend younger.

•New loyalty programs exceeding expectations: For the third quarter, enrollment, customer sentiment, and redemption rates continue to exceed expectations.

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Financial Results

    Income per diluted share for the third quarter was $0.20 compared to income per diluted share of $0.15 for last year's third quarter. Results for last year's third quarter include the unfavorable impact of litigation settlement charges of approximately $4 million, after-tax.

Income per diluted share for the thirty-nine weeks ended October 29, 2022 was $0.82 compared to income per diluted share of $0.29 for thirty-nine weeks ended October 30, 2021. Results for the thirty-nine weeks ended October 30, 2021 include the unfavorable impact of litigation settlement charges of approximately $4 million, after-tax.

Select Financial Results

    The following table depicts select financial results for the thirteen and thirty-nine weeks ended October 29, 2022 and October 30, 2021:

	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 29, 2022		October 30, 2021		October 29, 2022		October 30, 2021
	(in millions, except per share amounts)
Net sales	$	518	$	454	$	1,618	$	1,314
Income from operations	32		22		135		50
Net income	25		18		102		35
Net income per common and common equivalent share - diluted	0.20		0.15		0.82		0.29

Current Trends

The novel strain of coronavirus (‘‘COVID-19’’) pandemic (the ‘‘pandemic’’) has resulted in significant challenges across our business starting in March 2020 and is expected to continue to impact 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’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.

While most government and health authority restrictions have lifted, we expect continued uncertainty and volatility on our business operations, operating results and operating cash flows as the ongoing macro challenges of the pandemic, supply chain, economic uncertainty and health concerns associated with the pandemic and war in Ukraine continue to affect, among other things, consumer behavior, spending levels and shopping preferences.

Overall economic uncertainty is also affecting consumer behavior. Consumers are experiencing an overall increase in the cost of living and are shifting their spending habits away from discretionary items. In particular, the rise in fuel and grocery costs has had a widespread impact on how consumers are prioritizing their spending. Inflation caused by the pandemic and geopolitical conditions, such as the war in Ukraine, also has contributed to economic concerns including cost of raw materials and products, fuel and freight costs, and labor costs, and is also affecting consumer confidence and spending habits.

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 ongoing expense management and actively managing its inventory positions and production calendar to mitigate the macro challenges of the pandemic, supply chain and economic uncertainty. However, the extent to which the pandemic, geopolitical events and overall economic uncertainty caused by the same 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, rising inflation and/or geopolitical conditions; our response to and ability to mitigate the impacts of the pandemic, inflation and geopolitical conditions; the negative impact the pandemic, inflation and geopolitical conditions have on global and regional economies and economic activity, including the duration and magnitude of their impacts on unemployment rates and consumer discretionary spending, among other items; their 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, inflation and geopolitical conditions; supply chain disruptions; actions governments, businesses and individuals take in response to the pandemic, inflation and geopolitical conditions; how quickly economies recover after the pandemic, inflation and geopolitical conditions subside, if at all; and our response to and ability to mitigate the impact of heightened concerns over a possible recession.

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Fiscal 2022 Fourth Quarter and Full Year Outlook

For the fiscal 2022 fourth quarter, the Company currently expects:

•Consolidated net sales of $535 million to $555 million;

•Gross margin rate as a percent of net sales of 35.4% to 35.8%;

•SG&A as a percent of net sales of 32.7% to 33.2%;

•Effective income tax rate of 25.0%; and

•Earnings per diluted share of $0.07 to $0.10.

For the fiscal 2022 full year, the Company currently expects:

•Consolidated net sales of $2,153 million to $2,173 million;

•Gross margin rate as a percent of net sales of 39.2% to 39.3%;

•SG&A as a percent of net sales of 32.3% to 32.4%;

•Effective income tax rate of 23.0%;

•Earnings per diluted share of $0.89 to $0.92; and

•Capital and cloud-based expenditures of approximately $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 income 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 views comparable sales as a key performance indicator to measure the performance of our business, however, we are not providing comparable sales figures for the thirty-nine weeks ended October 30, 2021 compared to the thirty-nine weeks ended October 31, 2020 as we do not believe it is a meaningful measure due to the varying degrees of business disruptions and periods of store closures and/or stores operating at reduced hours as a result of the pandemic during 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.

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    Diluted Income per Share

    Income per share is determined using the two-class method when it is more dilutive than the treasury stock method. Basic income 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 income 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 income per share serves as an indicator of the Company's profitability, we believe diluted income per share is a key performance measure because it gauges the Company's quality of income per share assuming all potential common shares from non-participating securities are exercised.

    Return on Net Assets

    RONA is defined as (a) net income 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 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, and we have continued those investments in fiscal 2022. 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 continue to strengthen our merchandise and design capabilities and enhance 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 our 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” 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 StyleConnect® and MY CLOSETTM, our customized, branded, digital styling software tools that enable 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, video, catalogs and mailers. We seek to optimize the potential of our brands with innovative 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 more than three times the average single-channel customer.

We have four clearly defined strategic pillars that guided our recent strategy and will continue to guide us in the future.

1.Customer led;

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2.Product obsessed;

3.Digital-first; and

4.Operationally excellent.

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Results of Operations

Thirteen Weeks Ended October 29, 2022 Compared to the Thirteen Weeks Ended October 30, 2021

    Net Income and Income per Diluted Share

For the third quarter, the Company reported net income of $25 million, or $0.20 per diluted share, compared to net income of $18 million, or $0.15 per diluted share, in last year's third quarter. Results for last year's third quarter include pre-tax litigation settlement charges of approximately $4 million.

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 October 29, 2022 and October 30, 2021:

	Thirteen Weeks Ended
	October 29, 2022				October 30, 2021
	(dollars in millions)
Chico's	$	255	49.3	%	$	204	44.9	%
WHBM	157		30.4		138		30.4
Soma	106		20.3		112		24.7
Total Net Sales	$	518	100.0	%	$	454	100.0	%

For the third quarter, net sales were $518 million compared to $454 million in last year's third quarter. This 14.3% improvement primarily reflects a comparable sales increase of 16.5%, partially offset by 18 permanent net store closures since last year’s third quarter. The 16.5% comparable sales improvement was driven by an increase in transaction count, partially offset by a decrease in average dollar sale.

The following table depicts comparable sales percentages by Chico's, WHBM and Soma for the thirteen weeks ended October 29, 2022 and October 30, 2021:

	Thirteen Weeks Ended
	October 29, 2022		October 30, 2021
	Compared to Fiscal 2021		Compared to Fiscal 2020
Chico's	28.8	%	23.3	%
WHBM	17.0		33.4
Soma	(6.1)		30.2
Total Company	16.5		27.9

    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 October 29, 2022 and October 30, 2021:

	Thirteen Weeks Ended
	October 29, 2022			October 30, 2021
	(dollars in millions)
Cost of goods sold	$	311		$	269
Gross margin	207			184
Gross margin percentage	40.0		%	40.7		%

For the third quarter, gross margin was $207 million, or 40.0% of net sales, compared to $184 million, or 40.7% of net sales, in last year's third quarter. The 70 basis point decrease in gross margin rate primarily reflects higher raw material costs, partially offset by freight costs, occupancy leverage and higher average unit retail.

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Selling, General and Administrative Expenses

The following table depicts SG&A, which includes store and direct operating expenses, marketing expenses and National Store Support Center ("NSSC") expenses, in dollars and as a percentage of total net sales for the thirteen weeks ended October 29, 2022 and October 30, 2021:

	Thirteen Weeks Ended
	October 29, 2022			October 30, 2021
	(dollars in millions)
Selling, general and administrative expenses	$	176		$	162
Percentage of total net sales	33.9		%	35.8		%

    For the third quarter, SG&A was $175.8 million, or 33.9% of net sales, compared to $162.5 million, or 35.8% of net sales, for last year’s third quarter, primarily reflecting ongoing expense management and the impact of $4 million in pre-tax litigation settlement charges in last year's third quarter.

Income Taxes

    For the third quarter, the $5.9 million income tax provision resulted in an effective tax rate of 19.3% compared to $2.0 million, or an effective tax rate of 9.9%, for last year’s third quarter. The 19.3% effective tax rate for the third quarter primarily reflects a fiscal 2021 provision to return benefit resulting from changes in estimates due to the reversal of a valuation allowance related to fiscal 2021 temporary differences. The 9.9% effective tax rate for last year's third quarter primarily reflects a change in estimate from the second quarter of fiscal 2021 due to an increase in annual projected deferred tax assets on which a full valuation allowance exists, offset by a 2020 fiscal provision to return benefit resulting from changes in estimates due to the reversal of a valuation allowance related to 2020 temporary differences and the rate differential provided by the Coronavirus Aid, Relief, and Economic Security ("CARES") Act.

Thirty-Nine Weeks Ended October 29, 2022 Compared to the Thirty-Nine Weeks Ended October 30, 2021

Net Income and Income per Diluted Share

    For the thirty-nine weeks ended October 29, 2022, the Company reported net income of $102 million, or $0.82 per diluted share, compared to net income of $35 million, or $0.29 per diluted share, for the thirty-nine weeks ended October 30, 2021. Results for the thirty-nine weeks ended October 30, 2021 include pre-tax litigation settlement charges of approximately $4 million.

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 thirty-nine weeks ended October 29, 2022 and October 30, 2021:

	Thirty-Nine Weeks Ended
	October 29, 2022				October 30, 2021
	(dollars in millions)
Chico's	$	802	49.5	%	$	602	45.8	%
WHBM	485		30.0		364		27.7
Soma	331		20.5		348		26.5
Total net sales	$	1,618	100.0	%	$	1,314	100.0	%

Net sales for the thirty-nine weeks ended October 29, 2022 increased to $1,618 million from $1,314 million for the thirty-nine weeks ended October 30, 2021. This 23.2% improvement primarily reflects a comparable sales increase of 24.7%, partially offset by 18 permanent net store closures since last year’s third quarter. The 24.7% comparable sales improvement was driven by an increase in transaction count and higher average dollar sale.

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The following table depicts comparable sales percentages by Chico's, WHBM and Soma for the thirty-nine weeks ended October 29, 2022:

	Thirty-Nine Weeks Ended (1)
	October 29, 2022
	Compared to Fiscal 2021
Chico's	36.0	%
WHBM	35.6
Soma	(5.8)
Total Company	24.7

(1) The Company is not providing comparable sales figures for the thirty-nine weeks ended October 30, 2021 compared to the thirty-nine weeks ended October 31, 2020 as we do not believe it is a meaningful measure due to the significant impacts of the pandemic during fiscal 2020.

Cost of Goods Sold/Gross Margin

The following table depicts COGS and gross margin in dollars and gross margin as a percentage of total net sales for the thirty-nine weeks ended October 29, 2022 and October 30, 2021:

	Thirty-Nine Weeks Ended
	October 29, 2022			October 30, 2021
	(dollars in millions)
Cost of goods sold	$	962		$	821
Gross margin	656			493
Gross margin percentage	40.5		%	37.5		%

Gross margin for the thirty-nine weeks ended October 29, 2022 was $656 million, or 40.5% of net sales, compared to $493 million, or 37.5% of net sales, for the thirty-nine weeks ended October 30, 2021. The 300 basis point improvement in gross margin rate primarily reflects occupancy leverage combined with higher average unit retail and full price sales, partially offset by increased raw material costs.

Selling, General and Administrative Expenses

The following table depicts SG&A, which includes store and direct operating expenses, marketing expenses and NSSC expenses, in dollars and as a percentage of total net sales for the thirty-nine weeks ended October 29, 2022 and October 30, 2021:

	Thirty-Nine Weeks Ended
	October 29, 2022			October 30, 2021
	(dollars in millions)
Selling, general and administrative expenses	$	520		$	443
Percentage of total net sales	32.1		%	33.7		%

For the thirty-nine weeks ended October 29, 2022, SG&A was $520 million, or 32.1% of net sales, compared to $443 million, or 33.7% of net sales, for the thirty-nine weeks ended October 30, 2021. The decrease in SG&A as a percent of total net sales primarily reflecting ongoing expense management and the impact of $4 million in pre-tax litigation settlement charges in last year's third quarter.

    Income Taxes

The effective tax rate for the thirty-nine weeks ended October 29, 2022 and October 30, 2021 was 23.2% and 20.9%, respectively. The 23.2% for the thirty-nine weeks ended October 29, 2022 primarily reflects a fiscal 2021 provision to return benefit due to the reversal of a valuation allowance related to fiscal 2021 temporary differences and a favorable share-based compensation benefit. The effective tax rate of 20.9% for the thirty-nine weeks ended October 30, 2021 primarily reflects an annual projected deferred tax assets on which a full valuation allowance existed, offset by a 2020 fiscal provision to return benefit due to the reversal of a valuation allowance related to fiscal 2020 temporary differences, the rate differential provided by the CARES Act and favorable state audit settlements.

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Cash, Marketable Securities and Debt

At the end of the third quarter, cash and marketable securities totaled $141 million compared to $137 million at the end of last year’s third quarter. Debt at the end of the third quarter totaled $69 million compared to $99 million at the end of last year’s third quarter, reflecting a principal payment of $30 million in the third quarter.

Inventories

    At the end of the third quarter, inventories totaled $304 million compared to $278 million at the end of last year’s third quarter. The $26 million increase over last year’s third quarter primarily reflects early holiday receipts, alignment of on-hand inventories with higher consumer demand, strategic investments in basics and higher average unit costs.

Income Tax Receivable

    At the end of the third quarter, our unaudited condensed consolidated balance sheet reflected an $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 CARES Act.

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 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 on hand, capacity within our credit facility and other liquidity options.

The following table summarizes cash flows for the year-to-date period October 29, 2022 compared to last year's year-to-date period October 30, 2021:

	Thirty-Nine Weeks Ended
	October 29, 2022		October 30, 2021
	(dollars in millions) (1)
Net cash provided by operating activities	$	84	$	88
Net cash (used in) provided by investing activities	(42)		7
Net cash used in financing activities	(39)		(52)
Net increase in cash and cash equivalents	$	3	$	44

(1) May not foot due to rounding.

Operating Activities

Net cash provided by operating activities for the year-to-date period of fiscal 2022 was $84 million compared to $88 million in last year's year-to-date period. The change in net cash provided by operating activities primarily reflects the timing of payables and income tax refunds received in last year's year-to-date period, partially offset by the change in inventories to align with consumer demand, higher fiscal 2022 net income and rent settlements made in last year's year-to-date period.

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Investing Activities

Net cash used in investing activities for the year-to-date period of fiscal 2022 was $42 million compared to net cash provided by investing activities of $7 million in last year's year-to-date period, reflecting a net $39 million increase in marketable securities and a $13 million increase in capital spend.

Financing Activities

Net cash used in financing activities for the year-to-date period of fiscal 2022 was $39 million compared to $52 million used in last year's year-to-date period. The change in net cash used in financing activities primarily reflects a $20 million decrease in payment on borrowings, partially offset by $7 million in payments of tax withholding related to the vesting of share-based awards.

Credit Facility

On February 2, 2022, the Company and certain material domestic subsidiaries entered into Amendment No. 2 (the "Amendment") to its credit agreement (as amended, the "Credit Agreement") 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 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 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 period of six months, the interest rate applicable to the ABL and FILO is increased by 30 basis 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 October 29, 2022, $69 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 October 29, 2022, the available additional borrowing capacity under the Credit Agreement was approximately $188 million, inclusive of the current loan cap of $30 million.

Store and Franchise Activity

During the thirty-nine weeks ended October 29, 2022, we had 5 permanent net store closures, consisting of 8 Chico's store closures, 7 WHBM store closures and 10 Soma net store openings. As of October 29, 2022, the Company's franchise operations consisted of 58 international retail locations in Mexico and 2 domestic airport locations.

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 optimize our real estate portfolio, reflecting our emphasis on digital and our priority for higher profitability standards. We will continue to adjust our store base to align with these standards, primarily as leases come due, lease kickouts are available, or buyouts make economic sense. We closed net 5 underperforming locations during the thirty-nine weeks ended October 29, 2022 and ended the third quarter with 1,261 boutiques. The Company anticipates closing 26 stores in fiscal 2022, which primarily includes underperforming, mall-based Chico's and WHBM boutiques. We also plan to invest in opening an additional 14 Soma stores this fiscal year. We will continue to evaluate our 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.

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Critical Accounting 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 estimates with the Audit Committee of our Board of Directors and believes the assumptions and estimates, as set forth in our 2021 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 estimates as disclosed in our 2021 Annual Report on Form 10-K.

Forward-Looking Statements

This Form 10-Q may contain statements 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 the Private Securities Litigation Reform Act of 1995. In most cases, words or phrases such as “aim,” “anticipates,” “believes,” “confident,” “could,” “estimates,” “expects,” “intends,” “target,” “will,” “plans,” "path," “should,” “assumptions,” “outlook” and similar expressions identify forward-looking statements. These forward-looking statements are based largely on information currently available to our management 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. There is no assurance that our expectations will 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 most recent Annual Report on Form 10-K and, from time to time, in Item 1A, “Risk Factors” of our Quarterly Reports on Form 10-Q and the following:

•the effects of the pandemic, including uncertainties about its depth and duration, new variants of COVID-19 that have emerged, the speed, efficacy and availability of vaccines and treatments, its impact on general economic conditions, human capital management, consumer behavior and discretionary spending, the effectiveness of any actions taken in response to the pandemic, and the impact of the pandemic on our manufacturing operations, shipping costs and timelines and the global supply chain;

•the ability of our suppliers, logistics providers, vendors and landlords, to meet their obligations to us in light of financial stress, labor shortages, liquidity challenges, bankruptcy filings by other industry participants, and supply chain and other disruptions;

•increases in unemployment rates and labor shortages;

•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 impacts of rising inflation, gasoline prices, and interest rates 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 (such as the war in Ukraine) or other major events, or the prospect of these events, including their impact on consumer spending, inflation, and the global supply chain;

•domestic and global political and social conditions and the potential impacts of geopolitical turmoil or conflict;

•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 for, among other things, premium mall space;

•our ability to remain competitive with customer shipping terms and costs;

•decreases in customer traffic at malls, shopping centers and our stores;

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•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 three-year strategic growth plan, retail fleet optimization plan, sales initiatives, multi-channel strategies and four strategic pillars which are: 1) customer led; 2) product obsessed; 3) digital first; and 4) operationally excellent;

•our ability to utilize our NSSC, DC and other support facilities in an efficient and effective manner;

•our reliance on sourcing from foreign suppliers and significant adverse economic, labor, political or other shifts (including adverse 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 the 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 transition members of our senior management team;

• increased public focus and opinion on environmental, social and governance (“ESG”) initiatives and our ability to meet any announced ESG goals and initiatives;

•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 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 additional 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 October 29, 2022 has not materially changed since January 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 Agreement with Wells 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 9 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 also provides for a $15.0 million FILO loan. The interest rate applicable to the 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 period of six months, the interest rate applicable to the ABL and FILO is increased by 30 basis points. As of October 29, 2022, $69 million in borrowings were outstanding under the Credit Agreement and is reflected as long-term debt in the accompanying unaudited condensed consolidated balance sheet. An increase in market interest rates of 100 basis points would increase interest expense in the amount of approximately $3.0 million over the remaining term of the loan. 

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 consists of cash equivalents and marketable securities which includes U.S. government agencies, corporate bonds and commercial paper. The marketable securities portfolio as of October 29, 2022 consisted of $13.8 million of securities with maturity dates within one year or less and $9.2 million with maturity dates over one year. We consider all securities available-for-sale including those with maturity dates beyond 12 months, and therefore classified these securities, as applicable, as short-term investments within current assets on the consolidated balance sheets as they are available to support current operational liquidity needs.

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 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 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 was no change in our internal controls 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.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

    Information regarding legal proceedings is incorporated by reference from Note 10 to our unaudited condensed consolidated financial statements included in this Form 10-Q under the heading "Commitments and Contingencies."

ITEM 1A. RISK FACTORS

    In addition to the other information discussed in this report, the factors described in Part I, Item 1A. “Risk Factors” in our 2021 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 material changes with respect to the risks described in our 2021 Annual Report on Form 10-K, except for those risks updated in our quarterly report on Form 10-Q for the quarter ended July 30, 2022, 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.

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):

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
July 31, 2022 - August 27, 2022	134,429	$	6.41	—	$	55,192
August 28, 2022 - October 1, 2022	6,172		5.55	—		55,192
October 2, 2022 - October 29, 2022	17,254		4.84	—		55,192
Total	157,855		6.20	—

(a) Total number of shares purchased consists of 157,855 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 third 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.

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ITEM 6. EXHIBITS

(a)The following documents are filed as exhibits to this Form 10-Q:

Exhibit 31.1	Chico’s FAS, Inc. and Subsidiaries Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Executive Officer
Exhibit 31.2	Chico’s FAS, Inc. and Subsidiaries Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Financial Officer
Exhibit 32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 101	The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended October 29, 2022, formatted in Inline XBRL: (i) Condensed Consolidated Statements of Income, (ii) Condensed Consolidated Statements of Comprehensive Income, (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.
Exhibit 104	The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended October 29, 2022, formatted in Inline XBRL (included within Exhibit 101).

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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.

			CHICO'S FAS, INC.
Date:	November 23, 2022	By:	/s/ Molly Langenstein
			Molly Langenstein
			Chief Executive Officer, President and Director
Date:	November 23, 2022	By:	/s/ Patrick J. Guido
			Patrick J. Guido
			Executive Vice President, Chief Financial Officer
Date:	November 23, 2022	By:	/s/ David M. Oliver
			David M. Oliver
			Senior Vice President - Finance, Controller and Chief Accounting Officer

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