Chico's Fas 10Q 2006 Q2 Quarterly report

Chico's Fas (CHS) 10-Q2006 Q2 Quarterly report

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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 Quarter Ended:		Commission File Number:
July 30, 2005		0-21258

Chico’s FAS, Inc.

(Exact name of registrant as specified in charter)


Florida		59-2389435

(State of Incorporation)		(I.R.S. Employer Identification No.)

11215 Metro Parkway, Fort Myers, Florida 33912

(Address of principal executive offices)

239-277-6200

(Registrant’s telephone number, including area code)

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. Yesþ Noo

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

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

At August 22, 2005, there were 180,707,081 shares outstanding of Common Stock, $.01 par value per share.

CHICO’SFAS, Inc.

Index


PART I — Financial Information

Item 1.	Financial Statements (Unaudited):
	Consolidated Balance Sheets — July 30, 2005 and January 29, 2005	3
	Consolidated Statements of Income for the Twenty-Six and Thirteen Weeks Ended July 30, 2005 and July 31, 2004	4
	Consolidated Statements of Cash Flows for the Twenty-Six Weeks Ended July 30, 2005 and July 31, 2004	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24

PART II — Other Information

Item 1.	Legal Proceedings	24
Item 4.	Submission of Matters to a Vote of Security Holders	26
Item 6.	Exhibits	27

Signatures		28
Ex-31.1 Section 302 Certification
Ex-31.2 Section 302 Certification
Ex-32.1 Section 906 Certification
Ex-32.2 Section 906 Certification

CHICO’SFAS, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands)


	July 30,			January 29,
	2005			2005
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	15,741		$	14,426
Marketable securities, at market		334,815			251,199
Receivables		6,744			5,106
Inventories		79,153			73,223
Prepaid expenses		14,614			9,429
Deferred taxes		13,981			11,184

*Total Current Assets*		465,048			364,567


Property and Equipment:
Land and land improvements		6,264			6,055
Building and building improvements		32,300			29,286
Equipment, furniture and fixtures		161,275			140,360
Leasehold improvements		184,714			166,096

*Total Property and Equipment*		384,553			341,797
Less accumulated depreciation and amortization		(113,667	)		(93,834	)

*Property and Equipment, Net*		270,886			247,963


Other Assets:
Goodwill		61,796			61,796
Other intangible assets		34,087			34,042
Other assets, net		18,019			7,361

*Total Other Assets*		113,902			103,199

	$	849,836		$	715,729


LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:
Accounts payable	$	38,230		$	36,725
Accrued liabilities		69,688			58,258
Current portion of deferred liabilities		433			332

*Total Current Liabilities*		108,351			95,315


Noncurrent Liabilities:
Deferred liabilities		52,850			47,149
Deferred taxes		6,363			12,397

*Total Noncurrent Liabilities*		59,213			59,546


Stockholders’ Equity:
Common stock		1,807			1,790
Additional paid-in capital		176,882			147,652
Unearned compensation		(4,045	)		—
Retained earnings		507,867			411,556
Accumulated other comprehensive loss		(239	)		(130	)

*Total Stockholders’ Equity*		682,272			560,868

	$	849,836		$	715,729

See Accompanying Notes.

CHICO’SFAS, Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)
(In thousands, except per share amounts)


	Twenty-Six Weeks Ended								Thirteen Weeks Ended
	July 30, 2005				July 31, 2004				July 30, 2005				July 31, 2004
	Amount		% of Sales		Amount		% of Sales		Amount		% of Sales		Amount		% of Sales
Net sales by Chico’s/Soma stores	$	539,071		80.4	$	432,341		84.5	$	271,466		79.2	$	213,852		83.9
Net sales by White House \| Black Market stores		111,095		16.6		62,825		12.3		61,932		18.1		32,827		12.9
Net sales by catalog & Internet		14,992		2.2		12,412		2.4		7,035		2.0		6,330		2.5
Net sales to franchisees		5,022		0.8		3,980		0.8		2,492		0.7		1,758		0.7

Net sales		670,180		100.0		511,558		100.0		342,925		100.0		254,767		100.0

Cost of goods sold		261,627		39.0		195,037		38.1		136,429		39.8		98,082		38.5

Gross profit		408,553		61.0		316,521		61.9		206,496		60.2		156,685		61.5

General, administrative and store operating expenses		239,330		35.7		188,799		36.9		120,056		35.0		92,994		36.5
Depreciation and amortization		19,853		3.0		13,701		2.7		10,482		3.0		6,924		2.7

Income from operations		149,370		22.3		114,021		22.3		75,958		22.2		56,767		22.3

Interest income, net		3,504		0.5		753		0.1		1,994		0.6		484		0.2

Income before taxes		152,874		22.8		114,774		22.4		77,952		22.7		57,251		22.5

Income tax provision		56,563		8.4		43,613		8.5		28,841		8.4		21,755		8.6

Net income	$	96,311		14.4	$	71,161		13.9	$	49,111		14.3	$	35,496		13.9


Per share data:
Net income per common share—basic	$	0.54			$	0.40			$	0.27			$	0.20


Net income per common and common equivalent share—diluted	$	0.53			$	0.40			$	0.27			$	0.20


Weighted average common shares outstanding—basic		180,007				177,756				180,410				178,572


Weighted average common and common equivalent shares outstanding—diluted		181,867				179,967				182,292				180,379

See Accompanying Notes.

CHICO’SFAS, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)
(In thousands)


	Twenty-Six Weeks Ended
	July 30, 2005			July 31, 2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	96,311		$	71,161

Adjustments to reconcile net income to net cash provided by operating activities—
Depreciation and amortization, cost of goods sold		2,225			1,589
Depreciation and amortization, other		19,853			13,701
Deferred tax benefit		(8,831	)		(950	)
Stock-based compensation expense		784			—
Tax benefit of stock options exercised		11,766			24,857
Deferred rent expense, net		1,647			1,171
Loss (gain) from disposal of property and equipment		383			(122	)
Net change in:
Receivables		(1,638	)		1,192
Inventories		(5,930	)		(7,069	)
Prepaid expenses and other, net		(5,485	)		(1,469	)
Accounts payable		1,505			4,167
Accrued and other deferred liabilities		15,647			2,301

Total adjustments		31,926			39,368

Net cash provided by operating activities		128,237			110,529


CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities, net		(83,724	)		(97,560	)
Purchase of equity investment		(10,406	)		—
Purchases of property and equipment		(45,446	)		(33,943	)

Net cash used in investing activities		(139,576	)		(131,503	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock		12,654			19,828
Payments on capital leases		—			(1,278	)

Net cash provided by financing activities		12,654			18,550


Net increase (decrease) in cash and cash equivalents		1,315			(2,424	)

CASH AND CASH EQUIVALENTS — Beginning of period		14,426			15,676


CASH AND CASH EQUIVALENTS — End of period	$	15,741		$	13,252


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid for interest	$	47		$	54
Cash paid for income taxes, net	$	52,243		$	18,444

See Accompanying Notes.

CHICO’SFAS, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

July 30, 2005
(Unaudited)
(in thousands, except share and per share amounts)

Note 1. Basis of Presentation

The accompanying unaudited consolidated financial statements of Chico’s FAS, Inc. and its wholly-owned subsidiaries (collectively, the “Company”) have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and notes required by accounting principles generally accepted in the U.S. for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. All significant intercompany balances and transactions have been eliminated in consolidation. For further information, refer to the consolidated financial statements and notes thereto for the fiscal year ended January 29, 2005, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 8, 2005. The January 29, 2005 balance sheet amounts were derived from audited financial statements included in the Company’s Annual Report.

The Company’s 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 twenty-six weeks ended July 30, 2005 are not necessarily indicative of the results that may be expected for the entire year.

Note 2. Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 123R (revised 2004), “Share-Based Payment”, which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation.” The original effective date for adoption of SFAS No. 123R for the Company was July 31, 2005. However, in April, the SEC announced the adoption of a new rule that amends the effective dates for SFAS No. 123R. The SEC’s new rule allows companies to implement SFAS No. 123R at the beginning of their next fiscal year, instead of the next reporting period, that begins after June 15, 2005. Therefore, the Company plans to adopt SFAS No. 123R effective for its 2006 fiscal year commencing on January 29, 2006.

Note 3. Common Stock Split

On February 22, 2005, the Company completed a two-for-one stock split by distributing one additional share of the Company’s common stock to each stockholder of record as of February 4, 2005, for every share of common stock then owned. All prior period share and per share amounts presented in this report have been restated to give retroactive recognition to this two-for-one common stock split.

Note 4. Stock-Based Compensation

The Company accounts for stock-based awards to employees and directors using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25) and related interpretations, including for purposes of valuing its awards and recording the related compensation expense, if any.

CHICO’SFAS, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
July 30, 2005
(Unaudited)
(in thousands, except share and per share amounts)

Note 4. Stock-Based Compensation (continued)

The following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of SFAS No. 123, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation- Transition and Disclosure”, to all stock-based employee compensation.


	Twenty-Six Weeks Ended						Thirteen Weeks Ended
	July 30, 2005			July 31, 2004			July 30, 2005			July 31, 2004
Net income, as reported	$	96,311		$	71,161		$	49,111		$	35,496
Add: Stock-based compensation expense included in reported net income, net of taxes		494			—			250			—

Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of taxes		(5,982	)		(4,618	)		(2,917	)		(2,139	)

Net income, pro forma	$	90,823		$	66,543		$	46,444		$	33,357


Net income per common share:

Basic — as reported	$	0.54		$	0.40		$	0.27		$	0.20

Basic — pro forma	$	0.50		$	0.37		$	0.26		$	0.19

Diluted — as reported	$	0.53		$	0.40		$	0.27		$	0.20

Diluted — pro forma	$	0.50		$	0.37		$	0.26		$	0.19

Note 5. Net Income Per Share

Basic Earnings Per Share (EPS) is computed by dividing net income by the weighted-average number of common shares outstanding. Restricted stock grants to employees and directors are not included in the computation of basic EPS until the securities vest. Diluted EPS reflects the dilutive effect of potential common shares from securities such as stock options and unvested restricted stock. The following is a reconciliation of the denominators of the basic and diluted EPS computations shown on the face of the accompanying consolidated statements of income:


	Twenty-Six Weeks Ended				Thirteen Weeks Ended
	July 30,		July 31,		July 30,		July 31,
	2005		2004		2005		2004
Weighted average common shares outstanding- basic		180,007,479		177,755,948		180,409,517		178,572,406
Dilutive effect of stock options and unvested restricted stock outstanding		1,859,296		2,210,618		1,882,049		1,806,494

Weighted average common and common equivalent shares outstanding — diluted		181,866,775		179,966,566		182,291,566		180,378,900

CHICO’SFAS, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
July 30, 2005
(Unaudited)
(in thousands, except share and per share amounts)

Note 5. Net Income Per Share (continued)

For each of the three and six month periods ended July 30, 2005, of the options then outstanding, options to purchase 111,000 shares of common stock, respectively, were excluded from the computation of diluted EPS on the basis that such options were antidilutive. For each of the three and six month periods ended July 31, 2004, of the options then outstanding, options to purchase 175,800 shares of common stock, were excluded from the computation of diluted EPS on the basis that such options were antidilutive.

During the three months ended July 30, 2005, options to purchase 145,000 shares of the Company’s common stock were granted pursuant to the Company’s stock option plans, options to purchase 292,792 were exercised and options to purchase 8,801 shares of common stock were canceled. During the three months ended July 31, 2004, options to purchase 182,000 shares of the Company’s common stock were granted pursuant to the Company’s stock option plans, options to purchase 526,560 were exercised and options to purchase 166,406 shares of common stock were canceled.

During the six months ended July 30, 2005, options to purchase 1,420,000 shares of the Company’s common stock were granted pursuant to the Company’s stock option plans, options to purchase 1,517,658 were exercised and options to purchase 75,638 shares of common stock were canceled. During the six months ended July 31, 2004, options to purchase 1,295,800 shares of the Company’s common stock were granted pursuant to the Company’s stock option plans, options to purchase 3,643,550 were exercised and options to purchase 193,208 shares of common stock were canceled.

Beginning in the first quarter of fiscal 2005, certain of the Company’s officers, its two non-officer inside directors, and several of its independent directors were awarded restricted stock, pursuant to restricted stock agreements. A restricted stock award is an award of common shares that is subject to certain restrictions during a specified period. The Company holds the shares during the vesting period, and the grantee cannot transfer the shares before the termination of that period. The grantee is, however, entitled to vote the common shares and to receive dividends and other distributions thereon. Unearned compensation related to the restricted stock awards is recorded as a component of stockholders’ equity and is amortized ratably over the vesting period of the award.

As of July 30, 2005, there were 182,278 shares of restricted stock outstanding. The restricted stock awarded to officers vests entirely on the third anniversary of the date of grant. The restricted stock awarded to non-officer inside directors and independent directors vests pro-rata over a three-year period. Total compensation expense related to these restricted stock grants of $4.8 million is being amortized over the vesting period, and amortization expense for the twenty-six weeks ended July 30, 2005 was $0.8 million.

CHICO’SFAS, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
July 30, 2005
(Unaudited)
(in thousands, except share and per share amounts)

Note 6. Equity Investments

During the second quarter of fiscal 2005, the Company made an equity investment in a privately held company for business and strategic purposes. This investment is included in other assets on the July 30, 2005 consolidated balance sheet and is accounted for under the cost method, as the Company does not have significant influence over the investee. Under the cost method, the investment is recorded at its initial cost and is periodically reviewed for impairment. During a review for impairment, the Company will examine the investee’s actual and forecasted operating results, financial position, and liquidity, as well as business and industry factors in assessing whether a decline in value of an equity investment has occurred that is other than temporary. Each quarter the Company assesses its compliance with accounting guidance, including the provisions of Financial Accounting Standards Board Interpretation No. 46R, “Consolidation of Variable Interest Entities-An Interpretation of ARB No. 51” (FIN 46R) and any impairment issues. Under FIN 46R, the Company must consolidate a variable interest entity if the Company has a variable interest (or combination of variable interests) in the entity that will absorb a majority of the entity’s expected losses, receive a majority of the entity’s expected residual returns, or both. Currently, the Company’s equity investment is not subject to consolidation under FIN 46R as the Company does not have significant influence over the investee and the Company does not absorb a majority of the entity’s losses, nor does it receive a majority of the returns.

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

General

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the accompanying unaudited consolidated financial statements and notes thereto and the Company’s 2004 Annual Report to Stockholders.

Overview

The primary factors which historically have influenced the Company’s profitability and success have been its growth in number of stores, its growth in comparable store sales, and its increased operating margin arising out of improved gross margin and leverage of operating costs. In the last five years the Company has grown from 200 stores as of January 29, 2000 to 708 stores as of July 30, 2005, which includes the significant store growth resulting from the acquisition of WH|BM in fiscal 2003. The Company continues to expand its presence through the opening of new stores, the development of new opportunities such as Soma by Chico’s and through the extension of its merchandise line. The Company anticipates that its rate of growth (measured by overall growth in sales, growth in comparable store sales, and other factors) can be expected to decrease from the generally 40% rate of overall sales growth experienced in recent years, largely reflecting the Company’s significantly increased size, its 20% net square footage growth goal and the expectation that its same store sales increases will moderate. Nevertheless, even at a reduced growth rate, the Company expects to continue its ability to generate the necessary cash flow to fund its expansion and to take advantage of new opportunities. The Company has no long-term debt and foresees no current need to incur long-term debt to support its continued growth.

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

•

Comparable same store sales growth— For the thirteen-week and twenty-six week periods ended July 30, 2005, the Company’s comparable store sales growth (sales from stores open for at least twelve full months, including stores that have been expanded or relocated within the same general market) was 15.7% and 13.2%, respectively. The thirteen-week increase of 15.7% follows a similar comparable store sales growth of 14.1% in the second quarter last year, with 30 out of the Company’s last 33 quarterly periods achieving at least double digit increases in comparable store sales. The Company believes that comparable store sales growth is a critical success factor and a positive indication of the Company’s ability to manage its expansion and its ability to open and operate stores effectively.

	•		Gross profit —For the thirteen-week and twenty-six week periods ended July 30, 2005, gross profit percentage was 60.2% and 61.0%, respectively, down from 61.5% and 61.9%, respectively, in the corresponding periods in the prior year. The Company experienced one of its highest gross margins in all four quarters of the prior year primarily due to a change in its markdown policies and strong sell throughs of its new merchandise. The gross margins experienced in the first two quarters of fiscal 2005 are more in-line with gross margins experienced in years prior to fiscal 2004. The Company expects a decrease in its fiscal 2005 3^rd quarter merchandise margins in line with the second quarter primarily due to an expected substantial decrease in outlet margins compared to last year’s 3^rd quarter’s unusually high outlet margins. Assuming that customer reaction to the Company’s fall and holiday merchandise offerings continues to follow the positive reactions experienced thus far with respect to the Company’s fall offerings, Chico’s front-line gross margins for the next two quarters are expected to be relatively flat year-over-year, while WH\|BM gross margins are expected to be higher than last year.

	•		Positive operating cash flow— For the twenty-six week period ended July 30, 2005 (the “current period”), cash flow from operations totaled $128 million compared with $111 million for the prior year’s twenty-six week period ended July 31, 2004 (the “prior period”), representing an increase in cash flow growth of 16.0%. The Company believes that a key strength of its business is the ability to consistently generate cash. Strong cash flow generation is critical to the future success of the Company, not only to support the general operating needs of the Company, but also to fund capital expenditures related to new store openings, relocations, expansions and remodels, additional infrastructure costs associated with the distribution center, costs associated with the Company’s proposed new corporate headquarters campus project, to continue funding implementation of state of the art information systems and to fund strategic acquisitions. See further discussion of the Company’s cash flows in the Liquidity and Capital Resources section.

	•		Loyalty Clubs— Management believes that a significant indicator of the Company’s success is the growth of the Chico’s loyalty program, the “Passport Club” and support for such loyalty program from its personalized customer service training programs and its marketing initiatives. For the thirteen-week and twenty-six week periods ended July 30, 2005, the Company added approximately 96,000 and 196,000, new permanent Passport Club members, respectively, and approximately 221,000 and 608,000, new preliminary Passport Club members, respectively. The Company believes that the continued growth of its Passport Club indicates that the Company is still generating strong interest from new customers, many of whom tend to become long-term loyal customers, due in large part to the Company’s commitment to personalized customer service and constant newness of product.

			The Company introduced a new frequent shopper program at its WH\|BM stores during October 2004 called “The Black Book”. The Black Book loyalty program is similar to the Passport Club in all key respects except that members become permanent upon spending $300, compared to $500 for the Passport Club. For the thirteen-week and twenty-six week periods ended July 30, 2005, the Company added approximately 54,000 and 130,000, net permanent Black Book members, respectively and approximately 211,000 and 484,000, net preliminary Black Book members, respectively.

	•		Quality of merchandise offerings —To monitor and maintain the acceptance of its merchandise offerings, the Company monitors sell-through levels, inventory turns, gross margins and markdown rates on a classification and style level. Although the Company does not disclose these statistics

			for competitive reasons, this analysis helps identify comfort, fit and newness issues at an early date and helps the Company plan future product development and buying.

			The Company continues to evaluate and monitor the progress of its Soma by Chico’s stores, its intimate apparel initiative. Although the Soma by Chico’s stores are still in the later stages of testing, the Company expects to open 20 additional Soma by Chico’s stores in fiscal 2006. The Company recognizes that the Soma by Chico’s business can be seen as complementary to its basic apparel business, but it also understands that many aspects of this business require unique attention. The Company monitors Soma by Chico’s merchandise offerings in a manner similar to its other brands with special emphasis on repeat purchases. The Company anticipates that additional investment will be required to establish the Soma by Chico’s brand as an acceptable business meeting the profitability goals of the Company over the longer term. The Company believes the Soma by Chico’s brand reduced the Company’s operating margin by approximately 60 to 70 basis points for the second quarter of fiscal 2005 and the Company anticipates this will not change significantly in fiscal 2006 even considering the additional new stores planned. The Company further believes that an impact on margin of this order is acceptable when balanced against the possibility of its longer term growth potential.

For the thirteen weeks ended July 30, 2005, the Company reported net sales, operating income and net income of $343 million, $76 million and $49 million, respectively, up 34.6%, 33.8% and 38.4%, from the comparable period in the prior fiscal year. The Company’s gross margin decreased to 60.2% for the current period from 61.5% in the prior comparable period mostly as a result of increased markdowns at its Chico’s front-line stores and reduced margins in its outlet division and, to a lesser extent, by certain other factors, offset, in part, by improved margins at its WH|BM front-line stores all as more fully described below.

For the twenty-six weeks ended July 30, 2005, the Company reported net sales, operating income and net income of $670 million, $149 million and $96 million, respectively, up 31.0%, 31.0% and 35.3%, from the comparable period in the prior fiscal year. The Company’s gross margin decreased to 61.0% for the current period from 61.9% in the prior comparable period mostly as a result of increased markdowns at its Chico’s front-line stores and reduced margins in its outlet division and, to a lesser extent, by certain other factors, offset, in part, by improved margins at its WH|BM front-line stores, as more fully described below.

Results of Operations — Thirteen Weeks Ended July 30, 2005 Compared to the Thirteen Weeks Ended July 31, 2004.

Net Sales

The following table shows net sales by Company-owned Chico’s/Soma stores, net sales by Company-owned WH|BM stores, net sales by catalog and Internet and net sales to franchisees in dollars and as a percentage of total net sales for the thirteen weeks ended July 30, 2005 (the “current period”) and July 31, 2004 (the “prior period”) (dollar amounts in thousands):


	Thirteen Weeks Ended
	July 30, 2005				July 31, 2004
Net sales by Chico’s/Soma stores	$	271,466	79.2	%	$	213,852	83.9	%
Net sales by WH\|BM stores		61,932	18.1			32,827	12.9
Net sales by catalog and Internet		7,035	2.0			6,330	2.5
Net sales to franchisees		2,492	0.7			1,758	0.7


Net sales	$	342,925	100.0		$	254,767	100.0

Net sales by Company-owned stores increased in the current period from the prior period, both in the aggregate and separately by brand, primarily due to new store openings, as well as the current trend of strong increases in the Company’s comparable store net sales (including stores within the comparable store base that have been expanded or relocated within the same general market). A summary of the factors impacting year-over-year sales increases is provided in the table below (dollar amounts in thousands):


	Thirteen Weeks Ended
	July 30, 2005			July 31, 2004
Comparable store sales increases	$	38,153		$	23,256
Comparable same store sales %		15.7	%		14.1	%
New store sales increase, net	$	48,566		$	56,554

The comparable store sales increase of 15.7% was driven primarily by an increase in the number of transactions in the current period compared to the prior period. This transaction volume increase was offset, in part, by a decrease of 3.0% in the Chico’s average unit retail price (which average unit retail price is a financial indicator, the percentage change of which is believed by management to represent a reasonable approximation of the percentage change in Company store net sales attributable to price changes), attributable primarily to an increased markdown rate in all brands and divisions and, to a lesser extent, from changes in product mix. In the current period, WH|BM same store sales represented approximately 15% of the total same store sales base while in the prior comparable period, WH|BM was not in the same store sales calculations. The WH|BM same store sales increase for the current period was in the mid 30 percent range while the Chico’s same store sales increase for the current period was in the low double digit range. Because the Soma by Chico’s stores were first opened less than 12 months ago, all of the net sales from Soma by Chico’s stores are included in new store sales for the current period; no such sales are included in comparable store sales.

Net sales by catalog and Internet for the current period (which included mostly Chico’s merchandise and a small offering of Soma by Chico’s merchandise) increased by $0.7 million, or 11.1%, compared to net sales by catalog and Internet for the prior period. It is believed that the increase was principally attributable to the increased circulation of catalog mailings and additional television spots in the current period versus the prior period.

Cost of Goods Sold/Gross Profit

The following table shows cost of goods sold and gross profit in dollars and the related gross profit percentages for the thirteen weeks ended July 30, 2005 and July 31, 2004 (dollar amounts in thousands):


	Thirteen Weeks Ended
	July 30, 2005			July 31, 2004
Cost of goods sold	$	136,429		$	98,082
Gross profit		206,496			156,685
Gross profit percentage		60.2	%		61.5	%

The decrease in the gross profit percentage during the current period resulted primarily from a decrease in the merchandise margins of approximately 80 basis points at the Chico’s front-line stores and to a lesser extent, from a decrease in the merchandise margins at the Company’s outlet stores (which the Company believes unfavorably impacted the overall gross margin by approximately 40 basis points), from the Company's continued investment in its Soma by Chico's brand (which the Company believes unfavorably impacted the overall gross margin by approximately 20 basis points), and to a much lesser extent, from the Company's continued investment in the product development and merchandising functions for all of its brands as well as from increased inventory clearance costs. The decrease this year in the Chico’s front-line merchandise margins from last year’s unusually high merchandise margins was attributable to a higher markdown rate this year, moderated in part by improved initial merchandise markups. The prior year’s second quarter merchandise margins at the Chico’s brand represented one of the highest second quarter gross margins in the Company’s history. The current year’s overall merchandise margin is more in line with the Company’s overall merchandise margin in previous years. These decreases in gross profit percentage were partially offset by an improvement of approximately 270 basis points in the merchandise margins at WH|BM front-line stores (which the Company believes favorably impacted the overall gross margin by approximately 50 basis points), as the strong gross margin gains more than offset the mix effect of WH|BM representing a larger percentage of total sales than in the prior year's second quarter. The improvement of the merchandise margins at the WH|BM front-line stores resulted primarily from improved initial markups on new products moderated in part by a slightly higher markdown rate compared to the prior period.

General, Administrative and Store Operating Expenses

The following table shows general, administrative and store operating expenses in dollars and as a percentage of total net sales for the thirteen weeks ended July 30, 2005 and July 31, 2004 (dollar amounts in thousands):


	Thirteen Weeks Ended
	July 30, 2005			July 31, 2004
General, administrative and store operating expenses	$	120,056		$	92,994
Percentage of total net sales		35.0	%		36.5	%

costs) associated with the Company’s current period comparable store sales increase of 15.7% and to a lesser extent, from a planned decrease in marketing costs as a percentage of total net sales. The Company is currently planning an increase in marketing costs as a percentage of sales in the second six months approximately equal to the decrease in marketing costs experienced in the first six months. General, administrative and store operating expenses as a percentage of net sales was also positively impacted due to the revision in the manner in which the Company accounts for construction allowances as described under “Depreciation and Amortization.”

Depreciation and Amortization

The following table shows depreciation and amortization in dollars and as a percentage of total net sales for the thirteen weeks ended July 30, 2005 and July 31, 2004 (dollar amounts in thousands):


	Thirteen Weeks Ended
	July 30, 2005			July 31, 2004
Depreciation and amortization	$	10,482		$	6,924
Percentage of total net sales		3.0	%		2.7	%

The increase in depreciation and amortization expense was for the most part due to capital expenditures related to new, remodeled and expanded stores. Depreciation and amortization expense, in dollars and as a percentage of total net sales, was also impacted by the Company’s revision to the manner in which it accounts for construction allowances from landlords of properties leased by the Company for its stores in the fourth quarter of fiscal 2004. Previously, these construction allowances were amortized as a reduction of depreciation expense, while the revision now has the amortization of these construction allowances reducing the Company’s rent expense (as previously described in “General, Administrative and Store Operating Expenses” under the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of the Company’s 2004 Annual Report to Stockholders).

Interest Income, net

The following table shows interest income, net in dollars and as a percentage of total net sales for the thirteen weeks ended July 30, 2005 and July 31, 2004 (dollar amounts in thousands):


	Thirteen Weeks Ended
	July 30, 2005			July 31, 2004
Interest income, net	$	1,994		$	484
Percentage of total net sales		0.6	%		0.2	%

The increase in net interest income during the current period was primarily the result of the Company’s increased cash and marketable securities position as well as the impact of higher interest rates.

Provision for Income Taxes

The Company’s effective tax rate for the current period was 37% compared to an effective tax rate of 38% for the prior period. The decrease is primarily due to an increase in estimated favorable permanent differences for fiscal 2005 as compared to fiscal 2004.

Net Income

The following table shows net income in dollars and as a percentage of total net sales for the thirteen weeks ended July 30, 2005 and July 31, 2004 (dollar amounts in thousands):


	Thirteen Weeks Ended
	July 30, 2005			July 31, 2004
Net income	$	49,111		$	35,496
Percentage of total net sales		14.3	%		13.9	%

Results of Operations — Twenty-Six Weeks Ended July 30, 2005 Compared to the Twenty-Six Weeks Ended July 31, 2004.

Net Sales

The following table shows net sales by Company-owned Chico’s/Soma stores, net sales by Company-owned WH|BM stores, net sales by catalog and Internet and net sales to franchisees in dollars and as a percentage of total net sales for the twenty-six weeks ended July 30, 2005 and July 31, 2004 (dollar amounts in thousands):


	Twenty-Six Weeks Ended
	July 30, 2005				July 31, 2004
Net sales by Chico’s/Soma stores	$	539,071	80.4	%	$	432,341	84.5	%
Net sales by WH\|BM stores		111,095	16.6			62,825	12.3
Net sales by catalog and Internet		14,992	2.2			12,412	2.4
Net sales to franchisees		5,022	0.8			3,980	0.8


Net sales	$	670,180	100.0		$	511,558	100.0


	Twenty-Six Weeks Ended
	July 30, 2005			July 31, 2004
Comparable store sales increases	$	64,551		$	55,168
Comparable same store sales %		13.2	%		17.0	%
New store sales increase, net	$	90,449		$	111,688

The comparable store sales increase of 13.2% was driven primarily by an increase in the number of transactions in the current period compared to the prior period. This transaction volume increase was offset, in part, by a decrease of 3.3% in the Chico’s average unit retail price (which average unit retail price is a financial indicator, the percentage change of which is believed by management to represent a reasonable approximation of the percentage change in Company store net sales attributable to price changes), attributable primarily to an increased markdown rate in all brands and divisions and, to a lesser extent, from changes in product mix. In the current period, WH|BM same store sales represented approximately 14% of the total same store sales base while in the prior comparable period, WH|BM was

not in the same store sales calculations. The WH|BM same store sales increase for the current period was in the mid 20 percent range while the Chico’s same store sales increase for the current period was in the low double digit range. Because the Soma by Chico’s stores were first opened less than 12 months ago, all of the net sales from Soma by Chico’s stores are included in new store sales for the current period; no such sales are included in comparable store sales.

Net sales by catalog and Internet for the current period (which included mostly Chico’s merchandise and a small offering of Soma by Chico’s merchandise) increased by $2.6 million, or 20.8%, compared to net sales by catalog and Internet for the prior period. It is believed that the increase was principally attributable to the increased circulation of catalog mailings and additional television spots in the current period versus the prior period.

Cost of Goods Sold/Gross Profit

The following table shows cost of goods sold and gross profit in dollars and the related gross profit percentages for the twenty-six weeks ended July 30, 2005 and July 31, 2004 (dollar amounts in thousands):


	Twenty-Six Weeks Ended
	July 30, 2005			July 31, 2004
Cost of goods sold	$	261,627		$	195,037
Gross profit		408,553			316,521
Gross profit percentage		61.0	%		61.9	%

General, Administrative and Store Operating Expenses

The following table shows general, administrative and store operating expenses in dollars and as a percentage of total net sales for the twenty-six weeks ended July 30, 2005 and July 31, 2004 (dollar amounts in thousands):


	Twenty-Six Weeks Ended
	July 30, 2005			July 31, 2004
General, administrative and store operating expenses	$	239,330		$	188,799
Percentage of total net sales		35.7	%		36.9	%

The increase in general, administrative and store operating expenses was, for the most part, the result of increases in the Company’s store operating expenses, including associate compensation, occupancy and other costs associated with additional store openings and, to a lesser degree, an increase in marketing expenses and other general corporate infrastructure costs to support the Company’s rapid growth. General, administrative and store operating expenses as a percentage of net sales decreased 120 basis points over the prior period primarily due to decreases in Chico’s and WH|BM store operating expenses (primarily in personnel and occupancy costs) as a percentage of total net sales over the prior period which in turn resulted primarily from leverage associated with the Company’s current period comparable store sales increase of 13.2% and, to a lesser degree, from planned decreased marketing costs as a percentage of total net sales and to the revision in the manner in which the Company accounts for construction allowances as described under “Depreciation and Amortization.” The Company is currently planning an increase in marketing costs as a percentage of sales in the second six months approximately equal to the decrease in marketing costs experienced in the first six months.

Depreciation and Amortization

The following table shows depreciation and amortization in dollars and as a percentage of total net sales for the twenty-six weeks ended July 30, 2005 and July 31, 2004 (dollar amounts in thousands):


	Twenty-Six Weeks Ended
	July 30, 2005			July 31, 2004
Depreciation and amortization	$	19,853		$	13,701
Percentage of total net sales		3.0	%		2.7	%

Interest Income, net

The following table shows interest income, net in dollars and as a percentage of total net sales for the twenty-six weeks ended July 30, 2005 and July 31, 2004 (dollar amounts in thousands):


	Twenty-Six Weeks Ended
	July 30, 2005			July 31, 2004
Interest income, net	$	3,504		$	753
Percentage of total net sales		0.5	%		0.1	%

Provision for Income Taxes

Net Income

The following table shows net income in dollars and as a percentage of total net sales for the twenty-six weeks ended July 30, 2005 and July 31, 2004 (dollar amounts in thousands):


	Twenty-Six Weeks Ended
	July 30, 2005			July 31, 2004
Net income	$	96,311		$	71,161
Percentage of total net sales		14.4	%		13.9	%

Comparable Company Store Net Sales

Comparable Company store net sales increased by 15.7% in the current quarter and 13.2% in the first six months of this fiscal year, when compared to the comparable prior periods. Comparable Company store net sales data is calculated based on the change in net sales of currently open Company-owned stores that have been operated as a Company store for at least twelve full months, including stores that have been expanded or relocated within the same general market area (approximately five miles).

The comparable store percentages reported above include 34 and 42 stores, respectively, that were expanded or relocated within the last twelve months from the beginning of the prior period by an average of 914 and 870 net selling square feet, respectively. If the stores that were expanded and relocated had been excluded from the comparable Company-owned store base, the increase in comparable Company-owned store net sales would have been 14.9% for the current quarter and 12.2% for the first six months (versus 15.7% and 13.2% as reported, respectively). The Company does not consider the effect to be material to the overall comparable store sales results and believes the inclusion of expanded stores in the comparable store net sales to be an acceptable practice, consistent with the practice followed by the Company in prior periods and by some other retailers. WH|BM stores acquired in The White House, Inc. acquisition were included in the comparable store sales calculation for the first time beginning in October 2004 and WH|BM stores opened since the acquisition are treated the same as all other Company-owned stores.

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

Liquidity and Capital Resources

The Company’s primary ongoing capital requirements are for funding capital expenditures for new, expanded, relocated and remodeled stores and increased merchandise inventories, for expansion of headquarters and other central support facilities and for continued improvement in information technology tools.

The following table shows the Company’s capital resources as of July 30, 2005 and July 31, 2004 (amounts in thousands):


	July 30, 2005		July 31, 2004
Cash and cash equivalents	$	15,741	$	13,252
Marketable securities		334,815		201,907
Working capital		356,697		223,620

Working capital increased from July 31, 2004 to July 30, 2005 primarily due to the Company’s ability to generate significant cash from operating activities (in large part due to the Company’s strong comparable store sales), which cash was substantially more than necessary to satisfy the Company’s investment in capital expenditures. The significant components of the Company’s working capital are cash and cash equivalents, marketable securities and inventories, reduced by accounts payable and accrued liabilities.

Based on past performance and current expectations, the Company believes that its cash and cash equivalents, marketable securities and cash generated from operations will satisfy the Company’s working capital needs, capital expenditure needs (see “New Store Openings and Planned Headquarters Expansion” discussed below), commitments and other liquidity requirements associated with the Company’s operations through at least the next 12-24 months.

Operating Activities

Net cash provided by operating activities was $128.2 million and $110.5 million for the twenty-six weeks ended July 30, 2005 and July 31, 2004, respectively. The cash provided by operating activities for both periods was due to the Company’s net income adjusted for non-cash charges, tax benefits from non-cash tax deductions, and changes in working capital such as:

	•		Depreciation and amortization expense;

	•		Tax benefits from stock option exercises;

	•		Normal fluctuations in accounts receivable, inventories, prepaid and other current assets, accounts payable and accrued liabilities.

Investing Activities

Net cash used in investing activities was $139.6 million and $131.5 million for the twenty-six weeks ended July 30, 2005 and July 31, 2004, respectively.

The Company’s investment in capital expenditures during the current period primarily related to the planning and opening of new, relocated, remodeled and expanded Chico’s and WH|BM stores ($30.7 million), costs associated with system upgrades and new software implementations ($4.9 million),

distribution center infrastructure costs ($2.8 million) and other miscellaneous capital expenditures ($7.0 million).

The Company invested $83.7 million, net in marketable securities during the current period. In the prior period, the Company invested $97.6 million, net in marketable securities.

In addition, the Company purchased an equity investment in a privately held company for business and strategic purposes totaling $10.4 million.

Financing Activities

Net cash provided by financing activities was $12.7 million and $18.6 million for the twenty-six weeks ended July 30, 2005 and July 31, 2004, respectively. The Company received proceeds in both periods from the issuance of common stock related to current and former employee option exercises and employee participation in its employee stock purchase plan. During the prior period, the Company satisfied the remaining balances due on capital leases assumed as a result of The White House, Inc. acquisition totaling $1.3 million.

During the first six months of the current fiscal year, eighteen of the Company’s thirty-three current and former officers, its two non-officer inside directors, and three of its six independent directors exercised an aggregate of 1,405,005 stock options at prices ranging from $1.5834 to $19.25 and several employees and former employees exercised an aggregate of 112,653 options at prices ranging from $0.1805 to $22.10. Also, during this period, the Company sold 45,376 shares of common stock during the March offering period under its employee stock purchase plan at a price of $25.04. The proceeds from these issuances of stock, exclusive of the tax benefit realized by the Company, amounted to approximately $12.7 million.

New Store Openings and Planned Headquarters Expansion

The Company plans to open approximately 20% net new square footage in fiscal 2005, which should represent between 105 and 110 net new Company-owned stores. Fifty-five were open as of August 22, 2005. The Company believes that the liquidity needed for its planned new store growth (including continued investments associated with the recent launch of its new concept, Soma by Chico’s), continuing remodel/expansion program, continued installation and upgrading of new and existing software packages, and maintenance of proper inventory levels associated with this growth will be funded primarily from cash flow from operations and its existing strong cash and marketable securities balances.

The Company also announced that it is planning to open approximately 20% net new square footage for the combined Chico’s and WH|BM brands in fiscal 2006, taking into account approximately 105 to 120 net new Company-owned stores and increased square footage from 30-40 relocations and/or expansions. It is currently anticipated that new Chico’s and WH|BM stores in 2006, for the most part, will be somewhat larger than the average existing store size for the respective brand. Currently, the Company plans that approximately 60% of these new stores will be Chico’s stores, with the balance being WH|BM stores. In addition, the Company also plans to open 20 new Soma by Chico’s stores during fiscal 2006 over and above the combined 20% net square footage growth rate outlined above for the Chico’s and WH|BM brands.

The Company has entered into a contract to purchase 105 acres in south Fort Myers, Florida. Closing of this contract is contingent upon a number of factors. The site is currently being evaluated for the location of a new corporate headquarters campus. The Company is targeting commencement of

construction of a new corporate headquarters in 2006 or 2007 with the first phase targeted for completion in late 2007 through early 2009. Additionally, the Company has contracted to purchase a facility adjacent to its Winder campus distribution center to be used for direct to consumer fulfillment as the Company expands the number of items available for the WH|BM and Soma by Chico's brands.

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

Seasonality and Inflation

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

The Company reports its sales on a monthly basis in line with other public companies in the women’s apparel industry. Although the Company believes this regular reporting of interim sales may provide for greater transparency to investors, the Company is concerned that these interim results tend to be relied upon too heavily as a trend. For example, such factors as the weather (numerous hurricanes in fiscal 2004), national events (elections), international events (9/11 and developments in Iraq), increased oil and other energy costs, interest rates, increased oil and other energy costs, and similar factors can significantly affect the Company for a particular period. In addition, the Company’s periodic results can be directly and significantly impacted by the extent to which the Company’s new merchandise offerings are accepted by its customers.

Critical Accounting Policies and Estimates

The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The critical accounting matters that are particularly important to the portrayal of the Company’s financial condition and results of operations and require some of management’s most difficult, subjective and complex judgments are described in detail in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2005. The preparation of consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to customer product returns, inventories, income taxes, insurance reserves, contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no material changes in the critical accounting policies during the twenty-six weeks ended July 30, 2005.

Certain Factors That May Affect Future Results

This Form 10-Q may contain certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect the current views of the Company with respect to certain events that could have an effect on the Company’s future financial performance, including but without limitation, statements regarding future growth rates of the established Company store concepts and the launch of the Soma by Chico’s concept. The statements may address items such as future sales, gross profit expectations, planned store openings, closings and expansions, future comparable store sales, future product sourcing plans, inventory levels, planned marketing expenditures, planned capital expenditures and future cash needs. In addition, from time to time, the Company may issue press releases and other written communications, and representatives of the Company may make oral statements, which contain forward-looking information.

These statements, including those in this Form 10-Q and those in press releases or made orally, may include the words “expects,” “believes,” and similar expressions. Except for historical information, matters discussed in such oral and written statements, including this Form 10-Q, are forward-looking statements. These forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from historical results or those currently anticipated. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and in the section “Certain Additional Business Risk Factors” beginning on page 20 of the Company’s most recent Form 10-K filed with the Securities and Exchange Commission on April 8, 2005.

These potential risks and uncertainties include the financial strength of retailing in particular and the economy in general, the extent of financial difficulties that may be experienced by customers, the ability of the Company to secure and maintain customer acceptance of the Company’s styles and store concepts, the propriety of inventory mix and sizing, the quality of merchandise received from vendors, the extent and nature of competition in the markets in which the Company operates, the extent of the market demand and overall level of spending for women’s private label clothing and related accessories, the adequacy and perception of customer service, the ability to coordinate product development with buying and planning, the ability of the Company’s suppliers to timely produce and deliver clothing and accessories, the changes in the costs of manufacturing, labor and advertising, the rate of new store openings, the buying public’s acceptance of any of the Company’s new store concepts, the performance, implementation and integration of management information systems, the ability to hire, train, energize and retain qualified sales associates and other employees, the availability of quality store sites, the ability to expand headquarters and support facilities in an efficient and effective manner, the ability to hire and train qualified managerial employees, the ability to effectively and efficiently establish and operate catalog and Internet sales, the ability to secure and protect trademarks and other intellectual property rights, the ability to effectively and efficiently operate the WH|BM and Soma by Chico’s divisions, risks associated with terrorist activities and other risks. In addition, there are potential risks and uncertainties that are peculiar to the Company’s reliance on sourcing from foreign vendors, including the impact of work stoppages, transportation delays and other interruptions, transportation costs, political or civil instability, imposition of and changes in tariffs and import and export controls such as import quotas, changes in governmental policies in or towards foreign countries, currency exchange rates and other similar factors.

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

Litigation

In the normal course of business, the Company is subject to proceedings, lawsuits and other claims including proceedings under laws and government regulations relating to labor, product, intellectual property and other matters, including the matters described in Item 1 of Part II of this Quarterly Report on Form 10-Q. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. Consequently, the ultimate aggregate amount of monetary liability or financial impact with respect to these matters at July 30, 2005, cannot be ascertained. Although these matters could affect the operating results of any one quarter when resolved in future periods, and although there can be no assurance with respect thereto, management believes that, after final disposition, any monetary liability or financial impact to the Company would not be material to the annual consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The market risk of the Company’s financial instruments as of July 30, 2005 has not significantly changed since January 29, 2005. The Company is exposed to market risk from changes in interest rates on any future indebtedness and its marketable securities. The Company’s exposure to interest rate risk relates in part to its revolving line of credit with its bank; however, as of July 30, 2005, the Company did not have any outstanding borrowings on its line of credit and, given its strong liquidity position, does not expect to utilize its line of credit in the foreseeable future except for its continuing use of the letter of credit facility portion thereof.

ITEM 4. CONTROLS AND PROCEDURES

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

Furthermore, there was no change in the Company’s internal control over financial reporting during the quarterly period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company was named as defendant in a putative class action suit filed in May 2003 in the Superior Court for the State of California, County of San Francisco,Charissa Villanueva v. Chico’s FAS, Inc. The Company filed an answer denying the material allegations of the Complaint. The Complaint alleges that the Company, in violation of California law, has in place a mandatory uniform policy that requires its employees to purchase and wear Chico’s clothing and accessories as a condition of employment. It is the Company’s position that no such mandatory uniform policy exists. Although the Company believed it had strong defenses to the allegations in this case, the Company agreed to participate

in a voluntary private mediation on November 10, 2004. A settlement was reached at the mediation, and the parties are in the process of preparing and finalizing the settlement documents. On July 27, 2005, the Court gave its preliminary approval to the settlement and, as a result, the class members will be notified of the settlement and given the opportunity to partake in or opt out of the settlement. The settlement is still subject to the Court’s final approval. The Company does not believe the total settlement costs will have a material impact on the Company’s results of operations or financial condition.

The Company was named as the defendant in a suit filed in July 2004 in the Circuit Court of Lee County, Florida,Ajit Patel v. Chico’s FAS, Inc. The Complaint alleges that the Company breached an implied contract with the plaintiff, the Company’s former Vice President – Chief Information Officer, and, alternatively, that the Company fraudulently induced the plaintiff to work for the Company. It is the Company’s position that no contract, express or implied, existed between the Company and the plaintiff and that the Company did not engage in any fraudulent conduct.The Company has filed an answer denying the material allegations of the Complaint and the parties are now engaged in the discovery process. Based on testimony and information that has been obtained in the discovery process, the Company is asserting certain counterclaims against the plaintiff. No trial date has been set. The Company believes the plaintiff’s case is without merit and will continue to vigorously defend the litigation and prosecute its counterclaims.

The Company was named as defendant in a putative class action suit filed in May 2005 in the Superior Court for the State of California, County of Los Angeles,Marie Nguyen v. Chico’s FAS, Inc. The Complaint alleges that the Company, in violation of California law, requested or required its customers, in connection with the sign-up process for its Passport Club and as such, as part of a credit card transaction, to provide certain personal identifying information. The Company filed an answer denying the material allegations of the Complaint. The Company does not believe that the case has merit and, thus, does not believe that the case should have any material adverse effect on the Company’s financial condition or results of operations.

The Company was recently named as defendant in a putative class action suit filed in July 2005 in the Superior Court for the State of California, County of San Bernardino,Carol Schaffer v. Chico’s FAS, Inc.et al. The Complaint alleges that the Company, in violation of California law, failed to: (1) pay overtime wages, (2) permit rest periods, and (3) timely pay separation wages, among other claims. The Company believes that the case is without merit, in large part because the claims are barred, in whole or in part, by the settlement reached in theCarmen Davis v. Chico’s FAS, Inc. class action. Thus, the Company does not believe that the case should have any material adverse effect on the Company’s financial condition or results of operations. The Company timely filed its Answer to the Complaint.

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

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Annual Meeting of Stockholders of the Company was held June 21, 2005. There were 180,384,222 shares of common stock entitled to vote at the meeting. The following matters were voted upon:

Election of Directors:


	Votes For		Votes Withheld
Class III-Term Expiring in 2008
Marvin J. Gralnick		127,056,813		35,713,465
John W. Burden, III		116,626,344		46,143,934
Stewart P. Mitchell		159,951,222		2,819,056
David F. Walker*		159,137,180		3,633,098

			The terms of offices of Charles J. Kleman, Ross E. Roeder, Scott A. Edmonds, Helene B. Gralnick, Verna K. Gibson and Betsy S. Atkins continued after the annual meeting.

	b)		Proposal to ratify the appointment of Ernst & Young LLP as Independent Certified Public Accountants:


*		Mr. Walker’s term began on July 3, 2005.

In addition, on August 5, 2005, the Company announced that it had appointed Michael A. Weiss to its Board of Directors, increasing the total number of Board seats to eleven.

ITEM 6. EXHIBITS

(a)

The following documents are filed as exhibits to this Quarterly Report on Form 10-Q (exhibits marked with an asterisk have been previously filed with the commission as indicated and are incorporated herein by this reference):


Exhibit 3.1*		Articles of Restatement of Articles of Incorporation (Filed as Exhibit 3.1 to the Company's Form 8-K, as filed with the Commission on June 24, 2005)

Exhibit 3.2*		Amended and Restated By-laws (Filed as Exhibit 3.2 to the Company's Form 8-K, as filed with the Commission on June 24, 2005)

Exhibit 4.1*		Articles of Restatement of Articles of Incorporation (Filed as Exhibit 3.1 to the Company's Form 8-K, as filed with the Commission on June 24, 2005)

Exhibit 4.2*		Amended and Restated By-laws (Filed as Exhibit 3.2 to the Company's Form 8-K, as filed with the Commission on June 24, 2005)

Exhibit 10.1*		Second Restated Revolving Credit Loan Agreement, dated as of June 23, 2005 (Filed as Exhibit 10.1 to the Company's Form 8-K, as filed with the Commission on July 5, 2005)

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

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: August 25, 2005	By:	/s/ Scott A. Edmonds
		Scott A. Edmonds
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: August 25, 2005	By:	/s/ Charles J. Kleman
		Charles J. Kleman Executive Vice President and Chief Financial Officer (Principal Financial Officer)

Date: August 25, 2005	By:	/s/ Michael J. Kincaid
		Michael J. Kincaid
		Senior Vice President – Finance, Chief Accounting Officer, and Assistant Secretary (Principal Accounting Officer)

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. senior Avg

Voting Results:

For the Proposal

Against the Proposal

Abstentions