FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT
For the Quarter Ended: Commission File Number:
MAY 5, 2001 0-21258
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CHICO'S FAS, Inc.
(Exact name of registrant as specified in charter)
FLORIDA 59-2389435
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(State of Incorporation) (I.R.S. Employer Identification No.)
11215 METRO PARKWAY, FORT MYERS, FLORIDA 33912
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(Address of principal executive offices)
941-277-6200
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(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, and (2) has been subject to such filing requirements
for the past 90 days. Yes |X| No | |
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
At June 5, 2001, there were 26,624,534 (post-split) shares outstanding of Common
Stock, $.01 par value per share.
CHICO'S FAS, Inc.
Index
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED):
Condensed Consolidated Balance Sheets - May 5, 2001 and
February 3, 2001 ........................................... 3
Condensed Consolidated Statements of Income for the
Thirteen Weeks Ended May 5, 2001 and April 29, 2000 ........ 4
Condensed Consolidated Statements of Cash Flows for the
Thirteen Weeks Ended May 5, 2001 and April 29, 2000 ........ 5
Notes to Condensed Consolidated Financial Statements .......... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ..................... 7
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . 10
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ........................... 10
Signatures .......................................................... 11
2
CHICO'S FAS, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
AS OF AS OF
05/05/01 02/03/01
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 14,988,602 $ 3,914,118
Marketable securities, at market 13,068,568 14,221,520
Receivables, net 2,232,002 2,998,910
Inventories 27,843,594 24,394,162
Prepaid expenses 2,686,243 2,254,349
Deferred taxes 3,560,000 3,003,000
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TOTAL CURRENT ASSETS 64,379,009 50,786,059
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LAND, BUILDING AND EQUIPMENT:
Cost 86,987,234 80,198,367
Less accumulated depreciation and amortization (16,433,784) (14,613,356)
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LAND, BUILDING AND EQUIPMENT, NET 70,553,450 65,585,011
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OTHER ASSETS:
Deferred taxes 909,000 747,000
Other assets, net 680,929 688,547
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TOTAL OTHER ASSETS 1,589,929 1,435,547
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$ 136,522,388 $ 117,806,617
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 16,073,970 $ 13,751,762
Accrued liabilities 11,438,089 11,299,352
Current portion of debt and lease obligations 276,410 276,410
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TOTAL CURRENT LIABILITIES 27,788,469 25,327,524
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NONCURRENT LIABILITIES:
Mortgage note payable 5,131,500 5,149,500
Deferred rent 2,219,951 2,008,352
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TOTAL NONCURRENT LIABILITIES 7,351,451 7,157,852
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STOCKHOLDERS' EQUITY:
Common stock 177,094 174,994
Additional paid-in capital 22,647,430 18,935,829
Accumulated other comprehensive gain 15,644 47,246
Retained earnings 78,542,300 66,163,172
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TOTAL STOCKHOLDERS' EQUITY 101,382,468 85,321,241
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$ 136,522,388 $ 117,806,617
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SEE ACCOMPANYING NOTES
3
CHICO'S FAS, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
THIRTEEN WEEKS ENDED
05/05/01 04/29/00
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Net sales by Company stores $89,633,635 $55,682,409
Net sales by catalog and Internet 2,296,415 --
Net sales to Franchisees 1,302,962 1,010,405
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NET SALES 93,233,012 56,692,814
Cost of goods sold 36,941,296 22,763,994
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General, administrative and store operating expenses 36,429,193 21,968,219
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GROSS PROFIT 56,291,716 33,928,820
INCOME FROM OPERATIONS 19,862,523 11,960,601
Interest income, net 102,605 97,321
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INCOME BEFORE INCOME TAXES 19,965,128 12,057,922
Income tax provision 7,586,000 4,582,000
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NET INCOME $12,379,128 $ 7,475,922
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PER SHARE DATA:
Net income per common share - basic (1) $ 0.47 $ 0.29
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Net income per common and common
equivalent share - diluted (1) $ 0.45 $ 0.28
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Weighted average common shares
outstanding - basic (1) 26,416,844 25,716,743
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Weighted average common and common
equivalent shares outstanding - diluted (1) 27,624,602 26,769,660
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(1) Restated to give retroactive effect to the 3 for 2 stock split payable May
16, 2001.
SEE ACCOMPANYING NOTES
4
CHICO'S FAS, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
THIRTEEN WEEKS ENDED
05/05/01 04/29/00
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,379,128 $ 7,475,922
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Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,106,458 1,145,230
Stock option compensation 52,617 --
Deferred taxes (719,000) (541,000)
Tax benefit of options exercised 2,540,000 280,000
Loss on disposal of land, building and equipment 240,161 122,875
Deferred rent expense, net 211,599 108,892
Changes in assets and liabilities:
Decrease (increase) in receivables, net 766,908 (305,018)
(Increase) decrease in inventories (3,449,432) 650,384
Increase in prepaid expenses and other assets (458,290) (204,807)
Increase in accounts payable 2,322,208 2,917,244
(Decrease) increase in accrued liabilities 138,737 6,384,479
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Total adjustments 3,751,966 10,558,279
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Net cash provided by operating activities 16,131,094 18,034,201
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CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (purchase) of marketable securities, net 1,121,350 (3,717,480)
Purchase of land, building and equipment (7,281,044) (6,064,699)
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Net cash used in investing activities (6,159,694) (9,782,179)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of common stock 1,121,084 192,712
Principal payments on debt (18,000) (18,000)
Deferred finance costs -- (15,000)
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Net cash provided by financing activities 1,103,084 159,712
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Net increase in cash and cash equivalents 11,074,484 8,411,734
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 3,914,118 3,980,930
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CASH AND CASH EQUIVALENTS - END OF PERIOD $ 14,988,602 $ 12,392,664
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SEE ACCOMPANYING NOTES
5
CHICO'S FAS, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
May 5, 2001
(Unaudited)
ITEM 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Chico's FAS, Inc. and its wholly-owned subsidiaries (collectively, "Chico's" or
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 February 3, 2001,
included in the Company's Annual Report on Form 10-K filed on April 30, 2001.
The February 3, 2001 balance sheet amounts were derived from audited financial
statements included in the Company's Annual Report.
Operating results for the thirteen weeks ended May 5, 2001 are not
necessarily indicative of the results that may be expected for the entire year.
All per share data for the prior year has been restated to reflect the
three-for-two stock split effective in May 2001.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Basic EPS is based upon the weighted average number of common shares
outstanding and diluted EPS is based upon the weighted average number of common
shares outstanding plus the dilutive common equivalent shares outstanding during
the period. The following is a reconciliation of the denominators of the basic
and diluted EPS computations shown on the face of the accompanying statements of
income:
THIRTEEN WEEKS ENDED THIRTEEN WEEKS ENDED
05/05/01 04/29/00
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Basic weighted average outstanding
common shares 26,416,844 25,716,743
Dilutive effect of options outstanding 1,207,758 1,052,917
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Diluted weighted average common and
common equivalent shares outstanding 27,624,602 26,769,660
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6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - THIRTEEN WEEKS ENDED MAY 5, 2001 COMPARED TO THE
THIRTEEN WEEKS ENDED APRIL 29, 2000.
NET SALES. Net sales by Company-owned stores for the thirteen weeks ended
May 5, 2001 (the current period) increased by $34.0 million, or 61.0% over net
sales by Company-owned stores for the comparable thirteen weeks ended April 29,
2000 (the prior period). The increase was the result of a comparable Company
store net sales increase of $15.6 million and $18.4 million additional sales
from the new stores not yet included in the Company's comparable store base (net
of sales of $0.4 million from four stores closed in the two previous fiscal
years).
Net sales by catalog and Internet were $2.3 million for the current period
versus no sales in the prior period since the Company began its catalog and
Internet operations in late May 2000.
Net sales to franchisees for the current period increased by $0.3 million
or 29.0% compared to net sales to franchisees for the prior period. The increase
in net sales to franchisees was primarily due to a net increase in purchases by
the franchisees as a whole and the opening of two additional franchised
locations last fiscal year by an existing franchisee.
GROSS PROFIT. Gross profit for the current period was $56.3 million, or
60.4% of net sales, compared with $33.9 million, or 59.8% of net sales, for the
prior period. The increase in the gross profit percentage primarily resulted
from leverage in the Company's distribution center, product development and
merchandising costs, which costs are included in the Company's cost of goods
sold.
GENERAL, ADMINISTRATIVE AND STORE OPERATING EXPENSES. General,
administrative and store operating expenses increased to $36.4 million, or 39.1%
of net sales, in the current period from $22.0 million, or 38.7% of net sales,
in the prior period. The increase in general, administrative and store operating
expenses was, for the most part, the result of increases in store operating
expenses, including store compensation, occupancy and other costs associated
with additional store openings, and to a lesser degree, an increase in marketing
expenses. The increase in these expenses as a percentage of net sales was
principally due to the increase in direct marketing expenses as a percentage of
net sales, comprising 3.5% of net sales in the current period, versus 2.3% of
net sales in the prior period, net of leverage associated with the Company's
27.7% comparable Company store sales increase for the current period.
INTEREST INCOME, NET. The Company had net interest income during the
current period of approximately $103,000 versus approximately $97,000 in the
prior period. The increase in net interest income was primarily a result of the
Company's increased cash and marketable securities position.
NET INCOME. As a result of the factors discussed above, net income
reflects an increase of 65.6% to $12.4 million in the current period from net
income of $7.5 million in the prior period. The income tax provision represented
an effective rate of 38.0% for the current and prior period.
7
COMPARABLE COMPANY STORE NET SALES
Comparable Company store net sales increased by 27.7% in the current
period when compared to the comparable prior period. Comparable Company store
net sales data is calculated based on the change in net sales of currently open
Company-owned stores that have been operated as a Company store for at least
thirteen 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 26 stores that were expanded within the last
12 months from the beginning of the current period by an average of 798 net
square selling feet. If the stores that were expanded had been excluded from the
comparable Company-owned store base, the increase in comparable Company-owned
store net sales would have been 26.4 % for the current period. The Company does
not consider this material to the overall comparable sales results and believes
the inclusion of expanded stores in the comparable store net sales to be an
acceptable practice, consistent with the practice followed by the Company in
prior periods and by many other retailers.
The Company believes that the increase in comparable Company store net
sales in the current period resulted from the continuing effort to focus the
Company's product development, merchandise planning, buying and marketing
departments on Chico's target customer. The Company also believes that the look,
fit and pricing policy of the Company's product was in line with the needs of
the Company's target customer and that the increase in comparable store sales
was also fueled by a successful introduction of television advertising beginning
in late February, increased direct mailings, a larger database of existing
customers for such mailings and the success of the Company's frequent shopper
club (the "Passport Club"). To a lesser degree, the Company believes the
increase was due to increased store-level training efforts associated with
ongoing training programs and continuing strong sales associated with several
styles of clothing produced from a related group of fabrics newly introduced by
the Company in the fourth quarter of fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary ongoing capital requirements are for funding capital
expenditures for new store openings and merchandise inventory purchases.
During the first quarter of the current fiscal year (fiscal 2001) and the
first quarter of the prior fiscal year (fiscal 2000), the Company's primary
source of working capital was cash flow from operations of $16.1 million and
$18.0 million, respectively. The decrease in cash flow from operations of $1.9
million was primarily due to an increase of inventories of $3.4 million in the
current period versus a decrease of approximately $650,000 in the prior period
and an increase in accrued liabilities of approximately $139,000 in the current
period versus an increase of $6.4 million in the prior period, net of an
increase of $4.9 million in net income, an increase of $2.3 million in the tax
benefit of options exercised, and an increase of $1.0 million in depreciation
and amortization. The increase in inventories is associated with increased
inventory purchase activities to support the Company's significant overall sales
increases including an overall increase in fabric inventory.
The Company invested $7.3 million in the current fiscal year for capital
expenditures primarily associated with the planning and opening of new Company
stores, and the remodeling/relocating/expansion of numerous existing stores.
During the same period in the prior fiscal year, the Company invested $6.1
million primarily for capital expenditures associated with the opening of new
Company stores, the remodeling of several existing stores, the expansion of its
office and design facilities, new point-of-sale devices and the development of
infrastructure associated with catalog and Internet sales.
8
During the first quarter of the current fiscal year, seven of the
Company's officers and one of its three independent directors exercised an
aggregate of 186,656 stock options (pre-split) at prices (pre-split) ranging
from $31.13 to $37.64 and several employees and former employees exercised an
aggregate of 24,497 options (pre-split) at prices (pre-split) ranging from
$32.54 to $44.14 (pre-split). The proceeds from these issuances of stock, net of
the tax benefit recognized by the Company, amounted to approximately $1.1
million.
As more fully described in "Item 1-Business" beginning on page 15 of the
Company's Annual Report on Form 10-K for the fiscal year ended February 3, 2001,
the Company is subject to ongoing risks associated with imports. The Company's
reliance on sourcing from foreign countries causes the Company to be exposed to
certain unique business and political risks. Import restrictions, including
tariffs and quotas, and changes in such tariffs or quotas could affect the
importation of apparel generally and, in that event, could increase the cost or
reduce the supply of apparel available to the Company and have an adverse effect
on the Company's business, financial condition and/or results of operations. The
Company's merchandise flow could also be adversely affected by political
instability in any of the countries in which its goods are manufactured, by
significant fluctuations in the value of the U.S. dollar against applicable
foreign currencies and by restrictions on the transfer of funds.
The Company plans to open a minimum of 55 Company-owned new stores in
fiscal 2001, 13 of which were open as of May 25, 2001. Further, the Company
plans to open between 55 and 60 Company-owned new stores in fiscal 2002. The
Company believes that the liquidity needed for its planned new store growth,
continuing remodel/expansion program and maintenance of proper inventory levels
associated with this growth will be funded primarily from cash flow from
operations and its strong existing cash balances. The Company further believes
that this liquidity will be sufficient, based on currently planned new store
openings, to fund anticipated capital needs over the near-term, including
scheduled debt repayments. Given the Company's existing cash and marketable
securities balances and the capacity included in its newly expanded 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
even 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 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.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This Form 10-Q may contain forward-looking statements 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. These statements include
the words "expects", "believes", and similar expressions. 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. These potential risks and uncertainties include ability to secure
customer acceptance of Chico's styles, propriety of inventory mix
9
and sizing, quality of merchandise received from vendors, timeliness of vendor
production and deliveries, increased competition, extent of the market demand by
women for private label clothing and related accessories, adequacy and
perception of customer service, ability to coordinate product development along
with buying and planning, rate of new store openings, performance of management
information systems, ability to hire, train, energize and retain qualified sales
associates and other employees, availability of quality store sites, ability to
hire and retain qualified managerial employees, ability to effectively and
efficiently establish and operate catalog and Internet sales activities and
other risks. In addition, there are potential risks and uncertainties that are
peculiar to the Company's heavy reliance on sourcing from foreign vendors,
including the impact of work stoppages, transportation delays and other
interruptions, political instability, foreign currency fluctuations, imposition
of and changes in tariffs and import and export controls such as import quotas,
changes in governmental policies in or towards such foreign countries and other
similar factors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk of the Company's financial instruments as of May 5, 2001
has not significantly changed since February 3, 2001. The Company is exposed to
market risk from changes in interest rates on its indebtedness. The Company's
exposure to interest rate risk relates in part to its revolving line of credit
with its bank; however, as of May 5, 2001, the Company did not have any
outstanding balance on its line of credit and, given its existing 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. The Company's exposure to interest rate risk also relates to its $5.1
million mortgage loan indebtedness which bears a variable interest rate based
upon changes in the prime rate.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: 4.1 Form of Specimen Common Stock Certificate
10.1 Fifth Amendment to Chico's FAS, Inc. 1993
Employee Stock Purchase Plan
10.2 Nonemployee Director Stock Option Agreement by
and between Chico's FAS, Inc. and Verna K.
Gibson dated effective May 15, 2000.
10.3 Nonemployee Director Stock Option Agreement by
and between Chico's FAS, Inc. and John W.
Burden dated effective May 15, 2000.
10.4 Nonemployee Director Stock Option Agreement by
and between Chico's FAS, Inc. and Ross E.
Roeder dated effective May 15, 2000.
10
(b) Reports on Form 8-K The Company did not file any reports on
Form 8-K during the current period.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: June 7, 2001 By: /s/ Marvin J. Gralnick
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Marvin J. Gralnick
Chief Executive Officer
(Principal Executive Officer)
Date: June 7, 2001 By: /s/ Charles J. Kleman
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Charles J. Kleman
Chief Financial Officer
(Principal Financial and
Accounting Officer)
11