1
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:
June 30, 1996 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)
941-277-6200
(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, 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 August 6, 1996, there were 7,881,255 shares outstanding of Common Stock,
$.01 par value per share.
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CHICO'S FAS, INC.
Index
PART I - Financial Information Page
Item 1. Financial Statements (Unaudited):
Condensed Balance Sheets - June 30, 1996 and December 31, 1995 . . . . . . . . . . . . . . . . . . 3
Condensed Statements of Income for the Thirteen and Twenty-Six Week Periods Ended
June 30, 1996 and July 2, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Statements of Cash Flows for the Twenty-Six Weeks Ended
June 30, 1996 and July 2, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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CHICO'S FAS, INC.
Condensed Balance Sheets
(Unaudited)
As of As of
6/30/96 12/31/95
----------------- ----------------
ASSETS
Current Assets:
Cash and cash equivalents $ 5,972,652 $ 1,099,929
Receivables, net 450,541 571,482
Inventories 6,994,537 6,775,374
Prepaid expenses 376,389 376,987
Deferred taxes 907,000 867,000
---------------- ----------------
Total Current Assets 14,701,119 9,690,772
---------------- ----------------
Land, Building and Equipment:
Cost 20,440,727 20,067,061
Less accumulated depreciation and amortization (4,330,463) (3,847,093)
---------------- ----------------
Land, Building and Equipment, Net 16,110,264 16,219,968
---------------- ----------------
Other Assets:
Deferred taxes 539,000 540,000
Other assets 661,732 558,540
---------------- ----------------
Total Other Assets 1,200,732 1,098,540
---------------- ----------------
$ 32,012,115 $ 27,009,280
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,004,607 $ 2,035,074
Accrued liabilities 2,867,836 2,467,231
Accrued income taxes 863,430 -
Current portion of notes payable and lease obligations 640,209 652,264
---------------- ---------------
Total Current Liabilities 7,376,082 5,154,569
---------------- ----------------
Noncurrent Liabilities:
Notes and capital leases payable 5,252,495 3,683,099
Credit line payable - 722,942
Deferred rent 1,464,598 1,489,720
---------------- ----------------
Total Noncurrent Liabilities 6,717,093 5,895,761
---------------- ----------------
Stockholders' Equity:
Common stock 78,813 77,825
Additional paid-in capital 7,539,237 7,087,636
Retained earnings 10,300,890 8,793,489
---------------- ----------------
Total Stockholders' Equity 17,918,940 15,958,950
---------------- ----------------
$ 32,012,115 $ 27,009,280
================ ===============
Page 3
See Accompanying Notes
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CHICO'S FAS, INC.
Condensed Statements of Income
(Unaudited)
Twenty-Six Weeks Ended Thirteen Weeks Ended
6/30/96 7/2/95 6/30/96 7/2/95
----------------- ----------------- ----------------- -----------------
Net Sales by Company Stores $ 31,700,203 $ 28,686,466 $ 16,375,377 $ 14,666,280
Net Sales to Franchisees 755,019 1,500,704 430,687 860,916
----------------- ----------------- ----------------- -----------------
NET SALES 32,455,222 30,187,170 16,806,064 15,527,196
Cost of Goods Sold 13,653,437 13,210,664 6,369,792 6,345,841
----------------- ----------------- ----------------- -----------------
Gross Profit 18,801,785 16,976,506 10,436,272 9,181,355
General, Administrative and Store
Operating Expenses 16,091,546 15,172,239 8,376,950 7,852,066
----------------- ----------------- ----------------- -----------------
Income from Operations 2,710,239 1,804,267 2,059,322 1,329,289
Interest Expense, Net 198,836 289,226 83,962 132,665
----------------- ----------------- ----------------- -----------------
Income Before Taxes 2,511,403 1,515,041 1,975,360 1,196,624
Provision for Income Taxes 1,004,000 625,000 790,000 493,000
----------------- ----------------- ----------------- -----------------
NET INCOME $ 1,507,403 $ 890,041 $ 1,185,360 $ 703,624
================= ================= ================= =================
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.18 $ 0.11 $ 0.14 $ 0.09
================= ================= ================= =================
Weighted average common and
common equivalent shares
outstanding 8,188,195 7,897,992 8,248,449 7,865,336
================= ================= ================= =================
Page 4
See Accompanying Notes
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CHICO'S FAS, INC.
Condensed Statements of Cash Flows
(Unaudited)
Twenty-Six Weeks Ended
6/30/96 7/2/95
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,507,403 $ 890,041
------------ -------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 897,394 815,412
Deferred taxes (39,000) 60,000
Loss on disposal of property and equipment 106,719 14,368
Decrease in deferred rent (25,122) (38,816)
Change in assets and liabilities:
Decrease (increase) in receivables, net 120,941 (8,473)
(Increase) decrease in inventories (219,163) 378,990
Decrease in prepaids and other assets 44,874 45,985
Increase (decrease) in accounts payable 969,533 (639,736)
Increase in accrued liabilities 400,603 190,690
Increase in accrued income taxes 863,430 327,220
------------ -------------
Total adjustments 3,120,209 1,145,640
------------ -------------
Net cash provided by operating activities 4,627,612 2,.035,681
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets - 9,982
Purchases of land, buildings and equipment (809,186) (672,332)
------------ -------------
Net cash used in investing activities (809,186) (662,350)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 452,589 8,167
Credit line payments (722,942) (505,366)
Principal payments on debt (4,030,159) (323,395)
Borrowings under noncurrent debt 5,587,500 -
Deferred finance costs (232,691) (137,544)
------------ -------------
Net cash provided by (used in) financing activities 1,054,297 (958,138)
------------ -------------
Net increase in cash and cash equivalents 4,872,723 415,193
CASH AND CASH EQUIVALENTS - Beginning of Period 1,099,929 805,979
------------ -------------
CASH AND CASH EQUIVALENTS - End of Period $ 5,972,652 $ 1,221,172
============ =============
Page 5
See Accompanying Notes
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CHICO'S FAS, INC.
Notes to Condensed Financial Statements
(Unaudited)
June 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying unaudited condensed financial statements of Chico's
FAS, Inc. (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 generally accepted accounting principles 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. For further information, refer
to the financial statements and notes thereto for the year ended
December 31, 1995, included in the Company's Annual Report on Form 10-K
filed on March 29, 1996. The December 31, 1995 balance sheet amounts
were derived from audited financial statements included in the
Company's Annual Report.
Operating results for the twenty-six weeks ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the
entire fiscal year.
Net Income Per Common and Common Equivalent Share
Net income per common and common equivalent share is computed by
dividing net income by the weighted average number of common and common
equivalent shares outstanding during the periods, adjusted to include
the number of additional shares (360,459 and 122,384 for the twenty-six
weeks ended June 30, 1996 and July 2, 1995, respectively, and 384,909
and 89,425 for the thirteen weeks ended June 30, 1996 and July 2, 1995,
respectively) that would have been outstanding if the stock options
granted had been exercised, with the proceeds being used to buy shares
from the market (i.e., the treasury stock method). Net income per
common and common equivalent share represents both primary and fully
diluted per share information.
2. RESTRICTED CASH
The Company's $3 million letter of credit facility, which expires in
May 1997, requires that $1.6 million of cash be placed in a certificate
of deposit with the lender to serve as partial collateral for such
facility. As such, this cash, which is included in cash and cash
equivalents on the balance sheet, is not available for general use by
the Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - THIRTEEN WEEKS ENDED JUNE 30, 1996 COMPARED TO THE
THIRTEEN WEEKS ENDED JULY 2, 1995.
Net Sales. Net sales by Company-owned stores for the thirteen weeks ended June
30, 1996 increased by $1.7 million, or 11.7%, over net sales by Company-owned
stores for the comparable thirteen weeks ended July 2, 1995. The increase was
the result of approximately $759,000 additional sales from the new (or
reacquired) stores not yet included in the Company's comparable store base (net
of prior year sales of approximately $499,000 from six stores closed in 1995),
and by a comparable Company-owned store net sales increase of approximately
$950,000.
Net sales to franchisees for the thirteen weeks ended June 30, 1996 decreased
approximately $430,000, or 50.0% compared to net sales to franchisees for the
thirteen weeks ended July 2, 1995. The Company believes that the decrease in
net sales to franchisees was primarily caused by conservative buying positions
established by the franchisees as the Company began delivering its new designs
and styles in late March 1996, combined with increased returns of older
merchandise in anticipation of a new, more restrictive return policy which
became effective in July 1996. In addition, the Company acquired five
franchises in 1995 and one franchise closed in early 1996 resulting in a
decrease in net sales of approximately $150,000 for the thirteen weeks ended
June 30, 1996.
Gross Profit. Gross profit for the thirteen weeks ended June 30, 1996 was
$10.4 million, or 62.1% of net sales, compared with $9.2 million, or 59.1% of
net sales for the thirteen weeks ended July 2, 1995. The increase in the gross
profit percentage primarily resulted from improved gross margins related to
more full-price selling due to the Company's move to new designs, fabrics and
styles in late March 1996, combined with a general shortage of available new
goods in April and May 1996 which resulted in fewer markdowns. To a lesser
degree, the increase in gross profit percentage was caused by an increase in
the proportion of net sales by Company-owned stores as compared to the net
sales to franchisees (which sales carry a lower gross margin) and to a revised
merchandising strategy for the Company's outlet stores which resulted in
significantly higher margins for these seven stores.
General, Administrative and Store Operating Expenses. General, administrative
and store operating expenses increased to $8.4 million, or 49.8% of net sales,
in the thirteen weeks ended June 30, 1996 from $7.9 million, or 50.6% of net
sales, in the thirteen weeks ended July 2, 1995. 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. The
decrease in these expenses as a percentage of net sales was principally due to
a decrease in direct store payroll as a percentage of net sales resulting from
improved scheduling and staffing procedures, which were gradually implemented
over the first and second quarter of 1996.
Interest Expense, Net. Interest expense, net decreased to approximately
$84,000 in the thirteen weeks ended June 30, 1996 from approximately $133,000
in the thirteen weeks ended July 2, 1995. This decrease was primarily a
result of increased interest income due to improved cash flow resulting from
improved profitability and lower inventory levels since the beginning of 1996.
Net Income. As a result of the factors discussed above, net income reflects an
increase of 68.5% to $1.2 million in the thirteen weeks ended June 30, 1996
from net income of approximately $704,000 in the thirteen weeks ended July 2,
1995. The income tax provision represented an effective rate of 39.9% for the
thirteen weeks ended June 30, 1996 while the income tax provision for the
thirteen weeks ended July 2, 1995 represented an effective rate of 41.2%. The
decrease in the effective rate is largely attributable to changes in the
permanent book-to-tax differences.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS - THIRTEEN WEEKS ENDED JUNE 30, 1996 COMPARED TO THE
THIRTEEN WEEKS ENDED JULY 2, 1995. (CONTINUED)
Comparable Company Store Net Sales. Comparable Company store net sales
increased by 7.0% in the thirteen weeks ended June 30, 1996 when compared to
the comparable period in fiscal 1995. 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
(103 stores).
The Company believes that the increase in comparable Company store net sales
reflects improvements in the merchandise offered by the Company including
changes in merchandise design, construction, fabric and product assortment. In
addition, the Company believes the increase is also attributable to an increase
in average price points due to improved outlet pricing strategies and better
quality fabric and construction. To a lesser degree, the Company believes that
the increase is attributable to a general improvement in the woman's retail
apparel environment for the second quarter of 1996. This trend has not
continued for the Company in the third quarter of 1996.
In March 1996 the Company moved to a more full price environment in its
Company's front-line stores, while continuing inventory clearance via a local
warehouse sale which was not included in the comparable store sales base.
During 1995, inventory was still being cleared via sidewalk sales at individual
Company-owned stores. Due to this change in inventory clearance strategies,
the Company excluded approximately $90,000 in second quarter 1995 local store
sales to more accurately portray its year-over-year sales. See the Company's
Annual Report on Form 10-K and Annual Report to Stockholders for the fiscal
year ended December 31, 1995 for a more detailed description of the comparable
company store sales trends appearing on page 6 of the Annual Report to
Stockholders, and the status of the Company's transition plan appearing on page
2 and 3 of the Company's Annual Report on Form 10-K; such portions of the
Annual Report to Stockholders and Annual Report on Form 10-K are incorporated
by reference into this Quarterly Report.
RESULTS OF OPERATIONS - TWENTY-SIX WEEKS ENDED JUNE 30, 1996 COMPARED TO THE
TWENTY-SIX WEEKS ENDED JULY 2, 1995.
Net Sales. Net sales by Company-owned stores for the twenty-six weeks ended
June 30, 1996 increased by $3.0 million, or 10.5%, over net sales by
Company-owned stores for the comparable twenty-six weeks ended July 2, 1995.
The increase was the result of approximately $968,000 in additional sales
generated through a warehouse sale held at the Company's headquarters and at a
temporary outlet store located in Florida that has since been closed, $1.1
million in additional sales from the new (or reacquired) stores not yet
included in the Company's comparable store base (net of prior year sales of
$1.1 million from six stores closed in 1995), and by a comparable Company-owned
store net sales increase of approximately $992,000.
Net sales to franchisees for the twenty-six weeks ended June 30, 1996 decreased
approximately $746,000, or 49.7% compared to net sales to franchisees for the
twenty-six weeks ended July 2, 1995. The decrease in net sales to franchisees
was principally caused by an approximate $394,000 decrease in net sales to
franchisees due to the acquisition of five franchises by the Company during
1995 and the closing of one franchise in early 1996. Management believes the
balance of the decrease in net sales to franchisees resulted in part from
conservative buying positions established by the franchisees as the Company
began delivering its new designs and styles in late March 1996, combined with
increased returns of older merchandise in anticipation of a new, more
restrictive return policy which became effective in July 1996.
Page 8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS - TWENTY-SIX WEEKS ENDED JUNE 30, 1996 COMPARED TO THE
TWENTY-SIX WEEKS ENDED JULY 2, 1995. (CONTINUED)
Gross Profit. Gross profit for the twenty-six weeks ended June 30, 1996 was
$18.8 million, or 57.9% of net sales, compared with $17.0 million, or 56.2% of
net sales for the twenty-six weeks ended July 2, 1995. The increase in the
gross profit percentage primarily resulted from improved gross margins related
to the Company's new spring goods which generally arrived at the front-line
stores in March 1996, and an increase in the Company's outlet gross margins due
to a change in its merchandising strategies. To a lesser degree, the increase
in gross profit percentage was caused by an increase in the proportion of net
sales by Company-owned stores as compared to the net sales to franchisees
(which sales carry a lower gross margin).
General, Administrative and Store Operating Expenses. General, administrative
and store operating expenses increased to $16.1 million, or 49.6% of net sales,
in the twenty-six weeks ended June 30, 1996 from $15.2 million, or 50.3% of
sales, in the twenty-six weeks ended July 2, 1995. 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. The
decrease in these expenses as a percentage of net sales was principally due to
the additional sales at the Company's warehouse sale which required little in
the way of operating expenses as a percentage of such sales, as well as a
reduction in direct store payroll as a percentage of net sales.
Interest Expense, Net. Interest expense, net decreased to approximately
$199,000 in the twenty-six weeks ended June 30, 1996 from approximately
$289,000 in the twenty-six weeks ended July 2, 1995. This decrease was
primarily a result of increased interest income due to improved cash flow
resulting from improved profitability since the beginning of 1996 combined with
the success of the Company's warehouse sales and to lower inventory levels.
Net Income. As a result of the factors discussed above, net income reflects an
increase of 69.4% to $1.5 million in the twenty-six weeks ended June 30, 1996
from net income of approximately $890,000 in the twenty-six weeks ended July 2,
1995. The income tax provision represented an effective rate of 40.0% for the
twenty-six weeks ended June 30, 1996 while the income tax provision for the
twenty-six weeks ended July 2, 1995 represented an effective rate of 41.3%.
The decrease in the effective rate is largely attributable to changes in the
permanent book-to-tax differences.
Comparable Company Store Net Sales. Comparable Company store net sales
increased by 3.7% in the twenty-six weeks ended June 30, 1996 when compared to
the comparable period in fiscal 1995. 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
(98-103 stores).
The Company believes that the increase in comparable Company store net sales
reflects improvements in the merchandise offered by the Company, including
changes in merchandise design, construction, fabric and product assortment. In
addition, the Company believes the increase is also attributable to an increase
in average price points and a general improvement in the women's retail apparel
environment in the second quarter of 1996.
In March 1996 the Company moved to a more full price environment in its
Company's front-line stores, while continuing inventory clearance via a local
warehouse sale which was not included in the comparable store sales base.
During 1995, inventory was still being cleared via sidewalk sales at individual
Company-owned stores. Due to this change in inventory clearance strategies,
the Company excluded approximately $176,000 in the first twenty-six weeks of
1995 local store sales to more accurately portray its year-over-year sales. See
the Company's Annual Report on Form 10-K and Annual Report to Stockholders for
the fiscal year ended December 31, 1995 for a more detailed description of the
comparable company store sales trends appearing on page 6 of the Annual Report
to Stockholders, and the status of the Company's transition plan appearing on
Page 9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS - TWENTY-SIX WEEKS ENDED JUNE 30, 1996 COMPARED TO THE
TWENTY-SIX WEEKS ENDED JULY 2, 1995. (CONTINUED)
page 2 and 3 of the Company's Annual Report on Form 10-K; such portions of the
Annual Report to Stockholders and Annual Report on Form 10-K are incorporated
by reference into this Quarterly Report.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary on going capital requirements are for funding capital
expenditures related to new store openings and merchandise inventory purchases.
During the first twenty-six weeks of fiscal 1996 and the first twenty-six weeks
of fiscal 1995, the Company's primary source of working capital was cash flow
from operations of $4.6 million and $2.0 million, respectively. The increase
in cash flow from operations was primarily due to an increase in accounts
payable in fiscal 1996 of $1.0 million principally related to large receipts of
merchandise near the end of the quarter for which payment had not yet been
made. This compares to a decrease in accounts payable of approximately
$640,000 in fiscal 1995 due to payments of the final liabilities related to the
Company's new combined corporate headquarters, distribution center and
woodshop. The increase in cash flow was also due to improved profitability of
approximately $617,000 combined with an increase in the associated accrued
income tax liabilities of approximately $536,000. This increase in cash flow
from operations was partially offset by an increase in inventories of
approximately $219,000 in the first twenty-six weeks of fiscal 1996, as
compared to a decrease of approximately $379,000 in the first twenty-six of
weeks fiscal 1995.
In early January 1996, the Company obtained a seven year $5.6 million mortgage
facility from a lender which was in addition to the Company's current $6
million working capital line and letter of credit facility made available by
another lender. The proceeds of the mortgage facility were used in part to
repay the $3.9 million balance of certain term and note facilities that had
been put in place in 1994 and were used in part to provide $1.6 million of cash
to serve as collateral (along with inventories and accounts receivable which
serve as collateral for both the line and letter of credit facilities) for its
letter of credit facility. As part of this refinancing, the collateral
deposits previously provided by certain shareholders to secure the letter of
credit facility were no longer required. The Company also repaid approximately
$130,000 of other indebtedness in the first twenty-six weeks of fiscal 1996.
Also, during the first twenty-six weeks of fiscal 1996, the Company repaid
approximately $723,000 under its available working capital credit lines, while
in the first twenty-six weeks of fiscal 1996, the Company repaid approximately
$505,000 under its then available credit lines.
The Company has aggressively pursued a strategy during fiscal 1995, and
continuing into 1996, to expand and shift its vendor base to new vendors in
Hong Kong, Turkey, Guatemala, Peru, India and the U.S. This shift in vendor
base has been implemented by the Company for several reasons. First,
management was concerned that the quality and timeliness of deliveries from its
vendor base were not measuring up to the standards required for the new line of
merchandise. Second, management determined that it was important to make
further efforts to reduce its reliance on a limited number of suppliers.
Although the Company has achieved satisfactory results on the merchandise
received thus far from these new vendors, there can be no assurance that the
Company will achieve its goal of continuing to improve the quality and
timeliness of deliveries. In addition, this shift to new vendors has increased
the Company's needs for documentary letters of credit. As of June 30, 1996,
the Company has issued and outstanding letters of credit which totaled $2.5
million. The Company has letter of credit facilities totaling $3.0 million
available under the existing credit facilities which mature in May 1997. See
"Item 1-Business" appearing on pages 12 through 15 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995 for additional
information about the impact of the shift in vendors and the
Page 10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
business and political risks associated with these vendors' countries; such
portions of the Annual Report on Form 10-K are incorporated by reference into
this Quarterly Report.
The Company invested approximately $809,000 during the first twenty-six weeks
of fiscal 1996 for capital expenditures principally associated with the opening
of three new Company stores, the remodeling of four existing Company stores and
with the costs of new fixtures required for a Company-wide refixturing program
to convert all Company stores from principally folded displays to principally
hanging displays. It is estimated that this refixturing effort will require an
investment of approximately $10,000 in capital expenditures for each store,
totaling $1.0 to $1.2 million for the Company, and that approximately
one-third of the estimated costs have been incurred at June 30, 1996. The
Company intends to complete this refixturing effort in several stages that will
extend into mid-1997. The Company also closed, during this period, the
temporary store located in Florida that was used as an outlet and one store
whose lease had expired which the Company elected not to renew.
During the first quarter of 1996, one of the Company's former officers
exercised 71,540 stock options at the price of $4.08. In addition, during the
first twenty-six weeks of fiscal 1996, several other employees exercised 6,180
options at various prices ranging from $5.50 to $8.75 and the Company sold
21,037 shares at a price of $3.83 under its Employee Stock Purchase Plan. The
proceeds from these issuances of stock amounted to approximately $453,000. In
1995 the proceeds from issuance of stock under its Employee Stock Purchase Plan
amounted to approximately $8,000.
During the first twenty-six weeks of fiscal 1995, the Company invested
approximately $662,000 for capital expenditures associated with the opening of
five new Company stores. During this time frame, the Company also acquired the
assets and franchise rights for four franchise locations in exchange for two
year notes of approximately $323,000, net of receivables due to the Company.
These transactions are not included in the condensed statement of cash flows
since they were noncash transactions. In addition, the Company also repaid
approximately $323,000 of indebtedness.
In the first quarter of fiscal 1995, the Company also received from a
franchisee a thirty month note of approximately $274,000 in exchange for past
due receivables to assist the franchisee through a transition period and in an
effort to help support the operations of the franchisee's most recently opened
franchised store. The note is current, with approximately $152,000 of
principal remaining to be paid.
The Company plans to open approximately 8 to 12 new stores in fiscal 1996.
Previously the Company had indicated that it was considering testing the sale
of folk art and other lifestyle accessories in one or more of its Company
stores in 1996. The Company has decided that it will postpone this test until
at least late 1997 to allow it to concentrate on its transition and new store
opening programs. The Company believes that the liquidity needed for its
planned new store growth and maintenance of proper inventory levels associated
with this growth will be funded primarily from cash flow from operations. 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. 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 stores planned to be opened in future periods, the Company might
need to seek other sources of financing to conduct its operations or pursue its
expansion plans and there can be no assurance that such other sources of
financing would be available.
Page 11
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
SEASONALITY AND INFLATION
The Company has historically experienced, and expects to continue to
experience, seasonal fluctuations in its sales and net income. Historically, a
greater portion of the Company's sales have been realized during the period
from approximately November 1 through March 31, thus impacting the first and
fourth quarters. Historically, sales generated during this period have had a
significant impact on the Company's results of operations. Fewer of the
Company's new stores have been opened in warm-weather tourist locations and, as
a result, the difference in sales and net income during the first three
quarters of the fiscal year has been reduced. Moreover, performance during the
first quarter of 1995 and during the first quarter of 1996 was negatively
impacted by separate transitions needed to clear out the old merchandise and
prepare for the arrival of new designs and styles.
Even though the Company is not as dependent on the Christmas selling season as
many other retailers are, sales in the months of November and December are
still expected to continue to represent, in the future, a greater portion of
the Company's sales. If for any reason the Company's sales during November and
December do not represent increased sales activity as compared with the
remainder of the year, or if there is a decrease in availability of working
capital in the months prior to November and December, the Company's
profitability could be materially and adversely affected. The Company's
quarterly results of operations may also fluctuate significantly as a result of
a variety of factors, including the timing of new stores openings, the net
sales contributed by new stores, and store closings.
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 first twenty-six weeks of fiscal
1996 and during the first twenty-six weeks of fiscal 1995.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: 10.1 Supplement to Employment Agreement by and between Chico's FAS, Inc. and Melissa
Payner-Gregor dated May 1, 1996.
10.2 Stock Option Agreement by and between Chico's FAS, Inc. and Melissa Payner-Gregor
dated May 1, 1996
10.3 Non-Employee Stock Option Agreement for Verna Gibson
10.4 Non-Employee Stock Option Agreement for Keith Schilit
10.5 Second Supplement to Employment Agreement by and between Chico's FAS, Inc. and
Melissa Payner-Gregor dated July 1, 1996
10.6 First Amendment to Stock Option Agreement by and between Chico's FAS, Inc. and
Melissa Payner-Gregor dated July 1, 1996
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K: The Company did not file any reports on Form 8-K during the thirteen weeks ended
June 30, 1996.
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: August 8, 1996 By: /s/ Marvin Gralnick
--------------------- ------------------------------------------
Marvin Gralnick
Chief Executive Officer
(Principal Executive Officer)
Date: August 8, 1996 By: /s/ Charles J. Kleman
--------------------- ------------------------------------------
Charles J. Kleman
Chief Financial Officer
(Principal Financial and Accounting Officer)
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