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:
April 29, 2000 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 39912
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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____
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
At May 31, 2000, there were 17,227,096 shares outstanding of Common Stock, $.01
par value per share.
CHICO'S FAS, Inc.
Index
PART I - Financial Information
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Item I. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets - April 29, 2000 and January 29, 2000................. 3
Condensed Consolidated Statements of Income for the Thirteen Weeks Ended
April 29, 2000 and May 1, 1999.............................................................. 4
Condensed Consolidated Statements of Cash Flows for the Thirteen Weeks Ended
April 29, 2000 and May 1, 1999.............................................................. 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 Disclosure About Market Risk................................... 10
PART II - Other Information
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Item 6. Exhibits and Reports on Form 8-K............................................................ 10
Signatures........................................................................................... 10
2
CHICO'S FAS, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
As of As of
04-29-00 01-29-00
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ASSETS
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Current Assets:
Cash and cash equivalents $ 12,392,664 $ 3,980,930
Marketable securities, at market 17,709,601 13,995,527
Receivables, net 2,011,679 1,706,661
Inventories 14,184,416 14,834,800
Prepaid expenses 857,970 668,695
Deferred taxes 2,429,000 2,038,000
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Total Current Assets 49,585,330 37,224,613
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Land, Building and Equipment:
Cost 46,980,890 41,217,160
Less accumulated depreciation and amortization (10,813,119) (9,872,163)
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Land, Building and Equipment, Net 36,167,771 31,344,997
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Other Assets:
Deferred taxes 1,256,000 1,106,000
Other assets, net 644,563 640,211
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Total Other Assets 1,900,563 1,746,211
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$ 87,653,664 $ 70,315,821
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current Liabilities:
Accounts payable $ 8,899,928 $ 5,982,684
Accrued liabilities 6,400,892 4,593,104
Accrued income taxes 4,576,691 -
Current portion of noncurrent liabilities 260,111 260,111
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Total Current Liabilities 20,137,622 10,835,899
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Noncurrent Liabilities:
Mortgage payable 5,203,500 5,221,500
Deferred rent 1,726,572 1,617,680
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Total Noncurrent Liabilities 6,930,072 6,839,180
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Stockholders' Equity:
Common stock 171,836 171,285
Additional paid-in capital 15,181,399 14,709,238
Unrealized loss on investments (27,740) (24,334)
Retained earnings 45,260,475 37,784,553
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Total Stockholders' Equity 60,585,970 52,640,742
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$ 87,653,664 $ 70,315,821
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See Accompanying Notes
3
CHICO'S FAS, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
Thirteen Weeks Ended
04-29-00 05-01-99
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Net sales by Company stores $55,682,409 $35,721,300
Net sales to franchisees 1,010,405 703,681
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Net sales 56,692,814 36,424,981
Cost of goods sold 22,763,994 14,900,623
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Gross profit 33,928,820 21,524,358
General, administrative and
store operating expenses 21,968,219 14,724,977
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Income from operations 11,960,601 6,799,381
Interest income, net 97,321 2,072
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Income before taxes 12,057,922 6,801,453
Income tax provision 4,582,000 2,585,000
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Net income $ 7,475,922 $ 4,216,453
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Per share data:
Net income per common share - basic $ 0.44 $ 0.25
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Net income per common and common
equivalent share - diluted $ 0.42 $ 0.24
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Weighted average common shares
outstanding - basic 17,144,495 16,809,704
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Weighted average common and common
equivalent shares outstanding - diluted 17,846,440 17,550,048
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See Accompanying Notes
4
CHICO'S FAS, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Thirteen Weeks Ended
04-29-00 05-01-99
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 7,475,922 $ 4,216,453
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Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,145,230 683,960
Deferred taxes (541,000) (76,000)
Loss on disposal of property and equipment 122,875 90,928
Increase in deferred rent 108,892 63,978
Changes in assets and liabilities:
Increase in receivables, net (305,018) (439,153)
Decrease in inventories 650,384 125,331
Increase in prepaids and other assets (204,807) (179,576)
Increase in accounts payable 2,917,244 2,036,494
Increase in accrued liabilities 1,807,788 187,974
Increase in accrued income taxes 4,576,691 2,430,010
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Total adjustments 10,278,279 4,923,946
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Net cash provided by operating activities 17,754,201 9,140,399
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (3,717,480) -
Purchase of land, buildings and equipment (6,064,699) (2,728,770)
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Net cash used in investing activities (9,782,179) (2,728,770)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of common stock, net 472,712 301,729
Principal payments on debt (18,000) (38,076)
Deferred finance costs (15,000) -
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Net cash provided from financing activities 439,712 263,653
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Net increase in cash and cash equivalents 8,411,734 6,675,282
CASH AND CASH EQUIVALENTS - Beginning of Period 3,980,930 14,484,776
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CASH AND CASH EQUIVALENTS - End of Period $ 12,392,664 $ 21,160,058
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See Accompanying Notes
5
CHICO'S FAS, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
April 29, 2000
(Unaudited)
ITEM 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
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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
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. All
significant intercompany balances and transactions have been eliminated in
consolidation. For further information, refer to the financial statements and
notes thereto for the year ended January 29, 2000, included in the Company's
Annual Report on Form 10-K filed on April 28, 2000. The January 29, 2000 balance
sheet amounts were derived from audited financial statements included in the
Company's Annual Report.
Operating results for the thirteen weeks ended April 29, 2000 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 two-for-
one split effective in January 2000.
Net Income Per Common and Common Equivalent Share
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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 Thirteen Weeks
Ended 04-29-00 Ended 05-01-99
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Basic weighted average number of common shares 17,144,495 16,809,704
Dilutive effect of options outstanding 701,945 740,344
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Diluted weighted average common and common
equivalent shares outstanding 17,846,440 17,550,048
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations - Thirteen Weeks Ended April 29, 2000 Compared to the
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Thirteen Weeks Ended May 1, 1999.
Net Sales. Net sales by Company-owned stores for the thirteen weeks ended
April 29, 2000 (the current period) increased by $20.0 million, or 55.9%, over
net sales by Company-owned stores for the comparable thirteen weeks ended May 1,
1999 (the prior period). The increase was the result of a comparable Company
store net sales increase of $10.8 million and $9.2 million additional sales from
the new stores not yet included in the Company's comparable store base, (net of
sales of approximately $316,000 from four stores closed in fiscal 2000 and
fiscal 2001).
Net sales to franchisees for the current period increased by approximately
$307,000 or 43.6% compared to net sales to franchisees for the prior period. The
increase in net sales to franchisees was primarily due to the opening of one
additional franchised location in both fiscal 2001 and in fiscal 2000 by an
existing franchisee, and a net increase in purchases by the other franchised
stores.
Gross Profit. Gross profit for the current period was $33.9 million, or
59.8% of net sales, compared with $21.5 million, or 59.1% of net sales, for the
prior period. The increase in the gross profit percentage resulted from reduced
markdowns in the current period versus the prior period, and, to a lesser
degree, from leverage of product development costs associated with improved sell
through of our merchandise, as reflected in part by the 30.9% comparable Company
store sales increase for the current period, net of additional mailer-related
promotional activities and increased volume of discounts, including those
associated with expanding the Company's frequent shopper club (the "Passport
Club") which was relaunched in the first quarter of last year.
General, Administrative and Store Operating Expenses. General,
administrative and store operating expenses increased to $22.0 million, or 38.7%
of net sales, in the current period from $14.7 million, or 40.4% 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. The decrease in these expenses as a percentage
of net sales was principally due to leverage associated with the Company's 30.9%
comparable Company store sales increase for the current period.
Interest Income, Net. The Company had net interest income during the
current period of approximately $97,000 versus approximately $2,000 in the prior
period. The increase in net interest income was primarily a result of the
Company's increased cash and marketable securities position, as well as improved
interest rates on cash and marketable securities.
Net Income. As a result of the factors discussed above, net income reflects
an increase of 77.3% to $7.5 million in the current period from net income of
$4.2 million in the prior period. The income tax provision represented an
effective rate of 38% for the current and prior period.
7
Comparable Company Store Net Sales
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Comparable Company store net sales increased by 30.9% in the current
quarter 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 operated as a Company store for at least thirteen
months.
The Company believes that the increase in comparable Company store net
sales in the current quarter 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
our target customer and that the increase in comparable stores sales was also
fueled by 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
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The Company's primary ongoing capital requirements are for funding capital
expenditures for new store openings and merchandise inventory purchases. In
addition, over the past six months and continuing over the next twelve months,
the Company has experienced and anticipates continuing to experience the need
for capital to address expansions of its office and design facility at its
headquarters facilities, the chain-wide roll out of new point-of-sale devices
and the development of infrastructure, including internal call and fulfillment
centers, to support the Company's planned expansion into catalog and Internet
sales.
During the current fiscal year (fiscal 2001) and the prior fiscal year
(fiscal 2000), the Company's primary source of working capital was cash flow
from operations of $17.8 million and $9.1 million, respectively. The increase in
cash flow from operations of $8.6 million was primarily due to an increase of
$3.3 million in net income, an increase of $2.5 million in the growth rate of
accounts payable and accrued liabilities, an increase of $2.1 million in accrued
income taxes and a decrease of inventories of approximately $525,000 more than
the prior year. The increase in accounts payable is associated with increased
fabric purchases (which generally have an extended payment due date) and other
required increased inventory purchase activities to support the Company's
significant sales increases.
The Company invested $6.1 million in the current period for capital
expenditures. The capital expenditures for the current period included $4.2
million primarily associated with the planning and opening of new Company
stores, and the remodeling/relocating/expansion of numerous existing stores,
$1.1 million for new point-of-sale devices, approximately $342,000 for the
expansion of its office and design facilities, and approximately $418,000 for
the development of infrastructures associated with catalog and Internet sales.
During the same period in the prior fiscal year, the Company invested $2.7
million for capital expenditures associated with the opening of new Company
stores, and the remodeling of several existing stores.
8
During the current fiscal year, the Company invested an additional $3.7
million in high quality tax free municipal bonds in an effort to improve the
after-tax interest earnings from its increased cash and marketable securities
position.
As more fully described in "Item 1-Business" beginning on page 13 of the
Company's Annual Report on Form 10-K for the fiscal year ended January 29, 2000,
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 approximately 45 new stores in fiscal 2001, 11 of
which were open as of May 31, 2000. The Company believes that the liquidity
needed for its planned new store growth, continuing remodel/expansion program,
maintenance of proper inventory levels associated with this growth and expansion
of its office and design facilities and establishment of catalog and Internet
sales activities 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 strong cash and marketable securities balances,
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
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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
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This 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 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,
9
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 April 29, 2000
has not significantly changed since January 29, 2000. 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 April 29, 2000, the Company did not have any
outstanding balance 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. The Company's exposure to interest rate risk also relates to its $5.2
million mortgage loan indebtedness which bears a variable interest rate based
upon changes in the prime rate.
PART II - OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: 27 Financial Data Schedule
(b) Reports on Form 8-K The Company did not file any reports on Form
8-K during the current period.
Signatures
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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 5, 2000 By: /s/ Marvin J. Gralnick
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Marvin J. Gralnick
Chief Executive Officer
(Principal Executive Officer)
Date: June 5, 2000 By: /s/ Charles J. Kleman
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Charles J. Kleman
Chief Financial Officer
(Principal Financial and Accounting Officer)
10