CHS - Earnings call transcript Q3 2017

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Operator

Good morning and welcome to the Chico’s Third Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note today’s event is being recorded. I would like to turn the conference over to Julie Lorigan, Vice President of Investor Relations, Public Relations and Corporate Communication, please go ahead.

Julie Lorigan

good and Rocco, you morning, everyone. Thank Chico’s webcast. to FAS third and call conference earnings quarter Welcome

today our Executive me are Vogensen, Joining at Chief Shelley Fort Center our Broader, Myers in our Officer. Chief Financial Officer; Todd National and Store Support

Shelley. forward-looking most And it As the and make today and of in SEC with filings which turn are today’s that are a statements to we release. to that, subject I’ll over reminder, risks our earnings any important uncertainties, described in

Shelley Broader

you morning to disruption three quarter Thank good of our hurricanes, third significant and Despite the expectations. Julie, everyone. overall our business the performance due met our

performance reflects strategic more our a Our executing stronger substantial the profitable company making long in and the building we're initiatives for progress term.

Chico's we recap like at As FAS, I'd are executing plan. I where approach turnaround our to two-year in my anniversary

of quick our in flow storms support, our those a team’s to quickly. response sustainable are Georgia. impacted safe. business go the the to those of Fort Texas, impactful stores on of before team’s In in to remain that building we diagnosed Specifically, identified Winder, of maintain business. we able that by center I operating we topline those as we developed In we implementation completing the were and to a organizational and stream company, resources In growth. our as and storms to Florida, opportunities a that last we and phase we so East, are revenue the our moving action reopened tracked after critical our across the proud to get I most am word our are Myers, customer opportunities product distribution we plan, as problems able structure, able it on Irma, we get steps the South plan and this A anticipation them have of lifecycle were towards watched to And focused the and now take team around to of processes efficiencies, headquarters were product, and to corrective a for thankful protect the to ahead close result plan. hurricanes analyzed response business of result.

quarter Now turning to our third results.

to benefit We the are our initiatives line continuing a and contributed see solid margin to cost of performance. which bottom

the earnings we the you As of share quarter, per storms. per reported $X.XX for to saw, which above share $X.XX of cost included mentioned related

important brands, sales our for half. promotions margin from still ended quarter first X.X%, margin which merchandise was with in We gross improvement X.X%. and sequential to in customers’ quarter in addressing our performance improvements are believe as topline We $X million severe to our that well. stronger weather, a actions comparable will expectation. slight following expectation proactively due our Comparable the deliver sales inventory approximate hurricane with line for across declined an and were implemented the our making the some rightsize and sales Adjusted impact control down with we needs, third the improvement line with and we an

customer our also are merchandise to at a new We particularly there holiday and pleased positive deliveries, that Soma. Chico's was response fall

the have celebrated a rebound entire October. in her performance. post Ellis, experienced nice both brand her Chico's year seen In influence we season topline Hurricanes, This Diane fact, brands assortment. in president anniversary one over

brand, the merchandise revitalizing traction. year early last stages operational team While place the put the initiatives of are Diane are and in her gaining and in

adjustments to we previously the of deliveries to In made these the addition continue cadence merchandise show results. initiatives, to

small floor capsules looking the four to the and merchandise set to fresh keep introducing As six assortment you we may moved recall, including quarter throughout a starting late quarter new updated. second of week the in from

saw deliveries in a new on of cadence. through sell AUR a priced significantly reduced and as full new and we quarter, healthy discounting XXX increase the point the During improved result basis

Given cost Black we initiative our Market look progress are fourth customer quarter. solid as during this and sizes the new forward customer special a House response, well to cadence positive drive Further, as benefits floor of set we White new acquisition both in at sale. making the implementing expanding to the

for Our plus size came White online Market assortment October. Chico's House and mid Black in

see White Market acquisition Our reads. e-commerce new customers petites, and we and in both delighted stores. are the increased we and and are buzzing sales pleased customer House are positive Black In with to across early Chico's

and to We updating the over and with plan We up awareness White business petite $X trends just e-commerce our boutique XXX, traffic XXX. Petites and efforts store are business plan incremental Sales added drive Black acquisitions million increased in represents our the similar shy growth way to new XX a XX traction a XXX, overall the marketing nearing end look from future goal as pattern year penetration with sales forward petite to and of in August followed we quarter, significant decline to goal healthy quarter plus in in stores and our up you stores, a in from our in sizes. at a spring in giving Chico's in House Market this September. through on customer at with and driver. of

reduce in normalized in was the we impacted more to in rebound marketing strategy saw by healthy to attempted a sales in We believe returning opt-out. as practice September we and ROI and optimize e-commerce course a to addition a email October. hurricanes, In September change corrected

our foundation initiatives. Moving to omni-channel

our fuel In to progress are we addition channels to making solid alternative channels, existing in growth. developing

can brand chicosofftherack.com. with is site as exclusively November, outlet Chico's will branded we Chico's we new early this for merchandise increase awareness customers. Specifically, went division. We leverage made believe to more carry unique that and This outlet live reach online, channel officially in brand

order enhanced Next, the to another locate customer in-store have tool, from center an merchandise ship we distribution from from we our our or either where directly store.

order enhanced that and provides analytics our fulfillment actionable added visibility have sales associates. to we Specifically,

increase of experience forward as compared of seen a as inventory needs of result turns. as to improved to our well locate and customers. savings a this As than in drives tool to the XX% of creates orders we leverage This the quarter. use third last satisfy store We and year's these greater improvements, to seamless have our an look tool efficiently cost quickly ease and improve customer continuing

brands. Lastly cards and just gift holidays, to significantly improved in access each cards for we our And will of all time stores first for online. the time carry gift our for the

CVS. In addition, the country, we cards grocery XX,XXX over Walgreens and gift across in our brand leaders drug placed have and stores including

are across targeted forward. digital In going terms to our enhancing our increase marketing, moving we of brands approach and

team taking our about years more XX specific what customer over data, help customers and to we are of data important of and the learning are action. is With our we analytics than ever

me architecture. realign let our Since you brand working Chico’s Now Diane and with been starting the update Chico’s. have merchandise joining her to on company team

too pants showed shows has roll changes The become has major this quarter of driven to launch proportion more year. with analysis tunics. quarter the pant The were of that brand more and Juliet been that while needed and the underperformed, to more due with Our be tops the being the last performing fashion past was jackets. distorted the large analysis jackets longer And best the to basics. trend in in categories out to started fashion weighted woven basics, to and These brand this against an tops has of pyramid the part middle and with bottoms. newness increased up

and not TV effective run shift had has also and than impact sales. note, to did positive Of has proven We quarter. more television on productive more this our digital marketing a

Soma and plan an in assortment Chico’s Looking ahead, we store. even to fashion outfit we tops jewelry feel tanks, holiday our giving and in confident including accessories, and gift optimize this our reversible maker, PJs as

House performance quarter. Market, our expectations did Moving Black White brand to meet not this

We a who adding have the installed taken and address fresh design look more team to merchandise of working head to is a new actions seasoned with brand. now recently a this

working we've seeing particularly some dresses. correct mix, While are in the been improvement to assortment we

to from introducing our calendar. shift appropriate plan newness our refocus wear, Continuing product action to includes which our we the a uniquely black new delivery and heritage we positioned Black flow return a execute polished swung of to for of merchandise. more style, brand. and significantly assortments turn as as work success better white penetration work the in to to focus is of and dress boutique on House Market continue has our casual to tempering And White and increase as believe pendulum our dresses We our casual we

implemented contact also focused delivering into spring. improved powerful customer holiday season strategy and merchandise a have assortment are more We and we on this

see improvement post Soma, nice trends. For sales a did and traffic in we hurricane

our underperformed as bras our in Casual particular and Back highly customer saw not to enough response best of Balconet, an increased to our this Praag, holiday differentiated As and new quarter. our performers These Soma into we bra always We we Unfortunately, basic launched with the focus, was on sleepwear. Chico’s, sleepwear, in improved extension vanishing-edge heading and where enhancing will which the excelled. team sets include are her solutions solutions improvement PJ bra, particularly franchise core also and cool season. and brand vanishing-back be emphasis with an president our night merchandise were differentiated bra franchise. which drive panties van foundation focused Vanishing and holiday sales. floor the has separates have Mary on loungewear set. successful and vanishing-back brand a this an historically

easy executing to with emphasized giving initiatives. remain there be casual committed conclusion, online. we in while we've topline about that stores on done. know sleepwear our more are In made, the to We and make working progress considerable work we're to gift our and We driving excited is

and our to our to identify our creation. we across merchandise profitable our brands, manage expenses Specifically, base deliver build plans growth omni-channel assortment are opportunities exploit customer new on and value executing our all and improve capabilities,

is and for of come. on and growth this focused team long-term what’s business the we're success to Our excited

Todd the additional to financial turn me let call over perspective results. our Now on some for

Todd Vogensen

morning everyone. Thanks Shelley and good

the were Third our expectations, of line in despite quarter with the hurricanes disruption our to business. results

While quarter, on inventories, this adjusted atypical was focused to improved our performance. managed quickly, drive we initiatives and in

with vendor. We improvement of through change we impact on and the excluding shipping declined ended such cleared inventories quarter X% major hand margin an the which sales our to terms the comparable with down Total merchandise in X.X% merchandise, As a leverage. in last inventory successfully outlook for clean year. summer led to consistent

gross overall due in points While rate, margin increase occupancy deleveraged margin merchandise we drive to basis XXX did costs. by an

we continued and SG&A store focus costs. to Moving to compared savings to managed deliver our our were by in improved in or expenses, the SG&A SG&A efficiency cost third The quarter. headquarter million savings spend year's reduction X% by XX% continued last marketing categories. $XX we our operating all of with appropriately on efficiency expenses, We meaningful initiatives, decreased across

million in strong million Our in $XXX quarter and and investments sheet $XX with debt. the balance remained we've and cash short-term ended

XXX,XXX million our repurchased to million to and repurchase in the authorization. remains million shareholders under share capital form Moving delivered allocation, $XXX we $XX.X for shares our outstanding dividends, $X of

$XX mostly investments in Third It's note and is quarter be expenditures in that expenditures. reinvested relocations, existing our to we stores Year expect date, elevate existing stores comprised remodels capital totaled of important the investments and capital element experience. core a ongoing our to brands technology to expected we've million projects. which enhance locations refreshes, and XX through the of in customer will in

enable to important sales service digital deliver driving an our amazing complement and our trademark boutiques Our personal and presence associates loyalty. remain in most to

customers, very a center. return a center, to our acting boutiques and sales are distribution important as a center, Our

as growth for we're of in focused the outlet omni-channel long-term Off addition, the functionality foundation. Chico’s the investments Rack in enhanced In such upgrades technology making the online business are and on

we year, million $XX approximately to million. capital of the For expenditures anticipate $XX

our million addition $XXX million year, rationalization $XXX store of plan, a initiatives range deliver announced of In we last that to savings. to expected we to

that We XX deliver the months are track on to ago. target we outlined

ahead we date as have there million. merchandise expect opportunities opportunities to to particular, continue fiscal as are believe by SG&A we through savings. expenses than look XXXX. significant greater In margin well define to fact In sourcing We initiatives to savings $XXX reduced we as

savings cost one-time core operating efficiency. principles principle is of not One continuing event. our outcome we that improve believe that strongly of is are An that a to our

fourth continue shared our and structure sales on which Our our planning and to objective intent below ability the focus the receipts leverage discipline inventory serve our and customers We'll in we're our provides managing and to better service savings. tightly drive our is quarter. operating ongoing

will categories the flexibility particular the open-to-buy increases. we to flat if our to with end, to have timing inventory in XX-week. We due year demand At year total the chase customer shifted our fiscal selectively calendar’s approximately model of expect be receipts last

year. last up quarter, flat gross the rate For anticipate to we approximately to margin slightly

last to largely to year We SG&A the by fourth also decrease week. from expect XXrd expenses quarter compared offset costs

we're our in conclusion, had are and we from and to signs we with we and company believe prudent consistent while we wins improvement expectations had with set that managing clearly initiatives that Importantly, and several executing we are how line challenges the of it's quarters our the in quarter in trends successes believe profitable some business, the in while will deliver seeing strategic previous notable business. to growth. the strengthen In quarter, we our the

free cash and we strong to and healthy shareholder delivering flow have a long-term value. balance sheet are enhanced We committed

I'll We for over for are the taking actions, call the Thank with managing you. back you turn to the that, business term. Q&A. long Julie And Thank

Julie Lorigan

now, happy will time, Todd. we turn be would I over [Operator Rocco. back your you, this At take call Instructions] Thank to the And questions. to

Operator

Paul question Deutsche Trussel comes Bank. first Today’s [Operator Instructions] of from

Gaby Carbone

Thanks just question. for occupancy It if margin you our expect for provide some de-leverage. XQ is you taking wondering on offset gross Carbone This to sounds your guidance. can merchandise Paul. margins additional were on We completely like Gaby color

any great? would So there color further be

Todd Vogensen

Gaby. thanks, Absolutely,

So it, on overall, merchandise. as our going the moved inventory. summer through clean quarter into we We’ve look fourth we are at

in and our decrease really set fall going and increase to our to we’re be winter full price able deliveries position late and a We’re with sales up clearance. our forward

So is quarter it's and really expecting overall that what there. managing us line in good merchandise we in with are get margins a the inventories sales that that entering again, clean that to and expansion inventory expect on our we means

Operator

FBR. Susan And question Riley Anderson B. from comes next today of our

Susan Anderson

give White wondering could at bit if a was you about and how feel Chico’s. more the House you on little product color I

in of bit it's under consumer. the this back with feeling I just little of going kind how and about think the talk you a about it year maybe and was a transition a bit half maybe are little resonating better

Shelley Broader

I'll start Chico’s. with

at of she's our cycle a the our customer at our see of with started the program, some through changed just real As now full understanding with been our our lengthened XX% more customer. can than exciting understand to we've going and it's as as really on some kind our earlier, as really data with customer and we Chico's to. and we've changed jackets we responding new And loyalty we've rebounding with new to about that and talked of transactions leadership Chico’s modest silhouettes come boss to leadership, more what Diane’s a under focus intense is again tunics we've we’ve sleeve, tremendous

online. extended that more We boutiques plus also and have addition and of and sizes now with our petites of

And which not also pretty we’ve the fashion new customers’ seen wardrobe, And in our SKUs to you the fall if boutiques, the got swings product of heritage reintroduced you're women's dramatic And so us. pleased our our at and more we've focus about the a see change of been business, with the and we're meantime it to the XX in a set you sweet very longer increase. much come on through. through out. sell watching was blazers that we've place for terrific that we last we've if started floor down penetration at an is new that sell a XX and to it and House price cadence months. response. talked so our casualization workforce. to in starting on piece workwear as see in White over fashion and holiday, across pendulum Black and really tremendous the our starting and White time workwear and ripped And jean seen a is full a as formalized put mightily Boho House, it can There spot, we've knock to suiting we of There more blouse, living with really think kind their skirts and pendulum and the is Market option about was particularly America additional And of and

Todd Vogensen

I have that term, transitions to other key forward the the is add that, points to towards to just team on some probably I to the there. we made really buffet think as wanted the continue company look longer and within of continue we to one to move

and more a a So, have we have design seasoned new we merchant do head team. of

they to White refine So, line to look to back for. continue Black how with to being we in to that the at what Market are continuing get House continue line known is brand

Operator

today’s And Siegel comes next question Simeon from Instinet. with Nomura

Julie Kim

more Kim concept any color the on [Indiscernible] on Julie is This by just quarter give Can for Simeon. you the on color expectation and on holiday? to promotional

Todd Vogensen

Sure. Thanks, Julie.

this focus the us. we as for third on an ongoing been has back quarter and area So, look

promotional been did I much able saw through, and that with we quarter, the through manage tweak with an we of are still able work to control as more hurricanes working up most third ever the think up to volumes those yet, a very we merchandise the we're optimal were have sales And sure to margins for our for inventories, in which those an quarter. at promotions had you and as and accomplishment. we overall for the impact we our through promotions quarter, clearly big effective have flows the where coming cadences impact end our is they're We which promotions inventory us, to make that go

studied what didn't into to position look managing leave to really good fourth and by us inventories the that, continue go as at spot looking us worked a puts in we we margin the to and have we by what As last merchandise our continue to learned expand quarter. from it and quarter, in a opportunities see tightly, year we that and into

Operator

of Tunick Bank Brian from of And today’s next Royal question comes Canada.

Kate Fitzsimons

would hurricane in you I and been able to maybe to dig the to into guys Brian. parse quarter. did that taking Have the Fitzsimons performance also between then you Kate confirm, bit on the for that change our guess in then And is wanted just I email out did questions. marketing return year, a little are change in the Black impact so here wanted in White impact should onto direct positive into fully sounds a there. for the Thanks email just I And channel up here to actually It or expectations just quarter. the your in talent channel about expect. This might in some just and quick then helpful. When just timing like we October you some more her House XQ next what XQ design on follow we assortments, and partially adjustments any have Market. in think more marketing be

Todd Vogensen

Thanks for Sure. questions, Kate. the

in things time of look over very terms we between So direct that been the direct one to we’ve is purely center a and around sales things blur or treating much gets stores. a center, as business, of continuing a stores And to do the at on focused as challenging one that line returns and more more and center, distribution intentionally. another just it look channel to more as

channels. does our how direct out move get So in that said, to being means to are with difficult to individual that that stores And concert does tend individual channel our it parse impacts doing.

one So business. that you went that the look is do about talk we our that really continue marketing. so when to marketing, of across from marketing, we When our stores, a to consistent about was an optimize to impact talk the to things with hurricanes impact

our learning cadence looked looking that our as to is for address really Now, we've and customers we that to optimize go of are where us. as along part of marketing

learn certain are we that normalized and one have quarter and then to We from learnings our in upside certainly there to were expected to we the shows go us this things of back we was future. that in return and will testing generating instances, that that and and and some as saw, that continue things quickly there We we go more cadence data learning. planned things things moved also a that then believe are not some response the exactly provide

Shelley Broader

we us some thought mean we everyone returned nice this we've in brands increased inside opportunity has marketing and move of and implement the hurricane. the was to to to changes the made continued we outcome. other the significant And what we spend, towards there as digital the the while and some as into back soon so that outside areas. as ineffective hurricane or about a the And we actually as clearness was also two digital, moved mean it's I those rotation, inefficient case, into of change immediately in and I saw properties part learnings well. those other as the it allows was learning

Operator

Instructions] Kloppenburg from next research. Janet question [Operator of Today’s comes JJK

Janet Kloppenburg

quarter about high, a was inventories. Black you you're year. if talk if pricing about comfortable your feels bit could the I know I White perception you're you a the guidance, with wondering seeing Market bit respect And like and given little about analytics – in House Shelley also a you elaborate that given their just just could and and But as said what value. the progressed. the things was more improved White think they're Todd, fact House there with where and talk customer little if little is, there but comp terms end the what the look you it quarter guidance more on the to bit said I of Black a and and the like that little the I on Market on wondering appreciate talk them, trends I comfort in on Black you of for could level mid-single bit third

Todd Vogensen

inventory the question. with start I'll and Janet Thanks,

fourth merchandise the does go sales do heard about the managing we upside below opportunities. give quarter. overall we are as So us in to which margin we why our That's into our go the as quarter, through receipts level, you

would the into year. receive in receive where week spring transitioning we have historically first will where do as of have cause inventories. weeks been couple we These compare look to comparison main deliveries line the necessarily are don't to that following what that As a last deliveries We we of up inventory large chunks next we fiscal XXrd our some move the the week towards year, large issues year. of

to to the hit means those receipts week, in Given happened the XXrd fiscal year. shift XXXX the that

I to that does to inventory tell we And so down our be are how look will towards that we look. comparison than our confident maybe line it What with looking for in can goal. on is basis, different that an apples-to-apples headed inventory cause and our you sales true apples-to-apples are are

Shelley Broader

value In reference Black House side on purchase to of a customers White we price our issue value, work trend of the business. fashion clear certainly we pricing promotional the had we and miss miss. and to We we trend we think and on issue. Market and was as had a her as able really continued cycle, the a through, than the and don't continued fashion watched value and we miss and We really pricing there miss on side the were promote a to to product, talk the there business had but had more a to

Operator

question Marni from of And Tracker. Retail today’s Shapiro next comes

Marni Shapiro

case in I luck holidays the of forget. for Best

lines, curious to about was two shift digital some things. efforts. of I'm of The those and marketing talked about You interest along your

are and moving if if focused marketing. you marketing I'm reserve then into hit been and at XXXX. little on And it White can are fined could customers what Chico's, your you you've if in marketing So little in on and store it's as digital House touch that curious store in we you if using have digital at been to bit, but successful a the shift and mentioned how you you the bit touch just a

Shelley Broader

retailing, to want to In start turn is a then our pure the really are believe retailers over brand. key I'll on stay. and physical and it obviously the And that to things to with that online Todd. three is their Well going of manifestation here personalization play even that beliefs digital success we firmly is future in to

and personalization and we we the they so that inventory they online. as and in that look as leverage then we our our so omni-way, have building able also leverage our spend, as assets And how data customers in a really come and inventory the well sort associates, visibility in-store, both loyal to with online that incented our store and that to those that into And her more are is anywhere success, down that more history to served, of her our we utilizing sales to three our drive been. tying the physical at honor shop our digitally continue customers, and she to as to us our successful store more we we're and look a can key the sales to to fact consumers. as do stores to today digital very that customers’ with we in at we've physically so serve force work wants understand principles, be We're be can technology shared the

Todd Vogensen

particular, -- television a very just all to that, marketing, you across tag heavy in for advertising. have is emphasis brands And to on that had cutting something digital on of and been asked in our is about that I think we the past,

in that really has a better over on marketing analytics, happened seen return digital for us and time. a investment much we've been transition that has done our has we've As just that

more our better XX% vehicles is, marketing us even than of cutback actually on digital learnings productive some more our you're into saw we last seeing in the that of the this overall was quarter, vehicles the So traditional call what and and same result I'll with what spend year. quarter marketing

progress a to study continue Shelley transition we So move and data, mentioned to we’ll on. marketing our lots refine that of continue as on and forward

lot show years we've really store that terms fill aisle. a with of what use of we where had customers is our improving iPads ability ease leverage stores, doing our customers it fulfillment, that's things a our now or like, it really for can to fulfillment, of distribution our actually the In the and we're orders, ability the to to either capability and stores of center that and endless emphasize through

and actually off larger host and improved ship we've what delivering And and going and good and is buy she distribution online store, of even that even a buy of from XX% forward, of sales, we pick for that's a part locate store models that be looking technologies up other by another so a online is really for. where trend project will

Shelley Broader

And most well wherever so get of when our responded part amazing our to customers you want same all together very the idea that have you or have differentiation you of is your to that. want, you that want, still what and tied personal brands of can account, service idea on shop and it the

Operator

Thank Ms. Public go At Lorigan, turn Relations Investor of time, the I back like to would Communications. and conference you. Relations, President Corporate to over Please Vice ahead. this Julie

Julie Lorigan

call I And just Thank now, you, the like over final to Shelley comments. some turn Rocco. to for

Shelley Broader

Julie. for And much, summarize, given that. we positioned ever being in And believe and closing thank volatile Chico’s you, retail this on are changing for competitive I to in the interest in our company's uniquely so and your call appreciate success we FAS. environment. you advantage, today Thank for everyone

have we differentiated brands. and powerful three Specifically,

enviable have base. customer We and an loyal

We have balanced and omnichannel a presence. strong

and We have a unique proposition. data powerfully industry leading customer selling

So financial together and operational our we can be business, on improvements real with the continued to winners. focus

and have great So Happy a day. Thanksgiving, everyone

Operator

you. today’s Thank This conference and presentation. concludes you today’s we for all thank attending

now and a You day. your wonderful lines may disconnect have

Julie Lorigan	VP of IR, Public Relations and Corporate Communication
Shelley Broader	CEO
Todd Vogensen	CFO
Gaby Carbone	Deutsche Bank
Susan Anderson	B. Riley FBR
Simeon Siegel	Nomura Instinet
Kate Fitzsimons	Royal Bank of Canada
Janet Kloppenburg	JJK research
Marni Shapiro	Retail Tracker

Chico's Fas (CHS) 21 Nov 172017 Q3 Earnings call transcript