CHS - Earnings call transcript Q3 2018

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Operator

Good day and welcome to the Chico’s FAS Inc Third Quarter 2018 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Julie Lorigan, Vice President of Investor Relations and Corporate Communications. Please go ahead.

Julie Lorigan

Thanks, Nicole and good morning, everyone. third earnings FAS webcast. call Chico’s to quarter conference XXXX and Welcome

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

found Our at our Releases. www.chicosfas.com can Press website Relations, on earnings Investor today release issued be under

only assumptions, date. today’s and and judgments projections our business you Let include statements estimates, me that caution today’s about plans, forward-looking industry, as which speak our will comments our of current expectations, about

made You obligation rely results disclaim factors are events I our information those unduly with morning, included call. and should will maybe could revise to except that our any this implied issued And it are or comments in on from Important to not Shelley. in in or required SEC over statements. in any forward-looking this call otherwise on that, release our materially turn discussed as that We cause update law. by or actual statements this by projected earnings the to forward-looking differ filings

Shelley Broader

good everyone. Thank and morning Julie you,

As our you two consolidated up brands today's saw were in to results three want expectations. below I and key was mixed points release, the emphasize performance quarter from right across front. press

are alone. we management, acting through business Chico's we FAS cost a can’t and with not has management performance disciplined results absolutely the we are First, but brand. Chico’s satisfied record grow resolve we cost the second, these with at to address know long our of

all establishing included. brands, three top keenly of growth is across consistent Chico's on focused record our similar attention Our a of line

we start launched me original feel. colors we advancing brand. heritage. all customer a launch me excitement who our and and brand will the this and our teams the improve and bold As have artisanal reignite reflected company. What apparel. that the Chico’s strong XXXX. Chico's These and to that that what with very we're line a performance? committed an give omni-presence, financial in from On solid and footing refresh February happened customer can prints top you enthusiastic We a for let loyal with look within note, elements saw recall, connected confidence improve base, response styles, target customers doing The boho We brand’s of for Chico’s emphasized

are did around However, the the our appropriate We to we and polished the marketing in turn basic or appeal Actions polished that far. balance performance. key clean, not to took too brand’s in depth our merchandising underway associated silhouette the classic, items customer. traditional have

transition well as First, today brand. for I confident a we will leadership the personally announced a Diane President. for Ellis underway new for needs search have brand our flagship support the and that President Chico’s will In the we is it interim, departing am I replacement. the search lead while the her the Chico’s brand. Brand is Brand complete

merchandise emphasis terms Secondly, spring greater classic, we the to adjusted of portion with appropriately a in product, a silhouette. polished clean, balance brand’s the on have of architecture assortments

have we basics. and invested We accordingly have reduced into planned receipts

We classic have performing more are also chased well. that styles

repositioned merchandising in-store side, that includes This digital singular media and customers. display, be more and all marketing so our our dominates. have target of the look on Third, inclusive we adjusting visuals print of to no

have necessary have both to basics which allocation in penetration Our the stock and silhouette to style. did also and better made in classic and third of top key improve balance marketing planning sales novelty feature in depth the changes not maximize to will item quarter. been a and Fourth, performers, stronger

who to are lack to but meet that strong believe the meaningful be demand. fully shop to will expect quarter, company the better these made, all us brand. given immediate sell-through, expect we Juliet the shirt our no-iron brand example, in performance customer Chico’s We enable timing it but adjustments actions customers we capitalize pant to the some and the with these For do Chico’s to continue visible inventory We programs favorites expectations of fourth before of on from being improvement XXXX the the is benefit in will results. actions see be spring for

driven Next, full I'd merchandise is making we selling. our like to Black Black priced Market White the we performance last at brand margins are House significantly White The during began progress. year and House discuss repositioning by quarter, better Market. improved underway

we opportunities in third response We and quarter. our from addition, customers’ watch in we saw third in strength positioning. and From the particularly build to as and our plan we'll those in workwear, to merchandise were in saw August Missed clarify In the we in forward. casual, sales September. learn continue petites, quarter and brand and polished strength upon a digital categories perspective, dresses

our lacked that expect aesthetic assortment Our feminine and the customers detailing from us.

We incorporated have next learnings planning our also for these spring. process into merchandise

responding penetration customer our fashion, increase is we our assortment. since to plan in overall favorably to addition, so In

Soma, notably, deliver business our solid to Turning results. continues intimates to

was collection, expected Soma soft the reported offers fact, primarily better which X.X%. of ales In ongoing superior positive comfort support Nights and success favorite, by performance our driven of This perennial sleepwear. and comps than Cool the Enbliss

style well our with re-imagined collections gaining a in are Strength We from core which also success fifth pleased see we recently of traction, believe comps this consecutive loungewear. positioned customer are the and holiday to for Vanishing being strong essentials, that and replaced we month is positive for October season. Soma demand momentum

enhance and set, selection Our pajamas prominently and including sleep assortment comfortable and bras. feature of well cozy

and to include expanded have prints colors. night also We our cool most popular separates multiple

in Our giving stock for are customers’ demand for self-indulgence. for Enbliss excited about our and solutions options innovative Soma. is growing and of colors at plenty Overall, and there new are we and our sizes includes extended collection

a As her year, such, the focusing and product we for of next fit, needs. launches ultimate answer have for planned on everyday function number

to brand’s growth. continuing rapid are the We in invest Soma

our omnichannel results investments. Beyond the positive from making brands, strong we seeing progress are also and

stores, to optimize Aisle data our store. our expectations, our system and demand to the exceeding from shared and ship benefits associated costs. digital moderate enabling our shipments are and inventory purchase analytics online example, For Endless The to we been leveraging increasing incremental and are customers have with all connected

purchasing are our we store Client the to digitized generation next personal most allowing and our innovative stylist, channel our omni original digitize customers which a personal omni the of can to experience. Book, that This merchandise company's addition, with launch book. customized, online clienteling store is technology store tools is on further capabilities personalize provides opportunity prior front to amazing now Customers also new the of the to associates. In a based further platform style associates Book advancing applications provides our with offer have Client for customer of us their online personalized their behavior. interact attributes, service. board curated We customer

on fully to are stores We to early rollout next track year.

expectations. Locate us Looking closing personalized inventory, of customer shop to new consideration. customer growth online directly stronger she orders and pick ship ’XX, which are chooses. second the Touching edition of our distribution, meeting all ahead, ShopRunner and early the our and this driving be in of channels and giving and we to styling and customer exceeding enables will of last ability of customer quarter Both loop up our objective whenever however with in-store to in live are our our our Tool, shared now wherever, are awareness with buy customer our driving journey, QVC, driving and the in on those the we place, in-store. Amazon

customer order significant average with financially been continues value yet sales gross strong remains each order. strengthening. not be across to gain Although performance increasing in higher and sequentially, our momentum total, average has ShopRunner than continues to

collaboration with to Our and build continues in our expectations. line performance is Amazon trending with

as broader our tried of selection are and with Black first Friday we a We showcased true pleased winners. of the our Cyber and results Monday,

no-iron You tunic of can Chico’s as Oprah's our favorite selected merchandise cotton among also one find our curated assortments. things trim

segments we merchandise that we confident ships will now financial with summary, the was our challenging but move this our quarter, has call results. am want, delivering over actions the additional and airport details will multi concept to lastly, over a early the for successfully discipline In strong Chico's we currently Cruise, XXXX, to taking to in ’XX, I Chico's The by continued Soma In be turn in are execution our more January this expansion. in focused plans the long in can I airport, And first entire QX. cruise preparing build the Baltimore beginning of airport in offer in of our concept on Our for our assortment merchandise of the cost Todd final for maintaining spring store further on ingrained brand the as and been Philadelphia challenges XX is brand that followed a stages relationship. on we forward. open company. customers these on in while QVC, first back successful upon we're with address organization

Todd Vogensen

$X.XX, Thanks, $X.XX includes We tax good quarter recorded which of everyone. of third favorable Shelly benefit. and morning per earnings share

While pleased White the expected. we channels brand deliver Chico's our did with performance sales Soma and that and House we of distribution, sales of the other results are not

were initiatives improvement we basis merchandise trends the sales offset have costs due reflects margin we shipping the We the to margin, inventory our of This management. basis in details, to comfortable on supply focus Overall positive gross the past margin continuing was quarter year's and on savings down, quarters. improvement Moving strong third down that level improvement with on the House de-leverage the with Market merchandise quarter, to our better sell-through. margins our by Black previously continued as are quarter although improvement entered in and full White ended and sourcing and our omni-channel we've price approximately last chain points from quarter discussed inventory XXX fixed fourth expenses a achieved this four with we've clean, reflecting point significant on related over programs. to was XX seen merchandise flat third

terminations investments Moving marketing million in quarter with last and technology contract SG&A reflecting line and up expectations, third to year, was planned compared SG&A cost. to in in expenses, $X

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

free would the greater free of flow more. our mark to free generate flow XXth generating million. continued to year and expect consecutive cash million cash $XXX We than This approximately strong or cash year $XXX flow end of with

and closed totaled existing refreshes in are in stores the to third expenditures remodels comprised and this close mostly Third XX quarter of million, investments XX approximately quarter to $XX we a track We year. stores store capital in of total on technology. XX and

several in We have been short-term very medium term rent and lease negotiating reductions. extensions successful

great have we such, As within our flexibility portfolio.

next our future look fleet. store we're we be and further optimizing ensure base from another to look to ahead As year will we our proofing taking results omni-channel strategy, evaluate at and our

XXrd year's we brand. for negative high sales quarter, last to the impact are net a now decline The week mid-teen comparable includes comparable $XX single a driven which the sales. Turning decline in and the primarily anticipate our in digit and financial net in fourth by million Chico’s of revised outlook, decline sales, from sales

mentioned, Shelly Chico's more improvement XXXX. in performance our brand anticipate by we the meaningful spring As of

while quarter sales in fourth We Black their Soma, also White repositioning. strength for as trends anticipate third to continues to we gradual brand continued Market, the to White quarter, House in expect House similar refine improvement we look be

week points expect fixed We basis to to to to of the costs million approximately quarter, omnichannel sales XXX $XX lower gross and to de-leverage XXrd rate to expect our and related prior million cost due the year prior primarily decrease margin to we dollars the XXXX. fourth $XX in compared programs the decline year XXX to in SG&A approximately compared from

lower XXXX, full capital to to to of to and expenditures expenditures timing primarily fund capital $XX to the store and remodels due million $XX the $XX store fiscal is enhancements. million anticipate previous technology million level $XX of re-investments compares be relocations. our to The outlook This For of of million. year we

the We our the prior Chinese to to in top of the year increase rate basics as We and inventory anticipate to tax XX% as a of expect Year, fiscal to in stronger penetration timing XXXX compared ongoing incremental key channel to XX$. items inventory year-end due the range New support well expansion.

Julie to for I’ll Now call turn with Q&A. the over that, back

Julie Lorigan

ready start to you, Operator, Todd. question-and-answer Thank we're period.

Operator

Susan Our question Anderson Instructions] of Riley B. comes [Operator from first FBR.

Susan Anderson

it benefit like the guess I how guess bit back you on White to the if expecting Like with think of a talk despite workwear? was And that it for needs more product you polish I House, took get what XXXX, looks quarter product sequential back you in step kind about the are the to Chico’s and on two-year and from more see continued then I happen improving a this It stack of little a basis, little stores some improvement. track? a of went better I by wondering what could do bit brand. wrong Spring

Todd Vogensen

Susan. Thanks, Sure.

with on that what keep we our prints and polished, better we going get heavy better and and too with particular more our will balance heavily really, across did traditional assortment. really we emphasize not area, believe And we calling that looking So to they're weighted assortment make heard a store the big and as have balance back a three towards that for boho difference. more things that, the customer assortments, a we're Chico’s, over one are from

be We exactly type cut stock our making to then across and repositioning allocation allocation perspective, basics, of more segments. the available the all be that inventory also need inclusive, are to where customer on planning just same marketing we’re a of have of to we we in thing better from better where sure her. And so a

the marketing allocation merchandise, focus and planning going areas are back So to. three and keep inventory the we

Black you on Market, is with customer its continuing with is merchandise we're that White agree House profile after. the repositioning. White target much the House We For more going

business this We possible. also, their go we're term on we from on What quarter we're being in is, through that more rate that as up that White impact promotions. a healthier to undoubtedly significant as margin had and had selective perspective, make much are House setting near a some sure our merchandise looking sales. process, ourselves increase for means as

we And good around the into you start year. are to into into and relatively on year, repositioning, As we continue then ramping going that going next should in as that get we shape look us year, sales next which brand over QX. flat put expect

Susan Anderson

to also if the we follow-up looks gross guys the the rate expecting you the down. Is one should then just on margin fourth week, are what's the think And I the merch what step And is gross I third on how could from quarter. for margin of I XXrd quarter, about it margin. like the versus third maybe big guess, quarter? that impact be the guess, to down It

Todd Vogensen

chunk The it. sized of XXrd week is certainly good a

we that have we've margin, terms went merchandise not sensitive, still as our margin we In rest amount wrap the be ShopRunner, of aggressive sales really clearly a be the look to sales, be in ongoing, buy outgoing year. clearance into gain, pressure of price QX. the in then going QX to impact We the more so over bought expect pickup We very fourth I'll there's merchandise The as big are implementation, towards on we higher but maybe it and this expect that can at will around had and to impact going shipment level is, start a and we as of generate buying quarter. there. do cost significant we extent store on to those we of de-leverage seen of just costs. against online, on occupancy

week impact this does So, quarter. The XXrd those the gross that what an really have particular things decline. combination margin is of drives three outsized

Operator

Royal of comes Canada. Brian next of question Our Tunick Bank from

Unidentified Analyst

This the for looking our in for guess a guidance we're incremental these my work be worst mitigate the just associated with on of I Thanks taking part being order programs? brunt the being those Kate ShopRunners, margin we about have of is the is bit of with out when in incremental Hi. expenses omnichannel and the think maybe understand more buy pick honing what costs Certainly costs XXXX, of them. some for Brian. Should would XQ XQ. associated done online, these questions. to store, to in question up on gross Yeah.

Shelley Broader

Shelley. it’s Kate, Hi,

because our unique think, that a in important retailer, bit it's based commissioned First sit a commissions. we we are a force position to so of and sales of I pay we remember all,

commission online do we when commission or mitigated lesser So rate. by that sales, from transaction particular that is subtracted a

from distribution product So, are financial to stock, fulfilled and where we're for closest product bit mitigation, the is directly it of be the compared bit a comes have to of little financial we to store little we have that through return store omni-world, data a an a when best orders where in impact, do to when through learn customer deliver a of and you of continuing all those our different And to others. or are the just location from what coming in center, best the that the working choice happens directly location your from the now. cushion

Unidentified Analyst

the work been Great. I the repositioning And a a that side from actually in then into it's how open in just the on one what being volatile order to you you guys for XXXX, come that to quick should to just guys about had more kind lot working, spring anticipated. Chico’s we buys standpoint positioned or is -- certainly, on appropriately when we chase brand, guess, think is make than think what chase about follow-up time or be sure spring? particularly of done, lead speed can here

Todd Vogensen

Yes.

respond where in adjust Kate, in QX we've very go tough year of to spring QX, focused, we line so into that what next more then as next that's the we at sales back plans. the be. especially to have the year, time those level awfully us we where expect receipts, has of to and with of purchases least So, to in get seeing been quick to you're of purchases reduce QX that on to are but receipt some get because possible the the impact our of through receipts been had assortment and we and have as to mix things one that levels is just of those we

then into of of ahead businesses our might little come and that us leaving we and has to started seeing have level for bit So, chase basics, have gotten there be the true we've actually receipts that, receipts able that collections but down through are quickly. certainly through chase, open we're left fairly come where of certainly a to

Shelley Broader

about to a And important in as different it's well. I it ways think think couple of

One is, a can each look of for we're Pastrana fast the cycle speed all real we a brought they of in continuing market look share brand them and as who we cycle to very with remainder across new area have bringing expertise that background, David has to lead, brands. our on on up of brands three the

Operator

Trussell next Our Paul from Bank. of question comes Deutsche

Gaby Carbone

question. for Paul. our on is Carbone This Thanks for taking Gaby

you So program the that about I margin of exceeding quarter are maybe of your was talk mentioned you how wondering forward? the gross from expectations. Thanks. that can Endless impact your the program moving Aisle impacted kind is expectations and third in what that

Todd Vogensen

Yeah. Thanks, Gaby.

driven into up as forward look points, We this XXX basis to at XX ended margin, QX substantially of margin So, but the shipping down gross we example that is going positive is good costs and with probably really merchandise for other related costs a omnichannel you. by that points. program. QX, QX and had decline -- Most basis

significant on in So shipments. program, been, of shipping that how the gotten and the already cost as those the doing we're going has been has we're optimizing process we've

go initiatives sales the sure ratably. The from declines doubt, make what in for online, news this of store we getting one ship also as without forward out buy aligning of a our the impact good most do So we how we that are really we’re had is parts for year. us it. is to of year That's drive we sales are through this exceeding programs these we and been planned channel omni key how our

wrapping year first we're that's us time into to as very know be that where next of we So that quarters. positive going we the have around a couple for sign still on go for and

Gaby Carbone

expecting remind up years. you closures the we just lease if few next cadence, if discuss for be And so just just renewal store similar for next up, wondering just coming you plans a what over fleet of a can us can should quick percentage year, if store follow is the

Todd Vogensen

Absolutely.

action So of years. coming for at of point, renewal the our two-thirds that the lease up fleet for up over kick comes first it’s course what's in sort terms this next renewal, three of or of out some over

we've lot stores, launched flexibility us should the we programs, awful So overall we're of have at we in launched our take it what from omni-channel and buy look where, fresh ship as look an online, allows like. a other fleet our do just position to

last stores certainly process fleet And for year, for that's into a four a so closed going that. that. And we'll XX as starting XXXX about We've years. our we're the point, in and we of good more you. every of At X% about have year point this the share information,

Operator

[Operator Janine comes Our Instructions] from question Stichter Jefferies. of next

Janine Stichter

Just ask about benefits. sourcing want to

And made built fourth wanted quarter, fourth year just to of You just progress you're I costs us how IMU a driving into about impact then quarter. maybe how thinking think of update potential so this about actually ask sourcing the and -- on sense be into product thinking give we Chinese on I mitigating should you far of a lot the any those the Can going XXXX? about IMU and that's the tariffs?

Todd Vogensen

Sure.

start we do and opportunity, the sourcing with continue we said organization a going well had that chunk our the what the had are and are was to that’s -- we expected is we good savings, have year benefits within year has let’s to absolutely you're initial million part so to sourcing maintained of great benefit target a been still chunk and margin. have So million to benefits been $XX that the seeing we we $XX of this expect biggest right, across and a

than really working our vendors exposure, the ongoing that very vendors. we been diversify As actively than we our as our continue of with an with We we half receipts on down at the work look slightly year sources of team with entered how our more coming has to China. basis, to going XX%, on production. is That from lower China our

that quality continuing that and we're entire of that of that looking out always for, industry on mix. but impact will based mitigate types types nature of or of fit China, chunk to that the We come things our of receipts the fair have the diversify just for manufactured China the overall things the are a in

Operator

I to for session. remarks. This question-and-answer to like Broader concludes turn closing conference the our back Shelley any would over

Shelley Broader

you. Thank

quarter. meet summary, in So our the results expectations our for did not

we we are and progress seeing key Soma our a on to deliver other season focused deliver been and the channels learnings want incorporated. anticipate business. performance that brand will improve of a ultimately Chico's the are the including intensely the stronger important as us value am all is moving and However, spring allow confident to our in you of right stronger strength for brand of the enable White underway House to and performance. our to necessary have We're actions Black direction for that changes areas I other and making in core Market the stakeholders. merchandise our call customers Thank us today. joining business,

Operator

for Thank has attending concluded. today's conference now presentation. The you

now may You disconnect.

Chico's Fas (CHS) 28 Nov 182018 Q3 Earnings call transcript