CHS - Earnings call transcript Q2 2021

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David Oliver

Good morning and welcome to the Chico's FAS second quarter 2021 conference call and webcast. Molly Langenstein, our CEO and President, also joins me today.

For reference, our earnings release can be found on our website at www.chicosfas.com under Press Releases on the Investor Relations page. Today's comments will include forward-looking statements regarding our current expectations, assumptions, plans, estimates, judgments and projections about our business and our industry, which speak only as of today's date.

You should not unduly rely on these statements. release, cause projected or forward-looking this or included today's could materially to statements call. that and in those filings from implied earnings factors actual made events results differ are the Important comments SEC on our by our call, law. We this to discussed obligation be may any or revise as disclaim information otherwise any update on except required by

over turn Molly. the call to I'll Now,

Molly Langenstein

I the am results you, progress excited share morning, David Thank make quarter underscore and our strategy challenges. to as continue everyone. they turnaround despite incredible good we second our to in pandemic

Our the by margins controlled our we return performance earnings grew turnaround of per XXXX. profitability and diligently to share that $X.XX gross our best second This expanded since posted is expenses. action quarter driven was plan have sales,

sales markdowns increased Our enhancements our by of to significantly price robust was across drive marketing continue XX% meaningful and brands all which and quarter full growth gross reduced second margin. three propelled in and products was selling,

achieved over of Soma Soma sales the remarkable quarter quarter XX% over the in quarter a post only results growth history. XX% sales Not year's sales brand's grew did second second comparable a highest XXXX. last the second

quarters of to fact, we have growth had four Soma at Soma. In Congratulations team. comp consecutive the

Soma to months. According non-sports remains bras, XX and period in to on panties growth past million track the same year. to Compared in market delivering for in NPD this Soma's sales incremental $XXX outpaced research data, the sleepwear XXXX. the

brand their last confident applying months explode happening to have working. XXXX. same capture along and positioned strategies more playbook products, recent share this increased wireless inventory, We in the are and with are taking digital And House and its in this Soma sales White well marketing customers continue White are and the period momentum. is market brand business as strong at by strategically The Black Black XX at data preferences other put Exciting any Chico's a is XXXX. believe Chico's bra a addition indication market House Soma we to shifted performance into additional Market. billion-dollar to in things Soma will both that comfort In our compared share place than assortment around proven Market indeed for

by indicated margins. XX% enthusiastically XX%, As are apparel productivity At sales responding customers quality faster quarter higher rates, sales full-price to and meaningfully elevated our second which growth enhancements, and of and brands styling leading more maintained better respectively. to sell-through and are both

the making quarter once strategic incredible highlight are Our five progress on second we again results our priorities.

So on let few number to Transformation. Priority you minutes ongoing me one, a continuing take Digital our update each.

into in Over technology. the adding half last and seamless digital-first have making company successfully talent a a and years we two strategic and investments transformed resources customer-led

We our have of with this over sales timeframe. digital been the thrilled trajectory

drive and all data brands tools three As new And Customers in launched quarter our and and to XX% sales and innovation. to take customer are be holiday beating customers are proprietary and installments spending a share grew and in UPTs customers continually styling, valuable, its product insights, over we across clearly our At the expectations. order for our digital XXXX customer each using driver fabric multichannel Priority are customer. continue times single-channel three traction. store gain customers engaged Connect continue also to further refining revenues Style is continue market leveraging Digital UPT results. of and brands. their for has time year, purchases sales last elevating product through to rebound, MyCloset are our our have levels. more for second most our pay values. our and popular rates, drive than These to and average responding conversion growth highest allowing benefit Two, terrific a tools to Afterpay, and these proven more

are newness creating brand. Soma the beautiful solutions core to comfortable, Continued and

and a she and dresses. denim, in strong does continue the for And right Chico's great growth programs technology responded Congratulations her our short House to customers and continued With sports innovation customers benefit absolute feeding newness, and in fabrics. life. belt Market has innovative everything elevated also We quality be quarter. are panties teams wireless XXXX Black features, conveyor woven and the apparel knits dresses, of pronounced drove pant tops. to last to levels. to are from continually a and new bras for Sleepwear pants, knits for she double-digit acceleration our over bra year quarter ensuring and as and White as in styling to novel the responding comfort and improvements. well

significant are increased and engagement storytelling. driving enhanced and data our customers. generating elevated our customer brand efforts which driving customer Through through insights, marketing have new traffic and analytics Next, acquiring digital targeted we awareness,

to storytelling, and influencers other digital social resources efforts. We continue more social to allocate

engagement to grow continues customers media influencers are customer Our and responding to associates. social and

We acquire and than operating new average runway our cost disciplines. and customers reinforces three trend to which existing Four, continues for younger their maintaining continue the to all customers age brands. Priority

meaningful most performance. quarter gross was Our second margin accomplishment our

the was and priority our In fact we in reduction driven rate gross sales promotion. by XX posted full consecutive margin strength corresponding This and highest quarters. in

year’s urgency of the second hand These strengthen to sense continue remained factors of compared for strategically inventories to purchasing. down performance. social of should drive a quarter and quarter to down products continue versus second margin proofing XX% XXXX. and on gross last customer Our XX% lean Scarcity

in the later in our be delivered of Delivering growth continue real cover gross David and priority. will stores last our that logistics, half the labor call. And cost fulfillment to an pressures strong the and of in integral portfolio. strategy. our estate are from guidance store the We year will we are market, Including included these considerations However, during facing that sourcing certain in finally sales. headwinds impact margin and quarter higher our overall part back productivity the

higher digital store in As Prudent a strong investment David indicates we delivers have presence. retail returns. makes where are markets profitable growth the where sense that sales

the to are expectations, kick of of we time as or expanding forward driving going quarter scheduled store same due, product inside primarily we shrink continue At buyouts shop-in-shops exceeding new store our have a business. for by We and to tighten these continue and are More stores. estate digital XX Chico's total make opened are customers rationalize portfolio both our with year. next Accordingly successfully economic real expected to come of available base first ability leases lease Soma outs higher standards. sense. our brands with Which further will XX shop-in-shops

XX% our leases up the over for nearly two years. with flexibility kick out renewal coming next or lease of have We three available to

through close still track the are our We to XX those end on to of with XX remaining XXXX fiscal closures occurring year. of store XX% fleet to of this XX% fiscal

XX, quarter During nine our ended year-to-date the to X,XXX closings and quarter the we bringing stores boutiques. with closed we

the let me over performance. Now our David to to turn call update on you financial

David Oliver

performance very QX and the We're to second with the earnings XXXX. to last company's $X.XX second fiscal diluted loss Molly. XXXX. Posting is our share of loss for for per return quarter the year profitability. per earnings a share since second per $X.X from share Thanks best pleased compared quarter a our quarter $X.XX quarter

last a sales hours store improvement price which in selling operating as months. to in as drove net temporarily net closures year. in Partially year. store the product million were meaningful XX our by $XXX quarter full totaled reflects compared offset at last and well as recovery This stores closed $XXX increase reduced marketing, million or sales Second XX XX% last

Soma Chico's Looking with improving at and XXXX respectively. Total working. and the Illustrating our White second XX% sales flat. growth quarter House turnaround in and compared strategic X.X% XX% Market up and compared Chico's and basically XX% were company inventories White declining Black House our and respectively. investments Market just to Market XXXX with White in on-hand XX% comparable and House Declining Black to Black down strategy Soma Chico's and declined that Soma's the are XX%, XX% X%

the was the This basis enabling our quarters. points result XXX margin of current consecutive selling. non included was or margin than sales points a reduced gross of expanded XX.X% rate improvement the to basis the of expenses XX.X% and the we an realize XX than quarter margin cost quarter inventory promotions XX.X% for initiatives, XXX more meaningfully our full leverage rate our which quarter gross highest year control, million nearly second compared had second of strategically better and inventory more totaled price quarter year. of write-offs. continued $XXX as us year to and in reduction from SG&A last We second in last impact disciplined significant cash year's This XXXX. Second discipline

$XXX nearly million balance facility unchanged million cash sheet over quarter. year Regarding at to of million build an $XXX the our ended We cash financial on strengthen. over credit continue we the marketable fiscal to increase and quarter $XXX end from our continues Borrowings million. and with our position, in first remained $XX securities,

bolstered sales. with retail liquidity expense financial to position Our cost improving sales that and aligns a structure by better continues lean be

last expect we of we related quarter. tax to to the balance million cash savings during million of we We the the Partners with incremental quarter, million of refund addition, income $XX abatements first quarter year securing the year. the date initiatives the third the is from receive reductions building and majority XXXX. of throughout And second tax a fiscal million In which in landlords, to $XX remainder the million Estate a second $XX received $XX and In to date in $XX $XX savings quarter. receivable income million. in This of negotiated anticipate reported realized to continue release total will renegotiation to A&G addition the approximately in Real for fiscal this be the year commitments

outlook. Now, to turning our

fiscal expect continue pandemic. recognize of is manage uncertainty there balance we to that year-over-year the improving During we as demand economic through XXXX, but the

providing transit offering and supply we're margin, but high year level outlook fiscal the in supply by we're product back quarter expect specific for freight higher Accordingly, instead extended addition, delays impact the including of uninterrupted uncertainty, half this pandemic. macro we guidance will third headwinds sales year. and not that given the chain times In and expectations cost, gross [ph] facing the driven

percentage margin income quarter, of of in points basis as last improve year percentage basis XX% range, points XX a year rate the consolidated points to over quarter expect over our improvement year XX% tax we XXX XX SG&A For third of over rate XXX year. points year to to XX% XX%. sales the gross improvement and sales percentage third to to

back fiscal full SG&A For as year fiscal improvement consolidated percentage XX net call basis the rate year basis XX% margin operator over XXX we the of XXXX, to an year percent over over rate points of to I'll for the tax year, the points a gross year to of in points points sales range, Q&A. over XX improvement improve and percentage to now to XX% XX%. to XX% XXX expect income sales turn

Operator

ahead. Our Instructions] Anderson first Riley. go question [Operator B. Susan comes from from Please

Susan Anderson

nice Hi, seen see a expecting curious the looks slowdown out really XXXX the job to if to significant on improvement that driving so like variant? just impact is looking your good nice the curious quarter, second and guidance just morning, there. from something maybe it's then quarter, it also quarter, versus you Delta levels I'm from third there’s the have

Molly Langenstein

Thank you Susan.

follow start quarter the with you then Delta second the of I'll slowdown mentioned with in the on the up me impact variant. quarter Let terms that question third and per

we being biggest with insourcing ensure into us. pipeline and the back we in see to less coming of front us is that inventories, of in So, half that with make strategic sure we our the terms need headwind

several So, is really which on on the what's we've front sales. the things sourcing guidance the done impacting

additional team an COVID are managing supply cases pivoting of First are leading into our in delays protected time deliveries what and goods the excellent of managing Today, of of XX% factory also least have overall job of is manufacturing ex that like on those doing now experiencing in the partially successful in we've other even moving resulting and our are at and though terms and sourcing Having out are rising ports responding and been countries chain, Vietnam we right specifically. from can we all, X% the countries. that, delays our production moving of they terms we in we Vietnam said to Vietnam road. is

seeing impact of that overall bit days of we is watching any some our of that hurricane month seen we part the little headwinds. knowing we been very of in are regards we August, In So, traffic year differences look these the why the at to stores to there’s not a chain last that tiny half some as we’ve but of but in impact couple the in of traffic more on Delta is the closely. it back to the that cautious have we supply variant, are are the the

Susan Anderson

good in gross that's years? margin much the hear. Great, of you quarter. very see that’s the could a to the out opportunity we do about couple if maybe margin, more gross and second How term also sustainable then longer And next you talk as of look then front nice performance in on the also

Molly Langenstein

Sure, thanks Susan.

Regarding we’ve gross margin guidance the apparel four in term factors long on have brands. this in over recent gross years, look back gross But margin, we're been margin providing as base not as the particular you overpurchasing, products years, [ph] and time. in regarding the we've

I disciplined more both So, improving we've gross managing performance and moving margin product, would inventories think forward. we're benefit become in how our

Susan Anderson

Soma, mentioned one follow I brand future, in we as maybe of categories, expected just can if talk to expand look you up categories? about is out larger the you if could much you brand a on new And where see Thank into into opportunity there going that Great. terms just you also still the and product you. be to more product

Molly Langenstein

complement that are we panties. we there that are the that within had opportunities bras how the expand in that about Soma is the the performance also sales categories record bras in quarter many finding we taking with excited QX. The market additional our market aggressive and with can this that in point share share are And Soma for are we key Susan, and of into. in additional we terms record

innovation in just two launched place actually we new category. we pipeline we put this that month into continue be grow able us of and to have past bras that of a have So, front to to

a brand, last us more within shops responding for and the the sleepwear invite to working it over be we've have years. brand into the enjoy has marketing Chico's' the to additions we made fantastic also customers that Additionally, additional to The into we and within program see able are people in introduced two positively. been shop they changes

growth the diversity about and additional an recognition in the standpoint only So in online, in customers not in is from brand shop also size. and this from getting brand in age shops and stores, into

Susan Anderson

Great thanks a lot good luck.

Operator

from comes go Janet JJK of The Research. next question Kloppenburg Please ahead.

Janet Kloppenburg

congratulations thank Okay progress. on you, the

something $X know close number guidance you how you you did base? adjust to If to closing, look the sales your in you at store $X.X for billion versus much year, can XXXX for get you a we are closing billion, about like XXXX, store so the on for like

Molly Langenstein

X.X%, store shared we quarter the which was in and Oh, down would include the closures comp for totality. the

is and date, [indiscernible] this includes close that that So, to the in stores that number yes.

Janet Kloppenburg

that like about take to and the down numbers, did I like XXXX $X that that X% for So billion I right? get is you

Molly Langenstein

half additional we also listed QX Yes, the the closed in and year. stores we’ve close through so that back we then and have out far of to stores the

Janet Kloppenburg

the Right, back so impact of the greater year. it will a in half be

Molly Langenstein

Yes.

Janet Kloppenburg

would, Market. that of versus Chico's at be and Black productivity lost White that then reflective decline would House Okay, and XXXX then,

Molly there? wondering that thinking you to to might I'm think you're how when pre and So able pandemic you back get be levels about

Molly Langenstein

intentional. look walking lost been Janet promotion at We is that brand, at of our strategy and how productivity. we key we is has as are been look turnaround if don't part away that's strategy this resetting and our something to from the it

resetting be keeping to of that this our new key strategy. deliver consumers So, tight part to brand to year brand inventories being and as a to able our is image

Janet Kloppenburg

along what’s purchases, you just in and to back some of turnaround those your at House, of women's has Okay, look and in are do you in you with customer on fact any going do apparel how thank White think attachments winning kinds look terms Chico's the you didn’t things, maybe buy the you, far woman when at year. of that clothes repeat loyalty last that

So, of work social sometimes for amount a cloths not meaningfully or occasion.

repeat your on customer these So, where to there are more winning is basis back is, look do the work we programs? in terms forward, repositioning as how the in of question much you

Molly Langenstein

give spend for you the customer. I would statistics, our

highest in all are at includes items, and buying to in our the brand, testimony multiple customers new and Our was spend loyal. five single customers is AUR customer a that its not quarter brands three and but years, the that items at a that second the in reactivated for higher level customers just

Janet Kloppenburg

Okay, continue year? great, into this that's the great, that scenario supply that do could and on when going think are right you about the now, chain think issues is next you

Molly Langenstein

that we to market from strategy we up in will front different to have be also found are and suppliers of our using are able every alternative with able and we weeks, and have going forward to flow we we a indication need first production that why have manage lifecycle air this of certainly and we continue ports we Yes, moved partnered have and tactics year inventory. to to of use, half calendar into the for so find have when the these for flipping countries to ensure get to every be be, the definitely

Janet Kloppenburg

think House you constrained is quarter first now? Chico's picture improved will improved be the quarter versus enter and do for both but White where So, the as it the so that fourth and we inventories

Molly Langenstein

We those plan turnaround strategy on and moving on our have our brands of plan gradually a part resetting forward. thoughtful

those will guests to see you our not on So taking and flat of we're in brands Soma. continued investments both our offer also

Janet Kloppenburg

have you on All at right, the much well levels inventory better done Soma.

airing So that. I must be guess you

Molly Langenstein

have in categories to key and and that in sure we're that on have the them prioritizing drivers differentiator all brands. items between a we time making make brands our the combination of those biggest We three three decision and

Janet Kloppenburg

luck. good much, so thanks Okay,

Molly Langenstein

thank Janet, you. welcome, You're

Operator

Shapiro ahead. Retail question Please comes next go Your The from Tracker. from Marni

Marni Shapiro

is say Chico's on congratulations improvements to set beautiful. have your latest absolutely guys, the Hey and

Molly Langenstein

Marni. Thank you

Marni Shapiro

Welcome.

on TikTok. on thoughts a expense -- have in two marketing topics, that sort little outstanding about for on the looks back viral where I'm one and mix talk overview the are the is half spend traffic, of you could And the the So, in just driven year, the is the on you curious marketing at back half marketing by bit that what stores seeing and improved there. just the a makeshift -- what then year sales question just your of AUR, curious more conversion quick and traffic you being

Molly Langenstein

the marketing and back in mix me traffic with spend then I'll seeing the of back stores. half the start let to what and on So we're and the the come kind

more the towards budget So continue for push to of we digital. marketing,

that Facebook digital marketing not and that more fact, our In as in and the is dollars social, spend into is double half back traditional a digital of we're allocation spend pushing our spend, well also for we that we're that also using drive our events platform continues And traffic for spending. also great live only success that influencers. have to but that revenue with associates even and and are and

customers So we sure make to in do really customers look we reactivating and by have our way acquiring we terms a that and how out, of numbers. literally a at plan hit

So the that's thinking year. of how half about back we’re the

the at fully and have Market House improved of traffic is it modestly overall White reopened, still year and as stores, stores traffic Soma. store down XXXX is has Black in up year terms so Chico's over traffic is at In Black still down Market compared and to

Marni Shapiro

driven being this Okay, conversion all a so is AUR. by

Molly Langenstein

AUR in repeated. conversion Yes,

Marni Shapiro

so that’s rest much, Fantastic, think all, off line. I thanks the

Molly Langenstein

you, Marni. Thank

Operator

go Telsey ahead. Group. Your Telsey next Advisory from Please question from comes Dana

Dana Telsey

see you there increases the are price was Can sticky nice performance difference a through quick up. the see the and What on do you price anything have taking full you think then progress. you stores unpack I sell noticed materials, that that are and the you morning, by digital raw Good between follow brand? with to

Molly Langenstein

really between customer the the with was up to start come we we to open me channels, excited quarter more started second stores things let and first noticed back that that the different and the to So have stores.

that still of free However, we has see her do shopping waned. online behavior not

she lot the to the try her get either and on make of So faster to transaction. makes and things for in can then her terms to spending trip silos which shorter she a her is of store contacting then sure online much looking

pretty the channels during for to in with both between traffic behavior customers there between quarter the and but the think the person still the stores interactive remained euphoria a was three we're that of quarter. early consistent brands has very lot meet and much back get and in So the

definitely question terms your the one to definitely So is how if that which they we supporting stores hope the and answers playing do. another of we're seeing in digital are and

fulfillment our then and thinking quickly and and In deliver and know customers. how we're prices goal and that of as as the sourcing pressures cost terms is as about are fabric of there our to quality product you prices, improve in product, or maintain primary to even logistic possible manufacturing,

prices value raise it that we customer surgically so So the that by and done category, by and judiciously looked our we at having have style ticket prices very said and we've feel where surgically. would that, expect, price ticket in

Dana Telsey

look out that that so at What following dollars it, sounds it Chico's by appears and made, we what renegotiated a Got on should anything real in that you as you on the successful. just chainwide? little putting and you lease to way commentary terms that go be look then to does up and replacing you Soma’s the estate in back, more bit get shop-in-shops there is that like and are XXXX

Molly Langenstein

and I other then question. on the in shops take shop give David will I'll the

very it the shop business. what and we so sure so reset have about for we're replacing the for the shop sure and so footprint disrupting feet in And that are actually it fits we've clearance, the regular big Chico's the in serious got that Soma making and stores selected shops brands future a in nicely is we've the is picked, that square price not making we've that XXX that occupies actually that are shops

not is new look really to attention might we opening a future XX but see in and our there quarter but Soma a our stores, right few focus where to the first And now growth by Dana, an we open, there. it's we'll up definitely plus that XXXX it's put end. more not will So that so one, stores at be have for

Dana Telsey

you. Thank

Molly Langenstein

earnings that million savings the as end see morning with the Real $XX nearing Phase initiatives, $XX know additional currently as of of Estate we in in stated $XX that added We've had to X regarding as we million the Phase savings, X year. and Dana, expect last that you We're this with A&G million. to be realized million, P&L you this lease $XX not in based it year, so the ultimately impact is going The over into most the see translates will but in cash that balance. the fiscal it of stated. term that's you're to and P&L remaining

Dana Telsey

Thank you.

Operator

our like question session. over and the concludes for Langenstein call This answer comments. Molly I'd to to back turn closing

Molly Langenstein

Thank you.

first digital unique a company tremendous are growth brands led potential. three We with customer each with

to Our our we term. our build long turnaround positioned and to are value generate is half on continue track on shareholder performance, well momentum, over first operating and improve the

Thank FAS exciting quarter your our and so for call. future ahead. third again for have you speaking November in for today. We in Chico's you We look joining much an us to interest forward with

Operator

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

may You disconnect. now

Molly Langenstein	CEO
David Oliver	CFO
Susan Anderson	B. Riley Securities
Janet Kloppenburg	JJK Research
Marni Shapiro	Retail Tracker
Dana Telsey	Telsey Group
Welcome to Chico's FAS Second Quarter 2021 Conference Call and Webcast. All participants will be in listen-only mode. Please note this call is being recorded.
I would now like to turn the call over to David Oliver	Interim CFO and Senior Vice President Controller. Mr. Oliver - please go ahead.

Chico's Fas (CHS) 31 Aug 212021 Q2 Earnings call transcript