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Chico’s Earnings Set Specialty Pace

NEW YORK -- Chico's FAS Inc. posted yet another stellar performance in the first quarter of fiscal 2002 as a record top-line performance generated unprecedented earnings.<P>For the three months ended May 4, the Fort Myers, Fla.-based private label...

NEW YORK — Chico’s FAS Inc. posted yet another stellar performance in the first quarter of fiscal 2002 as a record top-line performance generated unprecedented earnings.

For the three months ended May 4, the Fort Myers, Fla.-based private label retailer reported net income surged 59.8 percent to $19.8 million, or 46 cents a diluted share. That compares to last year’s profits of $12.4 million, or 30 cents. Chico’s earnings per share beat Wall Street’s already bullish forecast by 3 cents.

Net sales for the quarter escalated 39.9 percent to $130.5 million from $93.2 million a year ago, with each of the company’s three divisions reporting strong gains. Sales at Chico’s company-owned stores increased 39.8 percent, to $125.3 million from $89.6 million in last year’s quarter, as same-store sales jumped 13.2 percent.

The catalog and Internet segment achieved a 56 percent spike in revenues to $3.6 million from $2.3 million a year ago, and franchise store sales grew 23.4 percent to $1.6 million from $1.3 million in the year-ago period.

Sending along “my compliments to the entire Chico’s team for a job well done,” chief executive officer Marvin Gralnick pointed out that gross margins, at 62.4 percent of net sales, were the best since the third quarter of 1994, while operating margins in the quarter, at 24.3 percent of sales, were the best in the history of the company.

“Having the right product in the right place at the right time, coupled with improved initial markups and lower markdowns all contributed to this outstanding performance,” he said.

Wall Street analysts attribute Chico’s continuing success to a number of factors, including the quality of the company’s offerings and the administration of its business.

“I can’t be complimentary enough about them,” said Jennifer Black, an analyst with Wells Fargo Securities. “They’ve been right on with their fashions and they definitely know who their target customer is. They are a very well-managed business. I mean, how high can their operating margins go? And their gross margins are unbelievable.”

Like Black, analysts said Chico’s performance is all the more impressive given the current economic context in which many retailers reporting first-quarter earnings gains have done so more with expense control rather than top-line growth.

“This is one of the few companies that continues to execute on a consistent basis and does an excellent job taking advantage of an underserved market,” said Oz Tangun, an analyst with SWS Securities. “They actually had a 200 basis point improvement in gross margins, which was better than I expected. Operating margins were up 300 basis points. A very impressive quarter. Overall, their outlet store strategy is working very well and this is a very well-run company.”

As result of this latest report, Tangun raised his fiscal 2002 earnings per share forecast to $1.45 from a $1.38, and also raised next year’s EPS expectations to $1.75 from $1.71.

Despite the excellent earnings news, Chico’s shares were not immune to another tough day on Wall Street as its stock closed down 70 cents, or 1.88 percent, at $36.50 in Thursday New York Stock Exchange trading.”