Chico’s Keeps on Chugging

NEW YORK — The hits just keep on coming for Chico’s FAS.<br><br>The Fort Myers, Fla.-based specialty retailer of misses’ casual clothing and accessories again delivered double-digit increases in profits and sales in the third...

NEW YORK — The hits just keep on coming for Chico’s FAS.

This story first appeared in the December 4, 2002 issue of WWD.  Subscribe Today.

The Fort Myers, Fla.-based specialty retailer of misses’ casual clothing and accessories again delivered double-digit increases in profits and sales in the third quarter. The momentum has continued into the current quarter as November comparable-store sales increased 11.3 percent.

Chico’s, which operates 372 stores, said net income for the three months ended Nov. 2 climbed 74.7 percent to $15.5 million, or 18 cents a diluted share, in line with consensus estimates. That compares with income of $8.9 million, or 11 cents, reported in the comparable year-ago period. Sales swelled 46.1 percent overall, to $137.3 million from $94 million, and 18.2 percent on a comparable basis.

Chico’s also announced an alliance with Amazon.com, offering its merchandise at Amazon.com’s apparel and accessories store for the fall season.

“The awareness of the Chico’s brand continues to grow and our customers’ excitement with the Chico’s brand is evident in these record sales numbers,” Scott Edmonds, president and chief operating officer, said on a conference call, noting that November’s performance was a solid start for the the fourth quarter.

Patricia Murphy, general merchandise manager, said on the call that sales were driven by strong sell-throughs on key apparel items such as suede and cotton shirts, turtlenecks, core sweaters, novelty jackets and its Travellers collection. She also said certain categories were identified as having growth potential for the quarter including denim, sweaters and outerwear, which generated significant sales volume, against practically no business last year.

As of Oct. 31, the Chico’s Passport loyalty program had 589,000 members and accounted for 73 percent of sales, and more than 2 million temporary members make up another 23 percent of sales. Customers become members after they spend $500 and thereafter receive a 5 percent lifetime discount, advance notice of all major sales, free shipping as well as smaller perks like a $20 Christmas gift certificate this year.

With many specialty retailers experiencing slower growth than in recent years, analysts appeared pleased to see the Chico’s winning streak continue.

“No one is knocking the cover off the ball like these guys are,” said Dorothy Lakner, retail analyst with CIBC World Markets. “Chico’s is going after a very underserved market and its customers are responding. I think there is still potential for so many new customers to discover the brand besides the ones that already have.”

She said the Amazon.com deal will help get the Chico’s message to those who haven’t yet been exposed to it.

Another vehicle for growth is Pazo, Chico’s new division for younger women with income of at least $40,000, to be introduced with 10 units next March and up to another five in the second half. Barry Shapiro, who is heading up the launch, said Pazo’s active and career merchandise will be presented in a boutique atmosphere, with the newest European and American fashion. Prices will range between $16 to $98, averaging just shy of $40. Shapiro said Pazo’s competition will include Express, Bebe, Arden B., Zara and Anthropologie.

Elizabeth Pierce, a retail analyst with Wedbush Morgan Securities, stated, “Everything they are doing — from new merchandise, increasing denim and Pazo — will continue to drive more customers.”

Charles Kleman, chief financial officer, still sees opportunity in Chico’s core constituency: “Many of the 35- to 65-year-old women are still not shopping our store.”

Chico’s attributes new customers to its television and print advertising as well as catalogs, but customers poured into the stores and its call center after Oprah Winfrey included a Chico’s watch on her Favorite Things program. Murphy said after the show, customers overwhelmed the stores and call centers, and that 75 percent of the calls were from new customers.

“Reception to the third quarter was outstanding,” Murphy said. “Sell-throughs at regular prices on outerwear, sweaters and denim made us realize how great the potential is for further expansion of this Chico’s brand.”

Chico’s opened its first store in New York City Oct. 3 and said it is looking to add up to another three locations next year. The current store, a 1,400-square-foot unit located on Third Avenue at 75th Street, took in $35,000 in sales during its grand opening. Including Pazo, the company plans to open between 65 and 70 new stores in 2003.

For the nine months, income bounded 59.7 percent to $51.7 million, or 60 cents a diluted share, from $32.4 million, or 39 cents, in the same period last year. Sales improved 42 percent, to $392.8 million from $276.7 million, and were up 14.4 percent on a comp basis.