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Chico’s Profits Double, Sales Up in Second Qtr.

Gross margin advances and same-store sales up at both divisions.

Shares of Chico’s FAS Inc. surged 7.6 percent Tuesday after it said second-quarter profits more than doubled on gains in both net sales and same-store sales, and projected more top-line growth ahead.

This story first appeared in the August 26, 2009 issue of WWD.  Subscribe Today.

The Fort Myers, Fla.-based misses’ specialty retailer recorded net income of $14.9 million, or 8 cents a diluted share, in the three months ended Aug. 1. A year ago, the firm’s quarterly profits totaled $6.7 million, or 4 cents a share. Excluding impairment charges, its earnings per share equaled 10 cents, on par with the average estimate of analysts polled by Yahoo Finance.

Sales in the three months grew by 3.6 percent to $419.9 million from $405.2 million. Direct-to-consumer sales jumped 41.4 percent to $42.2 million in the quarter.

Comparable-store sales in the period gained 1.3 percent versus a 15.9 percent decline a year ago. Comps rose 0.4 percent at the Chico’s/Soma division and 3.7 percent at White House|Black Market.

On a conference call, David Dyer, president and chief executive officer, told analysts he expects positive comps to continue into the fall.

“We don’t give guidance for Q3, but let’s just say that the momentum from the second quarter has carried into fall, and we certainly are hopeful that we will continue positive comps for all brands,” Dyer said.

He added the accessories category is doing “extremely well” for the Chico’s brand and denim, jackets and activewear remained top performers.

Dyer, a former ceo of Lands’ End and Tommy Hilfiger Inc., had been on Chico’s board before succeeding Scott Edmonds as ceo in January.

Chico’s stock closed trading up 90 cents at $12.79.

In a research note, Sterne Agee analysts Margaret Whitfield and Jennifer Milan wrote that comps in the early portion of the third quarter should benefit from weak year-ago comparisons and noted the company has overhauled marketing efforts.

“September should provide added opportunity with comparisons to the start of the financial crisis,” they wrote. “TV ads began [Monday] after a three-year absence, with response online and at call centers termed ‘overwhelming.’”

Top-line gains were not the only factor in Chico’s improved profits. Gross margins increased 230 basis points in the quarter to 55 percent of sales.

Selling, general and administrative expenses increased by 0.7 percent on a dollar basis to $207 million, but as a percentage of sales, fell by 140 basis points to 49.3 percent.

For the first half of the year, Chico’s profits were up 51.4 percent to $29.4 million, or 17 cents a share, from $19.4 million, or 11 cents a share, a year ago.

Sales in the six months gained 1.9 percent to $830.6 million from $814.8 million in 2008.