Chico’s FAS comeback plan has begun. And the stock is up as a result.
The company, which includes White House Black Market, Soma and the namesake brand under its umbrella, reported first-quarter fiscal-year 2019 results Tuesday morning before the bell. While both top- and bottom-line results fell compared with a year earlier, the results still beat expectations and were enough to tame investor fears of a company on the decline. The stock gained more than 8 percent during Tuesday’s trading session.
“In the first quarter, we made significant changes to the company’s leadership and reset our priorities,” Bonnie Brooks, interim president, chief executive officer and director, told analysts on Tuesday morning’s conference call. “These include, first, driving stronger sales through improved product; second, optimizing the customer journey by simplifying, digitizing and extending our unique and personalized service, and third, transforming our sourcing and supply chain operations to increase product speed-to-market and improve quality.
“Anything that isn’t driving sales, improving product, focused on the customer and focused on marketing to that customer and the sales tools that we have for fall that are new, maximizing those sales tools, is off the agenda,” Brooks added.
The turnaround plan actually began in January, when the company announced it would close 250 stores over the next three years as it renewed its focus on digital operations. During the most recent quarter, the company closed eight stores, on track to close 60 to 80 by the end of the fiscal year.
In April, Chico’s FAS introduced lingerie brand TellTale, run by Soma’s brand president Mary van Praag, in an attempt to gain traction in the women’s intimates apparel space. More signs of a struggling company came that same month when Shelley Broader resigned as Chico’s president and chief executive officer, and relinquished her role as a board member. Brooks, a board member of Chico’s since 2016 and the former vice chair, president and ceo of Hudson’s Bay Co., was named interim ceo of Chico’s.
Brooks said during the conference call that the search for a new ceo is in full swing. But the new leader will have quite a challenge in front of him or her: Shares of Chico’s FAS are down more than 53 percent year-over-year.
In the most recent quarter, ending May 4, net sales were just $517.7 million, compared with $561.8 million last year. Meanwhile, the loss in profits was even more pronounced at just $2 million, down from $29 million in 2018. Comparable sales across the entire company fell 7 percent. By brand, Chico’s comparable store sales were down 7.8 percent and White House Black Market decreased 10 percent.
But there were a few bright spots: like Soma and the e-commerce business. Comparable same-store sales at Soma, which is known for its lingerie and sleepwear assortment, were up 3.4 percent during the quarter.
Online sales were up in the low double digits during the quarter. The company said it would introduce the option to buy online and pick-up in stores this summer.
In addition, Brooks said the company is working to update the product assortment across the company.
At White House, she said the selection missed in terms of color and print.
“Actually, if you go into stores right now, you will not see very much black and white, which is a little issue…not a little issue — a major issue,” Brooks said. “The colors need to be perfect. And that is the rigor and discipline that we’re putting into place in White House, to establish the parameters around which we will not deviate in merchandise.”
While at Chico’s, she said the basics had become “a little too mass market” than in the past. The company plans to introduce more sophisticated prints, styles and shapes by the fourth quarter.
“These are issues that are within our control and we are taking swift actions to adjust our product and brand positions for the fall and holiday season,” Brooks said. “We know more must be done to improve performance and value creation. We are not standing still.
“These improvements will take time to translate into financial results,” Brooks added. “But having led previous turnarounds, I am confident we are on a better path forward for the company and for our shareholders.”