The Fort Myers, Fla.-based retailer — parent company to the Chico’s, White House Black Market, Soma and TellTale brands — reported quarterly earnings Wednesday before the market opened, falling short on both top and bottom lines, with a $46.8 million loss for the three-month period ending Aug. 1. That’s on top of the $178 million loss the prior quarter thanks to the coronavirus shutdown. Even so, the better-than-expected results caused the company’s stock to surge, closing up 22.66 percent Wednesday to $1.57 a share.
“Our core strengths [are] three distinctive brands with new product being well received, a strong digital platform, a differentiated real estate portfolio, our loyal customer base and solid balance sheet position us for success,” Molly Langenstein, chief executive officer and president of Chico’s FAS, said in a statement. “We are taking advantage of this unprecedented period by capitalizing on these strengths and staying laser focused on continuing our successful turnaround strategy, including accelerating digital growth.
“As I enter my second year with the business, the things we learned and improved last fall have been accelerated into the back half of this year,” Langenstein continued. “In the second quarter, we substantially enhanced our financial performance despite pandemic headwinds. Compared to the first quarter, our second-quarter digital and store sales trends improved 9.2 percent and gross margin rate rose more than 1,800 basis points. Store and digital conversion rates improved in the second quarter, providing an indicator that our product changes to comfort, casual and easy care fabrics are resonating with customers, giving us confidence our financial and product initiatives combined with relentless customer focus have positioned us to emerge a stronger company.”
Total company revenues for the period were $306 million, down from $508 million the same time last year. By brand, topline sales at Chico’s were $139 million, compared with nearly $269 million a year ago. White House Black Market’s revenues totaled $82 million, compared with about $140 million a year ago. Even intimates brand Soma, which has been a standout for several quarters, fell short with $84 million in total sales, compared with $99.6 million a year ago.
The company widened its losses at $46.8 million during the quarter as a result, compared with losses of $2.3 million during 2019’s second quarter.
Like most retailers, Chico’s FAS was forced to temporarily shut down all of its brick-and-mortar locations in mid-March to prevent the spread of the coronavirus. Stores did not begin to reopen until late May. As of Aug. 1, 96 percent of the company’s 1,313 stores in the U.S. had reopened. Chico’s FAS also sells merchandise through 69 international franchise locations in Mexico and two domestic franchise airport locations.
The company, which permanently closed 19 stores during the quarter and is anticipating another 25 to 50 permanent store closures later this year, said it will continue to evaluate its retail fleet and exit unprofitable stores while continuing to negotiate rent reductions and abatements with current landlords.
But even as stores began to reopen, customer traffic remained stagnant in coronavirus hot spots, with special occasion dressing and “career wear” struggling in most markets.
“The sentiment of the customer shopping behavior is really following COVID-19,” Langenstein said on Wednesday morning’s conference call with analysts. “The other thing that we also see is improvements in open lifestyle centers and strip malls, versus closed malls. That’s been pretty consistent for the quarter.”
Meanwhile, with stores closed, the company’s e-commerce businesses continued to grow. Digital sales in the apparel and intimates categories across all the three major brands increased double digits year-over-year. At Soma, digital sales surged 70 percent during the quarter, year-over-year.
“The focus on innovation and franchise dominance produced another terrific quarter for Soma, with strong sales in all proprietary intimate loungewear and sleepwear categories,” Langenstein said on the call. “Our accelerated investment recent results and current momentum give us confidence that we will continue to catapult the Soma brand and take market share.”
Likewise, Style Connect, the online styling service used across all three brands that allows shoppers to digitally connect with a personal shopper, grew 50 percent during the quarter, year-over-year.
The company is not providing forward-looking guidance, but said it will continue to invest in new technology and its digital platforms, including Style Connect’s new personal closet feature, which allows shoppers to pair new purchases with past orders.
“Retail is about detail,” Langenstein said Wednesday. “Dissecting these details has been essential for building our back-half strategy between both channels.”
Selling, general and administrative expenses were reduced by 37 percent during the quarter, year-over-year. Chico’s FAS ended the quarter with more than $124 million in cash and equivalents and $149 million in long-term debt.
Chico’s FAS stock is down nearly 38 percent year-over-year.