Shares of Chico’s FAS Inc. rose 11.3 percent in late morning trading after the women’s specialty chain posted third-quarter results that bested analysts’ earnings per share estimate by 7 cents.
Chico’s posted net income of $23.6 million, or 18 cents a diluted share, against a net loss of $11.6 million, or 9 cents, a year ago. In the quarter, the company recorded pre-tax restructuring and strategic charges of $10.8 million. Excluding charges connected with the sale of its Boston Proper business, adjusted EPS was 20 cents.
Total net sales were down 7.5 percent to $596.9 million from $645.4 million. Total company comparable-store sales fell 4.9 percent for the quarter. The year-ago quarter included $18.7 million in sales from its now sold Boston Proper business. By concept, Chico’s was down 6.4 percent to $312.2 million on a comps decline of 5.6 percent; White House|Black Market slipped 4.8 percent to $210.4 million on a comps decline of 5.5 percent, and Soma was up 2.7 percent to $74.3 million, helped by a 0.4 percent gain in comps.
Wall Street’s consensus estimate was 13 cents on revenues of $610.8 million.
Shelley G. Broader, president and chief executive officer, said in a conference call to Wall Street analysts, “Our third-quarter earnings exceeded our expectations. Our performance reflects the significant progress we’re making on our strategic plan and the successful execution of our initiatives to transform Chico’s FAS for the future.”
Broader also told analysts that “operating margins increased to 7 percent from 4.6 percent last year as we improved our merchandise margin rate, accelerated our cost reduction initiatives and reduced consolidated inventory. Our ability to leverage expenses in a continually challenging environment reinforces our confidence that we are on the right path to return the company to double-digit operating margins.”
The ceo said the company is in the second phase of its strategic plan, executing on the cost reduction and operating efficiency initiatives. She said the company responded to a weaker sales environment by accelerating cost-saving initiatives to improve profitability, while at the same time setting the foundation for the third phase of the plan. That stage calls for establishing and building a robust growth platform for each of it brand concepts, which Broader expects to implement in fiscal 2017.
As for each concept, Broader said jackets, sweaters and denim pants at Chico’s failed to meet company expectations and “weighed on comparable sales,” although the Juliet anklet pant that was introduced in September was “the brand’s best-performing pant ever in terms of sales, units and merchandise margin.” At White House|Black Market, the ceo said sales were impacted by consumer preference for buy-and-wear-now products, which then hurt the sweater and knit categories. At Soma, the brand introduced three bra styles — Memorable, Sport and bralette — that helped sales, but the fashion side of the business needs more work as Soma continues to refine brand positioning.
Broader also told analysts that the company has improved its collaboration with vendors “by leveraging our scale with their strengths and competencies. By building a comprehensive vendor matrix, we are now able to take full advantage of their areas of expertise where we may have only utilized a portion of them before.”
For the fourth quarter, the company guided comps to a low single digit decline, with improvement in merchandise margin that will be offset by occupancy deleverage and resulting in a reduction in the gross margin rate.