Chico’s FAS Inc. showed improvement in sales, margins and inventory control as its first-quarter profits fell on restructuring actions.
In the three months ended May 2, the Fort Myers, Fla.-based owners of Chico’s, Soma and White House|Black Market posted net income of $32.5 million, or 22 cents a diluted share, an 18.5 percent decline from the $39.9 million, or 26 cents, reported for the 2014 quarter.
Excluding 6 cents a share for restructuring charges, adjusted earnings per share was 28 cents, matching the consensus estimate of analysts.
Sales finished short of estimates, rising 1.7 percent to $693.3 million from $681.6 million, below the $712.9 million consensus.
In a conference call with analysts, David Dyer, president and chief executive officer of the company, cited shortfalls in the company’s dress business and some sales lost to the West Coast port situation, such as incomplete floor sets, for the disappointing sales results, adding, “I would say, in product, I’m very pleased with the assortments across all our brands. If there’s any category which didn’t perform as expected, that would be dresses.”
He estimated that the port difficulties had cost the company about 1 percent of its sales.
However, he pointed to “disciplined inventory management, cost reductions and enhancement of the customer experience” as contributing to the first quarter of improvements in average unit retail and gross margin since 2012.
Comparable sales declined 0.1 percent overall, with a 2.3 percent descent at Chico’s offset by increases of 3.4 percent and 6.5 percent, respectively, at the smaller White House|Black Market and Soma brands.
On a net basis, sales fell 2.3 percent to $368.5 million at Chico’s, improved 3.4 percent to $224.5 million at White House|Black Market and rose 12.8 percent to $76.5 million at Soma. Boston Proper revenues were off 2.2 percent to $23.8 million.
Dyer pointed to improvement in gross margin — up to 57.1 percent of sales from 56.2 percent a year ago — and Chico’s inventory position as proof that recent initiatives are bearing fruit. Inventories rose 0.5 percent over year-ago levels, to $270.3 million, while declining 2.8 percent on a per square foot basis.
Dyer, who said last week that he would retire from the company in June 2016, indicated that the firm, which has been reducing its store count, would be a tough negotiator in its talks with landlords.
“Obviously, some of the occupancy cost increases that landlords are requesting certainly don’t work with us,” he said. “And if we can’t get an occupancy cost upon renewal that works and lets us achieve the profitability that we need, then we won’t do that store. And I think that certainly when you see occupancy cost increases in light of all the traffic decreases, it really doesn’t make much sense.”
He pointed out that, as a tenant in strip malls and street relocations, Chico’s might have more flexibility in seeking locations.
“I think there will be some fallout in occupancy costs over time,” Dyer noted.
Shares, off more steeply in morning trading, closed at $16.64, down 0.5 percent.