Chico’s FAS Inc. plans to close 120 stores by the end of 2017 and has cut 240 headquarter and field management posts as it looks to reallocate its resources for other purposes, including its omnichannel efforts.
The cost reduction plan came as the company disclosed its fourth-quarter financial results, which included increases in comparable and net sales and a stronger-than-anticipated improvement in its adjusted earnings for the period.
The 120 store closures, including 35 in the current year, are expected to save the Fort Myers, Fla.-based women’s specialty retailer approximately $55.2 million a year upon completion. The company recorded pretax impairment charges of $5.3 million in the fourth-quarter as a result of the accelerated closings schedule.
The 240 job cuts, representing about 12 percent in headquarters and field management staff, resulted in a pretax charge of about $8.2 million, to cover severance and other costs, in the most recent quarter.
Capital expenditures in the new year will be about $100 million, nearly 30 percent below their average for the prior three years. Included in the amount are about $30 million for new point-of-sale systems, including mobile technology, being rolled out to all stores. The company plans 40 store openings in 2015, many of which were committed to prior to the decision to reduce the real estate portfolio, versus 109 additions in 2014, 135 in 2013 and 125 in 2012.
The company also plans to repurchase about $250 million of its stock in the current first quarter, to be financed through a combination of cash and debt.
Chico’s ended the year with 1,547 stores, including its outlets and Canadian stores. As with other retailers, such as Macy’s Inc., reallocating their capital resources to reflect the continuing shift to online shopping from brick-and-mortar purchasing, Chico’s framed the moves as part of its effort to better accommodate the changing demands of the customer.
“As the retail environment continues to evolve, we must look at new stores through a more sharply focused lens than in the past,” David Dyer, president and chief executive officer of the company, told analysts on a Thursday morning conference call. “However, we will continue to make the necessary allocations to both the customer experience and the seamless integration of digital with bricks and mortar.”
The cuts in both store count and headcount, Dyer said, “follow a careful review of our business and reflect a level of investment that we believe is necessary to support continued profitable growth over the long term, balanced with our focus on returning excess cash to shareholders.”
In the quarter ended Jan. 31, Chico’s incurred a net loss of $31.8 million, or 21 cents a diluted share, versus a loss of $348,000, or zero cents, in the 2013 period. Stripping out restructuring charges as well as a pretax goodwill impairment charge for the Boston Proper brand acquired in 2011, adjusted EPS was 5 cents a diluted share, above the 2-cent profit expected, on average, by analysts.
Sales rose 3.4 percent to $656.9 million, above the $639.9 million analysts’ consensus estimate and compared to $610.2 million registered in the prior-year period. Both transactions and average sales rose.
Comparable sales, flat for the full year, rebounded to grow 4.3 percent in the final quarter of 2014, with Chico’s up 1.2 percent, White House|Black Market up 5.4 percent and Soma Intimates up 13.7 percent.
Gross margin fell to 50 percent of sales from 50.7 percent, with some of the pressure coming from West Coast port disruptions but most from the promotional tenor of the apparel marketplace.
Acknowledging that some of the margin erosion was self-inflicted by Chico’s overbuying for the fourth quarter, Dyer nonetheless castigated the retailing industry for setting itself up for a consumer trained to wait for sales.
“Everybody has been so damn promotional, including us, that I think that [the customer] doesn’t really even know what the right price is anymore,” he said. “I think that’s one of the things that certainly we are going to do on our own is to get back to pricing that is more consistent with our history. Even if it’s slightly at the expense of sales, it will drive margin.”
The earnings report came a day after published reports that private equity firm Sycamore Partners had abandoned negotiations to acquire the retailer.
According to a person with knowledge of the talks, Sycamore had been able to secure financing for the deal from multiple sources at a price it wanted to pay.
But talks broke down over a “disagreement over price,” the source said, adding that Sycamore was unlikely to resume negotiations and that “Chico’s has moved on.”
There was no indication of the price Chico’s was willing to accept or Sycamore was willing to pay.
For the full year, net income dropped 1.9 percent, to $64.6 million, or 42 cents a diluted share, while revenues expanded 3.4 percent to $2.68 billion.