Diane Ellis, president of the Chico’s brand, is moving on after only two years following a leadership shake-up.
Ellis joined Chico’s FAS Inc. in 2016, and while a brand refresh in February heavily weighted in boho styles and bold colors seemed to attract new customers, the company has since determined that there hasn’t been enough classic silhouettes and basics to attract the brand’s more traditional shoppers. The women’s specialty chain, which also reported third-quarter results Wednesday that missed Wall Street’s estimates, said in its earnings report that the Chico’s brand saw sales drop 8.8 percent in the quarter ended Nov. 3.
Chico’s said it has already started its search to identify a new brand president for Chico’s. In the interim, it will be led by Shelley Broader, the company’s president and chief executive officer. Ellis’ last day is Nov. 30.
According to Broader, “We are committed to improving the performance of our Chico’s brand, and we believe this leadership transition and the merchandising and marketing changes under way, as separately announced today, are necessary to reinvigorate broad-based consumer excitement and growth for the brand.”
As for third-quarter results, the company said net income was just $6.5 million, or 5 cents a diluted share, down from net income of $16.7 million, or 13 cents, a year ago. Net sales fell 6.1 percent to $499.9 million from $532.3 million. But when the impact of the hurricanes from last year’s quarter were excluded, sales actually fell 7.7 percent for the quarter, reflecting a comparable sales drop of 6.8 percent and the impact of 43 store closures.
Wall Street was expecting EPS of 8 cents on sales of $515.6 million.
By segment, intimates brand Soma saw an incremental sales gain to $72.6 million from $72.5 million, with comparable sales up 2.4 percent. White House Black Market sales fell 4.2 percent to $167.8 million from $175.3 million, while comparable sales fell 5.1 percent. Sales at the chain’s core Chico’s brand dropped 8.8 percent to $259.5 million from $284.6 million, as comparable sales also dropped 10.2 percent.
Broader said while Soma performed well and White House Black Market is continuing its brand repositioning, the “Chico’s brand did not deliver the sales we anticipated, which led to total company results that were below expectations.”
As for fixing the Chico’s problem, Broader said, “The initial emphasis that we selected for our Chico’s brand repositioning has not resonated with our broader target customer base. So we are course-correcting by implementing a performance improvement plan that includes brand leadership changes and adjustments to our product offering, marketing strategy and assortment architecture to better meet expectations for all customers who shop the Chico’s brand.”
The course-correction includes adjusting spring assortments through “reducing planned receipts and chasing more classic merchandise that is performing well” and changing allocation strategies to “improve in-stock and stronger penetration in basics and top key items.”
Broader told analysts during the conference call that for the marketing initiative for the Chico’s brand, “We have repositioned our visuals to be more inclusive of all of our target customers.” That includes adjusting in-store displays so “no singular look dominates,” the ceo explained. As for improving in-stock inventory, she noted one problem that had plagued the brand: “For example, our Juliet pants and no-iron shirt programs continue to be customer favorites with strong sell-through, but we lacked the inventory to fully capitalize on demand.”
For the other brands, the company said October was Soma’s fifth month of positive comparable sales. And while the repositioning at White House Black Market has shown improved merchandise margins that were driven by better full-price selling, it also had some missed opportunities in “polished casual” during August and September. Broader explained, “Our assortment [lacked] the feminine detailing and aesthetics that our customers expect from us. We have also incorporated these learnings into our merchandise planning process for next spring.”
One bright note seemed to be the company’s collaboration with Amazon, which features a selection of offerings. “We are pleased with the results of our first Black Friday and Cyber Monday as we showcased a broader selection of our tried-and-true winners,” she said.
For the fourth quarter, the company said it expects a midteen decline in net sales, and a high-single-digit decline in consolidated comparable sales. For full-year fiscal 2018, the chain is forecasting a high-single-digit decline in net sales and a midsingle-digit decline in consolidated comparable sales.
Between the third-quarter miss and lackluster guidance, plus the exit of Ellis, shares of Chico’s fell 34.6 percent to $4.79 in trading on the New York Stock Exchange.
Chico’s FAS operated 1,431 in the U.S. and Canada as of the end of the third quarter. It also sold merchandise in Mexico through 83 international franchise locations.