FINANCE

Chico’s Q1 profit, sales fall but beat Street; cuts outlook

BY Marianne Wilson

Chico’s FAS’ earnings, revenue and same-store sales declined in the first quarter as the struggling apparel retailer works to get itself back on track under new leadership.

In March, Chico’s appointed a new leader, Karen McKibbin, as president of its namesake brand and said it would close 60 to 80 stores in 2019 following a disappointing fourth quarter. One month later, Chico’s announced the resignation of CEO and president Shelley Broader and the appointment of Bonnie Brooks, former president and CEO of Hudson’s Bay Company and a current Chico’s board member, as interim chief executive.

In the quarter ended May 4, Chico’s net income fell to $2.03 million, or 2 cents a share,  from $29.0 million, or 23 cents a share, in the year-ago period. Excluding non-recurring items, adjusted earnings per share came to 5 cents, above analysts’ estimates of 3 cents. Gross margin fell to 36.9% of net sales from 40.4%.

Net sales fell 7.8% to $517.7 million, just above Street estimates of $517.6 million. Total same-store sales declined 7%, wider than expected, amid a lower average dollar sale and a decreased transaction count. By brand, same-store sales fell 10% at White House Black Market, 7.8% at Chico’s and 3.4% at Soma.

In a statement, interim CEO Brooks sounded a confident note, pointing out the “significant leadership” changes that occurred in Chico’s first quarter and the resetting of priorites “for its growth and value creation.”

“Actions are now underway across all brands with a focus on three distinct areas that will positively impact our results,” she said. “These include driving stronger sales through improved product and marketing; optimizing the customer journey by simplifying, digitizing and extending our unique and personalized service; and transforming our sourcing and supply chain operations to increase product speed to market and improve quality. Having led successful turnarounds at other major apparel retailers, I am confident that our action steps on the path forward are the ones needed to deliver our plans.”

For fiscal 2019, the company cut its outlook for net sales and same-store sales to a decline in the “low-to-mid-single-digit” percentage range from a “low-single-digit” decline, and lowered its gross margin as a percent of sales guidance to be down 50 to 100 basis points (0.50 to 1.00 percentage points) from flat to down 50 basis points.

As of May 4, Chico’s operated 1,410 stores in the U.S. and Canada and sold merchandise through 84 international franchise locations in Mexico and one domestic franchise airport store.

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