Is Chico's FAS Having an Unfashionable Spring?

Chico's FAS recently reported its first-quarter earnings for the current fiscal year.

Jun 7, 2014 at 1:14PM

Leading specialty retailer in women's apparel and accessories Chico's FAS (NYSE:CHS) recently announced its first-quarter fiscal results for the 13- week period ended on May 3. Along with releasing its first-quarter results on May 28, Chico's FAS also provided investors with updated guidance for its second quarter.

The company, which owns such brands as Chico's, White House Black Market, Soma Intimates, and Boston Proper, suffered its share of disappointments in the quarter. Did Chico's FAS simply have a tough start to the new fiscal year, or are its customers shopping elsewhere for their apparel and accessories?

No such luck in the first quarter
Chico's FAS did manage to increase its net sales in the first quarter, while comparable sales took a turn for the worse. Net sales increased 1.6% to $681.6 million compared to last year's first quarter in which net sales totaled $670.7 million. This sales growth was largely due to the fact that the company opened 99 net new stores in the first quarter, which increased its total square footage by 6.9%.

Unfortunately, comparable-store sales fell by 2.6% on account of lower average dollar sales at the register during a period of high promotional activity as colder temperatures and winter storms kept shoppers from venturing out of their homes. All in all these factors hurt traffic and sales levels across the board.

Net income was also affected in the first quarter, as the company's profit dropped nearly 23% to $39.9 million, or $0.26 a share, from $51.7 million, or $0.32 per share during the same period a year ago. So, what does Chico's FAS expect to happen in the second quarter?

A peek at the second quarter
Looking to the second quarter, results are expected to be better than the same period a year ago, according to forward guidance in the first-quarter press release. While there is no guarantee that these figures will be sustained, Chico's FAS announced that for the second quarter, "unaudited total sales and comparable sales through [May 26] increased approximately 5% and 1%, respectively, compared to the same period last year."

Chico's FAS gave no further updates regarding store openings and closures as well as net income for the second quarter. So, did Chico's FAS' competitors do better in the first quarter or perform just as poorly?

Too close t o call
Believe it or not, Chico's FAS was not the only specialty retailer among its competitors to post rough results in the first quarter of fiscal 2014. In fact, ANN (NYSE:ANN), which owns brands Ann Taylor and LOFT, reported its first- quarter financials just two days after Chico's FAS. From the chart below, it appears ANN also had a tough earnings period compared to the same period in fiscal 2013.

Q1 Financial Results and Growth

Chico's FAS


Q1 Net Sales FY 2013

$670.7 million

$574.5 million

Q1 Net Sales FY 2014

$681.6 million

$590.6 million

Net Sales Growth



Comparable Sales



Q1 Net Income FY 2013

$51.7 million

$20.9 million

Q1 Net Income FY 2014

$39.9 million

$15.4 million

Net Income Growth



Based on these figures, it appears net sales remained positive for both retailers, while comparable sales and net income yielded weaker results than the previous year's first quarter. In fact, profits were hit hardest at ANN, falling 26.3% to $15.4 million, or $0.33 per share, excluding one-time restructuring expenses that ANN incurred in its most recent quarter that it did not incur in the same period of fiscal 2013. If you factor in these one-time charges with the company's earnings, net income fell by 75% to $5.2 million, or $0.11 per share.

Both retailers' comparable sales were ultimately hurt by unpredictable winter weather conditions causing lower-than-usual traffic volume in their stores. This leads us to conclude that both Chico's FAS and ANN had a rough first quarter due primarily to external factors tied to consumer spending. Nevertheless, aside from incurring those one-time charges that affected earnings by $0.22 a share, ANN performed pretty well in its first quarter along with Chico's FAS, which also incurred its share of one-time costs; however, Chico's FAS' costs represent only a $0.01 per-share difference, or $600,000 in net profit.  

While it was a tough quarter for both retailers on account of comparable sales and non-recurring charges, both companies are still generating sales thanks to their brands' popularity and success among consumers.

Foolish takeaway
Chico's FAS may have had a bad first quarter, but this appears to be more of an industrywide issue than a brand-specific one given the fact that its competitors delivered similar performances in their first quarters. Foolish investors, therefore, should not strongly react to Chico's FAS' latest quarterly results; instead, investors should take the time to do more research on the company before deciding whether or not it would fit into their portfolio.

As many know, Chico's FAS' brands Chico's, Soma Intimates, and White House Black Market are extremely popular among women in their 20s-50s who are still in need of business-casual as well as dressy looks for their everyday lives. Investors would be wise to keep a close eye on how Chico's FAS performs in the upcoming quarter and full year.

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Natalie O'Reilly has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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