The entrance to Chico's in New Orleans. (Photo by: Jeffrey Greenberg/Universal Images Group via ... [+] Getty Images)Universal Images Group via Getty Images In a deal valued at $1 billion priced at $7.60 per share, private equity firm Sycamore Partners just acquired special fashion retailer Chico’s FAS, including the flagship Chico’s brand along with White House Black Market and Soma intimates.The Chico’s brands will be merged under Sycamore’s recently formed Knitwell Group that includes the Ann Taylor and ...

FORT MYERS, Fla., Jan. 5, 2024 /PRNewswire/ -- Chico's FAS, Inc. ("Company" or "Chico's FAS,"NYSE: CHS) today announced the completion of its acquisition by Sycamore Partners, a private equity firm specializing in retail, consumer, and distribution-related investments, for $7.60 per share, in an all-cash transaction valued at approximately $1 billion. "Joining the Sycamore portfolio of leading retail brands marks an important milestone for Chico's FAS and continues our journey as a customer-led, product-obs ...

PART I [Financial Statements](index=4&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited condensed consolidated financial statements, including income, balance sheets, cash flows, and notes, for the periods ended October 28, 2023, and October 29, 2022 [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) The income statements show a decrease in net sales and net income for the thirteen-week period, while the thirty-nine-week period saw a slight increase in net income despite lower sales Income Statement Highlights (Thirteen Weeks Ended) | Metric | Oct 28, 2023 (in thousands) | Oct 29, 2022 (in thousands) | | :--- | :--- | :--- | | Net Sales | $505,126 | $518,332 | | Gross Profit | $196,449 | $207,440 | | Income from Operations | $10,529 | $31,599 | | Net Income | $5,040 | $24,619 | | Diluted EPS | $0.04 | $0.20 | Income Statement Highlights (Thirty-Nine Weeks Ended) | Metric | Oct 28, 2023 (in thousands) | Oct 29, 2022 (in thousands) | | :--- | :--- | :--- | | Net Sales | $1,584,995 | $1,617,967 | | Gross Profit | $638,358 | $655,519 | | Income from Operations | $110,409 | $135,223 | | Net Income | $104,270 | $101,512 | | Diluted EPS | $0.85 | $0.82 | [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheets show a strong liquidity position with reduced long-term debt and increased shareholders' equity as of October 28, 2023 Balance Sheet Summary (as of October 28, 2023) | Account | Amount (in thousands) | | :--- | :--- | | **Assets** | | | Cash and cash equivalents | $101,944 | | Inventories | $342,721 | | Total Current Assets | $529,634 | | Total Assets | $1,264,715 | | **Liabilities & Equity** | | | Total Current Liabilities | $442,341 | | Long-term debt | $24,000 | | Total Liabilities | $842,120 | | Total Shareholders' Equity | $422,595 | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash flow statements indicate a decrease in net cash from operating activities for the thirty-nine-week period, with significant cash used in financing activities Cash Flow Summary (Thirty-Nine Weeks Ended) | Activity | Oct 28, 2023 (in thousands) | Oct 29, 2022 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $35,518 | $83,631 | | Net cash used in investing activities | ($35,435) | ($41,728) | | Net cash used in financing activities | ($51,516) | ($39,282) | | Net (decrease) increase in cash | ($51,433) | $2,621 | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide details on significant accounting policies, including the pending merger agreement, debt facilities, and a new supplier finance program - On September 27, 2023, the Company entered into a Merger Agreement to be acquired by Daphne Parent LLC for **$7.60 per share** in cash. The transaction is expected to close by the end of the **first calendar quarter of 2024**[98](index=98&type=chunk)[100](index=100&type=chunk) - As of October 28, 2023, the company had **$24.0 million** in net borrowings outstanding under its Credit Agreement, with an available additional borrowing capacity of approximately **$265.1 million**[147](index=147&type=chunk) - The company initiated a supplier financing program in Q3 2023. As of October 28, 2023, the outstanding payment obligation under this program was **$2.2 million**[149](index=149&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=23&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses the company's financial performance, strategic pillars, and solid financial condition, noting the withdrawal of the fiscal 2023 outlook due to the pending merger - The company's growth strategy is focused on **four pillars**: (1) customer led, (2) product obsessed, (3) digital first, and (4) operationally excellent[171](index=171&type=chunk) - Due to the pending acquisition by Sycamore Partners, the Company is not providing a financial outlook and has **withdrawn its previously issued outlook for fiscal 2023**[164](index=164&type=chunk) - The company ended the third quarter with **$126.6 million** in cash and marketable securities, total liquidity of **$361.7 million**, and **$24.0 million** in long-term debt[160](index=160&type=chunk) [Results of Operations](index=27&type=section&id=Results%20of%20Operations) Third-quarter net sales and gross margin decreased due to lower comparable sales and higher occupancy costs, with merger-related costs impacting profitability Net Sales by Brand (Thirteen Weeks Ended) | Brand | Q3 2023 (in millions) | % of Total Sales | | :--- | :--- | :--- | | Chico's | $252 | 49.9% | | WHBM | $148 | 29.2% | | Soma | $105 | 20.9% | | **Total** | **$505** | **100.0%** | Comparable Sales Growth (Thirteen Weeks Ended) | Brand | Q3 2023 vs Q3 2022 | | :--- | :--- | | Chico's | 0.0% | | WHBM | (6.7)% | | Soma | (3.1)% | | **Total Company** | **(2.7)%** | - Q3 Gross margin decreased by **110 basis points** to **38.9%**, primarily due to higher occupancy costs and deleverage on lower sales[190](index=190&type=chunk) - Q3 SG&A expenses increased as a percentage of sales to **35.4%** from **33.9%** in the prior year, driven by higher marketing and store operating expenses[177](index=177&type=chunk)[4](index=4&type=chunk) [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with reduced long-term debt, increased inventories for holiday sales, and a net closure of 13 stores year-to-date Key Balance Sheet and Cash Flow Items | Metric | Oct 28, 2023 (in millions) | Change from Prior Year Period | | :--- | :--- | :--- | | Cash and Marketable Securities | $126.6 | Decreased from $140.7 | | Long-Term Debt | $24.0 | Decreased from $69.0 | | Inventories | $342.7 | Increased 12.7% | | YTD Net Cash from Operations | $35.5 | Decreased from $83.6 | - Net cash used in financing activities for the YTD period was **$51.5 million**, reflecting **$19.8 million** in share repurchases and debt repayments[13](index=13&type=chunk) - The company closed a net of **13 underperforming locations** during the first thirty-nine weeks of 2023, ending the quarter with **1,256 boutiques**. It also operates **58 international franchise locations**[16](index=16&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=35&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company's market risk remains consistent, primarily exposed to interest rate changes on its Credit Agreement and marketable securities portfolio - The company is exposed to interest rate risk through its Credit Agreement. A hypothetical **100 basis point increase** in interest rates would increase interest expense by about **$0.8 million** over the loan's remaining term[21](index=21&type=chunk) - The marketable securities portfolio as of October 28, 2023, consisted of **$22.2 million** of securities with maturities within one year and **$2.5 million** with maturities over one year, all classified as available-for-sale[21](index=21&type=chunk) [Controls and Procedures](index=35&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls over financial reporting during the quarter - The CEO and CFO concluded that as of the end of the period, the company's disclosure controls and procedures were **effective** in providing reasonable assurance[22](index=22&type=chunk) - **No changes** in internal controls over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[23](index=23&type=chunk) PART II – OTHER INFORMATION [Legal Proceedings](index=36&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company is not currently involved in any material legal proceedings beyond those arising in the normal course of business - The company is **not party to any material legal proceedings** outside of the normal course of business[150](index=150&type=chunk)[24](index=24&type=chunk) [Risk Factors](index=37&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section highlights material risks, primarily focusing on the potential impacts and uncertainties associated with the pending merger agreement - The pendency of the Merger exposes the business to risks such as **difficulty maintaining customer/partner relationships**, **retaining key personnel**, and **management distraction**[47](index=47&type=chunk) - There is a risk that the **Merger may not be completed** in the expected timeframe, or at all, which could **negatively impact the stock price** and result in **significant unbenefited costs**[48](index=48&type=chunk) - **Potential shareholder litigation** related to the pending Merger could **delay or prevent its closing** and lead to **significant costs**[28](index=28&type=chunk) [Issuer Purchases of Equity Securities](index=39&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%2C%20USE%20OF%20PROCEEDS%2C%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) The company repurchased shares for employee tax obligations and authorized a new $100 million share repurchase program, with the full amount remaining available - In June 2023, the Company authorized a new **$100 million share repurchase program**, cancelling the remaining **$35.4 million** from the prior program. As of October 28, 2023, **$100 million remains available**[201](index=201&type=chunk) Share Purchases (Three Months Ended Oct 28, 2023) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jul 30 - Aug 26, 2023 | 100,420 | $5.37 | | Aug 27 - Sep 30, 2023 | 5,845 | $5.04 | | Oct 1 - Oct 28, 2023 | 14,697 | $7.49 | | **Total** | **120,962** | **$5.61** | [Other Information](index=40&type=section&id=ITEM%205.%20OTHER%20INFORMATION) No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the third quarter of 2023 - **No directors or officers** adopted, modified, or terminated a **Rule 10b5-1 trading arrangement** during the third quarter of 2023[61](index=61&type=chunk) [Exhibits](index=41&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed with the Form 10-Q, including the Merger Agreement, employee stock plan amendments, and CEO/CFO certifications - Filed exhibits include the **Agreement and Plan of Merger** (Exhibit 2.1), an amendment to the **Employee Stock Purchase Plan** (Exhibit 10.1), and **CEO/CFO certifications** (Exhibits 31.1, 31.2, 32.1, 32.2)[57](index=57&type=chunk)

[PART I – Financial Information](index=3&type=section&id=PART%20I%20%E2%80%93%20Financial%20Information) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The company presents its unaudited condensed consolidated financial statements for the periods ended July 29, 2023 [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Net income increased to $59.3 million for the quarter, driven by a significant non-cash tax benefit Condensed Consolidated Statements of Income (Thirteen and Twenty-Six Weeks Ended) | Indicator | Thirteen Weeks Ended July 29, 2023 | Thirteen Weeks Ended July 30, 2022 | Twenty-Six Weeks Ended July 29, 2023 | Twenty-Six Weeks Ended July 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | **Net Sales** | $545,126 | $558,720 | $1,079,869 | $1,099,635 | | **Gross Margin** | $216,900 | $231,514 | $441,909 | $448,079 | | **Income from Operations** | $46,544 | $58,217 | $99,880 | $103,624 | | **Net Income** | $59,324 | $41,961 | $99,230 | $76,893 | | **Diluted EPS** | $0.49 | $0.34 | $0.81 | $0.62 | [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet reflects a strong liquidity position, significantly reduced long-term debt, and increased shareholders' equity Key Balance Sheet Items (in thousands) | Account | July 29, 2023 (Unaudited) | January 28, 2023 (Audited) | July 30, 2022 (Unaudited) | | :--- | :--- | :--- | :--- | | **Cash and cash equivalents** | $129,015 | $153,377 | $157,233 | | **Inventories** | $300,151 | $276,840 | $338,761 | | **Total Current Assets** | $514,301 | $515,363 | $571,502 | | **Total Assets** | $1,235,946 | $1,187,841 | $1,232,513 | | **Long-term debt** | $24,000 | $49,000 | $99,000 | | **Total Liabilities** | $820,689 | $852,208 | $934,636 | | **Total Shareholders' Equity** | $415,257 | $335,633 | $297,877 | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow decreased year-over-year due to inventory spending, while financing cash use increased from debt repayment Cash Flow Summary (Twenty-Six Weeks Ended, in thousands) | Activity | July 29, 2023 | July 30, 2022 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $42,629 | $75,999 | | **Net cash used in investing activities** | ($16,042) | ($25,486) | | **Net cash used in financing activities** | ($50,949) | ($8,385) | | **Net (decrease) increase in cash** | ($24,362) | $42,128 | | **Cash and Cash Equivalents, End of period** | $129,015 | $157,233 | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail revenue by brand, tax rate reconciliation, debt structure, and share repurchase program updates Revenue by Brand (Twenty-Six Weeks Ended July 29, 2023) | Brand | Revenue (in thousands) | % of Total | | :--- | :--- | :--- | | Chico's | $547,867 | 50.7% | | WHBM | $303,518 | 28.1% | | Soma | $228,484 | 21.2% | | **Total Net Sales** | **$1,079,869** | **100.0%** | - The effective tax rate for the 13 weeks ended July 29, 2023 was a **28.6% benefit**, primarily due to a **$25.6 million non-cash discrete benefit** from the reversal of a valuation allowance on deferred tax assets[38](index=38&type=chunk) - As of July 29, 2023, the company had **$24.0 million in net borrowings** outstanding under its Credit Agreement, with an additional borrowing capacity of approximately **$265.1 million**[31](index=31&type=chunk)[84](index=84&type=chunk) - In June 2023, the company authorized a new **$100 million share repurchase program**, with the full amount available for future repurchases as of July 29, 2023[68](index=68&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=22&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses brand performance, market share gains, a strong balance sheet, and the financial outlook for fiscal 2023 [Executive Overview](index=22&type=section&id=Executive%20Overview) The company achieved market share gains across all brands and maintained a strong liquidity position despite a slight sales decline - Q2 total comparable sales **decreased 3.0% YoY** but **increased 16.5%** on a two-year stacked basis[89](index=89&type=chunk) - All three brands (Chico's, WHBM, and Soma) **gained market share** in their respective target demographics during the second quarter[89](index=89&type=chunk) - The company ended Q2 with **$150.7 million in cash and marketable securities**, total liquidity of **$385.8 million**, and long-term debt at **$24.0 million**[89](index=89&type=chunk) [Fiscal 2023 Third Quarter and Full-Year Outlook](index=23&type=section&id=Fiscal%202023%20Third%20Quarter%20and%20Full-Year%20Outlook) The company provides its financial outlook for Q3 and the full fiscal year 2023, expecting continued sales and margin performance Fiscal 2023 Third Quarter Outlook | Metric | Expected Range | | :--- | :--- | | Consolidated net sales | $505M - $525M | | Gross margin rate | 38.5% - 39.0% | | SG&A as % of sales | 35.1% - 35.6% | | Earnings per diluted share | $0.08 - $0.12 | Fiscal 2023 Full-Year Outlook | Metric | Expected Range | | :--- | :--- | | Consolidated net sales | $2,145M - $2,175M | | Gross margin rate | 38.5% - 38.8% | | SG&A as % of sales | 33.0% - 33.3% | | Earnings per diluted share | $0.87 - $0.95 | [Results of Operations](index=26&type=section&id=Results%20of%20Operations) Net sales decreased slightly for the quarter and half-year, while gross margin fell in Q2 but improved for the 26-week period Comparable Sales vs. Prior Year (Thirteen Weeks Ended) | Brand | Q2 2023 vs Q2 2022 | | :--- | :--- | | Chico's | (2.5)% | | WHBM | (5.7)% | | Soma | (0.5)% | | **Total Company** | **(3.0)%** | Comparable Sales vs. Prior Year (Twenty-Six Weeks Ended) | Brand | YTD 2023 vs YTD 2022 | | :--- | :--- | | Chico's | 1.1% | | WHBM | (6.9)% | | Soma | (1.5)% | | **Total Company** | **(1.8)%** | - Q2 gross margin **decreased to 39.8% from 41.4% YoY**, primarily due to higher occupancy costs and lower average unit retail[126](index=126&type=chunk) - YTD gross margin **improved slightly to 40.9% from 40.7% YoY**, driven by lower inbound freight costs and higher average unit retail[151](index=151&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintained strong liquidity, significantly reduced long-term debt, and lowered inventory levels from the prior year - **Long-term debt was reduced to $24.0 million** at the end of Q2 2023, down from $99.0 million at the end of Q2 2022[133](index=133&type=chunk) - Inventories totaled **$300.2 million, an 11.4% decrease** from $338.8 million in the prior-year quarter, primarily due to lower in-transit inventories[134](index=134&type=chunk) - Net cash from operating activities for the first half of 2023 was **$42.6 million**, compared to $76.0 million in the same period last year[13](index=13&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's market risk exposure, primarily from interest rate fluctuations, has not materially changed since year-end - The company is exposed to interest rate risk through its Credit Agreement; a **100 basis point increase** in market rates would increase interest expense by about **$0.9 million**[161](index=161&type=chunk) - The marketable securities portfolio as of July 29, 2023, consisted of **$21.7 million**, primarily in U.S. government agencies and corporate bonds[41](index=41&type=chunk)[161](index=161&type=chunk) [Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were **effective** as of July 29, 2023[33](index=33&type=chunk) - **No material changes** to internal control over financial reporting occurred during the quarter[162](index=162&type=chunk) [PART II – Other Information](index=35&type=section&id=PART%20II%20%E2%80%93%20Other%20Information) [Legal Proceedings](index=35&type=section&id=Item%201.%20Legal%20Proceedings) The company is not party to any material legal proceedings outside of the normal course of business - The company reports **no material legal proceedings** other than those arising in the normal course of business[50](index=50&type=chunk)[54](index=54&type=chunk) [Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's 2022 Annual Report - **No material changes** have been made to the risk factors disclosed in the 2022 Annual Report on Form 10-K[201](index=201&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=37&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company details its share repurchase activity, including the authorization of a new $100 million program in June 2023 - In June 2023, the Board authorized a new share repurchase program for up to **$100 million** and cancelled the prior program[133](index=133&type=chunk)[185](index=185&type=chunk) Share Repurchases (Thirteen Weeks Ended July 29, 2023) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Apr 30 - May 27, 2023 | 4,096 | $4.96 | | May 28 - Jul 1, 2023 | 30,700 | $5.28 | | Jul 2 - Jul 29, 2023 | — | — | [Other Information](index=38&type=section&id=Item%205.%20Other%20Information) No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement during the reporting period - **No directors or officers** adopted or terminated a Rule 10b5-1 trading arrangement during the third quarter[34](index=34&type=chunk) [Exhibits](index=39&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including compensation plans and required officer certifications - Exhibits filed include compensation agreements, the Amended and Restated 2020 Omnibus Stock and Incentive Plan, and **Sarbanes-Oxley Act certifications** from the CEO and CFO[17](index=17&type=chunk) [Signatures](index=40&type=section&id=Signatures) The report is duly signed by the Chief Executive Officer and Chief Financial Officer on August 30, 2023 - The Form 10-Q was signed by **CEO Molly Langenstein and CFO David M. Oliver** on August 30, 2023[188](index=188&type=chunk)

Financial Data and Key Metrics Changes - The company reported adjusted earnings per diluted share of $0.28, down from $0.34 in the same quarter last year [19] - Total sales for the quarter were $545 million, a decrease of 2.4% from the previous year, with a comparable sales decline of 3% [25] - Gross margin was 39.8%, down from 41.4% last year, indicating a normalized margin with steady inventory flow [26] Business Line Data and Key Metrics Changes - Soma experienced a net sales increase of 2.1% and a comparable sales decline of 0.5%, marking a sequential improvement over the last four quarters [5][25] - Chico's saw a 2.5% decline in comparable sales, while White House Black Market's comparable sales fell 5.7%, both on top of significant two-year stacked growth [7][25] - Average dollar sale and units per transaction increased across all brands, although transaction count decreased [25] Market Data and Key Metrics Changes - The company gained market share among customers aged 45+ with household incomes over $100,000, with Soma significantly outperforming the market in the same demographic for customers aged 35+ [8] - Total customer count grew by 1% over the past 12 months, with spend per customer increasing by 3% [11] Company Strategy and Development Direction - The company is focused on being customer-led, utilizing stores, digital, and social platforms to enhance customer experience and drive sales growth [10] - The strategic pillars include being product-obsessed, digital-first, and operationally excellent, with ongoing investments in technology and marketing [15][18] - The company plans to replatform its websites to improve customer experience and conversion rates [18] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about improving trends in the second half of the year, particularly in response to fresh fall assortments [22][23] - The company anticipates flat to low single-digit revenue growth for fiscal 2023, with expectations for a rebound in the fourth quarter [22][34] - Management highlighted the importance of controlling inventory assortments and expenses to navigate the changing environment [23] Other Important Information - The company ended the quarter with $151 million in cash and total liquidity of $386 million, with only $24 million in debt [9][27] - Inventory levels were down 11%, with on-hand inventory down 0.3%, indicating a healthy position entering the second half of the year [9][31] Q&A Session Summary Question: Can you expand on inventory and its implications for the fourth quarter? - Management noted that total inventory was down 11%, with fresh fall inventories up 12%, indicating a healthy position for sales in the upcoming quarter [31] Question: What are the trends in the outlet business and customer reactivation? - Management reported a rebound in outlet store performance, with positive foot traffic and conversion, while customer reactivation efforts have been strong [38] Question: How is Soma performing and what are the expectations for the back half of the year? - Management expressed optimism about Soma's performance, particularly in bras and sleepwear, with a balanced inventory position for the upcoming season [40][47] Question: What is the promotional environment like in the intimates business? - Management indicated a strategic approach to promotions, focusing on hard markdowns rather than widespread discounts, which has helped maintain market share [57][58] Question: Is there a trend back towards casual wear? - Management clarified that the trend is more about proportional changes rather than a shift towards casual or dressy, emphasizing versatility in wardrobe choices [59][61]

Financial Data and Key Metrics Changes - The company reported adjusted earnings per diluted share of $0.28, down from $0.34 in the same quarter last year [21] - Total sales were $545 million, a decrease of 2.4% year-over-year, with a 3% decline on a comparable sales basis [22] - Gross margin was 39.8%, down from 41.4% last year, indicating a normalized margin due to steady inventory flow [23] Business Line Data and Key Metrics Changes - Soma experienced a 2.1% net sales increase, with comparable sales down 0.5%, marking a sequential improvement over the last four quarters [22][5] - Chico's saw a 2.5% decline in comparable sales, while White House Black Market's comparable sales fell 5.7%, both on top of nearly 30% increases on a two-year stack basis [22] - Average dollar sale and units per transaction increased across all brands, offset by a decrease in transaction count [22] Market Data and Key Metrics Changes - The company gained market share among customers aged 45 and older with household incomes over $100,000, with Soma significantly outperforming the market in the same demographic [8] - Total inventory was down 11%, with on-hand inventory down 0.3%, indicating a healthy inventory position entering the second half of the year [9][26] Company Strategy and Development Direction - The company focuses on being customer-led, utilizing stores, digital platforms, and social media to enhance customer experiences and drive long-term growth [10] - The strategic pillars include being product-obsessed, digital-first, and operationally excellent, with ongoing investments in technology and marketing to support growth [20] - The company plans to manage expenses while investing in areas that drive customer growth and store productivity [23] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the back half of the year, citing positive customer responses to new fall assortments and a healthy inventory position [29] - The company expects total sales for fiscal 2023 to be flat to low single-digit growth compared to last year, with improving trends anticipated in Q3 and Q4 [28][29] - Management highlighted the importance of maintaining a balanced assortment and strategic promotions to navigate the current market environment [73] Other Important Information - The company ended the quarter with $151 million in cash and total liquidity of $386 million, with only $24 million in debt [24][25] - The redesigned loyalty programs have seen nearly 90% enrollment among apparel customers, driving higher units per transaction and average dollar sales [19] Q&A Session Summary Question: Can you expand on inventory and trend changes for Q4 by brand? - Management noted that total inventory was down 11%, with fresh fall inventories up 12%, indicating a healthy position for Q3 [34] Question: What are the factors affecting gross margin? - Management highlighted corporate savings and occupancy costs as key factors, with a moderate gross margin contraction expected for the year [38][39] Question: How are outlet trends progressing? - Management reported a rebound in outlet stores, with positive foot traffic and conversion rates, although digital outlet sales remained soft [42][43] Question: What is the status of customer reactivation? - Management indicated strong reactivation of lapsed customers, with new customer growth up across all brands [44] Question: How is the dress business performing at White House Black Market? - Management acknowledged a sequential improvement in sales, with inventory levels now balanced between fashion and basics [71] Question: Is there a trend back towards casual wear? - Management clarified that the trend is more about proportion changes rather than a strict shift towards casual or dressy styles [75]

Financial Performance - Q2 2023 net sales reached $545.1 million [7], compared to $558.7 million in Q2 2022 [24] - Comparable sales decreased by 3.0% year-over-year, but showed a two-year stack increase of 16.5% [7] - The company reported an operating margin of 8.5% [7] - Gross margin was 39.8% [23], compared to 41.4% in Q2 2022 [24] - Diluted EPS was $0.49, with an adjusted diluted EPS of $0.28, excluding a $0.21 non-cash tax benefit [9, 120] - Total liquidity at the end of Q2 2023 was $386 million [23] Brand Performance - Soma's net sales increased by 2.1% year-over-year [33, 118] - Chico's brand net sales were $274.2 million [27] - WHBM (White House Black Market) net sales were $150.0 million [127] Digital and Customer Engagement - Digital penetration accounted for 46% of total net sales in FY2022 [46] - Chico's brand experienced a 3.9% year-over-year customer growth [124] - Soma customer count decreased 0.9% year-over-year [33] Strategic Priorities and Outlook - The company's strategic pillars include being customer-led, product-obsessed, digital-first, and operationally excellent [114, 115] - Q3 2023 consolidated net sales are projected to be between $505 million and $525 million [71] - Full-year 2023 consolidated net sales are projected to be between $2.145 billion and $2.175 billion [71] - Capital and cloud-based expenditures are expected to be between $75 million and $85 million for the full year 2023 [73]

[PART I – Financial Information](index=3&type=section&id=PART%20I%20%E2%80%93%20Financial%20Information) This section provides the unaudited condensed consolidated financial statements, management's discussion and analysis, and disclosures on market risk and internal controls for the period [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including income, balance sheets, equity, and cash flows, highlighting improved net income and a strengthened balance sheet [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) For the thirteen weeks ended April 29, 2023, the company reported net income of $39.9 million, or $0.32 per diluted share, compared to $34.9 million, or $0.28 per diluted share, for the same period in 2022 Condensed Consolidated Statements of Income (Q1 2023 vs Q1 2022) | Indicator | Thirteen Weeks Ended April 29, 2023 (in $ thousands) | Thirteen Weeks Ended April 30, 2022 (in $ thousands) | | :--- | :--- | :--- | | Net Sales | $534,743 thousand | $540,915 thousand | | Gross Margin | $225,009 thousand (42.1%) | $216,565 thousand (40.0%) | | Income from Operations | $53,336 thousand | $45,407 thousand | | Net Income | $39,906 thousand | $34,932 thousand | | Diluted EPS | $0.32 | $0.28 | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of April 29, 2023, the company's balance sheet showed total assets of $1.174 billion, with reduced long-term debt and increased shareholders' equity Key Balance Sheet Items (in thousands) | Account | April 29, 2023 (Unaudited) | January 28, 2023 (Audited) | April 30, 2022 (Unaudited) | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $107,734 | $153,377 | $104,131 | | Inventories | $293,776 | $276,840 | $325,565 | | Total Current Assets | $476,792 | $515,363 | $495,457 | | Total Assets | $1,174,078 | $1,187,841 | $1,160,601 | | Long-term debt | $24,000 | $49,000 | $99,000 | | Total Liabilities | $821,247 | $852,208 | $907,823 | | Total Shareholders' Equity | $352,831 | $335,633 | $252,778 | [Condensed Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) For the thirteen weeks ended April 29, 2023, total shareholders' equity increased due to net income, partially offset by common stock repurchases - Key activities affecting shareholders' equity in Q1 2023 included net income of **$39.9 million**, stock repurchases and tax withholdings of **$26.0 million**, and share-based compensation of **$3.1 million**[1](index=1&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities significantly improved to $11.6 million in Q1 2023, while investing and financing activities used cash, primarily for debt repayment and share repurchases Cash Flow Summary (in thousands) | Cash Flow Activity | Thirteen Weeks Ended April 29, 2023 | Thirteen Weeks Ended April 30, 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $11,641 | $(183) | | Net cash used in investing activities | $(6,420) | $(2,571) | | Net cash used in financing activities | $(45,643) | $(8,220) | | Net decrease in cash and cash equivalents | $(45,643) | $(10,974) | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide detailed disclosures on significant accounting policies and financial statement line items, covering revenue, leases, compensation, and debt Disaggregated Revenue by Brand (Q1 2023 vs Q1 2022) | Brand | Q1 2023 Net Sales (in $ thousands) | % of Total | Q1 2022 Net Sales (in $ thousands) | % of Total | | :--- | :--- | :--- | :--- | :--- | | Chico's | $273,650 | 51.2% | $264,466 | 48.9% | | WHBM | $153,470 | 28.7% | $169,029 | 31.2% | | Soma | $107,623 | 20.1% | $107,420 | 19.9% | | **Total** | **$534,743** | **100.0%** | **$540,915** | **100.0%** | - As of April 29, 2023, total operating lease liabilities were **$521.9 million**, with a weighted average remaining lease term of **4.2 years** and a weighted average discount rate of **5.6%**[13](index=13&type=chunk) - In Q1 2023, the company repurchased **3.25 million shares** for **$19.8 million** As of quarter-end, **$35.4 million** remained available under the share repurchase program[107](index=107&type=chunk) - As of April 29, 2023, the company had **$24.0 million** in borrowings outstanding under its Credit Agreement, with approximately **$263.0 million** of additional borrowing capacity available[33](index=33&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 performance, highlighting increased net income, gross margin expansion, and a strengthened balance sheet, alongside the fiscal 2023 outlook [Executive Overview](index=20&type=section&id=Executive%20Overview) This overview describes Chico's FAS as a company of three unique brands utilizing an integrated omnichannel strategy, guided by four strategic pillars, with strong Q1 2023 highlights - The company's strategy is focused on **four pillars**: (1) **customer led**, (2) **product obsessed**, (3) **digital first**, and (4) **operationally excellent**[148](index=148&type=chunk) - Q1 2023 highlights include a **14.3% increase** in net income per diluted share, a **210 basis point** gross margin expansion, and a comparable sales increase of **40.0%** on a two-year stacked basis[119](index=119&type=chunk) [Fiscal 2023 Outlook](index=21&type=section&id=Fiscal%202023%20Outlook) The company provides its financial outlook for the second quarter and the full fiscal year 2023, anticipating consolidated net sales between $2,175 million and $2,205 million for the full year Fiscal 2023 Full-Year Outlook | Metric | Expected Range | | :--- | :--- | | Consolidated Net Sales | $2,175M - $2,205M | | Gross Margin Rate | 38.4% - 38.8% | | SG&A as % of Net Sales | 32.6% - 33.0% | | Earnings per Diluted Share | $0.70 - $0.82 | | Capital Expenditures | $80M - $90M | Fiscal 2023 Second Quarter Outlook | Metric | Expected Range | | :--- | :--- | | Consolidated Net Sales | $545M - $565M | | Gross Margin Rate | 39.0% - 39.5% | | Earnings per Diluted Share | $0.25 - $0.30 | [Results of Operations](index=24&type=section&id=Results%20of%20Operations) In Q1 2023, net sales decreased by 1.1% to $534.7 million, with varied comparable sales performance across brands, while gross margin significantly improved Q1 2023 Comparable Sales vs. Q1 2022 | Brand | Comparable Sales % Change | | :--- | :--- | | Chico's | 4.9% | | WHBM | (8.0)% | | Soma | (2.5)% | | **Total Company** | **(0.6)%** | - Gross margin for Q1 2023 was **42.1%**, a **210-basis-point increase** from the prior year, primarily due to higher average unit retail, lower inbound freight costs, and corporate expense savings[135](index=135&type=chunk) [Liquidity and Capital Resources](index=25&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintained a strong liquidity position in Q1 2023 with $131.0 million in cash, significantly reducing long-term debt and decreasing inventories - Ended Q1 2023 with **$131.0 million** in cash and marketable securities, compared to **$104.1 million** in Q1 2022[138](index=138&type=chunk) - Long-term debt was reduced to **$24.0 million**, down from **$99.0 million** in the prior-year quarter, following a **$25.0 million** payment in Q1 2023[138](index=138&type=chunk) - Inventories totaled **$293.8 million**, a **9.8% decrease** from the prior year, mainly due to lower in-transit inventories[139](index=139&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's market risk exposure, primarily from interest rate changes on its debt and marketable securities, has not materially changed since January 28, 2023 - The company is exposed to market risk from changes in interest rates on its Credit Agreement and marketable securities[86](index=86&type=chunk) - A **100 basis point increase** in market interest rates would increase annual interest expense by approximately **$1.0 million** over the remaining term of the loan[86](index=86&type=chunk) [Item 4. Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of April 29, 2023, with no material changes in internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were **effective** as of the end of the period[87](index=87&type=chunk) - No changes in internal controls over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[88](index=88&type=chunk) [PART II – Other Information](index=31&type=section&id=PART%20II%20%E2%80%93%20Other%20Information) This section details legal proceedings, updates on risk factors, share repurchase activities, and a list of filed exhibits [Item 1. Legal Proceedings](index=31&type=section&id=Item%201.%20Legal%20Proceedings) The company reports that it is not currently a party to any material legal proceedings outside of those arising in the normal course of business - The company is not currently a party to any material legal proceedings other than claims and lawsuits arising in the normal course of business[115](index=115&type=chunk) [Item 1A. Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended January 28, 2023 - There have been no material changes to the risk factors described in the 2022 Annual Report on Form 10-K[91](index=91&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=31&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details share repurchase activities, noting the purchase of **4.25 million shares** at an average price of **$6.10**, with **$35.4 million** remaining for future repurchases Share Repurchase Activity (Q1 2023) | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Publicly Announced Plan | | :--- | :--- | :--- | :--- | | Jan 29 - Feb 25, 2023 | — | $— | — | | Feb 26 - Apr 1, 2023 | 4,250,308 | $6.10 | 3,250,000 | | Apr 2 - Apr 29, 2023 | — | $— | — | | **Total** | **4,250,308** | **$6.10** | **3,250,000** | - As of the end of Q1 2023, approximately **$35.4 million** remained available for repurchase under the company's publicly announced plan[92](index=92&type=chunk) [Item 6. Exhibits](index=32&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and financial statements in Inline XBRL format - Filed exhibits include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act, and financial data in Inline XBRL format[103](index=103&type=chunk)

Financial Data and Key Metrics Changes - The company reported total sales of $535 million, a decrease of 1% year-over-year, with a comparable sales decline of 0.6% [55][56] - Gross margin improved to 42.1%, up from 40% last year, reflecting a 210 basis point increase primarily due to lower freight costs and higher average unit retail (AUR) [36][55] - Operating income grew to 10% of net sales, an improvement of 160 basis points over the previous year, with diluted EPS increasing by 14% to $0.32 [25][55] Business Line Data and Key Metrics Changes - Chico's, the largest brand, posted a comparable sales increase of 4.9% on top of a 52% increase last year, indicating strong customer response to product innovation [24][55] - Soma experienced a comparable sales decline of 2.5%, but showed sequential improvement over the last four quarters, driven by innovation and disciplined management [26][56] - White House Black Market saw comparable sales fall by 8%, attributed to rapid selling through of fashion inventories, but was up 57% on a two-year stack basis [9][56] Market Data and Key Metrics Changes - The company gained market share across all brands, with Chico's being the fastest-growing apparel brand for customers over 45 with household incomes over $100,000 [27] - Digital sales represented 41% of total company revenues, with customer count up 2% year-over-year, and spend per customer increasing by 7% [53][29] Company Strategy and Development Direction - The company focuses on being customer-led, product-obsessed, digital-first, and operationally excellent, with plans to enhance its brand portfolio and optimize store performance [23][50] - Strategic investments are planned for marketing and store payroll to support customer growth and long-term topline growth [18][41] - The company aims to upgrade approximately 60 Chico's boutiques and may open up to 15 Soma boutiques in high-return opportunities [39] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding customer demand and the ability to adapt to a dynamic environment, supported by a strong balance sheet [63] - The company expects total sales for fiscal 2023 to be between $2.18 billion and $2.20 billion, with a gross margin rate in the range of 38.4% to 38.8% [42] - Management noted that while there was a decline in traffic and sales at outlet locations, the strength of the digital platform helped offset lower store sales [35] Other Important Information - The company returned nearly $20 million to shareholders through share buybacks and ended the quarter with $131 million in cash [19][28] - Customer-facing inventories were up 1%, indicating a well-positioned inventory strategy entering the second quarter [28] Q&A Session Summary Question: Can you provide comments on the overall state of the consumer by brand and promotional levels? - Management noted that full price sales were healthy across all brands, with AUR up and market share gained, indicating that the strategy is working [66] Question: What is the inventory position and how does it impact margins? - Management expressed confidence in the inventory position, stating it is lean and appropriate for managing profitability, with opportunities to add more fashion to the assortment [69] Question: Can you discuss the sustainability of gross margin improvements? - Management highlighted that gross margin improvements are driven by strong fundamentals, with a focus on maintaining higher AUR and leveraging cost structures [72][73] Question: What are the long-term opportunities for Soma? - Management emphasized the brand's market share gains in core components and the importance of innovation in driving customer loyalty and repeat purchases [78]

PART I [Item 1. Business](index=4&type=section&id=Item%201.%20Business) Chico's FAS, Inc. is a North American fashion retailer operating three distinct brands through an omnichannel approach, focusing on customer service, product innovation, and operational efficiency [Overview](index=4&type=section&id=Item%201.%20Business%23Overview) Chico's FAS, Inc. is a leading North American fashion retailer with three brands, operating 1,269 stores and 58 international franchises through an omnichannel strategy - The company operates three distinct brands: **Chico's**, **White House Black Market (WHBM)**, and **Soma**, collectively referred to as Chico's FAS[47](index=47&type=chunk) - As of January 28, 2023, Chico's FAS operated **1,269 stores** across 46 states, Puerto Rico, and the U.S. Virgin Islands, plus **58 international franchise locations** and **2 domestic airport locations**[47](index=47&type=chunk) - The company employs an **omnichannel approach**, integrating retail stores, e-commerce websites, and a call center for a seamless customer experience[47](index=47&type=chunk) [Our Brands](index=5&type=section&id=Item%201.%20Business%23Our%20Brands) The company's portfolio consists of three brands aggregated into one reportable segment: Chico's for chic clothing, WHBM for modern apparel, and Soma for comfortable lingerie and loungewear - **Chico's**: Sells exclusively designed, private branded clothing with a chic and artful style, known for its unique sizing (000-4)[49](index=49&type=chunk) - **White House Black Market (WHBM)**: Offers a modern collection of stylish and versatile clothing, including workwear and dresses, in American sizes 00-14[49](index=49&type=chunk) - **Soma**: Sells exclusively designed lingerie, sleepwear, and loungewear, focusing on innovative styles that provide both comfort and beauty[28](index=28&type=chunk) [Our Business Strategy](index=5&type=section&id=Item%201.%20Business%23Our%20Business%20Strategy) The company's business strategy is centered on four pillars: being customer-led, product-obsessed, digital-first, and operationally excellent, aiming for profitable growth - The company is focused on driving profitable growth through four strategic pillars: - **Customer-led**: Building community engagement and exceptional customer experiences - **Product obsessed**: Delivering best-in-class merchandise and elevating Average Unit Retail - **Digital-first**: Strengthening the digital platform and data-driven decision-making - **Operationally excellent**: Diligently managing inventory, costs, supply chain, and real estate[52](index=52&type=chunk) - The strategy includes enhancing omnichannel capabilities, such as a shared inventory platform, Buy On-Line, Pick-up In-Store (BOPIS), and digital styling tools like StyleConnect and MY CLOSET[52](index=52&type=chunk) [Real Estate Portfolio and Store Operations](index=7&type=section&id=Item%201.%20Business%23Real%20Estate%20Portfolio%20and%20Store%20Operations) As of fiscal year-end 2022, the company operated 1,269 stores, with plans to open new Soma stores and refresh existing locations in fiscal 2023 while optimizing its portfolio Store Count by Fiscal Year | Stores | 2022 | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | :--- | | Stores at beginning of year | 1,266 | 1,302 | 1,341 | 1,418 | | Opened | 27 | — | 1 | 6 | | Closed | (24) | (36) | (40) | (83) | | **Total Stores** | **1,269** | **1,266** | **1,302** | **1,341** | - In fiscal 2023, the company plans to open up to **15 new Soma stores**, refresh approximately **60 stores**, and close approximately **20 stores**[33](index=33&type=chunk) - In July 2020, the company exited its Canada frontline operations, resulting in the permanent closure of four Chico's and six WHBM boutiques in Ontario[75](index=75&type=chunk) [Digital Commerce and Technology](index=8&type=section&id=Item%201.%20Business%23Digital%20Commerce%20and%20Technology) The company maintains a robust digital presence through brand websites, central to its omnichannel strategy, and is investing in a new customer marketing platform for enhanced personalization - Each brand has a digital presence (chicos.com, chicosofftherack.com, whbm.com, soma.com) that is vital to the omnichannel strategy, offering options like buy online, pick-up in store (BOPIS)[58](index=58&type=chunk) - The company is migrating to an industry-leading customer database and marketing platform to personalize the customer journey and increase traffic and conversion[34](index=34&type=chunk) [Marketing and Advertising](index=8&type=section&id=Item%201.%20Business%23Marketing%20and%20Advertising) The company's marketing strategy emphasizes digital media, leveraging transactional data and predictive modeling to drive customer retention and reactivation, with a 2023 focus on advanced analytics for personalization - Marketing efforts are shifting from traditional media to digital media, including social marketing, paid search, and affiliate programs[59](index=59&type=chunk)[77](index=77&type=chunk) - In 2023, the focus will be on using advanced analytics and tools to support audience segmentation and personalization to attract, retain, and reactivate customers[60](index=60&type=chunk) [Sourcing and Distribution](index=8&type=section&id=Item%201.%20Business%23Sourcing%20and%20Distribution) Product sourcing is managed by a centralized team, with Vietnam as the largest source country in fiscal 2022, and distribution primarily handled from a single facility in Winder, Georgia - In fiscal 2022, **Vietnam** accounted for approximately **36% of merchandise cost**[61](index=61&type=chunk) - The company's largest supplier accounted for **14% of total purchases** in fiscal 2022, and the supplier base has been reduced by 34% since fiscal 2017[63](index=63&type=chunk) - Merchandise distribution is primarily handled from the company's distribution center in Winder, Georgia, which has Foreign Trade Zone status[64](index=64&type=chunk)[65](index=65&type=chunk) [Human Capital Management](index=10&type=section&id=Item%201.%20Business%23Human%20Capital%20Management) As of January 28, 2023, Chico's FAS employed approximately 14,238 people, fostering a culture built on five core values and a commitment to diversity and inclusion, supported by ongoing development and competitive compensation - As of January 28, 2023, the company employed approximately **14,238 people**, with **32% being full-time**[97](index=97&type=chunk) - The company's culture is defined by five core values: Passion for Fashion, Continuously Improve, Customer Centricity, Be Inspired and Inspire Others, and Be Accountable[98](index=98&type=chunk) - Focus areas for diversity and inclusion are Attraction and Retention, Education and Training, and Customer Focus[101](index=101&type=chunk) [Competition, Trademarks, and Regulation](index=9&type=section&id=Item%201.%20Business%23Competition%2C%20Trademarks%2C%20and%20Regulation) The company operates in a highly competitive women's retail apparel industry, relying on numerous registered trademarks for brand protection, and is subject to extensive federal, state, and local regulations - The women's retail apparel business is highly competitive, with competition from department stores, specialty stores, and online retailers[78](index=78&type=chunk) - The company owns important trademarks including **BODIFY**, **CHICO'S**, **COOL NIGHTS**, **SOMA**, **VANISHING EDGE**, and **WHBM**[79](index=79&type=chunk) - The company is subject to various government regulations, including labor laws, product safety standards, and import/export controls, which can materially impact the business[80](index=80&type=chunk)[96](index=96&type=chunk) [Item 1A. Risk Factors](index=13&type=section&id=Item%201A.%20Risk%20Factors) The company faces various risks including strategic execution, economic downturns, technology failures, supply chain dependencies, and regulatory changes, all of which could materially affect its business [Risks Related to Business Strategy and Operations](index=13&type=section&id=Item%201A.%20Risk%20Factors%23Risks%20Related%20to%20Business%20Strategy%20and%20Operations) The company's success depends on executing strategic initiatives and responding to fashion trends, while facing intense competition that could adversely impact sales and profitability - The company's strategic initiatives, designed to reposition brands and drive sales, require substantial internal change and may not deliver expected results, potentially causing business interruptions[134](index=134&type=chunk) - The business is highly dependent on identifying and responding to fashion trends in a timely manner; failure to do so can negatively impact inventory and sales[136](index=136&type=chunk)[112](index=112&type=chunk) - The women's specialty retail industry is highly competitive, with pressure from department stores, online businesses, and off-price retailers, which may impact sales and margins[137](index=137&type=chunk) [Risks Related to General Economic Conditions](index=15&type=section&id=Item%201A.%20Risk%20Factors%23Risks%20Related%20to%20General%20Economic%20Conditions) The company is exposed to risks from adverse economic conditions, including the ongoing impact of the COVID-19 pandemic, declines in consumer spending, inflation, and potential asset impairment charges - The **COVID-19 pandemic** continues to pose risks, with potential impacts on consumer spending, supply chain disruptions, and higher shipping costs[114](index=114&type=chunk) - Declines in consumer spending and mall traffic, driven by economic pressures like inflation and interest rate hikes, can negatively impact sales and profitability[141](index=141&type=chunk) - Fluctuations in the cost of raw materials, labor, and transportation, driven by inflation and geopolitical events, may adversely impact margins[116](index=116&type=chunk)[143](index=143&type=chunk) - Significant negative economic trends could lead to impairment charges on goodwill, intangible assets, and other long-lived assets[117](index=117&type=chunk) [Risks Related to Omnichannel and IT Systems](index=18&type=section&id=Item%201A.%20Risk%20Factors%23Risks%20Related%20to%20Omnichannel%20and%20IT%20Systems) The company's operations heavily rely on technology, exposing it to risks of system failures, cyberattacks, and data breaches, requiring compliance with evolving privacy laws to avoid fines and reputational damage - The business relies heavily on technology for its websites and inventory management, making it vulnerable to system failures, computer viruses, and other disruptions[119](index=119&type=chunk) - The storage and transmission of customer personal and credit card information expose the company to cybersecurity risks and data privacy violations, which could result in significant fines and reputational damage[121](index=121&type=chunk)[122](index=122&type=chunk) - Evolving data privacy regulations, such as GDPR and CCPA/CPRA, present compliance challenges and could lead to substantial costs or penalties[167](index=167&type=chunk) [Risks Related to Sourcing and Distribution](index=20&type=section&id=Item%201A.%20Risk%20Factors%23Risks%20Related%20to%20Sourcing%20and%20Distribution) The company faces significant sourcing and distribution risks due to heavy reliance on foreign production, particularly from Vietnam and China, and dependence on a single supplier and distribution center - The majority of merchandise is produced outside the U.S., with significant sourcing from **Vietnam (36%)** and **China (30%)** in fiscal 2022, creating exposure to geopolitical risks, tariffs, and trade policy changes[169](index=169&type=chunk)[149](index=149&type=chunk)[124](index=124&type=chunk) - Approximately **14% of total purchases** in fiscal 2022 were made from a single supplier, creating a risk of disruption if this relationship is lost[127](index=127&type=chunk) - Distribution for all brands is handled from a single facility in Winder, Georgia, making operations vulnerable to interruptions at that location[128](index=128&type=chunk) [Other General Risks](index=22&type=section&id=Item%201A.%20Risk%20Factors%23Other%20General%20Risks) The company is subject to various other risks, including restrictive credit covenants, activist shareholder actions, lease obligations, brand reputation threats, stock price volatility, and changes in regulations or tax laws - The company's credit agreement contains restrictive covenants that could limit its ability to respond to business changes or manage operations[154](index=154&type=chunk) - Actions by activist shareholders could be costly, time-consuming, and disruptive to operations[179](index=179&type=chunk) - The market price of the company's common stock has been and may continue to be substantially volatile[160](index=160&type=chunk) - The business is subject to a wide variety of laws and regulations, and changes in these, particularly regarding trade, cybersecurity, and data privacy, could adversely affect results[163](index=163&type=chunk) [Item 1B. Unresolved Staff Comments](index=26&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments - None[187](index=187&type=chunk) [Item 2. Properties](index=27&type=section&id=Item%202.%20Properties) As of fiscal year-end 2022, the company's total consolidated selling square footage was 3.0 million, operating 1,269 stores and owning its corporate campus in Fort Myers, Florida, and distribution center in Winder, Georgia - At fiscal year-end 2022, total consolidated selling square footage was **3.0 million**[213](index=213&type=chunk) - The company owns its corporate campus in Fort Myers, Florida, and its distribution center in Winder, Georgia[213](index=213&type=chunk) [Item 3. Legal Proceedings](index=27&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently a party to any material legal proceedings, other than claims and lawsuits arising in the normal course of business - The company is not currently a party to any material legal proceedings outside the normal course of business[370](index=370&type=chunk) [Item 4. Mine Safety Disclosures](index=27&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[190](index=190&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=28&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on the NYSE under "CHS"; the quarterly dividend was suspended in April 2020, and as of January 28, 2023, $55.2 million remained authorized for future share repurchases - The company's common stock is traded on the New York Stock Exchange (NYSE) under the symbol "**CHS**"[216](index=216&type=chunk) - The quarterly dividend was suspended in April 2020, and any future dividends will be determined by the Board of Directors[192](index=192&type=chunk) - As of January 28, 2023, **$55.2 million** remained authorized for repurchase under the company's share repurchase program, with no shares repurchased in fiscal years 2022, 2021, and 2020[192](index=192&type=chunk) [Item 6. [Reserved]](index=29&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In fiscal 2022, Chico's FAS delivered strong financial results with net sales increasing 18.3% to $2.14 billion and net income rising to $109 million, driven by comparable sales growth, gross margin expansion, and disciplined expense management [Executive Overview](index=30&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%23Executive%20Overview) Fiscal 2022 was a strong year for Chico's FAS, marked by significant growth and improved profitability, with net income per diluted share increasing 138% and total net sales growing 18.3% Fiscal 2022 Financial Highlights vs. Prior Year | Metric | Fiscal 2022 Result | Change vs. FY2021 | | :--- | :--- | :--- | | Net Income per Diluted Share | $0.88 | +138% | | Total Net Sales Growth | +18.3% | - | | Comparable Sales Growth | +19.6% | - | | Gross Margin Improvement | +240 bps | - | | SG&A Leverage | +50 bps | - | | Income from Operations | $142M (6.6% of sales) | vs. $67M (3.7% of sales) | - The company ended the fiscal year with **$178 million** in cash and marketable securities and reduced long-term debt by **$50 million**[197](index=197&type=chunk) [Key Performance Indicators and Outlook](index=31&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%23Key%20Performance%20Indicators%20and%20Outlook) The company evaluates performance using key indicators such as liquidity, comparable sales, and operating income, projecting fiscal 2023 consolidated net sales between $2.22 billion and $2.25 billion and earnings per diluted share from $0.79 to $0.91 Fiscal 2023 Full Year Outlook | Metric | Expected Range | | :--- | :--- | | Consolidated Net Sales | $2,220M - $2,250M | | Gross Margin Rate | 39.4% - 39.8% | | SG&A as % of Sales | 33.0% - 33.4% | | Effective Income Tax Rate | ~26% | | Earnings per Diluted Share | $0.79 - $0.91 | | Capital Expenditures | $80M - $90M | - Key performance indicators monitored by the company include liquidity, comparable sales, gross margin as a percent of sales, operating income as a percent of sales, and Return on Net Assets (RONA)[224](index=224&type=chunk) [Results of Operations](index=33&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%23Results%20of%20Operations) For fiscal 2022, net sales increased 18.3% to $2.14 billion, driven by a 19.6% rise in comparable sales, leading to improved gross margin and a significant increase in net income to $109 million Net Sales by Brand (in millions) | Brand | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | | :--- | :--- | :--- | :--- | | Chico's | $1,045 | $816 | $596 | | WHBM | $638 | $516 | $376 | | Soma | $460 | $478 | $352 | | **Total Net Sales** | **$2,142** | **$1,810** | **$1,324** | Gross Margin Performance | Metric | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | | :--- | :--- | :--- | :--- | | Gross Margin ($M) | $838 | $664 | $184 | | Gross Margin % | 39.1% | 36.7% | 13.9% | SG&A Expenses | Metric | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | | :--- | :--- | :--- | :--- | | SG&A ($M) | $696 | $597 | $527 | | SG&A % of Sales | 32.5% | 33.0% | 39.8% | - Net income for fiscal 2022 was **$109 million**, or **$0.88 per diluted share**, compared to $46 million, or $0.37 per diluted share, in fiscal 2021[246](index=246&type=chunk) [Liquidity and Capital Resources](index=35&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%23Liquidity%20and%20Capital%20Resources) The company's liquidity strengthened in fiscal 2022, with cash and marketable securities increasing to $178 million, net cash from operating activities at $162 million, and long-term debt reduced to $49 million Cash Flow Summary (in millions) | Activity | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $162 | $63 | $(98) | | Net cash (used in) provided by investing activities | $(64) | $14 | $34 | | Net cash (used in) provided by financing activities | $(59) | $(52) | $91 | - At fiscal 2022 year-end, cash and marketable securities totaled **$178 million**, and long-term debt was **$49 million**, reflecting a **$50 million** principal reduction during the year[252](index=252&type=chunk) - Inventories totaled **$277 million** at fiscal 2022 year-end, a **14.4% decrease** from the prior year, reflecting optimized inventory management[253](index=253&type=chunk) - As of January 28, 2023, available additional borrowing capacity under the Credit Agreement was approximately **$219 million**[267](index=267&type=chunk) [Critical Accounting Estimates](index=38&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%23Critical%20Accounting%20Estimates) The company's financial statements rely on critical accounting estimates requiring significant management judgment, particularly in inventory valuation, impairment assessments of long-lived assets and goodwill, and income tax accounting - Inventory valuation involves identifying excess and slow-moving inventory and recording it at net realizable value, with shrinkage estimated between physical counts based on historical rates[282](index=282&type=chunk) - Long-lived assets, goodwill, and indefinite-lived intangible assets are reviewed for impairment annually or when triggering events occur, using discounted cash flow models and other valuation techniques[94](index=94&type=chunk)[7](index=7&type=chunk) - Income tax accounting requires judgment in measuring deferred tax assets and liabilities and assessing the need for a valuation allowance against deferred tax assets based on the likelihood of future realization[83](index=83&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risk primarily from changes in interest rates on its debt and marketable securities; a 100 basis point increase in interest rates would raise annual interest expense by approximately $2.0 million on the outstanding $49 million debt - The company is exposed to interest rate risk on its Credit Agreement, which has a variable interest rate tied to the Secured Overnight Financing Rate (SOFR)[296](index=296&type=chunk) - As of January 28, 2023, **$49 million** in borrowings were outstanding; a hypothetical **100 basis point increase** in market interest rates would increase interest expense by approximately **$2.0 million** over the remaining term of the loan[296](index=296&type=chunk) - The investment portfolio, consisting of cash equivalents and marketable securities like corporate bonds and U.S. government agency securities, is also subject to interest rate risk[296](index=296&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=43&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section contains the company's audited consolidated financial statements for fiscal years 2022, 2021, and 2020, along with the independent auditor's unqualified report on both the financial statements and internal controls [Report of Independent Registered Public Accounting Firm](index=44&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data%23Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting, identifying the valuation allowance on deferred tax assets as a Critical Audit Matter - Ernst & Young LLP issued an **unqualified opinion** on the consolidated financial statements for the period ended January 28, 2023[292](index=292&type=chunk) - The auditor also issued an **unqualified opinion** on the effectiveness of the Company's internal control over financial reporting as of January 28, 2023[413](index=413&type=chunk) - A Critical Audit Matter was identified concerning the valuation allowance on deferred tax assets, which involved complex and subjective judgments regarding the realizability of these assets[299](index=299&type=chunk)[295](index=295&type=chunk) [Consolidated Financial Statements](index=46&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data%23Consolidated%20Financial%20Statements) The consolidated financial statements present the company's financial performance and position, reporting net sales of $2.14 billion and net income of $109.0 million for fiscal 2022, with total assets of $1.19 billion and total shareholders' equity of $335.6 million as of January 28, 2023 Consolidated Statement of Income (Loss) Highlights (in thousands) | Metric | Jan 28, 2023 | Jan 29, 2022 | Jan 30, 2021 | | :--- | :--- | :--- | :--- | | Net Sales | $2,142,020 | $1,809,927 | $1,324,051 | | Gross Margin | $838,443 | $663,998 | $184,173 | | Income (Loss) from Operations | $142,145 | $66,580 | $(456,943) | | Net Income (Loss) | $108,999 | $46,218 | $(360,144) | | Diluted EPS | $0.88 | $0.37 | $(3.11) | Consolidated Balance Sheet Highlights (in thousands) | Metric | Jan 28, 2023 | Jan 29, 2022 | | :--- | :--- | :--- | | Total Current Assets | $515,363 | $494,063 | | Total Assets | $1,187,841 | $1,196,837 | | Total Current Liabilities | $451,162 | $487,385 | | Long-Term Debt | $49,000 | $99,000 | | Total Shareholders' Equity | $335,633 | $221,504 | Consolidated Statement of Cash Flows Highlights (in thousands) | Metric | Jan 28, 2023 | Jan 29, 2022 | Jan 30, 2021 | | :--- | :--- | :--- | :--- | | Net cash from operating activities | $161,592 | $62,611 | $(97,832) | | Net cash from investing activities | $(64,092) | $13,543 | $33,865 | | Net cash from financing activities | $(59,228) | $(51,840) | $90,792 | [Notes to Consolidated Financial Statements](index=51&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data%23Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed information supporting the financial statements, including the aggregation of brands into one segment, significant impairment charges in fiscal 2020, details of operating lease liabilities and long-term debt, and the rationale for the valuation allowance against deferred tax assets - **Note 1**: The company's three operating segments (Chico's, WHBM, Soma) are aggregated into one reportable segment due to similar economic and operating characteristics[321](index=321&type=chunk) - **Note 3 & 4**: In fiscal 2020, the company recognized pre-tax impairment charges of **$114.3 million** for goodwill and intangible assets and **$34.5 million** for long-lived assets, primarily due to the pandemic's impact, with no significant impairment charges in fiscal 2022 or 2021[4](index=4&type=chunk)[6](index=6&type=chunk) - **Note 10**: As of January 28, 2023, total operating lease liabilities were **$502.6 million** with a weighted average remaining lease term of **4.2 years** and a discount rate of **5.3%**[527](index=527&type=chunk)[523](index=523&type=chunk) - **Note 12**: As of January 28, 2023, the company had **$49.0 million** in long-term debt outstanding under its credit facility[525](index=525&type=chunk) - **Note 16**: The company maintained a valuation allowance of **$28.8 million** against its deferred tax assets as of January 28, 2023, concluding it is not more likely than not that the net deferred tax assets will be realized[378](index=378&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=75&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) There were no disagreements with accountants on any matter of accounting principles or practices, or financial statement disclosure - None[542](index=542&type=chunk) [Item 9A. Controls and Procedures](index=75&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of January 28, 2023, a conclusion affirmed by the independent auditor's unqualified opinion - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[447](index=447&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of January 28, 2023, based on the COSO framework[438](index=438&type=chunk) - There were no changes in internal control over financial reporting during the fourth fiscal quarter that materially affected, or are reasonably likely to materially affect, internal controls[385](index=385&type=chunk) [Item 9B. Other Information](index=77&type=section&id=Item%209B.%20Other%20Information) There is no other information to report under this item - None[423](index=423&type=chunk) PART III [Item 10. Directors, Executive Officers and Corporate Governance](index=77&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information required by this item, including details about directors, executive officers, and corporate governance matters, is incorporated by reference from the company's 2023 Annual Meeting Proxy Statement - Information is incorporated by reference from the 2023 Annual Meeting Proxy Statement[424](index=424&type=chunk) [Item 11. Executive Compensation](index=77&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive and director compensation is incorporated by reference from the company's 2023 Annual Meeting Proxy Statement - Information is incorporated by reference from the 2023 Annual Meeting Proxy Statement[432](index=432&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=77&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership is incorporated by reference from the 2023 Annual Meeting Proxy Statement; as of January 28, 2023, there were 5,083,988 securities to be issued upon exercise of outstanding awards under equity compensation plans - Information on security ownership is incorporated by reference from the 2023 Annual Meeting Proxy Statement[425](index=425&type=chunk) Equity Compensation Plan Information as of January 28, 2023 | Plan Category | Securities to be Issued upon Exercise (a) | Weighted-Average Exercise Price (b) | Securities Available for Future Issuance (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 5,083,988 | $— | 5,695,160 | [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=77&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information required by this item is incorporated by reference from the company's 2023 Annual Meeting Proxy Statement - Information is incorporated by reference from the 2023 Annual Meeting Proxy Statement[433](index=433&type=chunk) [Item 14. Principal Accounting Fees and Services](index=78&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding fees paid to the principal accountant and services rendered is incorporated by reference from the company's 2023 Annual Meeting Proxy Statement - Information is incorporated by reference from the 2023 Annual Meeting Proxy Statement[435](index=435&type=chunk) PART IV [Item 15. Exhibits and Financial Statement Schedules](index=79&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the documents filed as part of the Form 10-K report, including the consolidated financial statements and a comprehensive list of exhibits such as bylaws, credit agreements, and compensation agreements - This item lists the financial statements, financial statement schedules, and exhibits filed with the report[444](index=444&type=chunk)[421](index=421&type=chunk) [Item 16. Form 10-K Summary](index=86&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable - Not applicable[397](index=397&type=chunk)