Chico’s FAS(CHS) - 2024 Q1 - Quarterly Report

PART I – Financial Information 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 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 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 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 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] Condensed Consolidated Statements of Cash Flows 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 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] - 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] - 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] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 performance, highlighting increased net income, gross margin expansion, and a strengthened balance sheet, alongside the fiscal 2023 outlook Executive Overview 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] - 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] Fiscal 2023 Outlook 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 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] Liquidity and Capital Resources 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] - 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] - Inventories totaled $293.8 million, a 9.8% decrease from the prior year, mainly due to lower in-transit inventories[139] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] - 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] Item 4. Controls and Procedures 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] - 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] PART II – Other Information This section details legal proceedings, updates on risk factors, share repurchase activities, and a list of filed exhibits Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] Item 6. Exhibits 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]