Fair Value Measurements

12 Months Ended

Jan. 29, 2022

FAIR VALUE MEASUREMENTS:

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. Entities are required to use a three-level hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date. The three levels are defined as follows:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities

Level 2 – Unadjusted quoted prices in active markets for similar assets or liabilities, or; Unadjusted quoted

prices for identical or similar assets or liabilities in markets that are not active, or; Inputs other than quoted

prices that are observable for the asset or liability

Level 3 – Unobservable inputs for the asset or liability.

Assets Measured on a Recurring Basis

We measure certain financial assets at fair value on a recurring basis, including our marketable securities, which are classified as available-for-sale securities, certain cash equivalents, specifically our money market accounts and assets held in our non-qualified deferred compensation plan. The money market accounts are valued based on quoted market prices in active markets. Our marketable securities are generally valued based on other observable inputs for those securities (including market corroborated pricing or other models that utilize observable inputs such as interest rates and yield curves) based on information provided by independent third-party pricing entities, except for U.S. government securities which are valued based on quoted market prices in active markets. The investments in our non-qualified deferred compensation plan are valued using quoted market prices and are included in other assets on our consolidated balance sheets.

Assets Measured on a Nonrecurring Basis

From time to time, we measure certain assets at fair value on a nonrecurring basis when carrying value exceeds fair value. This includes the evaluation of long-lived assets, goodwill and other intangible assets for impairment using Company-specific assumptions which would fall within Level 3 of the fair value hierarchy. Assets that are measured at fair value on a nonrecurring basis are remeasured when carrying value exceeds fair value. Carrying value after impairment approximates fair value.

We assess the carrying amount of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company uses market participant rents and a market participant discount rate to calculate the fair value of ROU assets. The Company uses discounted future cash flows of the asset or asset group using a discount rate that approximates the cost of capital of a market participant to quantify fair value for other long-lived assets within the asset group which are primarily leasehold improvements. The asset group is defined as the lowest level for which identifiable cash flows are available and largely independent of the cash flows of other groups of assets, which for our retail stores, is primarily at the store level.

To assess the fair value of goodwill, we have historically utilized both an income approach and a market approach. Inputs used to calculate the fair value based on the income approach primarily include estimated future cash flows, discounted at a rate that approximates the cost of capital of a market participant. Inputs used to calculate the fair value based on the market approach include identifying sales and EBITDA multiples based on guidelines for similar publicly traded companies and recent transactions.

To assess the fair value of trademarks, we utilize a relief from royalty approach. Inputs used to calculate the fair value of the trademarks primarily include future sales projections, discounted at a rate that approximates the cost of capital of a market participant and an estimated royalty rate.

The following table presents quantitative information about Level 3 significant unobservable inputs for the WHBM trademark, long-lived assets at retail stores and operating lease assets for impairment charges incurred during the period indicated.

January 30, 2021
(52 weeks)

Fair Value

Valuation Technique

Unobservable Input

Range (Weighted Average)

WHBM Trademark

5,000

Relief from royalty

Weighted-average cost of capital

13% to 15%

Long-term revenue growth rate

-1% to 16%

Long-lived assets at retail stores and operating lease assets (1)

89,588

Discounted cash flow

Weighted-average cost of capital

11% to 13%

Long-term revenue growth rate

2% to 53%

(1) The fair value of $89.6 million specifically relates to only those locations which had impairment charges related to the pandemic during fiscal 2020.

As of January 29, 2022 and January 30, 2021, the fair value of goodwill for the Chico's reporting unit and the WHBM trademark was $16 million and $5.0 million, respectively.

The Company performed its valuation of its goodwill and indefinite-lived intangible assets using a quantitative approach during fiscal 2020 and recognized $114.3 million in pre-tax goodwill and indefinite-lived intangible impairment charges as further discussed in Note 3, $29.7 million in pre-tax impairment charges primarily consisting of leasehold improvements at certain underperforming stores, capitalized implementation costs related to our cloud computing arrangements and other technology-related assets, and $4.8 million in pre-tax impairment charges for operating lease assets, as further discussed in Note 4. Impairment charges for assets evaluated for impairment on a nonrecurring basis were not material during fiscal 2021.

As of January 29, 2022 and January 30, 2021, our revolving loan and letter of credit facility approximates fair value as this instrument has a variable interest rate which approximates current market rates (Level 2 criteria).

Fair value calculations contain significant judgments and estimates, which may differ from actual results due to, among other things, economic conditions, changes to the business model or changes in operating performance. The most sensitive assumptions in our estimates include short and long-term revenue recoverability rates as a result of the pandemic, which could impact future impairment charges.

We conduct reviews on a quarterly basis to verify pricing, assess liquidity and determine if significant inputs have changed that would impact the fair value hierarchy disclosure.

In accordance with the provisions of the guidance, we categorized our financial assets and liabilities which are valued on a recurring basis, based on the priority of the inputs to the valuation technique for the instruments, as follows:


			Fair Value Measurements at Reporting Date Using							January 29, 2022 (52 weeks)
	Balance as of January 29, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Total Impairment (1)


Recurring fair value measurements:
Current Assets
Cash equivalents:
Money market accounts	$	25,396	$	25,396	$	—	$	—






Noncurrent Assets
Deferred compensation plan	$	6,233	$	6,233	$	—	$	—
Total recurring fair value measurements	$	31,629	$	31,629	$	—	$	—








			Fair Value Measurements at Reporting Date Using							January 30, 2021 (52 weeks)
	Balance as of January 30, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Total Impairment


Recurring fair value measurements:
Current Assets
Cash equivalents:
Money market accounts	$	36,809	$	36,809	$	—	$	—
Marketable securities:



Corporate bonds	18,559		—		18,559		—

Noncurrent Assets
Deferred compensation plan	8,993		8,993		—		—
Total recurring fair value measurements	$	64,361	$	45,802	$	18,559	$	—
Nonrecurring fair value measurements:
Noncurrent Assets
Goodwill	$	16,360	$	—	$	—	$	16,360		$	(80,414)
Trademark	5,000		—		—		5,000			(29,000)
Long-lived assets	7,090		—		5,990		1,100		(2)	(29,669)
Operating lease assets	88,488		—		—		88,488		(2)	(4,795)
Total nonrecurring fair value measurements	$	116,938	$	—	$	5,990	$	110,948		$	(143,878)

(1) Impairment charges for assets evaluated for impairment on a nonrecurring basis were not material during fiscal 2021.

(2) The fair value of $1.1 million and $88.5 million specifically relates to only those locations which had asset impairment charges related to the pandemic during fiscal 2020.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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