-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H+KYLM6kmg/O/I0HNi7MgPzY1tIve3uImVQaIlo4w6UGKeWiMjvcUyaZW2v9Q6MM 9a6ewOfAzIafdAU8rjGs6w== 0000950144-98-013759.txt : 19981214 0000950144-98-013759.hdr.sgml : 19981214 ACCESSION NUMBER: 0000950144-98-013759 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981031 FILED AS OF DATE: 19981211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHICOS FAS INC CENTRAL INDEX KEY: 0000897429 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-WOMEN'S CLOTHING STORES [5621] IRS NUMBER: 592389435 STATE OF INCORPORATION: FL FISCAL YEAR END: 0201 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21258 FILM NUMBER: 98768037 BUSINESS ADDRESS: STREET 1: 11215 METRO PKWY CITY: FT MYERS STATE: FL ZIP: 33912-1206 BUSINESS PHONE: 8134335505 MAIL ADDRESS: STREET 1: 11215 METRO PKY CITY: FT MYERS STATE: FL ZIP: 33912-1206 10-Q 1 CHICO'S FAS, INC. 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT For the Quarter Ended: Commission File Number: October 31, 1998 0-21258 CHICO'S FAS, INC. (Exact name of registrant as specified in charter) Florida 59-2389435 (State of Incorporation) (I.R.S. Employer Identification No.) 11215 Metro Parkway, Fort Myers, Florida 33912 (Address of principal executive offices) 941-277-6200 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. At December 4, 1998, there were 8,360,967 shares outstanding of Common Stock, $.01 par value per share. 2 CHICO'S FAS, INC. INDEX
Page ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited): Condensed Balance Sheets - October 31, 1998 and January 31, 1998..........................................3 Condensed Statements of Income for the Thirteen and Thirty-nine weeks Ended October 31, 1998 and November 1, 1997................................................................4 Condensed Statements of Cash Flows for the Thirty-nine weeks Ended October 31, 1998 and November 1, 1997................................................................5 Notes to Condensed Financial Statements...................................................................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................................7 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K................................................................12 Signatures...................................................................................................12
Page 2 3 CHICO'S FAS, INC. CONDENSED BALANCE SHEET [UNAUDITED]
AS OF AS OF 10-31-98 1-31-98 ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 14,467,578 $ 2,943,916 Receivables, net 838,039 894,895 Inventories 8,930,134 9,525,472 Prepaid expenses 706,317 667,145 Deferred taxes 1,821,000 1,251,000 ------------ ------------ Total Current Assets 26,763,068 15,282,428 LAND, BUILDING AND EQUIPMENT: Cost 26,220,101 23,596,977 Less accumulated depreciation and amortization (7,513,863) (6,617,591) ------------ ------------ Land, Building and Equipment, Net 18,706,238 16,979,386 ------------ ------------ OTHER ASSETS: Certificate of Deposit -- 1,000,000 Deferred taxes 771,000 559,000 Other assets, net 739,046 650,702 ------------ ------------ Total Other Assets 1,510,046 2,209,702 ------------ ------------ $ 46,979,352 $ 34,471,516 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 4,269,076 $ 3,520,265 Accrued liabilities 4,530,446 2,540,375 Current portion of debt and lease obligations 305,986 251,762 ------------ ------------ Total Current Liabilities 9,105,508 6,312,402 ------------ ------------ NONCURRENT LIABILITIES: Debt and lease obligations 5,311,501 5,455,271 Deferred rent 1,446,685 1,247,958 ------------ ------------ Total Noncurrent Liabilities 6,758,186 6,703,229 ------------ ------------ STOCKHOLDERS' EQUITY: Common stock 82,765 80,113 Additional paid-in capital 10,463,800 8,219,707 Retained earnings 20,569,093 13,156,065 ------------ ------------ Total Stockholders' Equity 31,115,658 21,455,885 ------------ ------------ $ 46,979,352 $ 34,471,516 ============ ============
SEE ACCOMPANYING NOTES Page 3 4 CHICO'S FAS, INC. CONDENSED STATEMENTS OF INCOME [UNAUDITED]
THIRTY-NINE WEEKS ENDED THIRTEEN WEEKS ENDED 10-31-98 11-1-97 10-31-98 11-1-97 ----------- ----------- ----------- ----------- Net sales by company stores $78,640,651 $56,304,505 $26,303,762 $18,332,112 Net sales to franchisees 1,367,948 1,419,240 450,387 591,262 ----------- ----------- ----------- ----------- NET SALES 80,008,599 57,723,745 26,754,149 18,923,374 Cost of goods sold 32,821,917 25,318,077 11,040,693 8,039,187 ----------- ----------- ----------- ----------- GROSS PROFIT 47,186,682 32,405,668 15,713,456 10,884,187 General, administrative and store operating expenses 34,695,816 27,255,961 11,734,126 9,220,152 ----------- ----------- ----------- ----------- INCOME FROM OPERATIONS 12,490,866 5,149,707 3,979,330 1,664,035 Interest expense, net 136,837 273,163 26,888 70,503 ----------- ----------- ----------- ----------- INCOME BEFORE TAXES 12,354,029 4,876,544 3,952,442 1,593,532 Income tax provision 4,941,000 1,951,000 1,581,000 638,000 ----------- ----------- ----------- ----------- NET INCOME $ 7,413,029 $ 2,925,544 $ 2,371,442 $ 955,532 =========== =========== =========== =========== Per share data: Net income per common share - basic $ 0.91 $ 0.37 $ 0.29 $ 0.12 =========== =========== =========== =========== Net income per common and common equivalent share-diluted $ 0.88 $ 0.37 $ 0.28 $ 0.12 =========== =========== =========== =========== Weighted average common shares outstanding-basic 8,106,194 7,893,349 8,213,880 7,901,307 =========== =========== =========== =========== Weighted average common and common equivalent shares outstanding-diluted 8,437,331 7,962,050 8,563,045 8,093,316 =========== =========== =========== ===========
SEE ACCOMPANYING NOTES Page 4 5 CHICO'S FAS, INC. CONDENSED STATEMENT OF CASH FLOWS [UNAUDITED]
THIRTY-NINE WEEKS ENDED 10-31-98 11-1-97 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: NET INCOME $ 7,413,029 $ 2,925,544 ------------ ------------ ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: DEPRECIATION AND AMORTIZATION 1,741,734 1,598,110 DEFERRED TAXES (782,000) 49,000 LOSS ON DISPOSAL OF PROPERTY AND EQUIPMENT 82,564 239,899 INCREASE IN DEFERRED RENT 198,727 71,454 CHANGES IN ASSETS AND LIABILITIES: DECREASE (INCREASE) IN RECEIVABLES 56,856 (109,413) DECREASE (INCREASE) IN INVENTORIES 595,338 (715,319) DECREASE IN PREPAIDS AND OTHER ASSETS 919,339 545,496 INCREASE IN ACCOUNTS PAYABLE 748,811 544,029 INCREASE IN ACCRUED LIABILITIES 1,990,071 672,325 ------------ ------------ TOTAL ADJUSTMENTS 5,551,440 2,895,581 ------------ ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 12,964,469 5,821,125 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: PROCEEDS FROM SALES OF FIXED ASSETS -- 34,500 PURCHASE OF LAND, BUILDINGS AND EQUIPMENT (3,370,006) (1,703,896) ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES (3,370,006) (1,669,396) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: PROCEEDS FROM ISSUANCE OF COMMON STOCK, NET 2,246,745 50,607 CREDIT LINE PAYMENTS -- (284,919) PRINCIPAL PAYMENTS ON DEBT (89,546) (259,450) DEFERRED FINANCE COSTS (228,000) (100,000) ------------ ------------ NET CASH USED IN FINANCING ACTIVITIES 1,929,199 (593,762) ------------ ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS 11,523,662 3,557,967 CASH AND CASH EQUIVALENT-BEGINNING OF PERIOD 2,943,916 832,176 ------------ ------------ CASH AND CASH EQUIVALENT-END OF PERIOD $ 14,467,578 $ 4,390,143 ============ ============
SEE ACCOMPANYING NOTES Page 5 6 CHICO'S FAS INC. NOTES TO CONDENSED FINANCIAL STATEMENTS OCTOBER 31, 1998 (UNAUDITED) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BASIS OF PRESENTATION The accompanying unaudited condensed financial statements of CHICO'S FAS, Inc. (the "Company") have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the financial statements and notes thereto for the year ended January 31, 1998, included in the Company's Annual Report on Form 10-K filed on April 28, 1998. The January 31, 1998 balance sheet amounts were derived from audited financial statements included in the Company's Annual Report. Operating results for the thirteen and thirty-nine weeks ended October 31, 1998 are not necessarily indicative of the results that may be expected for the entire fiscal year. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE In the fiscal year ended January 31, 1998, the Company adopted SFAS No. 128, "Earnings per Share" (SFAS 128). SFAS 128 establishes new standards for computing and presenting earnings per share (EPS). Specifically, SFAS 128 replaces the presentation of primary EPS with a presentation of basic EPS, requires dual presentation of basic and diluted EPS on the face of the income statement and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS is based upon the weighted average number of common shares outstanding and diluted EPS is based upon the weighted average number of common shares outstanding plus the dilutive common equivalent shares outstanding during the period. The following is a reconciliation of the denominators of the basic and diluted EPS computations shown on the face of the accompanying statements of income:
THIRTY-NINE WEEKS ENDED THIRTEEN WEEKS ENDED ------------------------ ----------------------- 10-31-98 11-1-97 10-31-98 11-1-97 --------- ---------- --------- --------- Basic weighted average number of common shares 8,106,194 7,893,349 8,213,880 7,901,307 Dilutive effect of options outstanding 331,137 68,701 349,165 192,008 --------- --------- --------- --------- Diluted weighted average common and common equivalent shares outstanding 8,437,331 7,962,050 8,563,045 8,093,316 ========= ========= ========= =========
Page 6 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Results of Operations - Thirteen Weeks Ended October 31, 1998 Compared to the Thirteen Weeks Ended November 1, 1997. NET SALES. Net sales by Company-owned stores for the thirteen weeks ended October 31, 1998 (the current period) increased by $8.0 million, or 43.5%, over net sales by Company-owned stores for the comparable thirteen weeks ended November 1, 1997 (the prior period). The increase was the result of a comparable Company store net sales increase of $5.0 million and $3.0 million additional sales from the new (or reacquired) stores not yet included in the Company's comparable store base (net of sales of approximately $183,000 from four stores closed in fiscal 1998 and fiscal 1999). Net sales to franchisees for the current period decreased by approximately $141,000, or 23.8% compared to net sales to franchisees for the prior period. The decrease in net sales to franchisees primarily reflects reduced sales due to the reacquisition of two franchised stores in fiscal 1999, net of increased sales to franchisees due to the opening of an additional franchised location by an existing franchisee. GROSS PROFIT. Gross profit for the current period was $15.7 million, or 58.7% of net sales, compared with $10.9 million, or 57.5% of net sales, for the prior period. The increase in the gross profit percentage primarily resulted from leverage associated with the Company's 28.5% comparable store sales increase for the quarter. To a lesser degree, this increase was caused by lower freight costs resulting from the use of a lower-cost carrier for air freight shipments to stores. GENERAL, ADMINISTRATIVE AND STORE OPERATING EXPENSES. General, administrative and store operating expenses increased to $11.7 million, or 43.9% of net sales, in the current period from $ 9.2 million, or 48.7% of net sales, in the prior period. The increase in general, administrative and store operating expenses was, for the most part, the result of increases in store operating expenses, including store compensation, occupancy and other costs associated with additional store openings. The decrease in these expenses as a percentage of net sales was principally due to direct store costs, including store compensation, which decreased by 5.1% of net sales due to leverage associated with the Company's 28.5% comparable company store sales increase for the quarter, net of increased profit sharing and other accruals. INTEREST EXPENSE, NET. Net interest expense decreased to approximately $27,000 in the current period from approximately $71,000 in the prior period. This decrease was primarily a result of increased interest earnings during the current period resulting from the Company's increased cash position. NET INCOME. As a result of the factors discussed above, net income reflects an increase of 148.2% to $2.4 million in the current period from net income of $1.0 million in the prior period. The income tax provision represented an effective rate of 40% for both the current and prior periods. Page 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Results of Operations - Thirty-nine Weeks Ended October 31, 1998 Compared to the Thirty-nine Weeks Ended November 1, 1997. NET SALES. Net sales by Company-owned stores for the thirty-nine weeks ended October 31, 1998 (the current period) increased by $22.3 million, or 39.7%, over net sales by Company-owned stores for the comparable thirty-nine weeks ended November 1, 1997 (the prior period). The increase was the result of a comparable Company store net sales increase of $14.8 million and $7.5 million additional sales from the new (or reacquired) stores not yet included in the Company's comparable store base (net of sales of $1.5 million from seven stores closed in fiscal 1998 and fiscal 1999). Net sales to franchisees for the current period decreased by approximately $51,000 , or 3.6% compared to net sales to franchisees for the prior period. The decrease in net sales to franchisees primarily reflects reduced sales due to the re-acquisition of three franchised stores in fiscal 1998 and fiscal 1999, net of increased sales to franchisees due to the opening of an additional franchised location by an existing franchisee. GROSS PROFIT. Gross profit for the current period was 47.2 million, or 59.0% of net sales, compared with $32.4 million, or 56.1% of net sales, for the prior period. The increase in the gross profit percentage primarily resulted from higher margins in its front-line stores due to fewer and less aggressive markdowns associated with the Company's refocusing of its product development departments described more fully below in comparable company store net sales. To a lesser degree, this increase was due to leverage associated with the Company's 27.7% comparable store sales increase for the nine month period, offset by an increase in inventory reserves for merchandise intended for liquidation. GENERAL, ADMINISTRATIVE AND STORE OPERATING EXPENSES. General, administrative and store operating expenses increased to $34.7 million, or 43.4% of net sales, in the current period from $27.3 million, or 47.2% of net sales, in the prior period. The increase in general, administrative and store operating expenses was, for the most part, the result of increases in store operating expenses, including store compensation, occupancy and other costs associated with additional store openings. The decrease in these expenses as a percentage of net sales was principally due to direct store costs, including store compensation, which decreased by 4.6% of net sales due to leverage associated with the Company's 27.7% comparable company store sales increase for the nine month period, net of an increase in marketing and promotion costs as a percent of sales and net of increased profit sharing and other accruals. INTEREST EXPENSE, NET. Net interest expense decreased to approximately $137,000 in the current period from approximately $273,000 in the prior period. This decrease was primarily a result of increased interest earnings during the current period resulting from the Company's increased cash position. NET INCOME. As a result of the factors discussed above, net income reflects an increase of 153.4% to $ 7.4 million in the current period from net income of $2.9 million in the prior period. The income tax provision represented an effective rate of 40% for both the current and prior periods. COMPARABLE COMPANY STORE NET SALES. Comparable Company store net sales increased by 28.5% in the current quarter and 27.7% in the first nine months of 1998 when compared to the comparable prior periods. Comparable Company store net sales data is calculated based on the change in net sales of currently open Company-owned stores that have been operated as a Company store for at least thirteen months. The Company believes that the increase in comparable Company store net sales in both the quarter and nine month period resulted from a refocusing of the Company's product development, merchandise planning and buying departments on Chico's target customer. The Company also believes that the look, fit, timing of receipts and pricing policy (including markdowns) of the Company's product was in line with the refocusing effort and that the increase in comparable store sales was fueled by increased direct mailings and a larger database of existing customers for such mailings. To a lesser degree, the Company believes the increase was due to increased store-level training efforts associated with the Company's newly introduced training programs and continuing sales associated with several styles of clothing produced from a fabric newly introduced by the Company in the fourth quarter of fiscal 1998. Page 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Because of the perceived success of the Company's direct mail efforts, and its past success with its frequent shopping club (the "Passport Club") during 1990-1994, the Company intends, in the first quarter of fiscal 2000, to re-establish a new and modified "Passport Club". This will allow the Company to track customer sales at the sku level, allow for mailings to separate niches of customers and offer discounts and other benefits for increased frequent shopping. The Company also believes that the reintroduction of the "Passport Club" should help the Company to more effectively perform from a store sales perspective as the Company comes up against the strong monthly comparable store sales increases that were achieved in fiscal 1999 and 1998. LIQUIDITY AND CAPITAL RESOURCES The Company's primary ongoing capital requirements are for funding capital expenditures related to new store openings and merchandise inventory purchases. During the nine months ended October 31, 1998 (the current period) and the nine months ended November 1, 1997 (the prior period), the Company's primary source of working capital was cash flow from operations of $13.0 million and $5.8 million, respectively. The increase in cash flow from operations of $7.1 million was primarily due to an increase in net income to $7.4 million in the current period from $2.9 million in the prior period, a decrease of approximately $595,000 in inventory in the current period versus an increase of approximately $715,000 in the prior period and an increase in accounts payable and accrued liabilities of $2.7 million in the current period, versus an increase of $1.2 million in the prior period, net of an increase in deferred taxes of approximately $782,000 in the current period versus a decrease of approximately $49,000 in the prior period. The increase in accounts payable and accrued liabilities is associated with the Company's improved sales and profitability. The Company invested $3.4 million in the current period for capital expenditures primarily associated with the opening of 15 new (or reacquired) company stores, and the remodeling of several existing stores. During the prior period, the Company invested approximately $1.7 million for capital expenditures associated with the opening of 10 new (or reacquired) company stores, and the remodeling of several existing stores. During the current period, two of the Company's officers exercised 137,000 stock options at prices ranging from $3.25 to $7.00, one of the Company's independent directors exercised 25,000 options at prices ranging from $3.25 to $5.0625, a former director exercised 61,000 options at prices ranging from $5.50 to $8.75 and several employees and former employees exercised 28,399 options at prices ranging from $3.25 to $8.75. Also during the current period, the Company sold 13,790 shares of common stock under its employee stock purchase plan at a price of $7.70. The proceeds from the issuances of stock as described above amounted to $2.2 million. The Company also invested $228,000 in the current period and $100,000 in the prior period in intangible assets associated with the reacquisition of franchised stores. The Company repaid indebtedness of approximately $90,000 and $259,000 in the current and prior periods, respectively. In addition, the Company repaid under its then available credit lines approximately $285,000 in the prior period. As more fully described in "Item 1-Business" appearing on pages 12 through 15 of the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1998, the Company is subject to ongoing risks associated with imports. The Company's reliance on sourcing from foreign countries causes the Company to be exposed to certain unique business and political risks. Import restrictions, including tariffs and quotas, and changes in such tariffs or quotas could affect the importation of apparel generally and, in that event, could increase the cost or reduce the supply of apparel available to the Company and have an adverse effect on the Company's business, financial condition and/or results of operations. The Company's merchandise flow could also be adversely affected by political instability in any of the countries in which its goods are manufactured, by significant fluctuations in the value of the U.S. dollar against applicable foreign currencies and by restrictions on the transfer of funds. The Company plans to open approximately 22-24 new stores in fiscal 1999, 18 of which were open as of December 4, 1998. The Company plans to open new stores in fiscal 2000 at least equal to 15% of its existing store base. The Company believes that the liquidity needed for its planned new store growth, continuing remodel program and maintenance of proper inventory levels associated with this growth will be funded primarily from cash flow from operations and existing cash balances. The Company further believes that this liquidity will be sufficient, based on currently planned new store openings, to fund anticipated capital Page 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) needs over the near-term, including scheduled debt repayments. Given the Company's strong cash balances , even if cash flow from operations should prove to be less than anticipated or even if there should arise a need for additional letter of credit capacity due to establishing new and expanded sources of supply, or if the Company were to increase the number of new Company stores planned to be opened in future periods, the Company does not believe that it would need to seek other sources of financing to conduct its operations or pursue its expansion plans. SEASONALITY AND INFLATION Although the operations of the Company are influenced by general economic conditions, the Company does not believe that inflation has had a material effect on the results of operations during the current or prior periods. Although sales have recently been somewhat higher in the Company's first and second fiscal quarters (February through July), the company does not consider its business to be seasonal. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS This 10-Q may contain forward looking statements which reflect the current views of the Company with respect to certain events that could have an effect on the Company's future financial performance. These statements include the words "expects," "believes," and similar expressions. These forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from historical results or those currently anticipated. These potential risks and uncertainties include ability to secure customer acceptance of Chico's styles, propriety of inventory mix and sizing, quality of merchandise received from vendors, timeliness of vendor production and deliveries, increased competition, extent of the market demand by women for private label clothing and related accessories, adequacy and perception of customer service, ability to coordinate product development along with buying and planning, rate of new store openings, performance of management information systems, ability to hire, train, energize and retain qualified sales associates and other employees, availability of quality store sites, ability to hire and retain qualified managerial employees and other risks. In addition, there are potential risks and uncertainties that are peculiar to the Company's heavy reliance on sourcing from foreign vendors including the impact of work stoppages, transportation delays and other interruptions, political instability, foreign currency fluctuations, imposition of and changes in tariffs and import and export controls such as import quotas, changes in governmental policies in or towards such foreign countries and other similar factors. YEAR 2000 The Year 2000 issue results from computer programs and electronic circuitry that do not differentiate between the year 1900 and the year 2000 because they are written using two, rather than four, digit dates to define the applicable year. If not corrected, many computer applications and date-sensitive devices could fail or produce erroneous results when processing dates after December 31, 1999. The Year 2000 issue affects virtually all companies and organizations including Chico's. Chico's employs a number of information technology systems in its operations, including without limitation, computer networking systems, financial systems and other similar systems, most of which are licensed from outside vendors, while a few are internally developed. A number of these systems, including the Company's merchandising, financial and sales software systems, have recently been upgraded and thus most of these recently upgraded systems are believed to be Year 2000 compliant. Management has developed and has been pursuing a plan to identify whether Chico's other information technology systems are Year 2000 compliant and has begun the process of implementing a conversion, modification or upgrade of those other critical data processing systems which are not already Year 2000 compliant. Management currently expects these activities to be substantially complete by mid 1999. Throughout its operations, the Company also employs electronic equipment such as building security, product handling and other devices containing embedded electronic circuits. Chico's is continuing with the process of identifying and prioritizing any embedded technology devices which may be deemed to be mission critical or that tend to have a more significant impact on normal operations. A team of internal staff and management that has been identified to manage Chico's Year 2000 initiative has already been able to secure confirmation that many of the Company's embedded technology devices which are critical to Chico's Page 10 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) overall operations are Year 2000 compliant. This team will also be developing a separate plan to upgrade any other embedded technology devices which are identified as being mission critical. Management currently expects these activities to be substantially complete by mid 1999. Costs incurred to date in implementing the Year 2000 initiatives amount to less than $50,000 and management currently expects that the overall cost of implementing the Year 2000 initiatives relative to information technology systems and the higher priority embedded technology devices, including internal costs and costs incurred to date, will not exceed $50,000. Chico's is also in the process of evaluating and managing the potential risk posed by the impact of the Year 2000 issue on its major suppliers and vendors. Formal and informal communications with these major suppliers and vendors have been initiated, with an expectation and plan to substantially complete an assessment in this regard by early 1999. To date, Chico's is not aware of any major suppliers or vendors who have not either addressed their Year 2000 issues or provided assurances that such issues are in the process of being timely addressed. In particular, Chico's key financial institution has confirmed that it will be Year 2000 compliant on or before December 31, 1999. However it may be difficult to determine with any certainty whether Chico's suppliers and vendors will be able to successfully address their respective Year 2000 issues and the extent to which any failure to do so would negatively impact Chico's operations. Although Chico's does not believe, based on its current evaluation of these matters, that the Year 2000 issue will have a significant effect on its overall operations, Chico's initiatives in this regard are subject to a variety of risks and uncertainties some of which are beyond the Company's control. The failure of Chico's or any of its major suppliers or vendors to achieve Year 2000 readiness could adversely impact the Company's business operations, which could in turn have an adverse effect on the Company's future financial results. Page 11 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 27 Financial Data Schedule (b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the current period SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: December 8, 1998 By: /s/ Marvin Gralnick ----------------- ------------------- Marvin Gralnick Chief Executive Officer (Principal Executive Officer) Date: December 8, 1998 By: /s/ Charles J. Kleman ---------------- ---------------------- Charles J. Kleman Chief Financial Officer (Principal Financial and Accounting Officer) Page 12 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED FINANCIAL STATEMENTS OF CHICO'S FAS, INC. FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 9-MOS JAN-30-1999 FEB-01-1998 OCT-31-1998 14,467,578 0 838,039 0 8,930,134 26,763,068 26,220,101 7,513,863 46,979,352 9,105,508 6,758,186 0 0 82,765 31,032,893 46,979,352 80,008,599 80,008,599 32,821,917 32,821,917 34,695,816 0 136,837 12,354,029 4,941,000 7,413,029 0 0 0 7,413,029 .91 .88
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