-----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, DOPmupXNpONVXUAdtMwWP61PzWgDKabEYz6+DY8gHUvE9Fer2VNuyEZFb8z9WqpG GdOVZ71kMnwi7HkZmmJWDw== 0000950144-98-007100.txt : 19980604 0000950144-98-007100.hdr.sgml : 19980604 ACCESSION NUMBER: 0000950144-98-007100 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980502 FILED AS OF DATE: 19980603 SROS: NASD 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: 98641527 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. FORM 10-Q 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: May 2, 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 June 3, 1998, there were 8,012,041 shares outstanding of Common Stock, $.01 par value per share. 2 CHICO'S FAS, INC. Index
PART I - Financial Information Item 1. Financial Statements (Unaudited): Page Condensed Balance Sheets - May 2, 1998 and January 31, 1998...............................................3 Condensed Statements of Income for the Thirteen Weeks Ended May 2, 1998 and May 3, 1997..........................................................................4 Condensed Statements of Cash Flows for the Thirteen Weeks Ended May 2, 1998 and May 3, 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................................................................10 Signatures ................................................................................................10
3 CHICO'S FAS, INC. CONDENSED BALANCE SHEET [UNAUDITED]
AS OF AS OF 5-2-98 1-31-98 ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 9,668,689 $ 2,943,916 Certificate of Deposit 1,000,000 -- Receivables 296,742 894,895 Inventories 7,136,906 9,525,472 Prepaid expenses 500,960 667,145 Deferred taxes 1,438,000 1,251,000 ------------ ------------ Total Current Assets 20,041,297 15,282,428 ------------ ------------ LAND, BUILDING AND EQUIPMENT: Cost 24,060,242 23,596,977 Less accumulated depreciation and amortization (6,792,583) (6,617,591) ------------ ------------ Land, Building and Equipment, Net 17,267,659 16,979,386 ------------ ------------ OTHER ASSETS: Certificate of Deposit -- 1,000,000 Deferred taxes 646,000 559,000 Other assets, net 818,631 650,702 ------------ ------------ Total Other Assets 1,464,631 2,209,702 ------------ ------------ $ 38,773,587 $ 34,471,516 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 2,815,348 $ 3,520,265 Accrued liabilities 3,346,298 2,540,375 Accrued income taxes 1,819,572 -- Current portion of debt and lease obligations 252,913 251,762 ------------ ------------ Total Current Liabilities 8,234,131 6,312,402 ------------ ------------ NONCURRENT LIABILITIES: Debt and lease obligations 5,417,376 5,455,271 Deferred rent 1,329,824 1,247,958 ------------ ------------ Total Noncurrent Liabilities 6,747,200 6,703,229 ------------ ------------ STOCKHOLDERS' EQUITY: Common stock 80,126 80,113 Additional paid-in capital 8,227,562 8,219,707 Retained earnings 15,484,568 13,156,065 ------------ ------------ Total Stockholders' Equity 23,792,256 21,455,885 ------------ ------------ $ 38,773,587 $ 34,471,516 ============ ============
Page 3 See Accompanying Notes 4 CHICO'S FAS, INC. CONDENSED STATEMENTS OF INCOME [UNAUDITED]
THIRTEEN WEEKS ENDED 5-2-98 5-3-97 ----------- ----------- Net sales by company stores $25,518,852 $18,296,447 Net sales to franchisees 377,056 423,350 ----------- ----------- NET SALES 25,895,908 18,719,797 Cost of goods sold 10,769,153 8,116,360 ----------- ----------- GROSS PROFIT 15,126,755 10,603,437 General, administrative and store operating expenses 11,166,931 8,815,301 ----------- ----------- INCOME FROM OPERATIONS 3,959,824 1,788,136 Interest expense, net 79,319 116,680 ----------- ----------- INCOME BEFORE TAXES 3,880,505 1,671,456 Income tax provision 1,552,000 669,000 ----------- ----------- NET INCOME $ 2,328,505 $ 1,002,456 =========== =========== PER SHARE DATA: Net income per common share - basic $ 0.29 $ 0.13 =========== =========== Net income per common and common equivalent share-diluted $ 0.28 $ 0.13 =========== =========== Weighted average common shares outstanding-basic 8,012,041 7,884,118 =========== =========== Weighted average common and common equivalent shares outstanding-diluted 8,244,063 7,884,118 =========== ===========
Page 4 See Accompanying Notes 5 CHICO'S FAS, INC. CONDENSED STATEMENT OF CASH FLOWS [UNAUDITED]
THIRTEEN WEEKS ENDED 5-2-98 5-3-97 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $2,328,505 $1,002,456 ---------- ---------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 546,045 529,610 Deferred taxes (274,000) 127,000 Loss on disposal of property and equipment 5,685 48,547 Increase in deferred rent 81,866 40,177 Changes in assets and liabilities: Decrease [increase] in receivables 598,153 (41,469) Decrease in inventories 2,388,566 1,146,980 Decrease in prepaids and other assets 138,614 41,029 Decrease in accounts payable (704,917) (252,350) Increase in accrued liabilities 805,923 291,710 Increase in accrued income taxes 1,819,572 588,851 ---------- ---------- Total Adjustments 5,405,507 2,520,085 ---------- ---------- Net cash provided by operating activities 7,734,012 3,522,541 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of land, buildings and equipment (782,363) (627,902) ---------- ---------- Net cash used in investing activities (782,363) (627,902) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock, net 7,868 -- Credit line payments -- (284,919 Principal payments on debt (36,744) (84,449) Deferred finance costs (198,000) (100,000) ---------- ---------- Net cash used in financing activities (226,876) (469,368) ---------- ---------- Net increase in cash and cash equivalents 6,724,773 2,425,271 CASH AND CASH EQUIVALENTS - Beginning of Period 2,943,916 832,176 ---------- ---------- CASH AND CASH EQUIVALENTS - End of Period $9,668,689 $3,257,447 ========== ==========
Page 5 See Accompanying Notes 6 CHICO'S FAS, INC. Notes to Condensed Financial Statements May 2, 1998 (Unaudited) 1. 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 weeks ended May 2, 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 for all entities with complex capital structures 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 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:
THIRTEEN THIRTEEN WEEKS WEEKS ENDED ENDED 5/2/98 5/3/97 --------- --------- Basic weighted average number of common shares 8,012,041 7,884,118 Dilutive effect of options outstanding 232,022 -- ========= ========= Diluted weighted average common and common equivalent shares outstanding 8,244,063 7,884,118 ========= =========
Page 6 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - THIRTEEN WEEKS ENDED MAY 2, 1998 COMPARED TO THE THIRTEEN WEEKS ENDED MAY 3, 1997. NET SALES. Net sales by Company-owned stores for the thirteen weeks ended May 2, 1998 (the current period) increased by $7.2 million, or 39.5%, over net sales by Company-owned stores for the comparable thirteen weeks ended May 3, 1997 (the prior period). The increase was the result of a comparable Company store net sales increase of $5.5 million and $1.7 million additional sales from the new (or reacquired) stores not yet included in the Company's comparable store base (net of sales of approximately $600,000 from six stores closed in fiscal 1998). Net sales to franchisees for the current period decreased by approximately $46,000, or 10.9% compared to net sales to franchisees for the prior period. The decrease in net sales to franchisees was primarily caused by the reacquisition of three franchised stores in fiscal 1998 and 1999 offset by an increase in sales to other franchisees. GROSS PROFIT. Gross profit for the current period was $15.1 million, or 58.4% of net sales, compared with $10.6 million, or 56.6% of net sales, for the prior period. The increase in the gross profit percentage primarily resulted from higher initial margins on goods offered for sale and 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 31.7% comparable store sales increase for the quarter, 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 $11.2 million, or 43.1% of net sales, in the current period from $8.8 million, or 47.1% 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 7.2% of net sales due to leverage associated with the Company's 31.7% comparable company store sales increase for the quarter, 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 $79,000 in the current period from approximately $117,000 in the prior period. This decrease was primarily a result of increased interest earnings during the current period from the Company's increased cash position. NET INCOME. As a result of the factors discussed above, net income reflects an increase of 132.3% to $2.3 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. COMPARABLE COMPANY STORE NET SALES. Comparable Company store net sales increased by 31.7% in the current period when compared to the comparable prior period. 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 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 and pricing policy 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 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) 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 current and prior periods, the Company's primary source of working capital was cash flow from operations of $7.7 million and $3.5 million, respectively. The increase in cash flow from operations of $4.2 million was primarily due to an increase in net income to $2.3 million in the current period from $1.0 million in the prior period, a decrease in inventories of $2.4 million in the current period as compared to a decrease of $1.1 million in the prior period and an increase in accrued income taxes of $1.8 million as compared to an increase of approximately $589,000 in the prior period. To a lesser degree, the increase in cash flow from operations was due to an increase in accrued liabilities of approximately $806,000 in the current period, versus an increase of approximately $292,000 in the prior period and a decrease in receivables of approximately $598,000 in the current period versus an increase of approximately $41,000 in the prior period. The increase in accrued liabilities is associated with the Company's improved sales and profitability and the decrease in receivables is due to the re-acquisition of two franchises after year end. The Company invested approximately $782,000 in the current period for capital expenditures primarily associated with the opening of four new (or reacquired) stores, and the remodeling of several existing stores. During the prior period, the Company invested approximately $628,000 for capital expenditures associated with the opening of four new (or reacquired) stores, the relocating of three existing stores and remodeling of several existing stores. In the current period, one of the Company's former employees exercised 1,267 stock options at prices of $5.50 and $7.00. The proceeds from this issuance of this stock amounted to approximately $7,900. The Company also invested $198,000 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 $37,000 and $84,000 in the current and prior periods, respectively. 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 16 to 20 new stores in fiscal 1999, 3 of which were open as of June 1, 1998. 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. The Company further believes that this liquidity will be sufficient, based on currently planned new store openings, to fund anticipated capital needs over the near-term, including scheduled debt repayments. If cash flow from operations should prove to be less than anticipated or 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 might need to seek other sources of financing to conduct its operations or pursue its expansion plans and there can be no assurance that such other sources of financing would be available. Page 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) 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. The company has assessed the year 2000 readiness of its systems and has determined that the costs and uncertainties that may be associated with addressing the year 2000 issues for its systems are not expected to have a material impact on its business operations or its financial conditions. Page 9 10 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: June 2, 1998 By:/s/ Marvin Gralnick -------------- ------------------- Marvin Gralnick Chief Executive Officer (Principal Executive Officer) Date: June 2, 1998 By:/s/ Charles J. Kleman -------------- ---------------------- Charles J. Kleman Chief Financial Officer (Principal Financial and Accounting Officer) Page 10 EX-27 2 FINANCIAL DATA SCHEDULE (FOR SEC USE ONLY)
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED FINANCIAL STATEMENTS OF CHICO'S FAS, INC. FOR THE THIRTEEN WEEKS ENDED MAY 2, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 3-MOS JAN-30-1998 FEB-01-1998 MAY-02-1998 10,668,689 0 296,742 0 7,136,906 20,046,297 24,060,242 6,792,583 38,773,587 8,234,131 6,747,200 0 0 80,126 23,712,130 38,773,587 25,895,908 25,895,908 10,769,153 10,769,153 11,166,931 0 79,319 3,880,505 1,552,000 2,328,505 0 0 0 2,328,505 .29 .28
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