<PAGE> 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 3, 1997 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 6, 1997, there were 7,899,052 shares outstanding of Common Stock, $.01
par value per share.
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CHICO'S FAS, INC.
Index
<TABLE>
<CAPTION>
PART I - Financial Information Page
- ------------------------------ ----
<S> <C>
Item 1. Financial Statements (Unaudited):
Condensed Balance Sheets - May 3, 1997 and February 1, 1997 .................. 3
Condensed Statements of Income for the Thirteen Weeks Ended
May 3, 1997 and April 28, 1996 ........................................... 4
Condensed Statements of Cash Flows for the Thirteen Weeks Ended
May 3, 1997 and April 28, 1996 ........................................... 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
</TABLE>
<PAGE> 3
CHICO'S FAS, INC.
Condensed Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
As of As of
5/3/97 2/1/97
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,257,447 $ 832,176
Receivables, net 804,920 763,451
Inventories 6,698,382 7,845,362
Prepaid expenses 425,320 473,444
Deferred taxes 1,142,000 1,290,000
----------- -----------
Total Current Assets 12,328,069 11,204,433
----------- -----------
Land, Building and Equipment:
Cost 22,837,185 22,330,612
Less accumulated depreciation and amortization (5,501,068) (5,093,660)
----------- -----------
Land, Building and Equipment, Net 17,336,117 17,236,952
----------- -----------
Other Assets:
Certificate of Deposit 1,600,000 1,600,000
Deferred taxes 573,000 552,000
Other assets 712,348 654,673
----------- -----------
Total Other Assets 2,885,348 2,806,673
----------- -----------
$32,549,534 $31,248,058
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,049,640 $ 3,301,990
Accrued liabilities 2,752,736 2,461,026
Accrued income taxes 588,851 --
Current portion of notes payable and lease obligations 409,078 456,602
----------- -----------
Total Current Liabilities 6,800,305 6,219,618
----------- -----------
Noncurrent Liabilities:
Notes and capital leases payable 5,567,752 5,604,677
Credit line payable -- 284,919
Deferred rent 1,158,423 1,118,246
----------- -----------
Total Noncurrent Liabilities 6,726,175 7,007,842
----------- -----------
Stockholders' Equity:
Common stock 78,841 78,841
Additional paid-in capital 7,555,708 7,555,708
Retained earnings 11,388,505 10,386,049
----------- -----------
Total Stockholders' Equity 19,023,054 18,020,598
----------- -----------
$32,549,534 $31,248,058
=========== ===========
</TABLE>
Page 3
See Accompanying Notes
<PAGE> 4
CHICO'S FAS, INC.
Condensed Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
5/3/97 4/28/96
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<S> <C> <C>
Net Sales by Company Stores $18,296,447 $17,022,227
Net Sales to Franchisees 423,350 280,325
----------- -----------
NET SALES 18,719,797 17,302,552
Cost of Goods Sold 8,116,360 7,439,905
----------- -----------
Gross Profit 10,603,437 9,862,647
General, Administrative and Store Operating Expenses 8,815,301 7,956,100
----------- -----------
Income from Operations 1,788,136 1,906,547
Interest Expense, Net 116,680 106,179
----------- -----------
Income Before Taxes 1,671,456 1,800,368
Provision for Income Taxes 669,000 720,000
----------- -----------
NET INCOME $ 1,002,456 $ 1,080,368
=========== ===========
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.13 $ 0.13
=========== ===========
Weighted average common and
common equivalent shares outstanding 7,884,118 8,006,666
=========== ===========
</TABLE>
Page 4
See Accompanying Notes
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CHICO'S FAS, INC.
Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
5/3/97 4/28/96
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $1,002,456 $1,080,368
---------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 529,610 446,655
Deferred taxes 127,000 61,000
Loss on disposal of property and equipment 48,547 25,602
Increase (decrease) in deferred rent 40,177 (9,962)
Change in assets and liabilities:
(Increase) decrease in receivables, net (41,469) 398,821
Decrease (increase) in inventories 1,146,980 (176,189)
Decrease in prepaids and other assets 41,029 108,225
(Decrease) increase in accounts payable (252,350) 885,843
Decrease in accrued liabilities 291,710 76,258
Increase in accrued income taxes 588,851 358,735
---------- ----------
Total adjustments 2,520,085 2,174,988
---------- ----------
Net cash provided by operating activities 3,522,541 3,255,356
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of land, buildings and equipment (627,902) (392,116)
Purchase of intangible assets (100,000) --
---------- ----------
Net cash used in investing activities (727,902) (392,116)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock -- 291,883
Credit line payments (284,919) (255,816)
Principal payments on debt (84,449) (86,549)
---------- ----------
Net cash used in financing activities (369,368) (50,482)
---------- ----------
Net increase in cash and cash equivalents 2,425,271 2,812,758
CASH AND CASH EQUIVALENTS - Beginning of Period 832,176 544,366
---------- ----------
CASH AND CASH EQUIVALENTS - End of Period $3,527,447 $3,357,124
========== ==========
</TABLE>
Page 5
See Accompanying Notes
<PAGE> 6
CHICO'S FAS, INC.
Notes to Condensed Financial Statements
May 3, 1997
(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 February
1, 1997, included in the Company's Annual Report on Form 10-K filed on
April 30,1997. The February 1, 1997 balance sheet amounts were derived
from audited financial statements included in the Company's Annual
Report.
Operating results for the thirteen weeks ended May 3, 1997 are not
necessarily indicative of the results that may be expected for the
entire fiscal year.
Net Income Per Common and Common Equivalent Share
Net income per common and common equivalent share is computed by
dividing net income by the weighted average number of common and common
equivalent shares outstanding during the periods, adjusted to include
the number of additional shares (none and 192,722 for the thirteen
weeks ended May 3, 1997 and April 28,1996, respectively) that would
have been outstanding if the stock options granted had been exercised,
with the proceeds being used to buy shares from the market (i.e., the
treasury stock method). Net income per common and common equivalent
share represents both primary and fully diluted per share information.
Page 6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - THIRTEEN WEEKS ENDED MAY 3, 1997 COMPARED TO THE
THIRTEEN WEEKS ENDED APRIL 28, 1996.
NET SALES. Net sales by Company-owned stores for the thirteen weeks ended May 3,
1997 increased by $1.3 million, or 7.5%, over net sales by Company-owned stores
for the comparable thirteen weeks ended April 28, 1996. The increase was the
result of $1.5 million additional sales from the new (or reacquired) stores not
yet included in the Company's comparable store base (net of sales of
approximately $246,000 from three stores closed in 1996 and 1997), offset by a
comparable Company-owned store net sales decrease of approximately $175,000.
Net sales to franchisees for the thirteen weeks ended May 3, 1997 increased by
approximately $143,000, or 51.0% compared to net sales to franchisees for the
thirteen weeks ended April 28, 1996. The Company believes that the increase in
net sales to franchisees was primarily caused by a significant decrease in the
volume of returned merchandise under the Company's new return policy implemented
in mid 1996.
GROSS PROFIT. Gross profit for the thirteen weeks ended May 3, 1997, was $10.6
million, or 56.6% of net sales, compared with $9.9 million, or 57.0% of net
sales for the thirteen weeks ended April 28, 1996. The decrease in the gross
profit percentage primarily resulted from a revised merchandising strategy as
the Company reduced price points to more effectively meet competitive price
points.
GENERAL, ADMINISTRATIVE AND STORE OPERATING EXPENSES. General, administrative
and store operating expenses increased to $8.8 million, or 47.1% of net sales,
in the thirteen weeks ended May 3, 1997 from $8.0 million, or 46.0% of net
sales, in the thirteen weeks ended April 28, 1996 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
increase in these expenses as a percentage of net sales was principally due to
an increase in marketing and other direct store costs.
INTEREST EXPENSE, NET. Net interest expense increased to approximately $117,000
in the thirteen weeks ended May 3, 1997 from approximately $106,000 in the
thirteen weeks ended April 28, 1996. This increase was primarily a result of
average increased borrowings during the period under the Company's working
capital credit lines.
NET INCOME. As a result of the factors discussed above, net income reflects a
decrease of 7.2% to $1.0 million in the thirteen weeks ended May 3, 1997 from
net income of $1.1 million in the thirteen weeks ended April 28, 1996.
COMPARABLE COMPANY STORE NET SALES. Comparable Company store net sales decreased
by 1.1% in the thirteen weeks ended May 3, 1997 when compared to the comparable
period in the thirteen weeks ended April 28, 1996. 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 decrease in comparable Company store net sales
resulted from a less than desirable assortment, depth and inventory level of
available merchandise combined with the Company's efforts, through markdowns and
repricing of new and existing merchandise to return to its traditional Chico's
look and pricing policies. Although the Company has experienced small positive
comparable company store sales in March, April and May of fiscal 1998, it does
not anticipate returning to a reasonably desirable assortment, depth and
inventory level of available merchandise until late in the second quarter of
fiscal 1998.
Page 7
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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 thirteen weeks ended May 3, 1997 (fiscal 1998) and the thirteen weeks
ended April 28,1996 (fiscal 1997), the Company's primary source of working
capital was cash flow from operations of $3.5 million and $3.3 million,
respectively. The increase in cash flow from operations was primarily due to a
decrease in inventories by $1.1 million in the first thirteen weeks of fiscal
1998, as compared to an increase of approximately $176,000 in the first thirteen
weeks of fiscal 1997. The decrease in inventories was primarily due to canceled
orders for merchandise the Company did not feel met its pricing standards or did
not represent its traditional look, combined with an effort to reduce the
balance of goods held at the Company's distribution center. This increase in
cash flow from operations was offset by a decrease in accounts payable and
accrued liabilities in fiscal 1998 of approximately $39,000, versus a decrease
in accounts payable and accrued liabilities of approximately $962,000 in fiscal
1997. To a lesser degree, the increase in cash flow from operations was offset
by an increase in receivables of approximately $41,000 in fiscal 1998, versus a
decrease in receivables of approximately $399,000 in fiscal 1997.
The Company invested approximately $628,000 during the first thirteen weeks of
fiscal 1998 for capital expenditures primarily associated with the opening of
four new (or reacquired) stores, the relocating of three existing stores and the
remodeling of one existing store. In addition, the Company invested $100,000 in
intangible assets associated with the reacquisition of one franchised store. The
Company also closed, during this period, one store whose lease was due to expire
and also has since closed one additional store in May 1997. During the first
thirteen weeks of fiscal 1997, the Company invested approximately $392,000 for
capital expenditures associated with the opening of one new store, the
relocating of two existing stores and a companywide refixturing program which
continued throughout fiscal 1997.
During the first quarter of fiscal 1997, one of the Company's former officers
exercised 71,540 stock options at the price of $4.08. The proceeds from this
issuance of stock amounted to approximately $292,000.
The Company repaid under its then available credit lines approximately $285,000
and $256,000 in the first 13 weeks of fiscal 1998 and 1997 , respectively. In
addition, the Company repaid other indebtedness of approximately $84,000 and
$87,000 in the same periods.
As more fully described in "Item 1-Business" appearing on pages 13 through 16 of
the Company's Annual Report on Form 10-K for the fiscal year ended February 1,
1997, 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.
Page 8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company plans to open approximately 8 to 12 new stores in fiscal 1998, 3 of
which were open as of May 31, 1997. The Company believes that the liquidity
needed for its planned new store growth, 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.
SEASONALITY AND INFLATION
The Company has historically experienced, and expects to continue to experience,
seasonal fluctuations in its sales and net income. Historically, a greater
portion of the Company's sales have been realized during the period from
approximately November 1 through March 31, thus impacting the first and fourth
quarters. Historically, sales generated during this period have had a
significant impact on the Company's results of operations. Fewer of the
Company's new stores have been opened in warm-weather tourist locations and, as
a result, the difference in sales and net income during these quarters of the
fiscal year has been reduced. Moreover, performance during the first quarter of
fiscal 1997 and during the first quarter of fiscal 1998 has been negatively
impacted by separate transitions needed to clear out the old merchandise and
prepare for the arrival of new designs and styles.
Even though the Company is not as dependent on the Christmas selling season as
many other retailers are, sales in the months of November and December are still
expected to continue to represent, in the future, a greater portion of the
Company's sales. If for any reason the Company's sales during November and
December do not represent increased sales activity as compared with the
remainder of the year( as was the case in fiscal 1997 ), or if there is a
decrease in availability of working capital in the months prior to November and
December, the Company's profitability could be materially and adversely
affected. The Company's quarterly results of operations may also fluctuate
significantly as a result of a variety of factors, including the timing of new
stores openings, the net sales contributed by new stores, and store closings.
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 first thirteen weeks of fiscal
1998 and during the first thirteen weeks of fiscal 1997.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This 10-Q contains 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
Page 9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS (CONTINUED)
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.
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 thirteen weeks ended May 3, 1997
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 9, 1997 By: /s/ Marvin Gralnick
-------------- ----------------------------------------------
Marvin Gralnick
Chief Executive Officer
(Principal Executive Officer)
Date: June 9, 1997 By: /s/ Charles J. Kleman
-------------- ----------------------------------------------
Charles J. Kleman
Chief Financial Officer
(Principal Financial and Accounting Officer)
Page 10
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF CHICO'S FAS, INC. FOR THE THIRTEEN WEEKS ENDED
MAY 3, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> MAY-03-1997
<EXCHANGE-RATE> 1
<CASH> 3,257,447
<SECURITIES> 0
<RECEIVABLES> 804,920
<ALLOWANCES> 0
<INVENTORY> 6,698,382
<CURRENT-ASSETS> 12,328,069
<PP&E> 22,837,185
<DEPRECIATION> 5,501,068
<TOTAL-ASSETS> 32,549,534
<CURRENT-LIABILITIES> 6,800,305
<BONDS> 6,726,175
0
0
<COMMON> 78,841
<OTHER-SE> 18,944,213
<TOTAL-LIABILITY-AND-EQUITY> 32,549,534
<SALES> 18,719,797
<TOTAL-REVENUES> 18,719,797
<CGS> 8,116,360
<TOTAL-COSTS> 8,116,360
<OTHER-EXPENSES> 8,815,301
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 116,680
<INCOME-PRETAX> 1,671,456
<INCOME-TAX> 669,000
<INCOME-CONTINUING> 1,002,456
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,002,456
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
