<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:
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.
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CHICO'S FAS, INC.
INDEX
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Page
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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
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CHICO'S FAS, INC.
CONDENSED BALANCE SHEET
[UNAUDITED]
<TABLE>
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AS OF AS OF
10-31-98 1-31-98
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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
============ ============
</TABLE>
SEE ACCOMPANYING NOTES
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CHICO'S FAS, INC.
CONDENSED STATEMENTS OF INCOME
[UNAUDITED]
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THIRTY-NINE WEEKS ENDED THIRTEEN WEEKS ENDED
10-31-98 11-1-97 10-31-98 11-1-97
----------- ----------- ----------- -----------
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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
=========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES
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CHICO'S FAS, INC.
CONDENSED STATEMENT OF CASH FLOWS
[UNAUDITED]
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<CAPTION>
THIRTY-NINE WEEKS ENDED
10-31-98 11-1-97
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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
============ ============
</TABLE>
SEE ACCOMPANYING NOTES
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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:
<TABLE>
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THIRTY-NINE WEEKS ENDED THIRTEEN WEEKS ENDED
------------------------ -----------------------
10-31-98 11-1-97 10-31-98 11-1-97
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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
========= ========= ========= =========
</TABLE>
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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.
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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.
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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
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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
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<PAGE> 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
<PAGE> 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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 14,467,578
<SECURITIES> 0
<RECEIVABLES> 838,039
<ALLOWANCES> 0
<INVENTORY> 8,930,134
<CURRENT-ASSETS> 26,763,068
<PP&E> 26,220,101
<DEPRECIATION> 7,513,863
<TOTAL-ASSETS> 46,979,352
<CURRENT-LIABILITIES> 9,105,508
<BONDS> 6,758,186
0
0
<COMMON> 82,765
<OTHER-SE> 31,032,893
<TOTAL-LIABILITY-AND-EQUITY> 46,979,352
<SALES> 80,008,599
<TOTAL-REVENUES> 80,008,599
<CGS> 32,821,917
<TOTAL-COSTS> 32,821,917
<OTHER-EXPENSES> 34,695,816
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 136,837
<INCOME-PRETAX> 12,354,029
<INCOME-TAX> 4,941,000
<INCOME-CONTINUING> 7,413,029
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,413,029
<EPS-PRIMARY> .91
<EPS-DILUTED> .88
</TABLE>
