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 30, 1999 0-21258
CHICO'S FAS, INC.
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(Exact name of registrant as specified in charter)
Florida 59-2389435
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(State of Incorporation) (I.R.S. Employer Identification No.)
11215 Metro Parkway, Fort Myers, Florida 33912
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(Address of principal executive offices)
941-277-6200
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(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 November 24, 1999, there were 8,529,228 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 30, 1999 and January 30, 1999...................3
Condensed Statements of Income for the Thirteen and Thirty-nine weeks Ended
October 30, 1999 and October 31, 1998.........................................4
Condensed Statements of Cash Flows for the Thirty-nine weeks Ended
October 30, 1999 and October 31, 1998.........................................5
Notes to Condensed Financial Statements............................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.....................................................7
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.....................13
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..............................................13
Signatures .........................................................................13
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CHICO'S FAS, INC.
CONDENSED BALANCE SHEET
[UNAUDITED]
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AS OF AS OF
10-30-99 1-30-99
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,203,724 $ 14,484,776
Marketable securities, at market 12,823,063 --
Receivables, net 2,171,695 1,149,078
Inventories 15,151,490 10,105,153
Prepaid expenses 684,278 510,885
Deferred taxes 2,106,000 1,586,000
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TOTAL CURRENT ASSETS 40,140,250 27,835,892
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LAND, BUILDING AND EQUIPMENT:
Cost 36,179,040 27,667,014
Less accumulated depreciation and amortization (9,302,608) (8,001,753)
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LAND, BUILDING AND EQUIPMENT, NET 26,876,432 19,665,261
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OTHER ASSETS:
Deferred taxes 1,008,000 812,000
Other assets, net 657,310 686,923
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TOTAL OTHER ASSETS 1,665,310 1,498,923
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$ 68,681,992 $ 49,000,076
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,820,613 $ 3,995,123
Accrued liabilities 5,390,252 3,679,355
Current portion of debt and lease obligations 249,247 309,520
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TOTAL CURRENT LIABILITIES 13,460,112 7,983,998
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NONCURRENT LIABILITIES:
Notes and capital leases payable 5,239,500 5,293,500
Deferred rent 1,569,872 1,419,545
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TOTAL NONCURRENT LIABILITIES 6,809,372 6,713,045
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STOCKHOLDERS' EQUITY:
Common stock 85,226 83,930
Additional paid-in capital 13,807,309 11,923,930
Unrealized loss on investments (16,628) --
Retained earnings 34,536,601 22,295,173
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TOTAL STOCKHOLDERS' EQUITY 48,412,508 34,303,033
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$ 68,681,992 $ 49,000,076
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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
10-30-99 10-31-98 10-30-99 10-31-98
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Net sales by company stores $111,196,667 $ 78,640,651 $ 39,283,282 $ 26,303,762
Net sales to franchisees 2,008,602 1,367,948 725,713 450,387
------------ ------------ ------------ ------------
NET SALES 113,205,269 80,008,599 40,008,995 26,754,149
Cost of goods sold 46,995,650 32,821,917 16,600,678 11,040,693
------------ ------------ ------------ ------------
GROSS PROFIT 66,209,619 47,186,682 23,408,317 15,713,456
General, administrative and
store operating expenses 46,560,809 34,695,816 16,881,195 11,734,126
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 19,648,810 12,490,866 6,527,122 3,979,330
Interest income (expense), net 95,618 (136,837) 51,187 (26,888)
------------ ------------ ------------ ------------
INCOME BEFORE TAXES 19,744,428 12,354,029 6,578,309 3,952,442
Income tax provision 7,503,000 4,941,000 2,500,000 1,581,000
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NET INCOME $ 12,241,428 $ 7,413,029 $ 4,078,309 $ 2,371,442
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PER SHARE DATA:
Net income per common share - basic $ 1.45 $ 0.91 $ 0.48 $ 0.29
============ ============ ============ ============
Net income per common and common
equivalent share-diluted $ 1.39 $ 0.88 $ 0.46 $ 0.28
============ ============ ============ ============
Weighted average common shares
outstanding-basic 8,444,939 8,106,194 8,486,169 8,213,880
============ ============ ============ ============
Weighted average common and common
equivalent shares outstanding-diluted 8,806,590 8,437,331 8,839,555 8,563,045
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SEE ACCOMPANYING NOTES
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CHICO'S FAS, INC.
CONDENSED STATEMENT OF CASH FLOWS
[UNAUDITED]
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THIRTY-NINE WEEKS ENDED
10-30-99 10-31-98
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 12,241,428 $ 7,413,029
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Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,315,544 1,741,734
Deferred taxes (716,000) (782,000)
Loss on disposal of property and equipment 160,845 82,564
Increase in deferred rent 150,327 198,727
Increase in unrealized loss on investments (16,628) --
Changes in assets and liabilities:
(Increase) decrease in receivables,net (1,022,617) 56,856
(Increase) decrease in inventories (5,046,337) 595,338
(Increase) decrease in prepaids and other assets (272,767) 919,339
Increase in accounts payable 3,825,489 748,811
Increase in accrued liabilities 1,710,897 1,990,071
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Total adjustments 1,088,753 5,551,440
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Net cash provided by operating activities 13,330,181 12,964,469
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (12,823,063) --
Purchase of land, buildings and equipment (9,558,572) (3,370,006)
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Net cash used in investing activities (22,381,635) (3,370,006)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 1,884,675 2,246,745
Principal payments on debt (114,273) (89,546)
Deferred finance costs -- (228,000)
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Net cash provided from financing activities 1,770,402 1,929,199
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Net (decrease) increase in cash and cash equivalents (7,281,052) 11,523,662
CASH AND CASH EQUIVALENTS- Beginning of Period 14,484,776 2,943,916
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CASH AND CASH EQUIVALENTS- End of Period $ 7,203,724 $ 14,467,578
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SEE ACCOMPANYING NOTES
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CHICO'S FAS INC.
NOTES TO
CONDENSED FINANCIAL STATEMENTS
OCTOBER 30, 1999
(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 30, 1999, included in the Company's Annual Report on Form
10-K filed on April 28, 1999. The January 30, 1999 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
30, 1999 are not necessarily indicative of the results that may be expected for
the entire fiscal year.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Statement of Financial Accounting Standards No. 128 "Earnings per
Share", which became effective in fiscal 1998, requires dual presentation of
basic and diluted earnings per share (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 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:
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THIRTY-NINE WEEKS ENDED THIRTEEN WEEKS ENDED
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10-30-99 10-31-98 10-30-99 10-31-98
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Basic weighted average number of common
shares outstanding 8,444,439 8,106,194 8,486,169 8,213,880
Dilutive effect of options outstanding 362,151 331,137 353,386 349,165
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Diluted weighted average common and
common equivalent shares outstanding 8,806,590 8,437,331 8,839,555 8,563,045
========= ========= ========= =========
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - THIRTEEN WEEKS ENDED OCTOBER 30, 1999 COMPARED TO THE
THIRTEEN WEEKS ENDED OCTOBER 31, 1998.
NET SALES. Net sales by Company-owned stores for the thirteen weeks
ended October 30, 1999 (the current period) increased by $13.0 million, or
49.3%, over net sales by Company-owned stores for the comparable thirteen weeks
ended October 31, 1998 (the prior period). The increase was the result of a
comparable Company store net sales increase of $6.9 million and $6.1 million
additional sales from the new stores not yet included in the Company's
comparable store base, net of sales of approximately $399,000 from five stores
closed in fiscal 1999 and fiscal 2000.
Net sales to franchisees for the current period increased by approximately
$275,000, or 61.1% compared to net sales to franchisees for the prior period.
The increase in net sales to franchisees was primarily due to the opening of one
additional franchised location in fiscal 2000 by an existing franchisee, and a
net increase in purchases by the other franchised stores.
GROSS PROFIT. Gross profit for the current period was $23.4 million, or
58.5% of net sales, compared with $15.7 million, or 58.7% of net sales, for the
prior period. The decrease in the gross profit percentage resulted from
additional promotional activities and entitlement to discounts including those
associated with expanding the Company's frequent shopper club (the "Passport
Club") which was relaunched in the first quarter of this year.
GENERAL, ADMINISTRATIVE AND STORE OPERATING EXPENSES. General,
administrative and store operating expenses increased to $16.9 million, or 42.2%
of net sales, in the current period from $11.7 million, or 43.9% 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 leverage associated with the Company's 26.9%
comparable company store sales increase for the current period.
INTEREST INCOME, NET. The Company had net interest income during the
current period of approximately $51,000 versus net interest expense of
approximately $27,000 in the prior period. The improvement to net interest
income from net interest expense was primarily a result of increased interest
earnings during the current period resulting from the Company's increased cash
and marketable securities position.
NET INCOME. As a result of the factors discussed above, net income
reflects an increase of 72.0% to $4.1 million in the current period from net
income of $2.4 million in the prior period. The income tax provision represented
an effective rate of 38.0% for the current period and 40.0% in the prior period.
The decrease in the income tax rate is attributable to a decrease in the
effective state income tax rate associated with certain restructuring of the
Company's operations, net of a Federal income tax rate increase due to higher
earnings.
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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 30, 1999 COMPARED TO THE
THIRTY-NINE WEEKS ENDED OCTOBER 31, 1998.
NET SALES. Net sales by Company-owned stores for the thirty-nine weeks
ended October 30, 1999 (the current period) increased by $32.6 million, or
41.4%, over net sales by Company-owned stores for the comparable thirty-nine
weeks ended October 31, 1998 (the prior period). The increase was the result of
a comparable Company store net sales increase of $16.9 million and $15.7 million
additional sales from the new (or reacquired) stores not yet included in the
Company's comparable store base, net of sales of $2.0 million from five stores
closed in fiscal 1999 and fiscal 2000 and from special liquidation sales.
Net sales to franchisees for the current period increased by approximately
$641,000, or 46.8% compared to net sales to franchisees for the prior period.
The increase in net sales to franchisees was primarily caused by the opening of
two additional franchised locations (one each in fiscal 1999 and fiscal 2000) by
an existing franchisee and by a net increase in purchases by the other
franchised stores.
GROSS PROFIT. Gross profit for the current period was $66.2 million, or
58.5% of net sales, compared with $47.2 million, or 59.0% of net sales, for the
prior period. The decrease in the gross profit percentage primarily resulted
from the mix of product which generally included a lower average initial
mark-up, combined with additional promotional activities and entitlement to
discounts including those associated with expanding the Company's frequent
shopper club (the "Passport Club") which was relaunched in the first quarter of
this year.
GENERAL, ADMINISTRATIVE AND STORE OPERATING EXPENSES. General,
administrative and store operating expenses for the current period were $46.6
million, or 41.1% of net sales, compared with $34.7 million, or 43.4% of net
sales, for 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 and non-store
general and administrative costs, which decreased as a percentage of net sales
due to leverage associated with the 22.3% comparable Company store sales
increase for the nine months.
INTEREST EXPENSE, NET. The Company had net interest income during the
current period of approximately $96,000 versus net interest expense of
approximately $137,000 in the prior period. The improvement to net interest
income from net interest expense was primarily a result of increased interest
earnings during the current period resulting from the Company's increased cash
and marketable securities position.
NET INCOME. As a result of the factors discussed above, net income
reflects an increase of 65.1% to $12.2 million in the current period from net
income of $7.4 million in the prior period. The income tax provision represented
an effective rate of 38.0% for the current period and 40.0% in the prior period.
The decrease in the income tax rate is attributable to a decrease in the
effective state income tax rate associated with certain restructuring of the
Company's operations, net of a Federal income tax rate increase due to higher
earnings.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
COMPARABLE COMPANY STORE NET SALES. Comparable Company store net sales
increased by 26.9% in the current quarter and 22.3% in the first nine months of
1999 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 the continuing
effort to refocus the Company's product development, merchandise planning,
buying and marketing 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, a larger database of existing customers
for such mailings and the relaunch of the Company's frequent shopper club (the
"Passport Club"). To a lesser degree, the Company believes the increase was due
to increased store-level training efforts associated with newly introduced
training programs and continuing strong sales associated with several styles of
clothing produced from a fabric newly introduced by the Company in the fourth
quarter of fiscal 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.
In addition, over the next twelve months, the Company anticipates experiencing
the need for capital to address expansions of its office and design facility at
its headquarters facilities, the roll out of new point-of-sale devices beginning
early next fiscal year and the development of infrastructure to support the
Company's planned expansion into catalog and Internet sales.
During the current and prior nine-month periods, the Company's primary source of
working capital was cash flow from operations of $13.3 million and $13.0
million, respectively. The increase in cash flow from operations of
approximately $366,000 was primarily due to an increase of $4.8 million in net
income, and an increase of $2.8 million in the growth rate of accounts payable
and accrued liabilities, offset by an increase in inventories of $5.0 million in
the current period, versus an inventory decrease of approximately $595,000 in
the prior period and an increase in receivables (net) of $1.0 million in the
current period, versus a decrease of approximately $57,000 in the prior period.
The increase in accounts payable and inventories is associated with increased
fabric purchases (which generally have an extended payment due date) and other
required increased purchase activities to support the Company's significant
sales increases. The increase in receivables (net) is due to the additional
franchise opened in fiscal 2000 and additional tenant improvement reimbursements
due to the growth in the Company's store opening program.
The Company invested $9.6 million in the current period for capital expenditures
primarily associated with the opening of 26 new company stores, and the
remodeling of several existing stores. Since the Company is now seeking stores
in the 1800-2000 net selling square foot range (versus 1380 average net selling
square foot currently) and the Company is incorporating more sophisticated store
fronts and fixtures, its average cost of leasehold improvements and fixtures for
new stores has generally increased. It is anticipated these higher costs for
initial stores will continue as the Company refines its newer store
presentation. During the prior period the
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Company invested $3.4 million for capital expenditures associated with the
opening of 15 new (or reacquired) company stores, and the remodeling of several
existing stores.
During the current period, the Company invested $12.8 million in high quality
tax free municipal bonds in an effort to improve the after-tax interest earnings
from its increased cash and marketable securities position. Also during the
current period, the Company terminated its interest rate swap agreement at a
cost of approximately $8,000. The swap agreement had effectively fixed its
mortgage loan rate at 9%. The mortgage note, financed with a bank, bears
interest at prime plus .5%.
During the current period, two of the Company's officers and two of its
directors exercised 64,499 stock options at prices ranging from $3.25 to $9.25
and several employees and former employees exercised 55,873 options at prices
ranging from $3.25 to $12.00. Also during the current period, the Company sold
9,206 shares of common stock under its employee stock purchase plan at a price
of $21.41. The proceeds from these issuances of stock, together with the tax
benefit recognizd by the Company, amounted to approximately $1.9 million.
As more fully described in "Item 1-Business" appearing on pages 1 through 16 of
the Company's Annual Report on Form 10-K for the fiscal year ended January 30,
1999, 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 40 new stores in fiscal 2000, 37 of
which were open as of November 24, 1999. The Company plans to open at least 45
new stores in fiscal 2001. The Company is also in the initial planning stage for
an expansion of the office and design facilities at its headquarters site, is
reviewing requests for proposals for new point-of-sale devices and is also
continuing with its plans for implementing catalog and Internet sales
activities. The Company believes that the liquidity needed for its planned new
store growth, continuing remodel program, maintenance of proper inventory levels
associated with this growth and expansion of its office and design facilities
and establishment of catalog and Internet sales activities will be funded
primarily from cash flow from operations and its strong existing cash balances.
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. Given the Company's strong cash
balances, the Company does not believe that it would need to seek other sources
of financing to conduct its operations or pursue its expansion plans 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.
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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. 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, ability to effectively and efficiently
establish and operate catalog and Internet sales activities 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 relatively recently
been upgraded and thus most of these recently upgraded systems are believed to
be Year 2000 compliant. Management has essentially completed its plan to
identify, convert, modify and upgrade those other critical data processing
systems which were not already Year 2000 compliant.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
YEAR 2000 (CONTINUED)
Throughout its operations, the Company also employs electronic equipment such as
building security, product handling and other devices containing embedded
electronic circuits. Chico's has completed the process of identifying and
prioritizing those 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 was designated to manage Chico's Year
2000 initiative has secured confirmation that the Company's embedded technology
devices, which are critical to Chico's overall operations, are Year 2000
compliant.
The costs that have been incurred to implement the Year 2000 initiatives amount
to less than $75,000 and management currently does not expect any additional
significant costs to be incurred in connection with the Company's Year 2000
initiatives relative to information technology systems and the higher priority
embedded technology devices, including internal costs.
Chico's has sought to evaluate and manage 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 relative to these risks
have been conducted. Based upon these communications, 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 will be 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, although Chico's has
secured certain written and oral assurances in this regard, it has been
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.
The Company has identified that a significant disruption in the product supply
chain represents the most reasonably likely worst case Year 2000 scenario.
Potential sources of risk include (a) the inability of principal suppliers or
logistics providers to be Year 2000-ready, which could result in delays in
product deliveries from such suppliers or logistics providers and (b) disruption
of the distribution channel, including ports, transportation vendors, and the
Company's own distribution centers as a result of a general failure of systems
and necessary infrastructure such as electricity supply. The Company has
prepared a plan to flow inventory around an assumed period of disruption to the
supply chain, which includes accelerating selected critical products to reduce
the impact of significant failure.
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 12
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk of the Company's financial instruments as of October 30, 1999
has not significantly changed since January 30, 1999 with the exception of the
termination of the interest rate swap agreement associated with the Company's
mortgage loan. The Company is exposed to market risk from changes in interest
rates on its indebtedness. The Company's exposure to interest rate risk relates
to its revolving line of credit with its bank; however, as of October 30, 1999,
the Company did not have any outstanding balance on its line of credit and,
given its strong liquidity position, does not expect to utilize its line of
credit in the foreseeable future except for its continuing use of the letter of
credit facility portion thereof. As a consequence of the swap termination, the
Company's exposure to interest rate risk also relates to its $5.2 million
mortgage loan indebtedness which bears a variable interest rate based upon
changes in the prime rate.
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: NOVEMBER 24, 1999 By: /s/ MARVIN GRALNICK
----------------------
Marvin Gralnick
Chief Executive Officer
(Principal Executive Officer)
Date: NOVEMBER 24, 1999 By: /s/ CHARLES J. KLEMAN
------------------------
Charles J. Kleman
Chief Financial Officer
(Principal Financial and Accounting Officer)
Page 13
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-29-1999
<PERIOD-START> JAN-31-1999
<PERIOD-END> OCT-30-1999
<CASH> 7,203,724
<SECURITIES> 12,823,063
<RECEIVABLES> 2,171,695
<ALLOWANCES> 0
<INVENTORY> 15,151,490
<CURRENT-ASSETS> 40,140,250
<PP&E> 36,179,040
<DEPRECIATION> 9,302,608
<TOTAL-ASSETS> 68,681,992
<CURRENT-LIABILITIES> 13,460,112
<BONDS> 6,809,372
0
0
<COMMON> 85,226
<OTHER-SE> 48,327,282
<TOTAL-LIABILITY-AND-EQUITY> 68,681,992
<SALES> 113,205,269
<TOTAL-REVENUES> 113,205,269
<CGS> 46,995,650
<TOTAL-COSTS> 46,995,650
<OTHER-EXPENSES> 46,960,809
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (95,618)
<INCOME-PRETAX> 19,744,428
<INCOME-TAX> 7,503,000
<INCOME-CONTINUING> 12,241,428
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,241,428
<EPS-BASIC> 1.45
<EPS-DILUTED> 1.39
</TABLE>
