<PAGE>
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 28, 2000 0-21258
---------------- -------
CHICO'S FAS, Inc.
(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
------------
(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 27, 2000, there were 17,494,145 shares outstanding of Common Stock,
$.01 par value per share.
<PAGE>
CHICO'S FAS, Inc.
Index
PART I - Financial Information
------------------------------
Item I. Financial Statements (Unaudited):
<TABLE>
<S> <C>
Condensed Consolidated Balance Sheets - October 28, 2000 and January 29, 2000.......... 3
Condensed Consolidated Statements of Income for the Thirteen and Thirty-Nine
Weeks Ended October 28, 2000 and October 30, 1999................................. 4
Condensed Consolidated Statements of Cash Flows for the Thirty-Nine Weeks Ended
October 28, 2000 and October 30, 1999............................................. 5
Notes to Condensed Consolidated Financial Statements................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................ 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................. 11
PART II - Other Information
---------------------------
Item 6. Exhibits and Reports on Form 8-K....................................................... 11
Signatures..................................................................................... 12
</TABLE>
2
<PAGE>
CHICO'S FAS, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
As of As of
10-28-00 01-29-00
------------ ----------
<S> <C> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents $ 7,533,563 $ 3,980,930
Marketable securities, at market 13,356,141 13,995,527
Receivables, net 3,078,406 1,706,661
Inventories 26,730,997 14,834,800
Prepaid expenses 987,961 668,695
Deferred taxes 2,901,000 2,038,000
----------------- -----------------
Total Current Assets 54,588,068 37,224,613
----------------- -----------------
Land, Building and Equipment:
Cost 68,214,067 41,217,160
Less accumulated depreciation and amortization (13,206,845) (9,872,163)
----------------- -----------------
Land, Building and Equipment, Net 55,007,222 31,344,997
----------------- -----------------
Other Assets:
Deferred taxes 1,359,000 1,106,000
Other assets, net 706,019 640,211
----------------- -----------------
Total Other Assets 2,065,019 1,746,211
----------------- -----------------
$111,660,309 $70,315,821
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable $ 15,316,139 $ 5,982,684
Accrued liabilities 9,746,855 4,593,104
Current portion of debt and lease obligations 275,247 260,111
----------------- -----------------
Total Current Liabilities 25,338,241 10,835,899
----------------- -----------------
Noncurrent Liabilities:
Mortgage note payable 5,167,500 5,221,500
Deferred rent 1,823,256 1,617,680
----------------- -----------------
Total Noncurrent Liabilities 6,990,756 6,839,180
----------------- -----------------
Stockholders' Equity:
Common stock 174,932 171,285
Additional paid-in capital 18,724,754 14,709,238
Unrealized loss on marketable securities (26,369) (24,334)
Retained earnings 60,457,995 37,784,553
----------------- -----------------
Total Stockholders' Equity 79,331,312 52,640,742
----------------- -----------------
$111,660,309 $70,315,821
================= =================
</TABLE>
See Accompanying Notes
3
<PAGE>
CHICO'S FAS, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended Thirteen Weeks Ended
10-28-00 10-30-99 10-28-00 10-30-99
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales by Company stores $183,061,434 $111,196,667 $67,806,170 $39,283,282
Net sales to Franchisees 3,260,169 2,008,602 1,184,303 725,713
------------- ------------- ------------- -------------
Net sales 186,321,603 113,205,269 68,990,473 40,008,995
Cost of goods sold 76,729,277 46,995,650 28,321,331 16,600,678
------------- ------------- ------------- -------------
Gross profit 109,592,326 66,209,619 40,669,142 23,408,317
General, administrative and
store operating expenses 73,379,232 46,560,809 28,143,889 16,881,195
------------- ------------- ------------- -------------
Income from operations 36,213,094 19,648,810 12,525,253 6,527,122
Interest income, net 356,348 95,618 87,843 51,187
------------- ------------- ------------- -------------
Income before taxes 36,569,442 19,744,428 12,613,096 6,578,309
Income tax provision 13,896,000 7,503,000 4,793,000 2,500,000
------------- ------------- ------------- -------------
Net income $ 22,673,442 $ 12,241,428 $ 7,820,096 $ 4,078,309
============= ============= ============= =============
Per share data:
Net income per common share - basic $1.31 $0.72 $0.45 $0.24
============= ============= ============= =============
Net income per common and common
equivalent share - diluted $1.25 $0.69 $0.43 $0.23
============= ============= ============= =============
Weighted average common shares
outstanding - basic 17,302,286 16,888,878 17,468,885 16,972,338
============= ============= ============= =============
Weighted average common and common
equivalent shares outstanding - diluted 18,101,147 17,613,180 18,299,416 17,679,110
============= ============= ============= =============
</TABLE>
See Accompanying Notes
4
<PAGE>
CHICO'S FAS, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended
10-28-00 10-30-99
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 22,673,442 $ 12,241,428
------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,008,671 2,315,544
Stock option compensation 17,539 -
Deferred taxes (1,116,000) (716,000)
Tax benefit of options exercised 2,605,000 925,000
Loss on disposal of land, building and equipment 255,152 160,845
Deferred rent expense, net 205,576 150,327
Changes in assets and liabilities:
Increase in receivables, net (1,371,745) (1,022,617)
Increase in inventories (11,896,197) (5,046,337)
Increase in prepaid expenses and other assets (397,650) (272,767)
Increase in accounts payable 9,333,455 3,825,489
Increase in accrued liabilities 5,168,887 1,710,897
------------ ------------
Total adjustments 6,812,688 2,030,381
------------ ------------
Net cash provided by operating activities 29,486,130 14,271,809
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (purchase) of marketable securities, net 637,351 (12,839,691)
Purchase of land, building and equipment (27,832,222) (9,558,572)
------------ ------------
Net cash used in investing activities (27,194,871) (22,398,263)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of common stock 1,396,624 959,675
Principal payments on debt (54,000) (114,273)
Deferred finance costs and other (81,250) -
------------ ------------
Net cash provided by financing activities 1,261,374 845,402
------------ ------------
Net increase (decrease) in cash and cash equivalents 3,552,633 (7,281,052)
CASH AND CASH EQUIVALENTS - Beginning of Period 3,980,930 14,484,776
------------ ------------
CASH AND CASH EQUIVALENTS - End of Period $ 7,533,563 $ 7,203,724
============ ============
</TABLE>
See Accompanying Notes
5
<PAGE>
CHICO'S FAS, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
October 28, 2000
(Unaudited)
ITEM 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
---------------------
The accompanying unaudited condensed consolidated financial statements of
Chico's FAS, Inc. and its wholly-owned subsidiaries (collectively, "Chico's" or
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
accounting principles generally accepted in the U.S. 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. All significant intercompany balances and transactions have been
eliminated in consolidation. For further information, refer to the consolidated
financial statements and notes thereto for the fiscal year ended January 29,
2000, included in the Company's Annual Report on Form 10-K filed on April 28,
2000. The January 29, 2000 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 28,
2000 are not necessarily indicative of the results that may be expected for the
entire year. All per share data for the prior year has been restated to reflect
the two-for-one split effective in January 2000.
Net Income Per Common and Common Equivalent Share
-------------------------------------------------
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>
<CAPTION>
Thirty-Nine Weeks Ended Thirteen Weeks Ended
10-28-00 10-30-99 10-28-00 10-30-99
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Basic weighted average outstanding
common shares 17,302,286 16,888,878 17,468,885 16,972,338
Dilutive effect of options outstanding 798,861 724,302 830,531 706,772
---------- ---------- ---------- ----------
Diluted weighted average common and
common equivalent shares outstanding 18,101,147 17,613,180 18,299,416 17,679,110
========== ========== ========== ==========
</TABLE>
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations - Thirteen Weeks Ended October 28, 2000 Compared to the
---------------------
Thirteen Weeks Ended October 30, 1999.
Net Sales. Net sales by Company-owned stores for the thirteen weeks ended
October 28, 2000 (the current period) increased by $28.5 million, or 72.6% over
net sales by Company-owned stores for the comparable thirteen weeks ended
October 30, 1999 (the prior period). The increase was the result of a comparable
Company store net sales increase of $15.1 million, $12.7 million additional
sales from the new stores not yet included in the Company's comparable store
base (net of sales of $0.3 million from three stores closed in fiscal 2000 and
fiscal 2001), and $0.7 million of net sales from the Company's call center
(website and mailer sales) which began operations in late May 2000.
Net sales to franchisees for the current period increased by $0.5 million
or 63.2% compared to net sales to franchisees for the prior period. The increase
in net sales to franchisees was primarily due to a net increase in purchases by
the franchisees as a whole and the opening of one additional franchised location
in fiscal 2001 by an existing franchisee.
Gross Profit. Gross profit for the current period was $40.7 million, or
58.9% of net sales, compared with $23.4 million, or 58.5% of net sales, for the
prior period. The increase in the gross profit percentage primarily resulted
from leverage in the Company's distribution center, product development and
merchandising costs, and to a lesser degree, a decrease in the Company's overall
markdowns.
General, Administrative and Store Operating Expenses. General,
administrative and store operating expenses increased to $28.1 million, or 40.8%
of net sales, in the current period from $16.9 million, or 42.2% 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, and to a lesser degree, an increase in marketing
expenses. The decrease in these expenses as a percentage of net sales was
principally due to leverage associated with the Company's 39.1% comparable
Company store sales increase for the current period, net of an increase in
marketing expenses as a percentage of net sales.
Interest Income, Net. The Company had net interest income during the
current period of approximately $88,000 versus approximately $51,000 in the
prior period. The increase in net interest income was primarily a result of the
Company's increased cash and marketable securities position, as well as improved
interest rates earned on cash and marketable securities.
Net Income. As a result of the factors discussed above, net income reflects
an increase of 91.7% to $7.8 million in the current period from net income of
$4.1 million in the prior period. The income tax provision represented an
effective rate of 38.0% for the current and prior period.
7
<PAGE>
Results of Operations - Thirty-Nine Weeks Ending October 28, 2000 Compared to
---------------------
the Thirty-Nine Weeks Ended October 30, 1999.
Net Sales. Net sales by Company-owned stores for the thirty-nine weeks
ended October 28, 2000 (the current period) increased by $71.9 million, or
64.6%, over net sales by Company-owned stores for the comparable thirty-nine
weeks ended October 30, 1999 (the prior period). The increase was the result of
a comparable Company store net sales increase of $38.0 million, $33.0 million
additional sales from the new stores not yet included in the Company's
comparable store base (net of sales of $1.0 million from five stores closed in
fiscal 2000 and fiscal 2001), and $0.9 million of net sales from the Company's
call center (website and mailer phone sales) which began operations in late May
2000.
Net sales to franchisees for the current period increased by $1.3 million
or 62.3% compared to net sales to franchisees for the prior period. The increase
in net sales to franchisees was primarily due to a net increase in purchases by
the franchisees as a whole and the opening by an existing franchisee of one
additional franchised location in each of fiscal 2001 and fiscal 2000.
Gross Profit. Gross profit for the current period was $109.6 million, or
58.8% of net sales, compared with $66.2 million, or 58.5% of net sales, for the
prior period. The increase in the gross profit percentage resulted from reduced
markdowns in the current period versus the prior period, net of additional
mailer-related promotional activities and increased volume of discounts,
including those associated with expanding the Company's frequent shopper club
(the "Passport Club") which was relaunched in the first quarter of last year,
and net of a decline in the gross margins in the Company's seven outlet
locations. To a lesser degree, the increase in gross profit percentage resulted
from leverage in the Company's distribution center, product development and
merchandising costs.
General, Administrative and Store Operating Expenses. General,
administrative and store operating expenses increased to $73.4 million, or 39.4%
of net sales, in the current period from $46.6 million, or 41.1% of net sales,
in the prior period. The increase in general, administrative and store operating
expenses was, for the most part, the result of increases in store operating
expenses, including store compensation, occupancy and other costs associated
with additional store openings and, to a lesser degree, an increase in marketing
expenses. The decrease in these expenses as a percentage of net sales was
principally due to leverage associated with the Company's 34.9% comparable
Company store sales increase for the current period, net of an increase in
marketing expenses as a percentage of sales.
Interest Income, Net. The Company had net interest income during the
current period of $0.4 million versus $0.1 million in the prior period. The
increase in net interest income was primarily a result of the Company's
increased cash and marketable securities position, as well as improved interest
rates earned on cash and marketable securities.
Net Income. As a result of the factors discussed above, net income reflects
an increase of 85.2% to $22.7 million in the current period from net income of
$12.2 million in the prior period. The income tax provision represented an
effective rate of 38.0% for the current and prior period.
8
<PAGE>
Comparable Company Store Net Sales
----------------------------------
Comparable Company store net sales increased by 39.1% in the current
quarter and 34.9% in the first nine months of this fiscal year 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,
including stores that have been expanded or relocated within the same general
market area (approximately five miles). The comparable store percentages
reported above include 24 stores that were expanded, within the last 13 months,
by an average of 739 net square selling feet. If the stores that were expanded
had been excluded from the comparable Company-owned store base, the increase in
comparable Company-owned store net sales would have been 37.4 % for the current
quarter and 33.0% for the first nine months of this fiscal year. The Company
does not consider this material to the overall comparable sales and believes the
inclusion of expanded stores in the comparable store net sales to be an
acceptable practice, consistent with the practice followed by the Company in
prior periods and by many other retailers.
Liquidity and Capital Resources
-------------------------------
The Company's primary ongoing capital requirements are for funding capital
expenditures for new store openings and merchandise inventory purchases. In
addition, over the past nine months and continuing over the next six months, the
Company has experienced and anticipates continuing to experience the need for
capital to address expansions of its office and design facility at its
headquarters, the chain-wide roll out of new point-of-sale devices and the
development of infrastructure, including internal call and fulfillment centers,
to support the Company's current expansion into catalog and Internet sales.
During the first three quarters of the current fiscal year (fiscal 2001)
and the first three quarters of the prior fiscal year (fiscal 2000), the
Company's primary source of working capital was cash flow from operations of
$26.9 million and $13.3 million, respectively. The increase in cash flow from
operations of $13.6 million was primarily due to an increase of $10.4 million in
net income, an increase of $8.8 million in accounts payable and accrued
liabilities, and an increase of $1.7 million in depreciation and amortization,
net of an increase in inventories of $6.9 million, and an increase in deferred
taxes of $0.4 million. The increase in accounts payable and inventories is
associated with increased inventory purchase activities to support the Company's
significant overall sales increases and, to a lesser degree, with increased
fabric purchases (which generally have an extended payment due date).
The Company invested $27.8 million in the first three quarters of the
current fiscal year for capital expenditures. The capital expenditures for the
first three quarters of the current fiscal year included $20.4 million primarily
associated with the planning and opening of new Company stores, and the
remodeling/relocating/expansion of numerous existing stores, $3.1 million for
new point-of-sale devices, approximately $2.5 million for the expansion of its
office and design facilities, and approximately $1.8 million for the development
of infrastructure associated with catalog and Internet sales. During the same
period in the prior fiscal year, the Company invested $9.6 million primarily for
capital expenditures associated with the opening of new Company stores, and the
remodeling of several existing stores.
During the first three quarters of the current fiscal year, two of the
Company's officers and its three independent directors exercised 248,735 stock
options at prices ranging from $1.625 to $11.344 and several employees and
former employees exercised 102,819 options at prices ranging from $1.625 to
$13.125. Also during this period, the Company sold 13,155 shares of common stock
under its employee
9
<PAGE>
stock purchase plan at a price of $15.25. The proceeds from these issuances of
stock, together with the tax benefit recognized by the Company, amounted to
approximately $4.0 million.
As more fully described in "Item 1-Business" beginning on page 13 of the
Company's Annual Report on Form 10-K for the fiscal year ended January 29, 2000,
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 50 Company-owned new stores in
fiscal 2001, 34 of which were open as of October 28, 2000. Further, the Company
plans to open between 50 and 55 Company-owned new stores in fiscal 2002. The
Company believes that the liquidity needed for its planned new store growth,
continuing remodel/expansion program, maintenance of proper inventory levels
associated with this growth, 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. In further support of its
liquidity needs, the Company expanded its line of credit and letter of credit
facilities to $25 million, effective May 2000. Given the Company's existing cash
and marketable securities balances and the capacity included in its newly
expanded bank credit facilities, 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.
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
10
<PAGE>
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk of the Company's financial instruments as of October 28,
2000 has not significantly changed since October 28, 2000. The Company is
exposed to market risk from changes in interest rates on its indebtedness. The
Company's exposure to interest rate risk relates in part to its revolving line
of credit with its bank; however, as of October 28, 2000, the Company did not
have any outstanding balance on its line of credit and, given its existing
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. 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: 10.1 Amendment No. 1 to Employment Agreement
between the Company and Charles J. Kleman,
effective as of August 21, 2000
10.2 Amendment No. 1 to Employment Agreement
between the Company and Scott A. Edmonds,
effective as of August 21, 2000
10.3 Amendment No. 1 to Employment Agreement
between the Company and Mori C. MacKenzie,
effective as of August 21, 2000
10.4 Employment Agreement between the Company and
Patricia A. Murphy, effective as of August
21, 2000
10.5 Stock Option Agreement between the Company
and Tedford G. Marlow, effective as of
September 6, 2000
11
<PAGE>
10.6 Stock Option Agreement between the Company
and Tedford G. Marlow, effective as of
September 6, 2000
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 7, 2000 By: /s/ Marvin J. Gralnick
----------------------------- ----------------------------------
Marvin J. Gralnick
Chief Executive Officer
(Principal Executive Officer)
Date: December 7, 2000 By: /s/ Charles J. Kleman
----------------------------- -----------------------------------
Charles J. Kleman
Chief Financial Officer
(Principal Financial and Accounting
Officer)
12
