SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED JANUARY 29, 2000
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission file number 0-21258
CHICO'S FAS, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA 59-2389435
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
11215 METRO PARKWAY, FORT MYERS, FLORIDA 33912
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(Address of principal executive offices) (Zip code)
(941) 277-6200
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(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
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Common Stock, Par Value $.01 Per Share
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent fliers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K ( ).
State the aggregate market value of the voting stock held by non-affiliates of
the registrant:
Approximately $290,388,993 as of March 31, 2000 (based upon the closing
sales price reported by NASDAQ/NMS and published in the Wall Street
Journal on April 3, 2000).
Indicate the number of shares outstanding of each of the registrant's classes of
common equity, as of the latest practicable date:
Common Stock, par value $.01 per share - 17,128,936 shares as of March
31, 2000.
Documents incorporated by reference:
Part II Annual Report to Stockholders for the Fiscal Year Ended January
29, 2000.
Part III Definitive Proxy Statement for the Company's Annual Meeting of
Stockholders presently scheduled for June 13, 2000.
<PAGE>
CHICO'S FAS, INC.
ANNUAL REPORT ON FORM 10-K
for the
YEAR ENDED January 29, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PART I...................................................................................................... 1
Item 1. Business.............................................................................. 1
Item 2. Properties............................................................................ 16
Item 3. Legal Proceedings..................................................................... 17
Item 4. Submission of Matters to a Vote of Security-Holders................................... 17
PART II..................................................................................................... 19
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................. 19
Item 6. Selected Financial Data............................................................... 20
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................. 22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk............................ 22
Item 8. Financial Statements and Supplementary Data........................................... 22
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.. 22
PART III.................................................................................................... 22
Item 10. Directors and Executive Officers of the Registrant.................................... 22
Item 11. Executive Compensation................................................................ 22
Item 12. Security Ownership of Certain Beneficial Owners and Management........................ 22
Item 13. Certain Relationships and Related Transactions........................................ 22
PART IV..................................................................................................... 23
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................... 23
</TABLE>
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PART I
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ITEM 1. BUSINESS
GENERAL
Chico's FAS, Inc., (Chico's or the Company), directly and through its
wholly owned subsidiaries (which became operational in February 1999), Chico's
Distribution, Inc., Chico's Concept, Inc., and Chico's Media, Inc., is a
specialty retailer of exclusively designed, private label casual to dressy
clothing, complementary accessories and other non-clothing gift items. Virtually
all of the clothing offered at Chico's stores is designed by the Company's
in-house product development team and bears the "CHICO'S" trademark. Each
Chico's store offers separates, as well as collections, of color-coordinated
tops, pants, shorts, skirts, jumpers, dresses, vests, jackets, outerwear and
accessories, including belts, scarves, earrings, necklaces and bracelets.
Emphasizing casual yet stylish comfort, Chico's clothing is made from natural
fabric (including 100% cotton, rayon, linen and silk) blends and newer
sophisticated synthetics. The styling is relaxed, figure-flattering and designed
for easy care. During the past several fiscal years, the Company has
successfully introduced certain synthetic fabrics which provide a more versatile
look, yet which still offer the relaxed fit and easy care characteristics.
Chico's believes that its target customer includes women of all ages who seek
style, attitude and comfort in their casual clothing, with a particular focus on
35 to 60 year old women with moderate and higher income levels.
The Company has sought to employ several innovative approaches to
retailing, including: offering Chico's exclusively designed private label
clothing that provides a relaxed fit at moderate prices; continually introducing
new merchandise and designs which complement other Chico's merchandise that its
customers may have in their existing wardrobes; using a boutique store design
and personalized service and customer assistance to enhance the shopping
experience; and utilizing Chico's Outlets to help maintain the integrity of the
Company's pricing strategy. During the past few years the Company has developed
a markdown strategy which is more in line with traditional retail clearance
methods and timing. Rather than focusing on taking most markdowns in outlets or
through warehouse sales, the Company has been taking its first, second, and in
some cases, later markdowns in front-line stores.
Also during the past few fiscal years, the Company has been testing the
sale of non-clothing products, such as footwear, which complements the clothing
products and such as aroma-therapy candles, body care products, watches, and
other products which are designed by the Company as gift items. All of these new
items are intended to promote the Chico's brand name in areas beyond clothing.
Because of the additional space required to accommodate the non-clothing items
and its current markdown strategy, the Company is actively pursuing larger
spaces for its new stores. Rather than targeting a 1,400 net selling square foot
store, the Company now believes the ideal store size is nearer 1,800-2,200 net
selling square feet. Although the Company will still open stores within the
1,200-1,500 net selling square foot range, it is actively pursuing 1,800-2,200
net selling square foot stores.
As of March 31, 2000, the Company's retail store system consisted of
204 stores (averaging approximately 1,458 net selling square feet), of which 187
are Company-owned front-line "Chico's" stores, 10 are franchised front-line
"Chico's" stores and 7 are "Chico's Outlet" stores. Of this total, 34 stores are
located in Florida, 29 stores are located in California, 16 stores are located
in Texas and the remaining 125 stores are located in 34 other states and the
District of Columbia. Chico's intends to continue locating its front-line
Company-owned stores primarily in established upscale, outdoor destination
shopping areas and high-end enclosed malls located either in tourist areas or in
or near mid-to-larger sized markets. The Company opened 40 new Company-owned
front-line and no new outlet stores in the fiscal year ended January 29, 2000
(fiscal 2000), while during the same period it closed three Company-owned
front-line stores. In addition, a franchisee opened one new front-line franchise
store in fiscal 2000. The Company plans to open a minimum of 45 new
Company-owned stores in the fiscal year ended February 3, 2001 (fiscal 2001),
but also expects to close between one and three existing stores in fiscal 2001.
The Company is in the process of developing and exploring additional
opportunities for offering clothing and accessories to its customers and for
enhancing its revenues and income utilizing approaches to retailing which are
complementary to its core business. During fiscal 2001, the Company intends to
add ordering capability to its
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existing mailers program and also to make Chico's products available for
purchase over the Internet. Each of these opportunities will require the
additional expenditure of capital and will involve additional risks and
uncertainties. There can be no assurance that any such opportunity will be
implemented on the planned timetable or will prove to be successful.
BUSINESS STRATEGIES
DISTINCTIVE IN-HOUSE DESIGNED CASUAL CLOTHING AND COORDINATED
ACCESSORIES. The most important element of the Company's business strategies is
the distinctive private label casual clothing and complementary accessories
offered for sale at Chico's stores. Emphasizing casual comfort, Chico's clothing
is made from natural fabric (including cotton, rayon, linen and silk) blends and
sophisticated synthetics. The fit is relaxed and designed for easy care.
Accessories, such as belts and jewelry, including earrings, necklaces and
bracelets, are specifically purchased and designed to coordinate with the colors
and patterns of Chico's clothing, enabling customers to easily enhance and
individualize their wardrobe selections.
Virtually all of the clothing offered by Chico's is designed in-house,
and the Company controls most aspects of the design process, including choices
of pattern, construction, fabric, treatment and color. A majority of the
accessory designs also are developed in-house or are modified at Chico's request
by the manufacturer to complement specific items of clothing or support a look
that is distinctively Chico's.
Chico's private label clothing is designed through the coordinated
efforts of the Company's planning and product development departments. Style,
pattern, color and fabric for individual items of the Company's private label
clothing are developed based upon historical sales data, anticipated future
sales and perceived current and future fashion trends that will appeal to
Chico's target customer.
The Company's design team develops these in-house designs and design
modifications. By designing in-house and then contracting directly with
manufacturers and providing some on-site quality control, the Company has been
able to realize higher average gross profit margins than the industry while at
the same time providing value to its customers.
The distinctive nature of Chico's clothing is carried through in its
sizing. Chico's incorporates international type sizing, utilizing sizes 0 (extra
small), 1 (small), 2 (medium), and 3 (large). During fiscal 2000 the Company
tested a size 4 (extra large) with little success and it does not plan to offer
sizes above a size 3 at this time. As in the past, the Company frequently offers
one-size-fits-all sizing for some items. Because of the stylish, yet relaxed
nature of Chico's clothing, this sizing also allows Chico's to offer a wide
selection of clothing without having to invest in a large number of different
sizes within a single style.
CERTAIN BUILDING BLOCKS OF THE COMPANY'S MERCHANDISING STRATEGY. The
Company continues to follow certain important elements of the merchandising
strategy that it has sought to follow since the early 1990's. These important
elements include the Company's focus on its target customer, the continual
introduction of new merchandise, its pricing policies, the store design,
merchandise presentation, customer service and its quality assurance programs.
FOCUS ON THE TARGET CUSTOMER. Based upon informally gathered
information from customers, sales associates and store managers, as well
as studies done internally through its customer databases, the Company
seeks to anticipate and respond to the perceived needs and preferences
of its target customer. Chico's target customers are believed to include
women of all ages who seek style and attitude in distinctive, casual
clothing which represents good value, with a particular focus on 35 to
60 year old women in the moderate and higher income levels. Although the
Company had experienced changes in design direction in 1994 and 1996
that caused it to vary from the preferences of those women who
historically shopped at Chico's, the current merchandising plan intends
to continually focus the entire product development team on the
Company's historical target customer. As part of this focus, the Company
reestablished its frequent shopper club ("Passport Club") in early 1999
so that it could monitor spending habits based on known
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demographics. The Company is still gathering data and using this data to
direct its marketing efforts. See the "Customer Loyalty" section on page
4 for more details on the "Passport Club".
CONTINUAL INTRODUCTION OF NEW MERCHANDISE. The Company seeks
to keep its stores fresh by continually introducing new merchandise and
designs to its stores. The Company is continuing its efforts to
reactivate the design philosophy for new merchandise whereby merchandise
is evolutionary, rather than revolutionary. Chico's intends to continue
its focus on trying to make certain that new merchandise items will
generally complement the colors and styles of other previously offered
Chico's merchandise. This approach is designed to allow Chico's
customers to supplement the wardrobe purchases made today with the new
merchandise that will arrive in Chico's stores in the future. The
Company believes its target customer prefers this continuity in Chico's
styles to frequent changes in style and design.
As part of the Company's strategy to continually introduce new
merchandise, Chico's seeks to provide only a limited supply of each item
of merchandise to each store and in most cases seeks to restock its
stores, after the initial shipment is redistributed to all stores, with
new styles and designs instead of continually providing additional
quantity of existing styles and designs (except for certain core items).
This merchandising strategy is intended to foster a sense of urgency for
Chico's customers by creating a limited period of time to buy new styles
and designs. Slower selling items and the remaining pieces of
better-selling items still in a store when new merchandise arrives are
frequently consolidated in certain front-line stores and, then marked
down and/or sent to its outlet stores. If the style becomes out-of-place
due to seasonality, color, etc., it may be subjected to additional
markdowns or returned to the Company's distribution center to be held
for replenishment at outlet stores or for liquidation.
PRICING POLICIES. The Company's strategy is to offer its
exclusively designed private label clothing and complementary
accessories at moderate prices that are believed to be generally
competitive with the prices charged for similar quality goods by other
specialty apparel retailers and by upscale department stores. For
example, tops, pants and jackets are offered at retail price points
generally ranging from $20 to $130 per item and accessories are offered
at retail price points generally ranging from $10 to $50 per item.
Historically, the Company's philosophy was generally to avoid
store-wide price markdowns at its front-line stores and the Company
believes that in the past it utilized price markdowns and special
promotions to a lesser degree than have its principal competitors.
Since fiscal 1998, the Company has shifted its strategy for markdowns
and clearance of slower moving merchandise. Rather than placing the
emphasis on clearing most of the goods at outlet stores or local
warehouse sales, the Company is making more extensive use of its front
line stores to clear slower selling merchandise through chain-wide
markdowns of these items and by initiating such markdowns at an earlier
date in the product life cycle. The Company believes this strategy
reduces the need to rely on its outlet stores as a principal means of
clearing slower selling merchandise. The Company expects to continue to
complement its pricing policies with its strategy to continually
replace merchandise at its front-line stores and to transfer older
merchandise to its outlet stores or the Company's distribution center
for liquidation, although the Company intends on continuing markdowns
in its front-line stores to provide more immediate clearance of goods.
STORE DESIGN AND MERCHANDISE PRESENTATION. Chico's historical
store design, interior layout and merchandise presentation tends to
complement Chico's private label casual clothing and personalized
service, helping to create a "boutique" atmosphere with an open and
comfortable ambiance. A typical store has a warm feel with lots of
woodwork including hardwood or natural concrete floors, antiques and
brushed aluminum or wood fixtures. However, each store is somewhat
different as the interior decor is chosen carefully to complement the
setting including both its location and the building itself. These
individual touches are balanced against a certain amount of
standardization. Merchandise is generally presented on wooden fixtures
with coordinating colors and outfits shown together rather than being
grouped by tops, bottoms, etc.
To encourage sales of multiple wardrobe items, Chico's stores
also may use "color areas," which present coordinated colors or seasonal
themes in different areas of the store. Rather than displaying clothing
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by type (for example, tops with tops, pants with pants, etc.),
merchandise is grouped by color coordinated items of clothing and
accessories. Such a grouping typically includes several different
coordinated tops, pants, shorts or other items of clothing as well as
accessories such as belts, earrings and necklaces that could be used to
create several different ensembles and looks that appeal to various
lifestyles. Sales associates are trained to assist customers in creating
such ensembles. Management believes the color coordinated grouping of
merchandise strengthens the style image of the merchandise and enhances
the likelihood for multiple item purchases. Accessories and other
non-apparel items accounted for approximately 13% of the Company's net
sales in fiscal 2000, compared to a range of 11% to 13% over the
previous three fiscal years. Continuing efforts are being made to
improve the volume of accessory and other non-apparel item sales in
fiscal 2001 through better coordination of accessories with clothing and
continual testing of non-apparel branded items.
QUALITY ASSURANCE. Currently, most of the clothing offered for
sale at Chico's stores is manufactured abroad. The Company has
diversified its manufacturing sources to a number of different countries
but continually finds it necessary to address quality control. The
Company has now developed a more focused system for inspection of
clothing upon receipt in this country and has had some greater
experience with vendors to identify those who provide the level of
quality Chico's demands. Also, Chico's has been more careful to utilize
each vendor to manufacture the merchandise that the vendor has the most
experience making. The Company has in more recent years been expanding
its use of domestic vendors, where possible, and it intends on
continually exploring opportunities with vendors closer to its
headquarters.
PERSONALIZED SERVICE AND CUSTOMER ASSISTANCE. The Company has always
considered personalized customer service one of the most important factors in
determining its success. The Company intends, through training efforts, to make
certain that Chico's sales associates offer assistance and advice on various
aspects of their customers' fashion and wardrobe needs, including clothing and
accessory style and color selection, coordination of complete outfits and
suggestions on different ways in which to wear Chico's clothing and accessories.
As part of its strategy to reinforce the casual aspects of Chico's clothing,
Chico's sales associates are trained to demonstrate to customers creative ways
to wear Chico's clothing. Dressing rooms are not equipped with mirrors,
encouraging customers to come out of the dressing rooms in Chico's clothes so
that store personnel can provide such assistance. The Company has not found it
necessary to offer alteration services.
Chico's sales associates are encouraged to know their regular
customers' preferences and to assist those customers in selecting merchandise
best suited to their tastes and wardrobe needs. The Company strongly encourages
its sales associates to wear Chico's clothing and accessories in its stores at
all times and to complement this it offers substantial employee discounts. To
better serve the Chico's customer, sales associates are encouraged to become
familiar with new styles and designs of clothing and accessories by trying on
new merchandise.
Chico's takes pride in empowering its employees to make decisions that
best service the customer. This healthy sense of empowerment enables Chico's
employees to exceed customers' expectations. In addition, many of the Company's
store managers and sales associates were themselves Chico's customers prior to
joining the Company and can therefore easily identify with customers.
Chico's employees are expected to keep individual stores open until the
last customer in the store has been served. If an item is not available at a
particular store, sales associates are encouraged to arrange for the item to be
shipped directly to the customer from another Chico's store.
CUSTOMER LOYALTY. Chico's frequent buyer program, established in the
early 90's and known as the "Passport Club", was designed to encourage repeat
sales and customer loyalty. Features of the club include discounts, special
promotions, invitations to private sales and personalized phone calls regarding
new merchandise. In late 1994, the Company decided to limit the number of new
members and to evaluate ways to restructure the program. During fiscal 1998 and
fiscal 1999, the Company established a new database of customers that shop at
Chico's using credit cards (approximately 77% of sales in fiscal 2000). In
fiscal 1999, the Company performed an independent study of its existing Passport
members (approximately 20,000 members were still active from this club
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which included over 40,000 members at its peak) and store managers to determine
the most important features of the Club and to help assess feasibility of
relaunching the Club.
Based on this study and the past experiences of the Company with the
Passport Club, the Company relaunched the Passport Club in mid-February of 1999
by mailing approximately 300,000 invitations to customers whose names were
maintained in its credit card, guest book and Passport databases. The
invitations included a temporary enrollment card and simply required a purchase
by the customer to activate their preassigned temporary Passport Club membership
number ("temporary member"). Once the customer spends $500, she becomes a
permanent member of the club and entitled to a 5% discount on future purchases.
Since the relaunch in early 1999, the Company has been very successful
in increasing its database of "temporary" and "permanent" Passport members. As
of March 31, 2000, the Company had over 110,000 permanent Passport members and
over 350,000 "temporary" members which now account for approximately 45-49% and
25-31% of overall sales, respectively. Prior to the relaunch of the Passport
Club, the permanent members accounted for approximately 10% of overall sales and
the Company was unable to effectively track "temporary" members sales.
The Company believes that permanent Passport members shop more
frequently and spend more on the average transaction than non-permanent Passport
members.
With the more sophisticated database hardware and software the Company
has acquired to manage the SKU-level data being recorded for the temporary
(until she spends $500) and permanent Passport Club members, the Company
believes it is better able to more sharply focus its marketing, design and
merchandising efforts to better address and define the desires of its target
customer.
HIGH-ENERGY, LOYAL EMPLOYEES. The Company believes that the dedication,
high energy level and experience of the members of its senior management team,
support staff and store employees are key to its continued growth and success
and help to encourage personalized attention to the needs of Chico's customers.
In selecting its employees at all levels of responsibility, Chico's
looks for quality individuals with high energy levels who project a positive
outlook. The Company has found that such persons perform most effectively for
the Company and contribute to a fun and exciting shopping experience for Chico's
customers.
Sales associates are compensated with a base hourly wage but also have
opportunities to earn substantial incentive compensation based on their
individual sales. For the most part, these incentives are based upon the dollar
amount of sales to individual customers, thereby encouraging sales of multiple
items. In addition, the Company periodically sponsors sales-based contests for
its Company-owned stores. Store managers receive base salaries and are eligible
to earn various incentive bonuses tied to individual sales and storewide sales
performance. District managers also have the opportunity to earn incentive
compensation based upon the sales performance of stores in their districts, as
well as the Company's overall sales performance.
The Company offers its employees other recognition programs and the
opportunity to participate in its stock option, stock purchase and 401(k)
programs. Management believes that all these programs and policies offer Chico's
sales associates and other employees opportunities to earn total compensation at
levels generally above the average in the retail industry for comparable
positions.
Chico's emphasis where possible on a "promote from within" philosophy,
combined with increases in the number of new Company-owned stores, provides
opportunities for qualified employees to advance to higher positions in the
Company.
ADDITIONAL COMPANY-OWNED STORES. Management believes that the ability
to open additional Company-owned Chico's stores will be a factor in the future
success of the Company. After slowing the opening pace of new company stores in
fiscal 1997, the Company opened a total of 14 new Company-owned stores, acquired
one store from a franchise and closed six Company-owned stores in fiscal 1998.
During fiscal 1999, the Company opened 22
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new company stores and one new franchised store while closing two outlet stores.
During fiscal 2000, the Company opened 40 new company stores and one new
franchised store while closing three front-line stores. As of March 31, 2000,
the Company has opened three of the 45 new Company-owned stores planned to be
opened in fiscal 2001, a franchisee has opened one new franchised store, and the
Company has signed leases for several new Chico's store locations. The Company
also is currently engaged in negotiations for the leasing of additional sites.
In general the Company intends to locate its new stores predominantly
outside of Florida. In deciding whether to open a new store, the Company
undertakes an extensive analysis which includes the following: identifying an
appropriate geographic market; satisfying certain local demographic
requirements; evaluating the location of the shopping area or mall and the site
within the shopping area or mall; assessing proposed lease terms; and evaluating
the sales volume necessary to achieve certain profitability criteria. Once the
Company takes occupancy, it usually takes from three to five weeks to open a
store. After opening, Chico's front-line stores have typically generated
positive cash flow within the first year of operation (after allocation of a
portion of home office administrative expense based on sales and after recovery
of the Company's out-of-pocket cash expenses in opening the new store) and have
typically had a nine month to eighteen month payback of all initial capital
costs. However, there can be no assurance that new Chico's stores will achieve
operating results similar to those achieved in the past.
The Company plans to grow by opening additional Company-owned stores
and the Company does not currently intend to increase the number of franchisees.
The Company intends to continue providing full support for its franchise network
and anticipates that one of its existing franchisees may be able to further meet
the Company's criteria for opening additional stores in its limited territory.
This franchisee opened one new franchised store in fiscal 1999, one in fiscal
2000 and one in fiscal 2001.
STORE LOCATIONS
Chico's stores are situated, for the most part, either in tourist areas
or in or near mid-to-larger sized markets. The Company's front-line stores are
located almost exclusively in upscale outdoor destination shopping areas,
high-end enclosed shopping malls and, to a lesser degree, regional malls which
offer high traffic of Chico's target customers. The Company seeks to locate the
Company-owned front-line stores where there are other upscale specialty stores
and, as to its mall locations, where there are two or more mid-to-high end
department stores as anchor tenants. Chico's Outlet stores are located in outlet
centers.
Chico's Company-owned, front-line stores average approximately 1,426
net selling square feet, while the Company-owned outlet stores average
approximately 2,287 net selling square feet. In fiscal 1999 and fiscal 2000, the
Company began a strategy of opening somewhat larger stores than it has opened in
the past. Currently, the Company is seeking to open front-line stores with
approximately 1,800-2,200 net selling square feet to accommodate its new
markdown strategy and the expanded offerings of its current products. However,
in locations where the Company has a desire to establish a store but where the
optimum store size is unavailable, the Company often will lease a front-line
store with as few as 1,200 net selling square feet or as many as 3,000 net
selling square feet. If the volume of business at one of these smaller stores is
sufficient, and there is no ability to expand the existing store, the Company
may choose to open additional stores nearby, operating two or three Chico's
stores in the same general shopping area.
At March 31, 2000, there were 204 Chico's stores, of which 187 were
Company-owned front-line Chico's stores, ten were franchised Chico's stores and
seven were Chico's Outlet stores. Chico's stores are located in the following
jurisdictions:
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<TABLE>
<CAPTION>
COMPANY-
COMPANY OWNED FRANCHISED
OWNED OUTLET STORES STORES TOTAL STORES
-------------------- -------------------- -------------------- ---------------------
<S> <C> <C> <C> <C>
Florida 31 2 1 34
California 28 1 -- 29
Texas 16 -- -- 16
New Jersey 10 -- -- 10
Illinois 8 1 -- 9
Ohio 8 -- -- 8
Connecticut 7 -- -- 7
Minnesota -- -- 7 7
Virginia 7 -- -- 7
New York 6 -- -- 6
Michigan 4 -- 1 5
Pennsylvania 5 -- -- 5
South Carolina 5 -- -- 5
Georgia 4 -- -- 4
Maryland 4 -- -- 4
Massachusetts 4 -- -- 4
North Carolina 4 -- -- 4
Tennessee 3 1 -- 4
Washington 4 -- -- 4
Colorado 2 1 -- 3
Louisiana 3 -- -- 3
New Mexico 3 -- -- 3
Alabama 1 1 -- 2
Arizona 2 -- -- 2
District of Columbia 2 -- -- 2
Indiana 1 -- 1 2
Missouri 2 -- -- 2
Rhode Island 2 -- -- 2
Utah 2 -- -- 2
Kansas 1 -- -- 1
Kentucky 1 -- -- 1
Nebraska 1 -- -- 1
Nevada 1 -- -- 1
Oklahoma 1 -- -- 1
Oregon 1 -- -- 1
Vermont 1 -- -- 1
Wisconsin 1 -- -- 1
Wyoming 1 -- -- 1
==========================================================================================================
TOTAL 187 7 10 204
==========================================================================================================
</TABLE>
In a typical new front-line Chico's store, the Company's cost of
leasehold improvements, fixtures, store equipment and beginning inventory ranges
from $150,000 to $425,000 (after taking into account landlord construction
allowances and other concessions).
Chico's utilizes teams of employees experienced in new store openings
who are able to supervise final build-out and set up store interiors rapidly,
including, where necessary, the flooring, furniture, fixturing, equipment and
initial inventory displays. The use of in-house crews allows the Company to open
a new store generally within three to five weeks after taking occupancy.
Management believes that, as a result, the Company opens its new stores more
rapidly and at less cost than many of its competitors. The Company has an
arrangement whereby the final design and initial build-out of the space is
handled by third-party architectural and contracting firms, with
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offices or affiliates throughout the country. Under this arrangement, Chico's
in-house crews are still responsible for approving the final stages of the
build-out and for setting up the store interiors.
The following table sets forth information concerning changes in the
number of Chico's Company-owned and franchise stores during the past five fiscal
years:
<TABLE>
<CAPTION>
FEB.1
NUMBER OF COMPANY-OWNED STORES 1995 1997** FY 1998 FY 1999 FY 2000
------------------------------ ---- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Stores at beginning of year 104 111 123 132 154
Opened* 8 13 14 22 40
Acquired from franchisees 5 1 1 2 --
Closed (6) (2) (6) (2) (3)
------------ ----------- ----------- ----------- ---------
Stores at end of period 111 123 132 154 191
------------ ----------- ----------- ----------- ---------
NUMBER OF FRANCHISE STORES:
Stores at beginning of year 17 12 10 9 8
Opened* -- -- -- 1 1
Sold to Company (5) (1) (1) (2) --
Closed -- (1) -- -- --
------------ ----------- ----------- ----------- ---------
Stores at end of period 12 10 9 8 9
------------ ----------- ----------- ----------- ---------
NUMBER OF TOTAL STORES: 123 133 141 162 200
============ =========== =========== =========== =========
</TABLE>
* Does not include stores that opened as relocations of previously existing
stores within the same general market area (approximately five miles) or
substantial renovations of stores.
** Numbers of stores relate to a 13 month period which runs from January 1,
1996 through February 1, 1997.
OUTLET STORES
As of April 3, 2000, the Company operated seven outlet stores under the
name "Chico's." Chico's Outlet stores carry slower-selling items removed from
front-line stores, remaining pieces of better-selling items replaced by new
shipments of merchandise to front-line stores, returns of merchandise accepted
from franchise stores under the Company's franchisee return policy and seconds
of the Company's merchandise. Chico's Outlet stores act as a vehicle for marking
down the prices on such merchandise while continuing to allow Chico's front-line
stores to maintain a somewhat limited markdown policy. Prices at Chico's Outlet
stores generally range from 30% to 70% below regular retail prices at Chico's
front-line stores. Although service is also important at Chico's Outlet stores,
there is somewhat less emphasis in the outlet stores on personalized customer
service. Sales from the Company's outlet stores represented approximately 4.1%
of the Company's net sales by Company-owned stores during fiscal 2000. Chico's
Outlet stores have not been intended to be profit centers.
Chico's Outlet stores are generally larger than front-line stores,
averaging approximately 2,287 net selling square feet. The Company opened no new
outlet stores in fiscal 2000 and only one outlet store in fiscal 1999, closed
two outlet stores in fiscal 1999 and does not anticipate opening more than one
or two outlet stores during fiscal 2001. The Company is reevaluating the extent
to which it should continue to rely on an increase in the number of outlet
stores as the basis for clearing out excess merchandise. In fiscal 1999 and
fiscal 1998, the Company sold inventory with a cost of $500,000 to liquidators
and during fiscal 1998 and fiscal 1997, the Company also conducted clearance
sales near the Company's warehouse in Ft. Myers. These clearance sales generated
approximately $690,000 and $1.4 million total sales in fiscal 1998 and fiscal
1997, respectively. The
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Company did not operate a separate clearance sale in fiscal 2000 or fiscal 1999,
but rather is clearing such goods through an expanded outlet store in Miromar,
Florida. The Company is exploring various other options for clearing such
merchandise in the future, including selling such items through its Internet
site.
FRANCHISE STORES
Currently, there are ten franchised Chico's stores operated by four
owners, none of whom is otherwise affiliated with the Company. Each franchisee
paid an initial franchise fee of between $5,000 and $75,000 per store and is not
required to pay any continuing monthly royalty. Each franchisee has been
provided an exclusive license at a specified location to operate a Chico's store
and to utilize the Company's trademarks, service marks and other rights of the
Company relating to the sale of Chico's merchandise. The term of the franchise
is generally ten years, renewable for additional ten-year periods if certain
conditions pertaining to the renewal are met (including the payment of a renewal
fee). Franchisees are required to operate their Chico's stores in compliance
with the Company's methods, standards and specifications regarding such matters
as store design, fixturing and furnishings, decor and signage, merchandise type
and presentation, and customer service. The franchisee has full discretion to
determine the prices to be charged to customers generally by changing or
replacing any pre-ticketed price tags. Franchisees are required to purchase all
Chico's brand clothing from Chico's and all accessories from Chico's or from
suppliers approved by the Company. Currently, the merchandise offered by Chico's
franchisees at their stores is purchased from the Company at prices equal to
48%-50% of suggested retail prices. In certain situations, franchise stores may
carry other brands of clothing or accessories if such merchandise is approved by
the Company. In such cases, franchisees may be required to pay to the Company a
monthly royalty equal to 5% of gross sales of any approved merchandise not
purchased from Chico's. In fiscal 2000, the Company's net sales to franchisees
was approximately $2.5 million, or 1.6 % of total net sales.
Some franchisees have entered into franchise territory development
agreements with the Company, which grant to the franchisee the right to develop
and own a specified number of Chico's stores within a specified period of time
or which preclude the Company from opening Company or franchised stores without
first giving the franchisees the right to open the proposed Chico's store within
the respective limited territories granted to such franchisees. As of March 31,
2000, the franchisee holding franchise rights in Minnesota has the right to open
additional Chico's stores, and one other franchisee has the right to preclude
the Company from opening a Company or franchised store in the respective
territory without first giving the franchisee the right to open the store. With
respect to the franchise rights granted in Minnesota, the Company granted an
exclusive right to develop Chico's stores and subfranchise within the state of
Minnesota. Certain of these franchisees, including the Minnesota franchisee, may
technically have the ability to open an unlimited number of additional stores
within their respective limited territories. However, the Company believes that
economic, logistic and other practical considerations effectively limit the
number of additional stores that these franchisees may open in the future. The
Company does not believe that these territory and right of first refusal rights
will significantly limit the Company's ability to expand.
The Company intends to continue supporting its existing franchise
network. However, the Company does not intend at this time to pursue any new
franchises or to enter into any additional franchise territory development
agreements. In the past, the Company has acquired certain franchise stores that
have been offered for sale to the Company. During fiscal 2000, the Company did
not repurchase any of its franchise stores although it will consider additional
purchases of franchise stores that may be offered to the Company from time to
time in the future. In addition, the Company may terminate franchises where
performance or circumstances so justify. Management expects that Chico's
franchise stores will play an increasingly less important role in the Company's
future sales and profitability.
Beginning in February 2000, the Company is effectively offering
franchisees an additional 2%-6% increase in their discount rate if they agree to
modify their purchase agreements and reduce returns of merchandise to the
Company. The Company believes this may reduce franchise sales and the gross
margins related to these sales, but it should also reduce returns of older
merchandise which the Company must liquidate at lower margins. The Company does
not believe the change will have a material impact on its net income.
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STORE OPERATIONS
Chico's stores typically employ a manager, two assistant managers, and
numerous sales associates who are either full-time or part-time employees.
During the peak selling seasons, stores generally hire additional sales
associates.
Store managers take an active part in selling at the stores and are
expected to be on the sales floor at all times during business hours.
Purchasing, merchandising, advertising, accounting, cash management and other
store support functions are handled by the Company's corporate headquarters. The
Company attempts to keep administrative tasks for the store managers to a
minimum, thereby allowing the store managers more time to focus on store sales,
personalized customer service and in-store and local community merchandising
strategies including outreach programs.
During fiscal 1999, the Company established a formalized training
program that was intended to reinforce and enhance the personalized customer
service offered by all associates as well as increase their merchandise
knowledge. The comprehensive training program includes a Fashion Information
Training (F.I.T.) module and a Most Amazing Personal Services (M.A.P.S.) module
which the Company believes has already begun to help assure sales associates
better understand the Chico's product and improve the level of service provided
to our customers.
The Company currently supervises store operations through its Vice
President-Director of Stores, a National Sales Manager, three Regional Sales
Managers, seventeen District Sales Managers and six Area Sales Managers. The
National Sales Manager provides assistance to the Director of Stores in
supervision of the Regional Sales Managers, while the Regional Sales Managers
have direct supervision responsibility of the District and Area Sales Managers.
Each District and Area Sales Manager supervises multiple store locations. Area
Sales Managers are in training for District Sales Manager status and generally
supervise less stores in a smaller territory. District and Area Sales Managers
have primary responsibility for assisting individual store managers in meeting
established sales goals, and carrying out merchandise presentation, staffing,
training and expense-control programs established by headquarters. Management is
continually reviewing its supervisory structure with the intent of improving the
performance of individual stores and store managers.
MANAGEMENT INFORMATION SYSTEMS
The Company's current management information systems are based on an
IBM AS400 and numerous Windows NT networks located at the home office in Ft.
Myers, which provide a full range of retail, financial and merchandising
information systems, including purchasing, inventory distribution and control,
sales reporting, accounting, warehousing and merchandise management using Island
Pacific, STS Marketworks and JDA's Arthur software products.
All Chico's stores utilize point of sale cash register computers, which
are polled nightly to collect store-level sales data and inventory receipt and
transfer information for each item of merchandise, including information by
item, style, color and size. Management evaluates this information, together
with its weekly reports on merchandise shipments to the stores, to analyze
profitability, formulate and implement company-wide merchandise pricing
decisions, assist management in the scheduling and compensation of employees
(including the determination of incentives earned) and, most importantly, to
implement merchandising decisions regarding needs for additional merchandise,
allocation of merchandise, future design and manufacturing needs and movement of
merchandise from front-line stores to Chico's Outlet stores.
During fiscal 2001, the Company intends to replace its in-house
developed cash register systems with a cash register using the CRS Retail
Systems software which is also used by many other retailers. It is anticipated
this new register will improve customer service, reporting and overall
functionality. The Company anticipates it will have several stores testing the
new cash register systems in the second quarter of fiscal 2001, with a roll out
to the rest of the Company-owned stores over the next twelve months.
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<PAGE>
In fiscal 2001, the Company will be installing JDA's Arthur software
system to help merchandise allocation and it will also be installing the Mozart
system from Commercial Ware for Internet and mail order fulfillment systems.
In fiscal 1999, the Company acquired sophisticated database marketing
software from STS Systems, Inc. to keep track of its Passport Club purchases and
to assist in analyzing merchandise selling within certain customer demographics.
This system became fully operational in fiscal 2000.
The Company is committed to an ongoing review and improvement of its
information systems to enable the Company to obtain useful information on a
timely basis and to maintain effective financial and operational controls. This
review includes testing of new products and systems to assure that the Company
is able to take advantage of technological developments.
MERCHANDISE DISTRIBUTION
New merchandise is generally received several times per week at the
Company's distribution center in Ft. Myers, Florida. Most of the merchandise
arrives in this country via air or sea at Miami, Florida, and is transported via
truck to Ft. Myers. After arrival at the distribution center, merchandise is
sorted and packaged for shipment to individual stores. Merchandise is generally
pre-ticketed with price and all other tags at the time of manufacture. In fiscal
2000 and 1999, the Company found it necessary to rely more heavily on air
shipments in order to keep its stores supplied with merchandise, thus impacting
the cost of obtaining merchandise and the gross profit margins. As the Company
addresses its merchandising challenges and works towards implementing stronger
lines of communication and controls, it is likely that air shipments may still
need to be relied upon. However, the plan is to improve the Company's scheduling
and distribution systems so as to reduce the need to rely on air transportation
to obtain merchandise.
The Company's distribution center is automated, thus generally
permitting turnaround time between distribution center receipt of merchandise
and arrival at Chico's stores to average approximately 24 to 48 hours for its
Florida stores and two days to a week for its other stores. In an attempt to
ensure a steady flow of new merchandise, the Company ships merchandise
continuously to its stores. The Company uses common carriers, such as United
Parcel Service and Burlington Air, for most shipments to its stores.
The Company has available and has allocated sufficient space in its
headquarters facility and is acquiring the necessary systems to permit
fulfillment of mail order and Internet sales directly from its distribution
center.
The capacity of the Company's distribution center should be sufficient,
in the opinion of management, to service the Company's needs for at least two
years of future growth. The Company is currently in its initial review stage of
facilities planning to properly address distribution needs after two years.
MERCHANDISE DESIGN AND PRODUCT DEVELOPMENT
The Company's private label clothing is developed through the
coordinated efforts of the Company's planning, creative and product development
departments. Style, pattern, color and fabric for individual items of the
Company's private label clothing are developed based upon historical sales data,
anticipated future sales and perceived current and future fashion trends that
will appeal to Chico's target customer. The Company's creative and product
development departments report to Marvin and Helene Gralnick, the Company's
founders, and are headed up by Karen M. Glass, Vice President-Product
Development and Design and Janet C. Ydavoy, Director of Production, Sourcing and
Quality Control. Patricia A. Murphy, the Company's Vice President-General
Merchandise Manager, has the responsibility of overseeing and coordinating the
buying, planning, quality control and distribution of merchandise.
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The creative and product development teams create the Company's
in-house designs and design modifications. In addition to selecting distinctive
patterns and colors, the Company's product development teams are particularly
attentive to the design and specification of clothing style, construction, trim
and fabric treatment. The Company believes this attention to design detail
assists in distinguishing Chico's clothing and strengthening the customer's
perception of quality and value.
Although the Company develops merchandise for specific seasons, the
product development efforts are a constant process which result in the continual
introduction of new merchandise in the Company's front-line stores. This
continual process supports the Company's merchandising and inventory strategy,
and serves to reduce somewhat the Company's exposure to fashion risk.
The Company has historically purchased most of its clothing and
accessories from companies that manufacture such merchandise in foreign
countries except for the "cut and sew" operations described below. The Company
does business with all of its foreign vendors and importers in United States
currency, often supported through letters of credit, particularly for newer
vendors. Clothing manufacturers utilize the designs and specifications provided
by the Company through its CAD programs. The Company generally does not purchase
and supply the raw materials for it's clothing, leaving the responsibility for
purchasing raw materials with the manufacturers. However, beginning in fiscal
1998, the Company has been buying specialized cloth and providing the cloth to
domestic "cut and sew" manufacturers in the United States who are engaged by the
Company to make the specified designs and styles. The Company anticipates it is
likely to continue this practice in the future.
Currently, the Company contracts with approximately 25 to 30 apparel
vendors, 20 to 40 accessory vendors, several fabric suppliers and several "cut
and sew" vendors. Over the past several years, there has been a significant
shift from vendors in Turkey and Guatemala to vendors in Hong Kong, China and
Peru. However, because of certain perceived higher sourcing costs that can be
associated with the Company's vendors in the Far East and certain other long
term uncertainties presented by such vendor relationships, the Company intends
to continue to redirect a portion of its sourcing activities towards new vendors
in the United States, Mexico and possibly other areas.
In fiscal 2000, United States sources (including the cost of fabric and
"cut and sew" vendors) accounted for approximately 44% of the Company's
purchases, Hong Kong/China sources accounted for approximately 26% of the
Company's purchases, Turkey sources accounted for approximately 11% of overall
purchases, and India accounted for approximately 8% of overall purchases, while
Indonesia, Japan, Mexico and Peru sources, in the aggregate, amounted to under
9% of overall purchases. In fiscal 2001, the Company expects sourcing from Hong
Kong/China to remain at a similar percentage. Purchases from vendors in Mexico
and other countries in Central America are expected to increase to 10-12% of
total purchases, while vendors in Turkey can be expected to continue to provide
approximately 10-15% of total purchases. Purchases from vendors in India are
likely to grow above their current amounts. United States vendors were utilized
more heavily in fiscal 2000 and it is expected this may grow again in fiscal
2001.
From time to time, the Company has experienced certain difficulties
with the quality and timeliness of delivery of merchandise manufactured
overseas. Although the Company has been sensitive to quality control and has
taken certain steps to better control the quality of merchandise secured from
foreign vendors, there can be no assurance that the Company will not experience
problems in the future with matters such as quality or timeliness of delivery.
If political instability, economic instability, natural disasters or other
factors in a foreign country in which merchandise is produced for the Company
disrupt, curtail or otherwise impact overseas production, or curtail delivery of
such merchandise to the United States, the Company's operations could be
materially and adversely affected.
The Company has no long-term or exclusive contracts with any
manufacturer or supplier and competes for production facilities with other
companies offering clothing and accessories utilizing similar manufacturing
processes. Although the Company believes that its relationships with its
existing vendors are good, there can be no assurance that these relationships
can be maintained in the future. If there should be any significant disruption
in the delivery of merchandise from one or more of its current key vendors,
management believes there would likely
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be a material adverse impact on the Company's operations. Also, the Company is
in the process of developing relationships with several new vendors in India,
and other countries. Although the Company has investigated the past performance
of these vendors and has inspected factories and sample merchandise, there can
be no assurance that the Company will not experience delays or other problems
with these new sources of supply. New relationships often present a number of
uncertainties, including payment terms, cost of manufacturing, adequacy of
manufacturing capacity, quality control, timeliness of delivery and possible
limitations imposed by trade restrictions. Although management believes it could
establish satisfactory relationships with other new vendors if required to do
so, any such further new relationships would involve similar uncertainties.
IMPORTS AND IMPORT RESTRICTIONS
Although Chico's has shifted a significant portion of its manufacturing
of clothing to United States manufacturers, a majority of Chico's clothing and
accessories are still manufactured outside of the United States. As a result,
the Company's business remains subject to the various risks of doing business
abroad and to the imposition of United States customs duties. In the ordinary
course of its business, the Company may from time to time be subject to claims
by the United States Custom Service for tariffs, duties and other charges.
Imports from Turkey, Hong Kong, China and Peru currently all receive
the preferential tariff treatment that is accorded goods from countries
qualifying for normal trade relations status ("NTR"), formerly known as most
favored nation status. If the NTR status of any of these countries were to be
lost and the merchandise purchased by the Company were then to enter the United
States without the benefit of NTR treatment or subject to retaliatory tariffs,
it would be subject to significantly higher duty rates. Increased duties,
whether as a result of a change in NTR status or any overall change in foreign
trade policy, could have a material adverse effect on the cost and supply of
merchandise from these countries. Although Chico's expects NTR status to
continue for the countries where its principal vendors are located, the Company
cannot predict whether the US Government will act to remove NTR status for any
of the countries or impose an overall increase in duties on foreign made goods.
In particular, the NTR status for China is currently subject to a yearly review
and its status as such has been the subject of some debate. Although the
President supports renewal of China's NTR status (and has even supported
legislation that would make it permanent rather than subject to yearly renewal),
recent questions concerning China's misappropriation of military proprietary
information could very well result in an increased pressure to not renew China's
NTR status. Also, in July 1997, Hong Kong changed from its former status as a
British colony to become the subject of Chinese sovereignty. Although for trade
purposes the United States has continued to treat Hong Kong as a separate
territory, and it has continued to negotiate directly with Hong Kong while at
the same time it has continued its NTR trade status, there can be no assurance
that Hong Kong's shift to Chinese sovereignty will not have an impact on the
Company's sourcing activities, particularly if the Company continues significant
sourcing from Hong Kong.
The import of the Company's clothing and some of its accessories is
also subject to constraints imposed by bilateral textile agreements between the
United States and a number of foreign jurisdictions. These agreements impose
quotas that limit the amount of certain categories of clothing that can be
imported from these countries into the United States. The bilateral agreements
through which quotas are imposed have been negotiated under the framework
established by the Arrangement Regarding International Trade, known as the
"Multifiber Arrangement."
In 1994, the member-countries of the International Trade Organization
completed the Uruguay Round of trade negotiations of the General Agreement on
Tariffs and Trade and the Agreement was approved by the United States Congress.
This pact, as it applies to textiles, which is now known as the WTO Agreement on
Textiles and Clothing (the "ATC"), was implemented on January 1, 1995 and, as a
result, the Multifiber Arrangement is being phased out over a period of ten
years, thus eliminating many of the existing restrictions on the Company's
ability to import Chico's merchandise, including quotas. The ATC could have an
impact on the Company's sourcing strategy as the Multifiber Arrangement phases
out. The Company cannot accurately assess at this time how the ATC will affect
its financial results and operations or whether there might be other
arrangements added in the future which impose other types of restrictions on
imports of apparel and related accessories.
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In recent years, the Company's imports from countries subject to the
Multifiber Arrangement have all fallen within the applicable quota limits. There
can be no assurance that, as long as the quotas remain in effect, the Company's
vendors will be able to continue to secure sufficient quotas for shipments to
Chico's or will continue to allocate to Chico's a sufficient portion of their
respective quotas.
The Omnibus Trade and Competitiveness Act of 1988 added a new provision
to the Trade Act of 1974 dealing with intellectual property rights. This
provision, which is commonly referred to as "Special 301" and which remains
effective even following the approval of the ATC, directed the United States
Trade Representative (the "USTR") to designate those countries that deny
adequate and effective intellectual property rights or fair and equitable market
access to United States firms that rely on intellectual property. From the
countries designated, the USTR is to identify as "priority" countries those
where the lack of intellectual property rights protection is most egregious and
has the greatest adverse impact on United States products. The USTR is to
identify and investigate as priority foreign countries only those that have not
entered into good faith negotiations or made significant progress in protecting
intellectual property. Where such an investigation does not lead to a
satisfactory resolution of such practices, through consultations or otherwise,
the USTR is authorized to take retaliatory action, including the imposition of
retaliatory tariffs and import restraints on goods from the priority foreign
country.
Under Special 301, the USTR has also created a two-tier "watch list"
that requires the country so listed to make progress on intellectual property
protection reform or risk designation as a priority foreign country. Countries
named on the first tier of the watch list, i.e., the priority watch list, are
requested to make progress in certain areas by specific dates. Countries named
to the second tier, i.e., the secondary watch list, are asked to improve their
intellectual property protection efforts.
As of April 3, 2000, of the countries where the Company's existing or
planned key vendors have manufacturing operations or suppliers, none was a
priority foreign country. Turkey, India, Peru and Indonesia were on the priority
watch list and Mexico was on the secondary watch list.
In addition, the Clinton Administration has revived Super 301 (an even
more powerful portion of Special 301). Super 301 requires the administration to
identify and investigate annually foreign trade practices that do the most harm
in blocking U.S. exports. This identification is intended to be followed by
negotiations backed with the threat of sanctions. As of April 3, 2000, none of
the countries where the Company's existing or planned key vendors have
manufacturing operations has been cited under Super 301.
China continues to be monitored under a related provision of the Trade
Act of 1974, section 306. The United States Trade Representative will be in a
position to impose sanctions if China fails to adequately enforce existing
bilateral agreements concerning intellectual property rights.
Of countries where the Company's existing or planned key vendors have
manufacturing operations, Turkey, India, Indonesia and Peru have enjoyed
Designated Beneficiary Developing Country ("DBDC") status under the Generalized
System of Preferences ("GSP"), a special status that is granted by the United
States to developing nations. DBDC status allows certain products imported from
those countries to enter the United States under a reduced rate of duty. In
order to maintain that status, the countries are required to meet several
criteria.
The GSP expired by its terms on June 30, 1999. Although the USTR has
expressed support for extension of the GSP program and a bill extending the GSP
program through 2004 has been introduced in Congress, the likelihood of this
extension is uncertain. As introduced, the bill extending the GSP would make the
extension retroactive to June 30, 1999.
The Company cannot predict whether any of the foreign countries in
which its clothing and accessories are currently manufactured or any of the
countries in which the Company's clothing and accessories may be manufactured in
the future will be subject to these or other import restrictions by the United
States Government, including the likelihood, type or effect of any trade
retaliation. Trade restrictions, including increased tariffs or more restrictive
quotas, or both, applicable to apparel items could affect the importation of
apparel generally and, in
14
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that event, could increase the cost or reduce the supply of apparel available to
the Company and adversely affect the Company's business, financial condition and
results of operations. The Company's merchandise flow may also be adversely
affected by political instability in any of the countries in which its goods are
manufactured, significant fluctuation in the value of the U.S. dollar against
applicable foreign currencies and restrictions on the transfer of funds.
ADVERTISING AND PROMOTION
Chico's historically has not allocated significant resources to mass
media advertising other than direct mail. Chico's has preferred instead to
attract customers through its direct mail programs (which began in fiscal 1998),
word-of-mouth advertising, its general reputation, its relaunched Passport Club
and the visual appeal of its stores and window presentations of its merchandise.
Chico's sales associates promote this often by making personal telephone calls
to existing customers informing them about new merchandise. Over the past
several years and particularly in fiscal 1999 and 2000, the Company increased
its use of brochures and other merchandise image pieces mailed to customers and
made available at Chico's stores. In addition, in the fourth quarter of fiscal
2000, the Company began a national magazine advertising campaign in
approximately eight magazines. The Company intends on continuing to use and
expand its national magazine advertising and its use of direct mail through its
Passport customers, as well as, identifying "prospect" customers. During fiscal
2000, the Company expanded its efforts in this area and the cost associated with
this marketing increased to $3.5 million dollars from $1.7 million in fiscal
1999.
As an important part of its promotional program, Chico's places
additional emphasis on what it refers to as its "outreach programs." Chico's
outreach programs include, among other events, fashion shows and wardrobing
parties that are organized and hosted by Chico's store managers and sales
associates. As part of these outreach programs, the Company also encourages
Chico's managers and sales associates to become involved in community projects.
The Company has found its outreach programs are effective in providing
introductions to new customers. The Company believes that these programs are
effective marketing vehicles and it has developed programs to help its store
level employees use these programs.
COMPETITION
The women's retail apparel business is highly competitive and has
become even more competitive in the past several years. Chico's stores compete
with a broad range of national and regional retail chains, including other
women's apparel stores, department stores and specialty stores, as well as local
retailers in the areas served by individual Chico's stores, all of which sell
merchandise generally similar to that offered in Chico's stores. Even discount
department stores have begun to carry merchandise which is designed to compete
for the consumers that historically have been the Company's target customer.
Although management believes that there is limited direct competition for
Chico's merchandise largely because of the distinctive nature of Chico's stores
and merchandise, the retailers that are believed to most directly compete with
Chico's stores in many of the same local market areas are the mid-to-high end
department stores including Nordstrom's, Dillards, Neiman-Marcus and Saks Fifth
Avenue and specialty stores which include The Gap, Talbots, The Limited and
Banana Republic as well as local boutique retailers in the areas served by
individual Chico's stores. The number of competitors and the level of
competition facing Chico's stores varies by the specific local market area
served by individual Chico's stores.
The Company believes that the distinctive designs of Chico's casual
clothing and accessories which provide good value, their exclusive availability
at Chico's stores, the Company's emphasis on personalized service and customer
assistance, and the locations of its stores are the principal means by which the
Company competes. The Company's performance is impacted by the fact that many of
the Company's competitors are significantly larger and have substantially
greater financial, marketing and other resources and enjoy greater national,
regional and local name recognition than does the Company. It should also be
noted that while the Company believes it also competes effectively for favorable
site locations and lease terms, competition is intense for prime locations
within
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upscale shopping districts and high-end malls, and women's apparel stores have
tended to over saturate these prime locations.
EMPLOYEES
As of January 29, 2000, the Company employed approximately 1,835
persons, approximately 48% of whom were full-time employees and approximately
52% of whom were part-time employees. The number of part-time employees
fluctuates during peak selling periods. As of the above date, 90% of the
Company's employees worked in Chico's stores, Chico's Outlet stores and in
direct field supervision, 3% worked in the distribution center and 7% worked in
corporate headquarters and support functions.
The Company has no collective bargaining agreements covering any of its
employees, has never experienced any material labor disruption and is unaware of
any efforts or plans to organize its employees. The Company contributes part of
the cost of medical and life insurance coverage for eligible employees and also
maintains a 401K, stock option plan and stock purchase plan. All employees also
receive substantial discounts on Company merchandise. The Company considers
relations with its employees to be good.
TRADEMARKS AND SERVICE MARKS
The Company is the owner in the United States of the trademarks
"CHICO'S", "Passport" and "MAPS", each of which is registered with the United
States Patent and Trademark Office. Each of the registrations has a term of 10
years (expiring in 2009, 2010 and 2009, respectively) and is renewable
indefinitely if the mark is still in use at the time of renewal. The Company has
also applied for trademarks in the United States on its "Goddess" collections,
and in Canada for all of its marks. In the opinion of management, the Company's
rights in the marks are important to the Company's business. This is
particularly the case for the "CHICO'S" and "Passport" marks because these marks
are well known by Chico's customers. Accordingly, the Company intends to
maintain its marks and the related registrations. The Company is not aware of
any claims of infringement or other challenges to the Company's right to use its
marks in the United States.
ITEM 2. PROPERTIES.
STORES
Chico's stores are located throughout the United States, with a
significant concentration in Florida, California and the northeast United
States.
As a matter of policy, the Company prefers to lease its stores and all
of the Chico's and Chico's Outlet stores currently operated by the Company are
leased. Lease terms typically range from three to ten years and approximately
40% contain one or more renewal options. Historically, the Company has exercised
most of its lease renewal options. Almost 80% of the leases have percentage rent
clauses which require the payment of additional rent based on the store's net
sales in excess of a certain threshold.
The following table, which covers all of the 194 Company-owned stores
existing as of March 31, 2000, sets forth (i) the number of leases that will
expire each year if the Company does not exercise renewal options and (ii) the
number of leases that will expire each year if the Company exercises all of its
renewal options (assuming in each case the lease is not otherwise terminated by
either party pursuant to any other provision thereof):
16
<PAGE>
<TABLE>
<CAPTION>
LEASES EXPIRING EACH YEAR LEASES EXPIRING EACH YEAR
FISCAL YEAR IF NO RENEWALS EXERCISED IF ALL RENEWALS EXERCISED
------------------------------------- -------------------------------------- -------------------------------------
<S> <C> <C>
2001................ 11 8
2002................ 24 10
2003................ 22 13
2004 AND AFTER...... 137 163
DISTRIBUTION CENTER AND HEADQUARTERS
The Company's World Headquarters, which is located on approximately 27
acres in Ft. Myers, Florida, was completed and opened in September 1994 and
consists of a distribution center, and corporate and administrative
headquarters. The combined facilities comprise approximately 115,000 square
feet, consisting of approximately 85,000 square feet for distribution and
approximately 35,000 square feet for administrative and design offices. In
December 1999 the Company closed its woodshop, outsourced the fixture production
and reallocated the space for distribution activities.
The construction cost of the combined corporate headquarters,
distribution center and woodshop facility was approximately $9.6 million, which
includes the $1.3 million purchase price for the land. Further, the Company
spent approximately $1.6 million for distribution center equipment, software and
furnishings. Currently, the Company's World Headquarters secures a $5.2 million
mortgage loan which matures in 2003.
In the opinion of management, the existing headquarters facility should
provide sufficient warehouse capacity to service the Company's needs for its
basic retail operations for at least two years of future growth. Regarding the
corporate and administrative offices, the Company has engaged a general
contractor and has begun construction on a 32,000 square foot addition to its
existing corporate and administrative offices. It is anticipated that the
additional office facilities will be completed in early 2001 at a cost of
approximately $5 million.
ITEM 3. LEGAL PROCEEDINGS.
Chico's is not a party to any legal proceedings, other than various
claims and lawsuits arising in the normal course of the Company's business,
which the Company believes should not have a material adverse effect on its
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
ITEM A. EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the
Company's existing executive officers:
<CAPTION>
YEARS WITH
NAME AGE COMPANY POSITIONS
---- --- ------- ---------
<S> <C> <C>
Marvin J. Gralnick 65 16 Chief Executive Officer, President, Chairman of the
Board and Director
Helene B. Gralnick 52 16 Senior Vice President-Design and Concept and Director
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Charles J. Kleman 49 11 Executive Vice President-Finance, Chief Financial
Officer, Secretary/Treasurer and Director
Scott A. Edmonds 42 6 Chief Operating Officer and Assistant Secretary
Mori C. MacKenzie 49 4 Vice President-Director of Stores
Patricia A. Murphy 56 2 Vice President-General Merchandise Manager
Karen M. Glass 44 7 Vice President-Product Development and Design
</TABLE>
Marvin J. Gralnick, together with his wife, Helene B. Gralnick, founded
Chico's in December 1983. He served the Company as its Chief Executive Officer
until September 1, 1993, at which time Jeffrey J. Zwick succeeded Mr. Gralnick
in this position. In connection with the November 7, 1994 resignation of Jeffrey
J. Zwick as Chief Executive Officer, President and a director of the Company,
Mr. Gralnick and Ms. Gralnick returned to the Company on a full time basis to
head up merchandise design, marketing and image for the Company. In February
1995, Mr. Gralnick re-assumed the role of Chief Executive Officer and in March
1997 re-assumed the position of President following the departure of Melissa
Payner. In addition, Mr. Gralnick continues to serve as Chairman of the Board
and as a director. Mr. Gralnick served as President from the Company's founding
until 1990 when he became Chairman of the Board and was given the official title
of Chief Executive Officer. Mr. and Ms. Gralnick's vision and creative talents
led the development and evolution of the Company's philosophy and the design and
feel of Chico's merchandise and Chico's stores through September 1, 1993 and
since November 1994 have been leading the Company in this regard.
Helene B. Gralnick was a co-founder of Chico's, together with her
husband, Marvin J. Gralnick, and has served the Company in various senior
executive capacities throughout its history. She was first elected Vice
President/Secretary in 1983. Ms. Gralnick was elected as Senior Vice
President-Merchandise Concept in 1992. In September 1993, Ms. Gralnick stepped
down from all officer positions with the Company. In connection with the
November 7, 1994 resignation of Jeffrey J. Zwick as Chief Executive Officer,
President and a director of the Company, Ms. Gralnick, together with Mr.
Gralnick, returned to the Company on a full time basis to head up merchandise
design, marketing and image for the Company. In February 1995, Ms. Gralnick was
elected as Senior Vice President-Design and Concept. In addition, she continues
to serve as a director of the Company.
Charles J. Kleman has been employed by Chico's since January 1989, when
he was hired as the Company's Controller. In 1991, he was elected as Vice
President/Assistant Secretary. In 1992, Mr. Kleman was designated as the
Company's Chief Financial Officer. On September 1, 1993, he was elected to the
additional position of Secretary/Treasurer, served as Senior Vice
President-Finance from January 1, 1996 through November 1996 and effective
December 3, 1996, was promoted to the position of Executive Vice
President-Finance. Prior to joining Chico's, Mr. Kleman was an independent
accounting consultant in 1988, and from 1986 to 1988 Mr. Kleman was employed by
Electronic Monitoring & Controls, Inc., a manufacturer and distributor of energy
management systems, as its Vice President/Controller. Prior to 1986, Mr. Kleman
was employed by various independent certified public accounting firms, spending
over four years of that time with Arthur Andersen & Co. Mr. Kleman is
responsible for accounting, financial reporting, management information systems,
investor relations and overall management of the distribution center.
Scott A. Edmonds has been employed by Chico's since September 1993,
when he was hired as Operations Manager. In February 1994, he was elected to the
position of Vice President-Operations and effective January 1, 1996 he was
promoted to the position of Senior Vice President-Operations. In February 2000,
Mr. Edmonds was promoted to Chief Operating Officer. Mr. Edmonds is responsible
for human resources, store development and operations, store leasing and
maintenance, franchise operations, and management of the general headquarters
activities. From March 1985 until September 1993, he was President/General
Manager of the Ft. Myers branch of Ferguson Enterprises, Inc., an electric and
plumbing wholesaler.
18
<PAGE>
Mori C. MacKenzie has been with the Company since October 1995, when
she was hired as the Director of Stores. In June 1999, she was elected Vice
President-Director of Stores. Ms. MacKenzie is responsible for store and field
operations management, hiring and training. From January 1995 until October
1995, Ms. MacKenzie was the Vice President of Store Operations for Canadians
Corporation. From August 1994 until December 1994, she was the Vice President of
Store Development for Goody's Family Clothing. From April 1992 until August
1994, Ms. MacKenzie was the Vice President of Stores for United Retail Group
("URG") and from August 1991 until August 1992 she was employed by Conston
Corporation, a predecessor of URG. In addition, Ms. MacKenzie was Vice
President-Stores for Park Lane from November 1987 until July 1991, and was
Regional Director of Stores for the Limited, Inc. from June 1976 until October
1987.
Patricia A. Murphy has been with the Company since September 1997, when
she was hired as the Senior Merchant. In April 1998, she was promoted to the
position of General Merchandise Manager, and in June 1999, she was elected Vice
President-General Merchandise Manager. Ms. Murphy is principally responsible for
the buying, planning and distribution activities associated with procurement of
merchandise. From February 1987 until September 1997, Ms. Murphy was Vice
President of Merchandising and Director of Fashion for Doncaster and from
October 1985 until February 1987 was Merchandiser and National Sales Manager for
Caribou Sportswear. From 1981 until 1985, she held various positions including
Divisional Merchandise Manager and Director of Fashion Coordination for Lane
Bryant, a division of the Limited.
Karen M. Glass has been with the Company since January 1993 when she
was hired as the Manager of Quality Control in the Company's Istanbul, Turkey
office which was closed in 1995. In 1995, she moved to the United States and was
promoted to Director of Production. In June 1999, she was elected Vice
President-Product Development and Design. From 1979-1991, she was involved in
design and production of sportswear lines for several New York and Ohio-based
companies in the sportswear industry.
Marvin J. Gralnick and Helene B. Gralnick are husband and wife. None of
the other executive officers or directors are related to one another.
There are no arrangements or understandings pursuant to which any
officer was elected to office. Executive officers are elected by and serve at
the discretion of the Board of Directors.
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded on the Nasdaq National Market
System. The high and low prices per share, as adjusted for the stock split
payable on January 14, 2000, of the Company's Common Stock for each quarterly
period since the Company's initial public offering are set forth in the
Company's 2000 Annual Report to Stockholders and are incorporated herein by
reference.
On March 31, 2000, the last reported sale price of the Common Stock on
the Nasdaq National Market System was $16 61/64 per share.
The Company does not intend to pay any cash dividends for the
foreseeable future and intends to retain earnings, if any, for the future
operation and expansion of the Company's business. Any determination to pay
dividends in the future will be at the discretion of the Company's Board of
Directors and will be dependent upon the Company's results of operations,
financial condition, contractual restrictions and other factors deemed relevant
by the Board of Directors. The Company's existing credit facilities contain
restrictions on the payment of cash dividends on the Common Stock. Under the
provisions of the credit facilities, dividends will be prohibited to the extent
such aggregate dividends would cause the Company's tangible net worth to fall
below the sum of $16 million plus 50% of aggregate net income after fiscal 1999.
19
<PAGE>
The approximate number of equity security holders of the Company is as
follows:
Number of Record Holders
Title of Class as of March 31, 2000
-------------- --------------------
Common Stock, par value $.01 per share 417
ITEM 6. SELECTED FINANCIAL DATA.
Selected Financial Data at the dates and for the periods indicated
should be read in conjunction with, and is qualified in its entirety by
reference to the financial statements and the notes thereto referenced elsewhere
and incorporated in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
PRO FORMA
ONE MONTH FISCAL YEAR
FISCAL YEAR PERIOD ENDED
ENDED ENDED (UNAUDITED)
-------------- -------------- ---------------- -------------
DECEMBER 31, JANUARY 28, JANUARY 28, FEBRUARY 1,
1995 1996 (1) 1996 (1) 1997 (1)
(52 WEEKS) (4 WEEKS) (52 WEEKS) (53 WEEKS)
-------------------------------------------------------------
(In thousands, except per share and selected operating)
OPERATING STATEMENT DATA:
<S> <C> <C> <C> <C>
Net sales by company stores $ 57,636 $ 3,619 $ 58,091 $ 62,318
Net sales to franchisees (2) 2,707 128 2,672 1,755
--------- --------- --------- ---------
Net sales 60,343 3,747 60,763 64,073
Cost of goods sold (3) 26,115 1,913 26,484 26,713
--------- --------- --------- ---------
Gross profit 34,228 1,834 34,279 37,360
General, administrative and
store operating expenses 30,743 2,358 30,842 33,738
--------- --------- --------- ---------
Income (loss) from operations 3,485 (524) 3,437 3,622
Interest income (expense), net (621) (39) (620) (404)
--------- --------- --------- ---------
Income (loss) before taxes 2,864 (563) 2,817 3,218
Provision for income taxes 1,160 (225) 1,141 1,287
--------- --------- --------- ---------
Net income (loss) $ 1,704 $ (338) $ 1,676 $ 1,931
========= ========= ========= =========
Basic net income (loss) per share (4) $ .11 $ (.02) $ .11 $ .12
========= ========= ========= =========
Diluted net income (loss) per share (4) $ .11 $ (.02) $ .10 $ .12
========= ========= ========= =========
Weighted average shares
outstanding-diluted (4) 15,676 15,554 15,672 15,952
========= ========= ========= =========
<CAPTION>
FISCAL YEAR ENDED
-------------- --------------- ------------
JANUARY 31, JANUARY 30, JANUARY 29,
1998 1999 2000
(52 WEEKS) (52 WEEKS) (52 WEEKS)
-------------------------------------------
(In thousands, except per share and selected operating)
OPERATING STATEMENT DATA:
<S> <C> <C> <C>
Net sales by company stores $ 73,597 $104,981 $152,473
Net sales to franchisees (2) 1,742 1,761 2,529
--------- --------- ---------
Net sales 75,339 106,742 155,002
Cost of goods sold (3) 33,240 44,197 64,950
--------- --------- ---------
Gross profit 42,099 62,545 90,052
General, administrative and
store operating expenses 37,185 47,411 65,246
--------- --------- ---------
Income (loss) from operations 4,914 15,134 24,806
Interest income (expense), net
(372) (151) 177
-------- -------- ---------
Income (loss) before taxes 4,542 14,983 24,983
Provision for income taxes 1,772 5,844 9,494
--------- --------- ---------
Net income (loss) $ 2,770 $ 9,139 $ 15,489
========= ========= =========
Basic net income (loss) per share (4) $ .18 $ .56 $ .91
========== ========== =========
Diluted net income (loss) per share (4) $ .17 $ .54 $ .88
========= ========== =========
Weighted average shares 16,066 17,060 17,681
outstanding-diluted (4) ========= ========= =========
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
ONE MONTH FISCAL YEAR
FISCAL YEAR PERIOD ENDED
ENDED ENDED (UNAUDITED)
------------- -------------- ------------- -------------
DECEMBER 31, JANUARY 28, JANUARY 28, FEBRUARY 1,
1995 1996 (1) 1996 (1) 1997 (1)
(52 WEEKS) (4 WEEKS) (52 WEEKS) (53 WEEKS)
------------- -------------- ------------- -------------
SELECTED OPERATING DATA:
<S> <C> <C> <C> <C> <C>
Company stores at period end (5) 111 111 111 123
Franchise stores at period end (5) 12 12 12 10
--------- --------- --------- ---------
Total stores at period end (5) 123 123 123 133
======== ======== ======== ========
Average net sales per net selling
store (in thousands) (6) $ 527 N/A $ 537 $ 523
Average net sales per net selling
square foot at company
stores (6) $ 413 N/A $ 405 $ 396
Percentage increase (decrease) in
comparable company store
net sales (10.4)% 1.4% (10.1)% (1.3)%
BALANCE SHEET DATA (at year end):
Total assets $ 27,009 N/A $ 27,681 $31,248
Stockholders' Equity 15,959 N/A 15,621 18,021
Debt and lease obligations, less
current maturities 5,896 N/A 7,131 7,008
Working capital $4,536 N/A $5,419 $6,585
<CAPTION>
FISCAL YEAR ENDED
-------------- ------------- ------------
JANUARY 31, JANUARY 30, JANUARY 29,
1998 1999 2000
(52 WEEKS) (52 WEEKS) (52 WEEKS)
-------------- ------------- ------------
SELECTED OPERATING DATA:
<S> <C> <C> <C> <C>
Company stores at period end (5) 132 154 191
Franchise stores at period end (5) 9 8 9
---------- ---------- ----------
Total stores at period end (5) 141 162 200
======== ======== ========
Average net sales per net selling
store (in thousands) (6) $ 578 $ 745 $ 904
Average net sales per net selling
square foot at company
stores (6) $ 449 $ 574 $ 675
Percentage increase (decrease) in
comparable company store
net sales 10.7% 30.3% 23.3%
BALANCE SHEET DATA (at year end):
Total assets $34,472 $49,000 $70,316
Stockholders' Equity 21,456 34,303 52,641
Debt and lease obligations, less
current maturities 6,703 6,713 6,839
Working capital $ 8,970 $19,852 $26,389
</TABLE>
(1) In December 1996, the Company elected to change its fiscal year end,
effective January 29, 1996, from a 52/53 week fiscal year, ending on
the Sunday closest to December 31st to a 52/53 week fiscal year ending
on the Saturday closest to January 31st. The selected financial data
presents financial results for, among other periods, the short one
month transition period in January 1996, and for a pro forma fiscal
year ending January 28, 1996.
(2) Includes franchisee fees of under $10,000 in certain fiscal years.
(3) Cost of goods sold includes distribution and design costs, but does not
include occupancy cost.
(4) Restated to give retroactive effect for the 2 for 1 stock split payable
in January 2000.
(5) For information concerning stores opened, acquired, sold and closed,
see "Business - Store Locations."
(6) Average net sales per company store and average net sales per net
selling square foot of company stores are based on net sales of stores
that have been operated by the Company for the full year. For fiscal
1997, average net sales per Company store and average net sales per
selling square foot of Company stores have been adjusted to exclude the
effect of the fifty-third week.
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
A discussion and analysis of the financial condition and results of
operations for the specified fiscal periods through January 29, 2000 is set
forth under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's 2000 Annual Report to
Stockholders and is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by this Item is set forth under the heading
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" in the Company's 2000 Annual Report to Stockholders and is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements and supplementary financial information is set
forth under the heading "Financial Statements" in the financial information
portion of the Company's 2000 Annual Report to Stockholders and is incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOURE.
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information about directors and nominees for director of the Company in
the Company's 2000 Annual Meeting proxy statement is incorporated herein by
reference. Information about executive officers of the Company is included in
Item A. of Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
Information about executive compensation in the Company's 2000 Annual
Meeting proxy statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT.
The information required by this Item is included in the Company's 2000
Annual Meeting proxy statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is included in the Company's 2000
Annual Meeting proxy statement and is incorporated herein by reference.
22
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) The following financial statements of Chico's FAS, Inc. and
the report thereon of Arthur Andersen LLP dated February 25,
2000, which is included in the Company's Annual Report to
Stockholders for the fiscal year ended January 29, 2000, are
incorporated herein by reference.
- Report of Independent Certified Public Accountants.
- Statements of Income for the fiscal years ended January 29,
2000, January 30, 1999 and January 31, 1998.
- Balance Sheets, January 29, 2000 and January 30, 1999.
- Statements of Stockholder's Equity for the fiscal years
ended January 29, 2000, January 30, 1999, and January 31,
1998.
- Statements of Cash Flows for the fiscal years ended January
29, 2000, January 30, 1999, and January 31, 1998.
- Notes to Financial Statements.
(2) The following Financial Statement Schedules are included
herein:
Schedules are not submitted because they are not applicable
or not required or because the required information is
included in the financial statements or the notes thereto.
(3) The following exhibits are filed as part of this report
(exhibits marked with an asterisk have been previously filed
with the Commission as indicated and are incorporated herein
by this reference):
2* Agreement and Plan of Merger Dated December 19, 1992, between the
Company and Chico's International, Inc. (Filed as Exhibit 2 to the
Company's Registration Statement on Form S-1 (File No. 33-58134) filed
with the Commission on February 10, 1993, as amended)
3.1* Amended and Restated Articles of Incorporation (Filed as Exhibit 3.3
to the Company's Form 10-Q for the quarter ended April 4, 1993, as
filed the Commission on May 18, 1993)
3.2* Agreement and Plan of Recapitalization dated February 3, 1993, by and
among Marvin J. Gralnick, Helene B. Gralnick, Barry E. Szumlanski,
Lynn Mann and Jeffrey Jack Zwick and Chico's FAS, Inc. (Filed as
Exhibit 3.2 to the Company's Registration Statement on Form S-1 (File
No. 33-70620) filed with the Commission on October 21, 1993, as
amended)
3.3* Amended and Restated By-laws (Filed as Exhibit 3.5 to the Company's
Form 10-Q for the quarter ended April 4, 1993, as filed with the
Commission on May 18, 1993)
4.1* Amended and Restated Articles of Incorporation (Filed as Exhibit 3.3
to the Company's Form 10-Q for the quarter ended April 4, 1993, as
filed with the Commission on May 18, 1993)
4.2* Amended and Restated Bylaws (Filed as Exhibit 3.5 to the Company's
Form 10-Q for the quarter ended April 4, 1993, as filed with the
Commission on May 18, 1993)
4.3* Form of Common Stock Certificate (Filed as Exhibit 4.5 to the
Company's Registration Statement on Form S-1 (File No. 33-58134) filed
with the Commission on February 10, 1993, as amended)
23
<PAGE>
10.1* Employment Agreement for Marvin J. Gralnick (Filed as Exhibit 10.1
to the Company's Form 10-K for the year ended January 1, 1995, as
filed with the Commission on April 1, 1995)
10.2* Employment Agreement for Helene B. Gralnick (Filed as Exhibit 10.1
to the Company's Form 10-K for the year ended January 1, 1995, as
filed with the Commission on April 1, 1995)
10.3* Employment Agreement for Charles J. Kleman (Filed as Exhibit 10.6.5
to the Company's Form10-Q for the quarter ended April 4, 1993, as
filed with the Commission on May 18, 1993)
10.4* Employment Agreement for Scott A. Edmonds (Filed as Exhibit 10.1 to
the Company's Form 10-Q for the quarter ended July 2, 1995, as filed
with the Commission on August 14, 1995)
10.5* Employment Agreement for Mori C. MacKenzie (Filed as Exhibit 10.4 to
the Company's Form 10-Q for the quarter ended October 1, 1995, as
filed with the Commission on November 13, 1995)
10.6* 1992 Stock Option Plan (Filed as Exhibit 10.7 to the Company's
Registration Statement on Form S-1 (File No. 33-58134) as filed with
the Commission on February 10, 1993, as amended)
10.7* First Amendment to 1992 Stock Option Plan (Filed as Exhibit 10.13 to
the Company's Form 10-K for the year ended January 2, 1994, as filed
with the Commission on April 1, 1994)
10.8* 1993 Stock Option Plan (Filed as Exhibit 10.14 to the Company's Form
10-K for the year ended January 2, 1994, as filed with the
Commission on April 1, 1994)
10.9* First Amendment to 1993 Stock Option Plan (Filed as Exhibit 10.9 to
the Company's Form 10-K for the year ended January 30, 1999, as
filed with the Commission on April 28, 1999)
10.10* 1993 Employee Stock Purchase Plan (Filed as Exhibit 10.8 to the
Company's Form 10-Q for the quarter ended April 4, 1993, as filed
with the Commission on May 18, 1993)
10.11* 1993 Employee Stock Purchase Plan, as amended and restated October
9, 1998 (Filed as Exhibit 10.11 to the Company's Form 10-K for the
year ended January 30, 1999, as filed with the Commission on April
28, 1999)
10.12 Third Amendment to Chico's FAS, Inc. 1993 Employee Stock Purchase
Plan
10.13 Fourth Amendment to Chico's FAS, Inc. 1993 Employee Stock Purchase
Plan
10.14* Nonemployee Director's Stock Option Agreement by and between Chico's
FAS, Inc., and Verna K. Gibson (Filed as Exhibit 10.14 to the
Company's Registration Statement on Form S-1 (File No. 33-70620) as
filed with the Commission on October 21, 1993, as amended)
10.15* Form of Nonemployee Director's Stock Option Agreement by and between
Chico's FAS, Inc. and Verna K. Gibson (Filed as Exhibit 10.51 to the
Company's Form 10-K for the year ended January 1, 1995, as filed
with the Commission on April 1, 1995)
10.16* Nonemployee Director's Stock Option Agreement by and between Chico's
FAS, Inc., and Verna K. Gibson (Filed as Exhibit 10.6 to the
Company's Form 10-Q for the quarter ended July 2, 1995, as filed
with the Commission on August 14, 1995)
10.17* Nonemployee Director's Stock Option Agreement by and between Chico's
FAS, Inc., and Verna K. Gibson (Filed as Exhibit 10.3 to the
Company's Form 10-Q for the quarter ended June 30, 1996, as filed
with the Commission on August 13, 1996)
24
<PAGE>
10.18* Indemnification Agreement with Marvin J. Gralnick (Filed as Exhibit
10.9.1 to the Company's Form 10-Q for the quarter ended July 4,
1993, as filed with the Commission on August 13, 1993)
10.19* Indemnification Agreement with Helene B. Gralnick (Filed as Exhibit
10.9.2 to the Company's Form 10-Q for the quarter ended July 4,
1993, as filed with the Commission on August 13, 1993)
10.20* Indemnification Agreement with Charles J. Kleman (Filed as Exhibit
10.9.5 to the Company's Form 10-Q for the quarter ended July 4,
1993, as filed with the Commission on August 13, 1993)
10.21* Indemnification Agreement with Verna K. Gibson (Filed as Exhibit
10.9.6 to the Company's Form 10-Q for the quarter ended July 4,
1993, as filed with the Commission on August 13, 1993)
10.22* Indemnification Agreement with Scott A. Edmonds (Filed as Exhibit
10.2 to the Company's Form 10-Q for the quarter ended July 2, 1995,
as filed with the Commission on August 14, 1995)
10.23* Sample Form of Franchise Agreement (Filed as Exhibit 10.13 to the
Company's Registration Statement on Form S-1 (File No. 33-58134) as
filed with the Commission on February 10, 1993, as amended)
10.24* Sample Form of Territory Development Agreement (Filed as Exhibit
10.14 to the Company's Registration Statement on Form S-1 (File No.
33-58134) as filed with the Commission on February 10, 1993, as
amended)
10.25* Sample Form of Purchase Agreement (Filed as Exhibit 10.15 to the
Company's Registration Statement on Form S-I (File No. 33-58134) as
filed with the Commission on February 10, 1993, as amended)
10.26* Amended and Restated Revolving Line of Credit and Reimbursement
Agreement dated October 13, 1993 by and between Chico's FAS, Inc,
and NationsBank of Florida, National Association (Filed as Exhibit
10.38 to the Company's Registration Statement on Form S-1 (File No.
33-70620) as filed with the Commission on October 21, 1993, as
amended)
10.27* Consolidated Amendment to Loan Documents dated as of October 13,
1993, by and between Chico's FAS, Inc., and NationsBank of Florida,
National Association (Filed as Exhibit 10.39 to the Company's
Registration Statement on Form S-1 (File No. 33-70620) as filed with
the Commission on October 21, 1993, as amended)
10.28* First Amendment to Amended and Restated Revolving Line of Credit and
Reimbursement Agreement dated December 20, 1993 by and between
Chico's FAS, Inc. and NationsBank of Florida, National Association
(Filed as Exhibit 10.43 to the Company's Form 10-K for the year
ended January 2, 1994, as filed with the Commission on April 1,
1994)
10.29* Second Amendment to Amended and Restated Revolving Line of Credit
and Reimbursement Agreement dated June 14, 1994 by and between
Chico's FAS, Inc., and NationsBank of Florida, National Association
(Filed as Exhibit 10.48 to the Company's Form 10-Q for the quarter
ended October 2, 1994, as filed with the Commission on November 15,
1994)
10.30* Third Amendment to Amended and Restated Revolving Line of Credit and
Reimbursement Agreement dated December 9, 1994 by and between
Chico's FAS, Inc., and NationsBank of Florida, National Association
(Filed as Exhibit 10.49 to the Company's Form 10-K for the year
ended January 1, 1995, as filed with the Commission on April 1,
1995)
10.31* Fourth Amendment to Amended and Restated Revolving Line of Credit
and Reimbursement Agreement dated February 14, 1995 by and between
Chico's FAS, Inc., and NationsBank of Florida,
25
<PAGE>
National Association (Filed as Exhibit 10.50 to the Company's Form
10-K for the year ended January 1, 1995, as filed with the
Commission on April 1, 1995)
10.32* Second Amended and Restated Credit Agreement dated September 28,
1995 by and between Chico's FAS, Inc. and NationsBank of Florida,
National Association (Filed as Exhibit 10.1 to the Company's Form
10-Q for the quarter ended October 1, 1995, as filed with the
Commission on November 13, 1995)
10.33* Third Amended and Restated Credit Agreement by and between Chico's
FAS, Inc. and NationsBank (South), N. A. (Filed as Exhibit 10.57 to
the Company's Form 10-K for the year ended December 31, 1995, as
filed with the Commission on April 1, 1996)
10.34* First Amendment to Third Amended and Restated Credit Agreement by
and between Chico's FAS, Inc. and NationsBank (South), N. A. (Filed
as Exhibit 10.7 to the Company's Form 10-Q for the quarter ended
September 29, 1996, as filed with the Commission on November 12,
1996)
10.35* Second Amendment to Third Amended and Restated Credit Agreement by
and between Chico's FAS, Inc. and NationsBank (South), N. A. (Filed
as Exhibit 10.49 to the Company's Form 10-K for the year ended
January 31, 1998, as filed with the Commission on April 27, 1998)
10.36* Third Amendment to Third Amended and Restated Credit Agreement dated
December 8, 1998 by and between Chico's FAS, Inc. and NationsBank
(South), N.A. (Filed as Exhibit 10.35 to the Company's Form 10-K for
the year ended January 30, 1999, as filed with the Commission on
April 28, 1999)
10.37* Loan Agreement dated January 4, 1996 by and between Chico's FAS,
Inc. and Founders National Trust Bank (Filed as Exhibit 10.58 to the
Company's Form 10-K for the year ended December 31, 1995, as filed
with the Commission on April 1, 1996)
10.38* Amendment to Loan Agreement dated December 8, 1998 by and between
Chico's FAS, Inc. and NationsBank (South), N.A. (Filed as Exhibit
10.37 to the Company's Form 10-K for the year ended January 30,
1999, as filed with the Commission on April 28, 1999)
10.39* Amendment and Restatement of the Chico's FAS, Inc. Profit Sharing
Plan (Filed as Exhibit 10.47 to the Company's Form 10-Q for the
quarter ended April 3, 1994, as filed with the Commission on May 9,
1994)
10.40* Nonemployee Stock Option Agreement by and between Chico's FAS, Inc.
and Verna K. Gibson dated May 13, 1997 (Filed as Exhibit 10.1 to the
Company's Form 10-Q for the quarter ended August 2, 1997, as filed
with the Commission on September 5, 1997)
10.41* Nonemployee Stock Option Agreement by and between Chico's FAS, Inc.
and Ross E. Roeder dated June 17, 1997 (Filed as Exhibit 10.2 to the
Company's Form 10-Q for the quarter ended August 2, 1997, as filed
with the Commission on September 5, 1997)
10.42* Nonemployee Stock Option Agreement by and between Chico's FAS, Inc.
and John W. Burden dated June 17, 1997 (Filed as Exhibit 10.3 to the
Company's Form 10-Q for the quarter ended August 2, 1997, as filed
with the Commission on September 5, 1997)
10.43* Nonemployee Stock Option Agreement by and between Chico's FAS, Inc.
and Verna K. Gibson dated June 17. 1997 (Filed as Exhibit 10.4 to
the Company's Form 10-Q for the quarter ended August 2, 1997, as
filed with the Commission on September 5, 1997)
26
<PAGE>
10.44* Nonemployee Stock Option Agreement by and between Chico's FAS, Inc.
and Ross E. Roeder dated February 10, 1998 (Filed as Exhibit 10.60
to the Company's Form 10-K for the year ended January 31, 1998, as
filed with the Commission on April 27, 1998)
10.45* Nonemployee Stock Option Agreement by and between Chico's FAS, Inc.
and John W. Burden dated February 10, 1998 (Filed as Exhibit 10.61
to the Company's Form 10-K for the year ended January 31, 1998, as
filed with the Commission on April 27, 1998)
10.46* Nonemployee Stock Option Agreement by and between Chico's FAS, Inc.
and Verna K. Gibson dated February 10, 1998 (Filed as Exhibit 10.62
to the Company's Form 10-K for the year ended January 31, 1998, as
filed with the Commission on April 27, 1998)
10.47* Nonemployee Stock Option Agreement by and between Chico's FAS, Inc.
and Ross E. Roeder dated June 9, 1998 (Filed as Exhibit 10.2 to the
Company's Form 10-Q for the quarter ended August 1, 1998, as filed
with the Commission on September 2, 1998)
10.48* Nonemployee Stock Option Agreement by and between Chico's FAS, Inc.
and John W. Burden dated June 9, 1998 (Filed as Exhibit 10.3 to the
Company's Form 10-Q for the quarter ended August 1, 1998, as filed
with the Commission on September 2, 1998)
10.49* Nonemployee Stock Option Agreement by and between Chico's FAS, Inc.
and Verna K. Gibson dated June 9, 1998 (Filed as Exhibit 10.1 to the
Company's Form 10-Q for the quarter ended August 1, 1998, as filed
with the Commission on September 2, 1998)
10.50* Non-Employee Directors Stock Option Plan (Filed as Exhibit 10.49 to
the Company's Form 10-K for the year ended January 30, 1999, as
filed with the Commission on April 28, 1999)
10.51 First Amendment to Chico's FAS, Inc. Non-Employee Directors Stock
Option Plan
13 Annual Report to Stockholders
22 Subsidiaries of Company
23 Consent to use of Report of Independent Certified Public Accountants
27 Financial Data Schedule
(b) Reports on Form 8-K
The company did not file any reports on Form 8-K during the fifty-two
weeks ended January 29, 2000.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CHICO'S FAS, INC.
<TABLE>
<CAPTION>
<S> <C> <C>
By: /s/ Marvin J. Gralnick April 25, 2000
---------------------- -----------------
MARVIN J. GRALNICK, Chief Executive Officer Date
and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Marvin J. Gralnick April 25, 2000
----------------------
-----------------
MARVIN J. GRALNICK, Chief Executive Officer, Date
President, Director
(principal executive officer)
/s/ Charles J. Kleman April 25, 2000
------------------------------------------------------------------ -----------------
CHARLES J. KLEMAN, Chief Financial Officer, Date
Director
(principal financial and accounting officer)
/s/ Helene B. Gralnick April 25, 2000
------------------------------------------------------------------ -----------------
HELENE B. GRALNICK, Senior Vice President - Date
Design and Concept and Director
/s/ Verna K. Gibson April 25, 2000
------------------------------------------------------------------ -----------------
VERNA K. GIBSON, Director Date
/s/ John W. Burden April 25, 2000
------------------------------------------------------------------ -----------------
JOHN W. BURDEN, Director Date
/s/ Ross E. Roeder April 25, 2000
------------------------------------------------------------------ -----------------
ROSS E. ROEDER, Director Date
</TABLE>
28
THIRD AMENDMENT TO CHICO'S FAS, INC.
1993 EMPLOYEE STOCK PURCHASE PLAN
WHEREAS, CHICO'S FAS, INC. (the "Company") has previously adopted the
Chico's FAS, Inc. 1993 Employee Stock Purchase Plan, a First Amendment thereto
and a Second Amendment thereto (collectively, the "Plan"); and
WHEREAS, pursuant to Section 8.4 of the Plan, the Company's Board of
Directors have retained the right to amend the Plan in certain respects without
the approval of the stockholders of the Company; and
WHEREAS, the Company's Board of Directors deems it advisable and in the
best interests of the Company and its stockholders to amend the Plan and has
determined that the amendment does not require the approval of the stockholders
of this Company.
NOW, THEREFORE, BE IT RESOLVED, that the Plan is hereby amended as
follows, effective upon the payment and distribution by the Company of the 2 for
1 stock split of its common stock approved and adopted by the Board of Directors
on December 14, 1999:
1. Section 5.3 (b) of the Plan is hereby amended in its entirety to read
as follows:
(b) In each offering, an Eligible Employee shall be entitled
to subscribe for a total number of shares of Common Stock equal to one
share for each One Hundred Twenty-Five Dollars ($125.00) of Compensation
paid to him for the calendar year immediately preceding the year in which
the offering occurs. However, no Eligible Employee shall be entitled to
subscribe in any offering to more than eight hundred (800) shares or (for
those Eligible Employees who are entitled to purchase at least ten (10)
shares) fewer than ten (10) shares. Notwithstanding the provisions of
Section 8.1, no stock adjustment referred to therein shall operate to
change from ten (10) the minimum number of shares required to be
subscribed for by an Eligible Employee in any offering in order for such
Eligible Employee to participate in such offering.
FOURTH AMENDMENT TO CHICO'S FAS, INC.
1993 EMPLOYEE STOCK PURCHASE PLAN
WHEREAS, CHICO'S FAS, INC. (the "Company") has previously adopted the
Chico's FAS, Inc. 1993 Employee Stock Purchase Plan, a First Amendment thereto,
a Second Amendment thereto and a Third Amendment thereto (collectively, the
"Plan"); and
WHEREAS, pursuant to Section 8.4 of the Plan, the Company's Board of
Directors has retained the right to amend the Plan in certain respects without
the approval of the stockholders of the Company; and
WHEREAS, the Company's Board of Directors deems it advisable and in the
best interests of the Company and its stockholders to amend the Plan to modify
the definition of Fair Market Value and to eliminate the provisions relating to
payroll deductions and has determined that the amendments do not require the
approval of the stockholders of this Company.
NOW, THEREFORE, BE IT RESOLVED, that the Plan is hereby amended as
follows:
1. Section 2.1 of the Plan is hereby amended in its entirety to read as
follows:
2.1 Reserved
2. Section 2.9 of the Plan is hereby amended in its entirety to read as
follows:
2.9 "Fair Market Value" of the shares of Common Stock shall
mean the closing price, on the date in question (or, if no shares
are traded on such day, on the next preceding day on which shares
were traded), of the Common Stock on the principal securities
exchange in the United States on which such stock is listed, or if
such stock is not listed on a securities exchange in the United
States, the closing price on such day in the over-the- counter
market as reported by the National Association of Security Dealers
Automated Quotation System (Nasdaq), or Nasdaq's successor, or if
not reported on Nasdaq, the fair market value of such stock as
determined by the Committee in good faith and based on all relevant
factors.
3. Article 7 of the Plan is hereby deleted in its entirety and amended to
read as follows:
ARTICLE 7
Reserved
FIRST AMENDMENT TO CHICO'S FAS, INC.
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
This First Amendment to the Chico's FAS, Inc. Non-Employee Directors'
Stock Option Plan, which effectively eliminates the ability to set the option
price at below fair market value, eliminates discretionary option grants from
the Plan, and requires stockholder approval of certain plan amendments, is
hereby adopted, the 20th day of August, 1999, but effective retroactive to the
date of initial adoption of the Non-Employee Directors' Stock Option Plan (i.e.
October 9, 1998), as follows:
1. Section 2.4 of the Plan is hereby amended in its entirety to read as
follows:
2.4 [Reserved]
2. Section 3.4 of the Plan is hereby amended in its entirety to read as
follows:
3.4 AMENDMENT OF THE PLAN; TERMINATION. The Board may, insofar
as permitted by law, from time to time, with respect to any shares
of Common Stock at the time not subject to Options, suspend,
discontinue or terminate the Plan or revise or amend it in any
respect whatsoever, except that, without approval of the
stockholders of the Company, no such revision or amendment shall
change the number of shares subject to the Plan, change the
designation of the class of persons eligible to receive Options,
decrease the price at which Options may be granted, otherwise
materially increase the benefits accruing to non-employee directors
under the Plan, or remove the administration of the Plan from the
Committee. The foregoing prohibitions shall not be affected by
adjustments in shares and purchase price made in accordance with the
provisions of Section 3.1.
[CHICO'S LOGO)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
ONE PRO FORMA
MONTH FISCAL YEAR
FISCAL YEAR PERIOD ENDED FISCAL YEAR ENDED
ENDED ENDING (UNAUDITED) ------------------------------------------------------
DECEMBER 31, JANUARY 28, JANUARY 28, FEBRUARY 1, JANUARY 31, JANUARY 30, JANUARY 29,
1995 1996 (1) 1996 (1) 1997 (1) 1998 1999, 2000
(52 WEEKS) (4 WEEKS) (52 WEEKS) (53 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS)
-------------- ------------- ------------ ------------- ------------- ------------- ------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net Sales .................... $ 60,343 $ 3,747 $ 60,763 $ 64,763 $ 75,339 $ 106,742 $ 155,002
Income (loss) from
Operations .................. 3,485 (524) 3,437 3,622 4,914 15,134 24,806
Net Income (loss) ............ 1,704 (338) 1,676 1,931 2,770 9,139 15,489
Basic Earnings (loss) Per
Share (2) ................... 0.11 (0.02) 0.11 0.12 0.18 0.56 0.91
Diluted Earnings (loss)
Per Share (2) ............... 0.11 (0.02) 0.10 0.12 0.17 0.54 0.88
OPERATING DATA :
Total Assets ................. $ 27,009 $ 27,681 $ 31,248 $ 34,472 $ 49,000 $ 70,316
Long-Term Debt ............... 5,896 7,231 7,008 6,703 6,713 6,839
Stockholder's Equity ......... 15,959 15,621 18,021 21,456 34,303 52,641
# of Stores (at end of period):
Company-owned ............... 111 111 123 132 154 191
Franchised .................. 12 12 10 9 8 9
--------- --------- --------- --------- --------- ---------- ----------
TOTAL ......................... 123 123 133 141 162 200
========= ========= ========= ========= ========= ========== ==========
</TABLE>
(1) In December 1996, the Company elected to change its fiscal year end,
effective January 29, 1996, from a 52/53 week fiscal year ending on the
Sunday closest to December 31st to a 52/53 week fiscal year ending on the
Saturday closest to January 31st. The selected financial data presents
financial results for, among other periods, the short one month transition
period in January 1996 and a pro forma fiscal year ended January 28, 1996.
(2) Restated to give retroactive effect for the 2 for 1 stock split payable in
January 2000.
INDEX
<TABLE>
<S> <C>
7 Management's Discussion & Analysis
14 Stock Information
15 Financial Statements
31 Executive Officers/Directors
32 Store Listing
</TABLE>
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Since the Company opened its first store in 1983 principally selling folk
art, its retail store system, now selling principally women's apparel, has
grown to 200 stores as of January 29, 2000 (fiscal 2000), of which 191 are
Company-owned stores and nine are franchised stores. Since fiscal 1989, the
Company has de-emphasized the granting of new franchises as a strategy for
growth and, at the same time, has been expanding its store base by opening
Company-owned stores. Where possible and practical, the Company has also
acquired stores from its franchisees. Since the beginning of fiscal 1995, the
Company has acquired nine stores from franchisees and opened 97 new
Company-owned stores, and one franchisee has opened two new franchised stores
in this period. Of these new Company-owned stores, 40 were opened in fiscal
2000, 22 were opened in fiscal 1999, 14 were opened in fiscal 1998, 13 were
opened in fiscal 1997 and 8 were opened in the pro forma fiscal year ended
January 28, 1996. During this same time period, the Company closed nine
Company-owned stores and one franchised store also closed. The Company plans to
open a minimum of 45 new Company-owned stores in the fiscal year ending
February 3, 2001 (fiscal 2001). In addition, the Company is evaluating certain
existing Company-owned store locations, including stores with leases coming up
for renewal, and is considering the possibility of closing between one and
three existing Company-owned stores in fiscal 2001.
RESULTS OF OPERATIONS
The following table sets forth, for each of the respective periods
indicated, certain operating statement data and the percentage of the Company's
net sales represented by each line item presented.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED (000'S)
-------------------------------------------------------------------------
JANUARY 31, JANUARY 30, JANUARY 29,
1998 1999 2000
(52 WEEKS) % (52 WEEKS) % (52 WEEKS) %
------------- ---------- ------------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales by company stores ............... $73,597 97.7% $104,981 98.4% $152,474 98.4%
Net sales to franchisees .................. 1,742 2.3 1,761 1.6 2,528 1.6
------- ----- -------- ----- -------- -----
Net sales ................................ 75,339 100.0 106,742 100.0 155,002 100.0
Cost of goods sold ........................ 33,240 44.1 44,197 41.4 64,950 41.9
------- ----- -------- ----- -------- -----
Gross profit ............................. 42,099 55.9 62,545 58.6 90,052 58.1
General, administrative and store operating
expenses ................................. 37,185 49.4 47,411 44.4 65,246 42.1
------- ----- -------- ----- -------- -----
Income from operations ................... 4,914 6.5 15,134 14.2 24,806 16.0
Interest expense, net ..................... 372 .5 151 .2 177 .1
------- ----- -------- ----- -------- -----
Income before taxes ...................... 4,542 6.0 14,983 14.0 24,983 16.1
Provision for income taxes ................ 1,772 2.3 5,844 5.4 9,494 6.1
------- ----- -------- ----- -------- -----
Net income ............................... $ 2,770 3.7% $ 9,139 8.6% $ 15,489 10.0%
======= ===== ======== ===== ======== =====
</TABLE>
FIFTY-TWO WEEKS ENDED JANUARY 29, 2000 COMPARED TO THE FIFTY-TWO WEEKS ENDED
JANUARY 30, 1999
NET SALES. Net sales by Company-owned stores for the fifty-two weeks ended
January 29, 2000 (fiscal 2000) increased by $47.5 million, or 45.2%, over net
sales by Company-owned stores for the comparable fifty-two weeks ended January
30, 1999 (fiscal 1999). The increase was the result of a comparable Company
store net sales increase of $23.7 million and $23.8 million additional sales
from
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
the new (or reacquired) stores not yet included in the Company's comparable
store base, net of sales of $2.3 million from five stores closed in fiscal 1999
and fiscal 2000 and exclusive of special liquidation sales.
Net sales to franchisees for fiscal 2000 increased by approximately
$768,000 or 43.6% compared to net sales to franchisees for fiscal 1999. The
increase in net sales to franchisees primarily reflects increased sales to
franchisees due to 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 fiscal 2000 was $90.1 million, or 58.1% of
net sales, compared with $62.5 million, or 58.6% of net sales, for fiscal 1999.
The decrease in the gross profit percentage primarily 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. To a lesser degree, the
decrease was the result of the mix of product which generally included a lower
average initial mark-up.
GENERAL, ADMINISTRATIVE AND STORE OPERATING EXPENSES. General,
administrative and store operating expenses increased to $65.2 million, or
42.1% of net sales, in fiscal 2000 from $47.4 million, or 44.4% of net sales,
in fiscal 1999. 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 23.3% comparable Company store net sales increase.
This decrease was partially offset by a .7% increase in marketing and promotion
costs.
INTEREST INCOME, NET. The Company had net interest income during fiscal
2000 of approximately $177,000 versus net interest expense of approximately
$151,000 in the prior period. The improvement to net interest income from net
interest expense was primarily a result of increased interest earnings during
fiscal 2000 resulting from the Company's increased overall cash position, as
well as improved yields related to its investments in marketable securities.
NET INCOME. As a result of the factors discussed above, net income
reflects an increase of 69.5% to $15.5 million in fiscal 2000 from net income
of $9.1 million in the prior period. The income tax provision represented an
effective rate of 38.0% for the current period and 39.0% 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 restructurings of the
Company's operations, net of a Federal income tax rate increase due to higher
earnings.
FIFTY-TWO WEEKS ENDED JANUARY 30, 1999 COMPARED TO THE FIFTY-TWO WEEKS ENDED
JANUARY 31, 1998.
NET SALES. Net sales by Company-owned stores for the fifty-two weeks ended
January 30, 1999 (fiscal 1999) increased by $31.3 million, or 42.6%, over net
sales by Company-owned stores for the comparable fifty-two weeks ended January
31, 1998 (fiscal 1998). The increase was the result of a
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
comparable Company store net sales increase of $21.1 million and $10.2 million
additional sales from the new (or reacquired) stores not yet included in the
Company's comparable store base (net of sales of $1.0 million from seven stores
closed in fiscal 1998 and fiscal 1999).
Net sales to franchisees for fiscal 1999 increased by approximately
$18,000, or 1.0% compared to net sales to franchisees for fiscal 1998. The
increase in net sales to franchisees primarily reflects increased sales to
franchisees due to the opening of one additional franchised location by an
existing franchisee and increased purchases by existing franchisees, net of
reduced sales attributable to the re-acquisition of three franchised stores in
fiscal 1998 and fiscal 1999.
GROSS PROFIT. Gross profit for fiscal 1999 was $62.5 million, or 58.6% of
net sales, compared with $42.1 million, or 55.9% of net sales, for fiscal 1998.
The increase in the gross profit percentage primarily resulted from merchandise
planning and distribution costs which decreased by 1% of net sales as a result
of leverage associated with the Company's 30.3% comparable Company store net
sales increase for fiscal 1999, and higher margins in its front-line stores as
a result of fewer and less aggressive markdowns believed to be attributable to
the Company's refocusing of its product development departments as described
more fully below under the heading "Comparable Company-Owned Store Net Sales."
To a lesser degree, this increase in the gross profit percentage was due to
decreased shipping costs to the Company's stores because of a change in common
carriers, 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 $47.4 million, or
44.4% of net sales, in fiscal 1999 from $37.2 million, or 49.4% of net sales,
in fiscal 1998. 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 in direct store costs, including
store compensation, associated with the Company's 30.3% comparable Company
store sales increase for fiscal 1999, net of an effective increase in general
and administrative costs attributable to the fact that administrative costs in
fiscal 1998 had reflected the benefit of certain business interruption
insurance proceeds related to the temporary closing of one of the Company's
stores.
INTEREST EXPENSE, NET. Net interest expense decreased to approximately
$151,000 in fiscal 1999 from approximately $372,000 in fiscal 1998. This
decrease was primarily a result of increased interest earnings during fiscal
1999 resulting from the Company's increased cash position.
NET INCOME. As a result of the factors discussed above, net income
reflects an increase of 237% to $9.1 million in fiscal 1999 from net income of
$2.8 million in fiscal 1998. The income tax provision represented an effective
rate of 39% for both the current and prior periods.
COMPARABLE COMPANY-OWNED STORE NET SALES
Comparable Company-owned store net sales increased by 23.3% for the
fifty-two weeks ended January 29, 2000 when compared to the comparable
fifty-two weeks of the previous period.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Comparable Company-owned 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-owned store
net sales resulted from a refocusing of the Company's product development;
merchandise planning and buying departments on Chico's target customer. The
Company also believes that the look, fit, timing of receipts and pricing policy
(including markdowns) of the Company's product were in line with the refocusing
effort and that the increase in comparable store sales was fueled by the launch
in February of 1999 of a new and modified "Passport Club" program. This new
"Passport Club" program allows the Company to track customer sales at the SKU
level through the use of newly licensed software, allows for mailings to
separate niches of customers and offers discounts and other benefits for
increased frequent shopping. The launch of the "Passport Club" resulted in
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 training
programs, continuing sales associated with several styles of clothing produced
from a group of fabrics newly introduced by the Company beginning in the fourth
quarter of fiscal 1998, and the increases were further fueled by a limited
national magazine advertising program done for the first time in the fourth
quarter of fiscal 2000. Clothing, which utilizes the newly introduced group of
fabrics, represented approximately 27% of net apparel sales in fiscal 2000,
compared to approximately 21% of net apparel sales in 1999.
The "Passport Club", which had approximately 25,000 members accounting for
approximately 10% of sales in February 1999, has over 100,000 members which
currently account for 45-49% of sales. The club offers a 5% discount on all
future purchases after the customer has spent an aggregate of $500 at Chico's.
In addition, the Company has over 300,000 "temporary" members who have signed
up to join the club, but have not yet spent the required $500 to become a
permanent member. The temporary members account for over 30% of sales and do
not yet qualify for the 5% discount. The Company offers the substantial
discount because it believes the Passport members shop more frequently and
spend more on each transaction than do the non-passport members. The Company
further believes the Passport Club, combined with national magazine
advertising, is adding significant incremental sales to its stores, promoting
its brand name and developing a loyal customer base.
The following table sets forth for each of the four quarters of fiscal
2000, 1999 and 1998, the percentage change in comparable store net sales at
Company-owned stores from the previous period:
<TABLE>
<CAPTION>
FISCAL QUARTERS
--------------------------------------------------------------
FULL YEAR 1ST QTR 2ND QTR 3RD QTR 4TH QTR
----------- ----------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Fiscal year ended 1/29/00 23.3% 22.6% 17.2% 26.9% 26.5%
Fiscal year ended 1/30/99 30.3% 31.7% 23.0% 28.5% 30.4%
Fiscal year ended 1/31/98 10.7% (1.1)% 13.3% 12.0% 20.1%
</TABLE>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary ongoing capital requirements are for funding capital
expenditures 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 chain-wide roll out of new point-of-sale devices
beginning in the second quarter of fiscal 2001 and the development of
infrastructure, including internal call and fulfillment centers, to support the
Company's planned expansion into catalog and Internet sales.
During the current fiscal year (fiscal 2000) and the prior fiscal year
(fiscal 1999), the Company's primary source of working capital was cash flow
from operations of $16.0 million and $12.3 million, respectively. The increase
in cash flow from operations of $3.7 million was primarily due to an increase
of $6.4 million in net income, and an increase of $1.3 million in the growth
rate of accounts payable and accrued liabilities, offset by an increase in
inventories of $4.7 million in the current fiscal year, versus an inventory
increase of approximately $580,000 in the prior fiscal year. 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 inventory purchase activities to support the Company's significant
sales increases.
The Company invested $15.2 million in the current fiscal year for capital
expenditures primarily associated with the opening of 40 new Company stores,
and the remodeling/relocating/expansion of numerous existing stores. Since the
Company is now seeking stores in the 1,800-2,000 net selling square foot range
(versus 1,458 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 fiscal year, the
Company invested $5.0 million for capital expenditures associated with the
opening of 24 new (or reacquired) Company stores, and the remodeling of several
existing stores.
During the current fiscal year, the Company invested $14.0 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 fiscal year, 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 fiscal 2000, four of the Company's officers and two of its
directors exercised 176,996 stock options at prices ranging from $1.63 to $4.63
and several employees and former employees exercised 96,350 options at prices
ranging from $1.63 to $6.00. Also during the current period, the Company sold
69,158 shares of common stock under its employee stock purchase plan at prices
of $10.71 and $13.28. The proceeds from these issuances of stock, together with
the tax benefit recognized by the Company from the exercise of the stock
options, amounted to approximately $2.9 million. All per share amounts and
price have been restated to give retroactive effect for the 2 for 1 stock split
in January 2000.
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
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
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 45 new stores in fiscal 2001, four
of which were open as of March 31, 2000. The Company is also in the initial
building stage for a 32,000 square foot expansion of the office and design
facilities at its headquarters site, is preparing to rollout new point-of-sale
devices in all of its stores, is building out its call center and fulfillment
facilities to assist in catalog and Internet sales and is also continuing with
various other 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 and marketable securities 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.
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 annual report 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,
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
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 have failed or produced erroneous results when processing dates
after December 31, 1999. The year 2000 issue had some impact on virtually all
companies and organizations including Chico's.
Chico's did not experience any significant systems or other year 2000
problems and there has been no material change in total costs. Further, Chico's
does not anticipate any additional costs and does not anticipate the need to
further address the year 2000 issue.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk of the Company's financial instruments as of January 29,
2000 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 in part to its revolving line of credit with its bank; however, as
of January 29, 2000, 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.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
TRADING AND DIVIDEND INFORMATION
The following table sets forth, for the periods indicated, the range of
high and low closing sale prices for the Common Stock, as reported on the
Nasdaq National Market System.
<TABLE>
<CAPTION>
HIGH(1) LOW(1)
----------- -----------
<S> <C> <C>
For the Fiscal Year Ended January 29, 2000
Fourth Quarter (October 31, 1999 -- January 29, 2000) $ 22.38 $ 13.69
Third Quarter (August 1, 1999 -- October 30, 1999) 17.50 9.34
Second Quarter (May 2, 1999 -- July 31, 1999) 14.88 10.56
First Quarter (January 31, 1999 -- May 1, 1999) 16.31 8.81
For the Fiscal Year Ended January 30, 1999
Fourth Quarter (November 1, 1998 -- January 30, 1999) $ 14.00 $ 7.75
Third Quarter (August 2, 1998 -- October 31, 1998) 8.82 5.00
Second Quarter (May 3, 1998 -- August 1, 1998) 9.00 4.69
First Quarter (February 1, 1998 -- May 2, 1998) 5.00 3.19
</TABLE>
(1) Adjusted for the 2 for 1 stock split distributed on January 14, 2000 to
stockholders of record on December 27, 1999.
The Company does not intend to pay any cash dividends for the foreseeable
future and intends to retain earnings, if any, for the future operation and
expansion of the Company's business. Any determination to pay dividends in the
future will be at the discretion of the Company's Board of Directors and will
be dependent upon the Company's results of operations, financial condition,
contractual restrictions and other factors deemed relevant by the Board of
Directors.
The approximate number of equity security holders of the Company is as
follows:
<TABLE>
<CAPTION>
Number of Record Holders
Title of Class As of March 31, 2000
- -------------------------------------------------------- ---------------------
<S> <C>
Common Stock, par value $.01 per share ......... 417
</TABLE>
14
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO CHICO'S FAS, INC. AND SUBSIDIARIES:
We have audited the accompanying consolidated balance sheets of Chico's FAS,
Inc. (a Florida corporation) and subsidiaries as of January 29, 2000, and
January 30, 1999, and the related consolidated statements of income,
stockholders' equity and cash flows for the fiscal years ended January 29,
2000, January 30, 1999, and January 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Chico's FAS, Inc. and
subsidiaries as of January 29, 2000, and January 30, 1999, and the results of
their operations and their cash flows for the fiscal years ended January 29,
2000, January 30, 1999, and January 31, 1998, in conformity with accounting
principles generally accepted in the United States.
/s/ Arthur Andersen LLP
Tampa, Florida,
February 25, 2000
15
<PAGE>
CHICO'S FAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
2000 1999
---------------- ---------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................. $ 3,980,930 $ 14,484,776
Marketable securities ................................................. 13,995,527 --
Receivables, less allowances of $93,000 and $90,000 for sales returns,
respectively ......................................................... 1,706,661 1,149,078
Inventories ........................................................... 14,834,800 10,105,153
Prepaid expenses ...................................................... 668,695 510,885
Deferred taxes ........................................................ 2,038,000 1,586,000
------------ ------------
Total current assets ................................................ 37,224,613 27,835,892
PROPERTY AND EQUIPMENT, net ............................................ 31,344,997 19,665,261
DEFERRED TAXES ......................................................... 1,106,000 812,000
OTHER ASSETS, net ...................................................... 640,211 686,923
------------ ------------
$ 70,315,821 $ 49,000,076
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ...................................................... $ 5,982,684 $ 3,995,123
Accrued liabilities ................................................... 4,593,104 3,679,355
Current portion of debt and lease obligations ......................... 260,111 309,520
------------ ------------
Total current liabilities ........................................... 10,835,899 7,983,998
DEBT AND LEASE OBLIGATIONS, excluding current portion .................. 6,839,180 6,713,045
------------ ------------
Total liabilities ................................................... 17,675,079 14,697,043
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 50,000,000 shares authorized and
17,128,536 and 16,786,032 shares issued and outstanding, respectively 171,285 167,860
Additional paid-in capital ............................................ 14,709,238 11,840,000
Retained earnings ..................................................... 37,784,553 22,295,173
Accumulated other comprehensive loss .................................. (24,334) --
------------ ------------
Total stockholders' equity .......................................... 52,640,742 34,303,033
------------ ------------
$ 70,315,821 $ 49,000,076
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
16
<PAGE>
CHICO'S FAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
----------------- --------------- ---------------
<S> <C> <C> <C>
NET SALES BY COMPANY STORES ....................... $ 152,473,637 $104,981,219 $ 73,596,969
NET SALES TO FRANCHISEES .......................... 2,528,644 1,760,374 1,742,183
------------- ------------ ------------
Net sales ....................................... 155,002,281 106,741,593 75,339,152
COST OF GOODS SOLD ................................ 64,949,930 44,196,426 33,240,162
------------- ------------ ------------
Gross profit .................................... 90,052,351 62,545,167 42,098,990
GENERAL, ADMINISTRATIVE AND STORE OPERATING
EXPENSES .......................................... 65,246,577 47,411,057 37,184,671
------------- ------------ ------------
Income from operations .......................... 24,805,774 15,134,110 4,914,319
INTEREST INCOME (EXPENSE), net .................... 177,606 (151,002) (372,303)
------------- ------------ ------------
Income before income taxes ...................... 24,983,380 14,983,108 4,542,016
INCOME TAX PROVISION .............................. 9,494,000 5,844,000 1,772,000
------------- ------------ ------------
Net income ...................................... $ 15,489,380 $ 9,139,108 $ 2,770,016
============= ============ ============
PER SHARE DATA:
NET INCOME PER COMMON SHARE [0096] BASIC ......... $ .91 $ .56 $ .18
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE -- DILUTED .................... $ .88 $ .54 $ .17
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING -- BASIC ........................... 16,942,233 16,335,518 15,824,252
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING -- DILUTED .................. 17,681,038 17,059,792 16,065,742
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
17
<PAGE>
CHICO'S FAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
------------------------- ADDITIONAL OTHER
PAR PAID-IN RETAINED COMPREHENSIVE
SHARES VALUE CAPITAL EARNINGS LOSS TOTAL
------------ ------------ -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, February 1, 1997 .......... 15,768,236 $ 157,682 $ 7,476,867 $ 10,386,049 $ -- $ 18,020,598
Net income for the fiscal year
ended January 31, 1998 ........... -- -- -- 2,770,016 -- 2,770,016
Issuance of common stock .......... 254,398 2,544 508,727 -- -- 511,271
Tax benefit of stock options
exercised ....................... -- -- 154,000 -- -- 154,000
---------- --------- ----------- ------------ ---------- ------------
BALANCE, JANUARY 31, 1998 .......... 16,022,634 160,226 8,139,594 13,156,065 -- 21,455,885
Net income for the fiscal year
ended January 30, 1999 .......... -- -- -- 9,139,108 -- 9,139,108
Issuance of common stock .......... 763,398 7,634 2,205,406 -- -- 2,213,040
Tax benefit of stock options
exercised ....................... -- -- 1,495,000 -- -- 1,495,000
---------- --------- ----------- ------------ ---------- ------------
BALANCE, JANUARY 30, 1999 .......... 16,786,032 167,860 11,840,000 22,295,173 -- 34,303,033
Net income for the fiscal year
ended January 29, 2000 .......... -- -- -- 15,489,380 -- 15,489,380
Unrealized loss on marketable
securities, net ................. -- -- -- -- (24,334) (24,334)
Comprehensive income ............ 15,465,046
Issuance of common stock .......... 342,504 3,425 1,745,238 -- -- 1,748,663
Tax benefit of stock options
exercised ....................... -- -- 1,124,000 -- -- 1,124,000
---------- --------- ----------- ------------ ---------- ------------
BALANCE, JANUARY 29, 2000 .......... 17,128,536 $ 171,285 $14,709,238 $ 37,784,553 $ (24,334) $ 52,640,742
========== ========= =========== ============ ========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
18
<PAGE>
CHICO'S FAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
-------------------- ------------------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .............................................. $ 15,489,380 $ 9,139,108 $ 2,770,016
------------- ------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities -- Depreciation
and amortization ...................................... 3,307,539 2,407,799 2,114,146
Deferred tax (benefit) provision ....................... (746,000) (588,000) 32,000
Deferred rent expense, net ............................. 238,498 216,978 129,712
Loss from disposal of property and equipment ........... 354,498 195,027 317,206
(Increase) decrease in assets -- Receivables ........... (557,583) (254,183) (131,444)
Inventories ............................................ (4,729,647) (579,681) (1,680,110)
Prepaid expenses ....................................... (157,810) 156,260 (193,700)
Other assets ........................................... (125,270) (46,418) (40,180)
Increase in liabilities -- Accounts payable ............. 1,987,561 474,858 218,275
Accrued liabilities .................................... 913,749 1,138,980 79,349
------------- ------------ ------------
Total adjustments ..................................... 485,535 3,121,620 845,254
------------- ------------ ------------
Net cash provided by operating activities ............. 15,974,915 12,260,728 3,615,270
------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Redemption of certificate of deposit .................... -- 1,000,000 600,000
Purchase of marketable securities ....................... (14,019,861) -- --
Purchases of property and equipment ..................... (15,169,791) (5,045,809) (2,010,618)
Proceeds from sale of property and equipment ............ -- -- 34,500
------------- ------------ ------------
Net cash used in investing activities .................. (29,189,652) (4,045,809) (1,376,118)
------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net ............. 2,872,663 3,708,040 665,271
Net payments under line of credit agreement ............. -- -- (284,919)
Principal payments on debt .............................. (72,000) (72,000) (265,872)
Principal payments on capital lease obligations ......... (89,772) (77,404) (88,374)
Deferred finance costs .................................. -- (232,695) (153,518)
------------- ------------ ------------
Net cash provided by (used in) financing activities 2,710,891 3,325,941 (127,412)
------------- ------------ ------------
Net (decrease) increase in cash and cash
equivalents .......................................... (10,503,846) 11,540,860 2,111,740
CASH AND CASH EQUIVALENTS,
Beginning of period ..................................... 14,484,776 2,943,916 832,176
------------- ------------ ------------
CASH AND CASH EQUIVALENTS,
End of period ........................................... $ 3,980,930 $ 14,484,776 $ 2,943,916
============= ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest .................................. $ 566,205 $ 611,238 $ 609,956
Income taxes ............................................ $ 9,409,705 $ 4,873,065 $ 1,757,259
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
19
<PAGE>
CHICO'S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 29, 2000
1. BUSINESS ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS ORGANIZATION
The accompanying consolidated financial statements include the accounts of
Chico's FAS, Inc., a Florida corporation, and its wholly-owned subsidiaries,
Chico's Distribution, Inc., Chico's Concept, Inc. and Chico's Media, Inc.
(collectively, the Company). The subsidiaries were formed in February 1999. The
Company operates in one business segment as a specialty retailer of exclusively
designed, private label casual clothing and related accessories. As of January
29, 2000, the Company's retail store system consisted of 200 stores located
throughout the United States, 191 of which were owned and operated by the
Company, and nine of which were owned and operated by franchisees.
FRANCHISE OPERATIONS
A summary of the changes in the number of the Company's franchise stores as
compared to total company-owned stores as of January 29, 2000, and January 30,
1999, and for the fiscal years then ended is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED
JANUARY 29, JANUARY 30,
2000 1999
-------------------- ------------------
<S> <C> <C>
Franchise stores opened .................................. 1 1
Franchise stores purchased from franchisees .............. -- 2
Franchise stores in operation at fiscal year-end ......... 9 8
Company-owned stores at fiscal year-end .................. 191 154
</TABLE>
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand and in banks with original
maturities of three months or less.
20
<PAGE>
MARKETABLE SECURITIES
Marketable securities are classified as available-for-sale securities, as
defined by Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115),
and are carried at fair value, with the unrealized holding gains and losses,
net of income taxes, reflected as a separate component of stockholders' equity
until realized. For the purposes of computing realized and unrealized gains and
losses, cost is identified on a specific identification basis.
INVENTORIES
Raw material inventories of approximately $2,117,000 and $639,000 as of January
29, 2000, and January 30, 1999, respectively, are recorded at the lower of
cost, using the first-in, first-out (FIFO) method, or market. All other
inventories consist of finished clothing and accessories and are recorded at
the lower of cost, using the last-in, first-out (LIFO) method, or market. If
the lower of FIFO or market method had been used, inventories would have been
approximately $586,000 and $360,000 higher at January 29, 2000, and January 30,
1999, respectively, than those reported in the accompanying consolidated
balance sheets. Purchasing, distribution and design costs are expensed as
incurred, and are included in the accompanying consolidated statements of
income as cost of goods sold.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Fixtures manufactured and leasehold
improvements constructed by the Company are recorded at cost, which includes
elements of raw materials, labor and overhead. Depreciation of property and
equipment is provided on a straight-line basis over the estimated useful lives
of the assets. Assets acquired under capital lease obligations and leasehold
improvements are depreciated over the lesser of the useful lives of the assets
or the lease terms. Maintenance and repairs of property and equipment are
expensed as incurred, and major improvements are capitalized.
Upon retirement, sale or other disposition of property and equipment, the cost
and accumulated depreciation or amortization are eliminated from the accounts,
and any gain or loss is charged to operations.
OTHER ASSETS
Included in other assets are intangible assets which include legal and other
costs of obtaining the Company's trademark and debt financing agreements,
territory rights agreements related to franchise repurchases and franchise
cancellation fees for stores that were acquired by the Company, and are
currently in operation as company-owned stores. Trademark costs and non-compete
agreements are being amortized on a straight-line basis over ten and five
years, respectively; debt-financing costs are being amortized over the term of
the respective debt agreement; and franchise cancellation fees are being
amortized over the remaining terms of the related facilities' leases.
Intangible assets, net of accumulated amortization, are approximately $249,000
and $421,000 as of January 29, 2000, and January 30, 1999, respectively.
21
<PAGE>
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets, including identifiable intangibles, are reviewed
periodically for impairment if events or changes in circumstances indicate that
the carrying amount should be addressed. The Company has determined that there
has been no impairment in the carrying value of long-lived assets, as of
January 29, 2000.
INCOME TAXES
The Company follows the liability method, which establishes deferred tax assets
and liabilities for the temporary differences between the financial reporting
bases and the tax bases of the Company's assets and liabilities at enacted tax
rates expected to be in effect when such amounts are realized or settled. Net
deferred tax assets, whose realization is dependent on taxable earnings of
future years, are recognized when a greater than 50 percent probability exists
that the tax benefits will actually be realized sometime in the future.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The book value of all financial instruments approximates their fair market
value as of January 29, 2000.
REVENUE RECOGNITION
Net sales by Company stores includes sales made to retail customers during the
period, net of estimated customer returns. Net sales to franchisees includes
merchandise sold to franchisees, net of estimated returns.
STORE PRE-OPENING COSTS
Operating costs (including store set-up, rent and training expenses) incurred
prior to the opening of new stores are expensed as incurred and are included in
general, administrative and store operating expenses in the accompanying
consolidated statements of income.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
During the fiscal year ended January 31, 1998, the Company adopted SFAS No.
128, "Earnings per Share" (SFAS 128). SFAS 128 establishes new standards for
computing and presenting earnings per share (EPS). Specifically, SFAS 128
replaces the presentation of primary EPS with a presentation of basic EPS,
requires dual presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. Basic EPS is
based upon the weighted average number of common shares outstanding and diluted
EPS is based upon the weighted average number of common shares outstanding plus
the dilutive common equivalent shares outstanding during the period. As a
result of Chico's FAS, Inc.'s two-for-one common stock split (the Stock Split),
effective in January 2000, the Company has retroactively restated prior years'
EPS (see Note 9).
22
<PAGE>
The following is a reconciliation of the denominators of the basic and diluted
EPS computations shown on the face of the accompanying consolidated statements
of income as restated for the Stock Split:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
-------------------- ------------------- ------------------
<S> <C> <C> <C>
Weighted average common shares outstanding - basic ..... 16,942,233 16,335,518 15,824,252
Dilutive effect of options outstanding ................. 738,805 724,274 241,490
---------- ---------- ----------
Weighted average common and common equivalent
shares outstanding -- diluted ......................... 17,681,038 17,059,792 16,065,742
========== ========== ==========
</TABLE>
The following options were outstanding as of the end of the fiscal years but
were not included in the computation of diluted EPS because the options'
exercise prices were greater than the average market price of the common
shares:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
-------------------- ---------------------- -------------------
<S> <C> <C> <C>
Number of options 11,459 4,000 836,408
Exercise price $ 16.63 $ 11.53-$13.13 $2.75 - $6.00
Expiration date October 25, 2009 December 21, 2008 - March 31, 2003 -
January 6, 2009 Sept. 21, 2007
</TABLE>
2. MARKETABLE SECURITIES:
Marketable securities classified as available-for-sale consisted of the
following as of January 29, 2000:
<TABLE>
<CAPTION>
MUNICIPAL
BONDS
---------------
<S> <C>
Cost .................... $ 14,019,861
Fair value .............. 13,995,527
Unrealized loss ......... $ 24,334
</TABLE>
No realized gains or losses were recognized on sales of the Company's
marketable securities during the fiscal year ended January 29, 2000. At January
29, 2000, approximately 39 percent of the Company's marketable securities
mature within one year and substantially all of the remainder within three
years.
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
ESTIMATED JANUARY 29, JANUARY 30,
0 USEFUL LIVES 2000 1999
---------------- ---------------- --------------
<S> <C> <C> <C>
Land ..................................................... $ 1,039,904 $ 1,039,904
Land improvements ........................................ 35 years 1,790,761 1,785,161
Building ................................................. 20 - 35 years 6,321,714 6,273,250
Equipment ................................................ 2 - 10 years 5,633,770 4,213,678
Furniture and fixtures ................................... 3 - 10 years 7,057,023 4,268,966
Leasehold improvements ................................... 1 - 10 years 19,373,988 10,086,055
------------ ------------
41,217,160 27,667,014
Less-- Accumulated depreciation and amortization ......... (9,872,163) (8,001,753)
------------ ------------
$ 31,344,997 $ 19,665,261
============ ============
</TABLE>
23
<PAGE>
Assets acquired under capital lease obligations with a cost of approximately
$488,000 and accumulated depreciation of approximately $456,000 are included in
equipment as of January 30, 1999. The Company disposed of these assets during
the fiscal year ended January 29, 2000.
4. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
2000 1999
-------------- --------------
<S> <C> <C>
Accrued payroll, bonuses and severance costs ......... $ 2,002,931 $ 1,759,928
Allowance for estimated merchandise returns .......... 1,698,000 1,065,000
Other ................................................ 892,173 854,427
----------- -----------
$ 4,593,104 $ 3,679,355
=========== ===========
</TABLE>
5. INCOME TAXES:
The Company's total income tax provision consisted of the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
-------------------- ------------------- ------------------
<S> <C> <C> <C>
Current:
Federal ............................ $ 9,176,000 $ 5,080,000 $ 1,378,000
State .............................. 1,064,000 1,352,000 362,000
Deferred:
Federal ............................ (635,000) (462,000) 24,000
State .............................. (111,000) (126,000) 8,000
----------- ----------- -----------
Total income tax provision ......... $ 9,494,000 $ 5,844,000 $ 1,772,000
=========== =========== ===========
</TABLE>
The reconciliation of the income tax provision based on the U.S. statutory
federal income tax rate (35 percent) to the Company's income tax provision is
as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
-------------------- ------------------- ------------------
<S> <C> <C> <C>
Tax expense at the statutory rate ............................ $ 8,744,000 $ 5,094,000 $ 1,544,000
State income tax expense, net of federal tax benefit ......... 633,000 769,000 225,000
Other ........................................................ 117,000 (19,000) 3,000
----------- ----------- -----------
Total income tax provision ................................... $ 9,494,000 $ 5,844,000 $ 1,772,000
=========== =========== ===========
</TABLE>
24
<PAGE>
Deferred tax assets are recorded due to different carrying amounts for
financial and income tax reporting purposes arising from cumulative temporary
differences. These differences consisted of the following as of January 29,
2000, and January 30, 1999:
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
2000 1999
-------------- --------------
<S> <C> <C>
Accruals and allowances ................. $ 1,866,000 $ 1,480,000
Inventories ............................. 940,000 828,000
Property and equipment .................. 423,000 243,000
Net operating loss carryforward ......... 85,000 117,000
----------- -----------
3,314,000 2,668,000
Less -- Valuation allowance ............. (170,000) (270,000)
----------- -----------
$ 3,144,000 $ 2,398,000
=========== ===========
</TABLE>
Approximately $449,000 of a net operating loss (NOL) for tax reporting purposes
can be carried forward ratably for the six subsequent fiscal years following
the fiscal year ended February 1, 1997. The remaining NOL carryforward was
approximately $224,000 as of January 29, 2000. A valuation allowance of
$100,000 was reversed during the fiscal year ended January 29, 2000, partly due
to the utilization of a portion of the NOL carryforwards.
6. DEBT AND LEASE OBLIGATIONS:
Debt and lease obligations consisted of the following:
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
2000 1999
-------------- ---------------
<S> <C> <C>
Line of credit (the Line), variable borrowing capability of up to $6 million,
depending on inventory levels and the amount of outstanding
commercial letters of credit (Note 8), interest payable at prime
(8.5%percent as of January 29, 2000), secured by substantially all of
the Company's assets other than land, land improvements and
building, maturing in May 2000 ............................................. $ -- $ --
Mortgage note secured by a first priority mortgage on land, land
improvements, building and certain equipment ............................... 5,293,500 5,365,500
Obligations under capital leases, imputed interest rate of 5.9 percent,
secured by equipment, varying monthly payments of principal and
interest, matured September 1999 ........................................... -- 89,772
Deferred rent ............................................................... 1,805,791 1,567,293
----------- -----------
Total debt and capital lease obligations .................................... 7,099,291 7,022,565
Less -- Current portion ..................................................... (260,111) (309,520)
----------- -----------
$ 6,839,180 $ 6,713,045
</TABLE>
The mortgage note (the Mortgage Note) was financed with a bank, bearing
interest at the bank's prime rate plus .5 percent. The Mortgage Note is payable
in 84 monthly installments of $6,000, plus accrued interest, through January
2003, at which time the remaining principal balance is due. On October 14,
1997, an interest rate swap (the Swap) with a notional principal amount of
approximately $5,462,000 was effectuated, whereby the interest at the bank's
prime rate plus .5 percent was exchanged for a fixed rate of 9 percent of the
outstanding principal of the Mortgage Note. The Company incurred no additional
costs associated with the Swap during the fiscal year ended January 30, 1999.
The Company bought out the Swap during the fiscal year ended January 29, 2000,
for approximately $8,000, which is included in general, administrative and
store operating expenses in the accompanying consolidated statements of income.
25
<PAGE>
As of January 31, 1998, a $1,000,000 certificate of deposit (the CD) was held
at the bank to secure the Line. During the fiscal year ended January 30, 1999,
the bank waived the CD requirement and the CD was redeemed. Management intends
to refinance the Line during the fiscal year ended February 3, 2001.
The Line and the Mortgage Note contain certain covenants requiring, among other
things, approval of acquisitions of businesses and maintenance of specified
tangible net worth, working capital, debt to equity and debt service coverage
ratios. As of January 29, 2000, the Company was in compliance with all
covenants under these agreements.
Deferred rent represents the difference between actual operating lease
obligations due and operating lease expense, which is recorded by the Company
on a straight-line basis over the terms of its leases. Maturities of the
Mortgage Note are as follows as of January 29, 2000:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING AMOUNT
- -------------------- --------------
<S> <C>
2001 ............. $ 72,000
2002 ............. 72,000
2003 ............. 5,149,500
-----------
$ 5,293,500
===========
</TABLE>
7. RELATED PARTY TRANSACTIONS:
Certain officers have entered into agreements with the Company which provide
for base salaries, annual bonuses and certain severance benefits in the event
that their employment is terminated by the Company "without cause" or following
a "change of control" of the Company.
8. COMMITMENTS AND CONTINGENCIES:
The Company leases retail store space and various office equipment under
operating leases expiring in various years through 2012. Certain of the leases
provide that the Company may cancel the lease if the Company's retail sales at
that location fall below an established level, while certain leases provide for
additional rent payments to be made when sales exceed a base amount. Certain
operating leases provide for renewal options for periods from three to five
years at their fair rental value at the time of renewal. In the normal course
of business, operating leases are generally renewed or replaced by other
leases.
Minimum future rental payments under noncancellable operating leases (including
leases with certain minimum sales cancellation clauses described below and
exclusive of common area maintenance charges and/or contingent rental payments
based on sales) as of January 29, 2000, were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING AMOUNT
- ------------------------ ---------------
<S> <C>
2001 ................. $ 11,676,248
2002 ................. 10,745,821
2003 ................. 9,567,695
2004 ................. 8,417,435
2005 ................. 6,701,853
Thereafter ........... 17,717,227
------------
$ 64,826,279
============
</TABLE>
26
<PAGE>
A majority of the Company's store operating leases contain cancellation clauses
that allow the leases to be terminated at the Company's discretion, if certain
minimum sales levels are not met within the first few years of the lease term.
The Company has not historically exercised many of these cancellation clauses
and, therefore, has included the full lease terms of such leases in the above
table. For the fiscal years ended January 29, 2000, January 30, 1999, and
January 31, 1998, total rent expense under the Company's operating leases was
$14,842,529, $11,332,480 and $9,728,207, respectively, including common area
maintenance charges of $1,826,986, $1,480,176 and $1,328,466, other rental
charges of $1,927,743, $1,637,276 and $1,469,512, and contingent rental expense
of $1,084,362, $425,859 and $140,523, based on sales, respectively.
At January 29, 2000, the Company had approximately $4,260,000 in commercial
letters of credit outstanding, which have arisen in the normal course of
business due to foreign purchase commitments. The commercial letters of credit
are secured by the same assets as the Line (see Note 6).
The Company is involved in claims and actions arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
the ultimate disposition of these matters is not expected to have a material
adverse effect on the financial position of the Company.
9. STOCK OPTION PLANS AND CAPITAL STOCK TRANSACTIONS:
1992 STOCK OPTION PLAN
During fiscal year 1992, the Company adopted a stock option plan (the 1992
Plan), which reserved 1,097,600 shares (restated) of common stock for future
issuance under the 1992 Plan to eligible employees of the Company. The per
share exercise price of each stock option is not less than the fair market
value of the stock on the date of grant or, in the case of an employee owning
more than 10 percent of the outstanding stock of the Company and to the extent
incentive stock options, as opposed to nonqualified stock options, are issued,
the price is not less than 110 percent of such fair market value. Also, the
aggregate fair market value of the stock with respect to which incentive stock
options are exercisable for the first time by an employee in any calendar year
may not exceed $100,000. Options granted under the terms of the 1992 Plan
generally vest evenly over three years and have a 10-year term. As of January
29, 2000, approximately 397,000 nonqualified options were outstanding and
approximately 697,000 had been exercised under the 1992 Plan.
1993 STOCK OPTION PLAN
During fiscal year 1993, the Company adopted a stock option plan (the 1993
Plan), which reserved 1,360,000 shares (restated) of common stock for future
issuance under the 1993 Plan to eligible employees of the Company. During the
fiscal year ended January 29, 2000, the Board of Directors amended the Plan to
increase the aggregate number of shares available for purchase by 1,000,000.
The terms of the 1993 Plan are essentially the same as the 1992 Plan. As of
January 29, 2000, approximately 1,106,000 nonqualified options were outstanding
and 398,000 had been exercised under the 1993 Plan.
OTHER STOCK OPTIONS
In October 1998, the Board of Directors (the Board) approved a stock option
plan (the Independent Directors' Plan) which reserved 300,000 shares (restated)
of common stock for future issuance to eligible independent directors of the
Company. Options granted under the terms of the Independent
27
<PAGE>
Directors' Plan vest after six months and have a 10-year term. As of January
29, 2000, 60,000 shares had been granted under the Independent Directors' Plan.
Since 1993 and prior to adoption of the Independent Directors' Plan, four
independent directors of the Company had been granted a total of 394,000
nonqualified options (restated) through individual grants at exercise prices
ranging from $1.63 to $13.56. As of January 29, 2000, 212,000 of these
individual grant nonqualified options were outstanding and 242,000 had been
exercised.
AGGREGATE STOCK OPTION ACTIVITY
As of January 29, 2000, 1,715,958 nonqualified options (restated) were
outstanding at a weighted average exercise price of $5.14 per share, and
1,098,182 remained available for future grants. Of the options outstanding,
1,023,677 options were exercisable. The Company recognized no compensation
expense for these options.
Stock option activity for the fiscal years ended January 29, 2000, January 30,
1999, and January 31, 1998, was as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
JANUARY 29, 2000 JANUARY 30, 1999 JANUARY 31, 1998
------------------------- ------------------------- ------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------------- ----------- ------------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of period ......... 1,605,306 $ 3.02 1,955,554 $ 2.57 1,942,412 $ 2.99
Granted ................................. 397,000 12.27 391,500 4.50 709,400 1.68
Exercised ............................... (273,346) 3.21 (693,848) 2.64 (211,862) 2.08
Canceled or expired ..................... (13,002) 2.37 (47,900) 2.46 (484,396) 3.21
--------- -------- --------- -------- --------- --------
Outstanding, end of period ............... 1,715,958 $ 5.14 1,605,306 $ 3.02 1,955,554 $ 2.57
========= ======== ========= ======== ========= ========
Options exercisable, end of
period ................................. 1,023,677 $ 3.54 865,386 $ 3.05 1,075,274 $ 2.92
</TABLE>
The following table summarizes information about stock options as of January
29, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------- --------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGES OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- ----------------------- ------------- -------------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
$1.63 - $4.00 937,526 6.17 $ 2.17 759,054 $ 2.30
$4.01 - $9.99 377,432 6.82 4.91 203,920 5.15
$10.00 - $16.63 401,000 9.35 12.27 61,333 13.54
1,715,958 8.08 $ 5.14 1,023,677 $ 3.54
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
The Board adopted a noncompensatory employee stock purchase plan (ESPP), which
became effective upon the consummation of the Company's initial public offering
on April 1, 1993, and as amended, that covers an aggregate of 420,000 shares
(restated) of common stock. Under the ESPP, all employees are given the right
to purchase up to 800 shares of the common stock of the Company two times a
year at a price equal to 85 percent of the value of the stock immediately prior
to the beginning of each exercise period. For the fiscal years ended January
29, 2000, January 30, 1999, and
28
<PAGE>
January 31, 1998, 69,158, 69,550 and 42,536, respectively, were purchased under
the ESPP. The Company recognized no compensation expense for the issuance of
these shares.
COMMON STOCK SPLIT
On December 14, 1999, the Board declared a two-for-one stock split of the
Company's common stock, payable in the form of a stock dividend on January 14,
2000, to shareholders of record as of the close of business on December 27,
1999. Common stock and additional paid-in-capital have been restated for all
periods presented to reflect the Stock Split. Par value remains unchanged at
$.01. All references to the number of common shares and per share amounts
elsewhere in the consolidated financial statements and notes thereto have been
restated as appropriate to reflect the effect of the Stock Split for all
periods presented.
SFAS NO. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION"
The Company accounts for its stock-based compensation plans under Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25), under which no compensation expense has been recognized.
The FASB later issued SFAS No. 123, "Accounting for Stock-Based Compensation"
(SFAS 123). SFAS 123 allows companies to continue following the accounting
guidance of APB 25, but requires pro forma disclosure of net income and EPS for
the effects on compensation expense had the accounting guidance of SFAS 123
been adopted. The pro forma disclosures are required only for options granted
in fiscal years that begin after December 15, 1994.
For SFAS 123 purposes, the fair value of each option granted has been estimated
as of the grant date using the Black-Scholes option pricing model with the
following weighted average assumptions: risk-free interest rate of 6.2 percent
for the fiscal year ended January 29, 2000, and 6.3 percent for the fiscal
years ended January 30, 1999, and January 31, 1998, expected life of seven
years, no expected dividends, and expected volatility of 67 percent for the
fiscal year ended January 29, 2000, and 75 percent for the fiscal years ended
January 30, 1999, and January 31, 1998. The weighted average fair value of
options granted during the fiscal years ended January 29, 2000, January 30,
1999, and January 31, 1998, was $12.27, $9.05, and $3.16, respectively. Options
granted under the 1992 Plan and 1993 Plan vest ratably over three years. All
other options were either exercisable after six months or vested ratably over
three years. The term of all options granted is 10 years. Had compensation
expense been determined consistent with SFAS 123, utilizing the assumptions
detailed above, the Company's net income and net income per common and common
equivalent shares outstanding would have been changed to the following pro
forma amounts for the fiscal years ended January 29, 2000, January 30, 1999,
and January 31, 1998:
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
----------------- ---------------- ----------------
<S> <C> <C> <C>
Net income:
As reported ................................................ $ 15,489,380 $ 9,139,108 $ 2,770,016
Pro forma .................................................. 14,451,495 8,443,686 2,218,609
Net income per common share -- Basic:
As reported ................................................ $ .91 $ .56 $ .18
Pro forma .................................................. .85 .52 .14
Net income per common and common equivalent share -- Diluted:
As reported ................................................ $ .88 $ .54 $ .17
Pro forma .................................................. .77 .49 .14
</TABLE>
29
<PAGE>
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 2, 1995, the resulting pro forma compensation expense
may not be representative of that to be expected in future years.
10. PROFIT SHARING PLAN:
The Company has a defined contribution profit sharing plan (the Plan) covering
substantially all employees. Employees' rights to Company-contributed benefits
vest over two to six years of service, as specified in the Plan. Effective as
of January 1, 1999, the Company amended the Plan to incorporate a 401(k)
savings plan feature (the 401(k)) into the Plan. Under the 401(k), employees
may contribute up to 20 percent of their annual compensation, subject to
certain statutory limitations. The Company matches employee contributions at 33
1/3 percent up to 6 percent of the employees' contributions. The Company
contributions to the 401(k) vest ratably over two to six years of service, as
specified in the Plan. For the fiscal years ended January 29, 2000, January 30,
1999, and January 31, 1998, the Company's costs under the Plan were
approximately $276,000, $487,000 and $280,000, respectively.
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
<TABLE>
<CAPTION>
NET INCOME (LOSS) PER
NET GROSS INCOME NET INCOME (LOSS) PER COMMON AND COMMON
SALES PROFIT (LOSS) COMMON SHARE -- BASIC EQUIVALENT SHARE -- DILUTED
--------------- --------------- -------------- ----------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
Fiscal year ended
January 31, 1998:
First quarter .......... $ 18,719,797 $ 10,603,437 $ 1,002,456 $ .06 $ .06
Second quarter ......... 20,080,574 10,918,044 967,556 .06 .06
Third quarter .......... 18,923,374 10,884,187 955,532 .06 .06
Fourth quarter ......... 17,615,407 9,693,322 (155,528) ( .01) ( .01)
Fiscal year ended
January 30, 1999:
First quarter .......... $ 25,895,908 $ 15,126,755 $ 2,328,505 $ .15 $ .14
Second quarter ......... 27,358,542 16,346,471 2,713,082 .17 .16
Third quarter .......... 26,754,149 15,713,456 2,371,442 .15 .14
Fourth quarter ......... 26,732,994 15,358,485 1,726,079 .10 .10
Fiscal year ended
January 29, 2000:
First quarter .......... $ 36,424,981 $ 21,524,358 $ 4,216,453 $ .25 $ .24
Second quarter ......... 36,771,293 21,276,944 3,946,666 .23 .22
Third quarter .......... 40,008,995 23,408,317 4,078,309 .24 .23
Fourth quarter ......... 41,797,012 23,842,732 3,247,952 .19 .18
</TABLE>
30
<PAGE>
REPORTS ON FORM 10-K
A copy of the Company's annual report to the Securities and Exchange Commission
Form 10-K will be sent to any shareholder without charge upon written request
to Investor Relations at the
current mailing address or website address below:
Chico's FAS, Inc.
11215 Metro Parkway
Fort Myers, Florida 33912
Website: www.chicos.com
***
Transfer Agent and Registrar:
The Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
Legal Counsel:
Trenam, Kemker, Scharf, Barkin, Frye, O'Neill & Mullis
Tampa, Florida 33602
Independent Certified Public Accountants:
Arthur Andersen LLP
Tampa, Florida 33602
Investor Relations:
The Investor Relations Company
One Northbrook Place
Northbrook, IL 60062
***
Annual Shareholders' Meeting:
Tuesday, June 13, 2000 at 2:00 p.m.
`Tween Waters Inn
Captiva, Florida
- --------------------------------------------------------------------------------
[CHICO'S FAS, INC. LOGO]
EXECUTIVE OFFICERS
***
Marvin J. Gralnick
Chief Executive Officer
President
Helen B. Gralnick
Senior Vice President -- Design & Concept
Charles J. Kleman
Chief Financial Officer
Executive Vice President -- Finance
Secretary/Treasurer
Scott A. Edmonds
Chief Operating Officer
Assistant Secretary
Patricia A. Murphy
Vice President -- General Merchandise Manager
Mori C. MacKenzie
Vice President -- Director of Stores
Karen M. Glass
Vice President -- Product Development and Design
DIRECTORS
***
Marvin J. Gralnick
Chairman of the Board
Helen B. Gralnick
Senior Vice President -- Design & Concept
Charles J. Kleman
Chief Financial Officer
Executive Vice President -- Finance
Secretary/Treasurer
Verna K. Gibson
Partner-Retail Options, Inc.
Ross E. Roeder
Chairman and Chief Executive Officer -- Smart & Final, Inc.
John W. Burden
Retailing Consultant
31
EXHIBIT 22
Subsidiaries of the Registrant
------------------------------
Chico's Distribution, Inc., a Florida corporation
Chico's Concept, Inc., a Florida corporation
Chico's Media, Inc., a Florida corporation
[GRAPHIC]
ARTHUR ANDERSEN
CONSENT TO USE OF REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report, and to all references to our firm included in or
made a part of this Form 10-K, into the Company's previously filed Registration
Statements (File Nos. 33-60524, 33-63822, 33-83840, 333-51297, 333-69643,
333-69645 and 333-86253).
/s/ ARTHUR ANDERSEN LLP
Tampa, Florida,
April 24, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-END> JAN-29-2000
<CASH> 3,980,930
<SECURITIES> 13,995,527
<RECEIVABLES> 1,706,661
<ALLOWANCES> 0
<INVENTORY> 14,834,800
<CURRENT-ASSETS> 37,224,613
<PP&E> 41,217,160
<DEPRECIATION> (9,872,163)
<TOTAL-ASSETS> 70,315,821
<CURRENT-LIABILITIES> 10,835,899
<BONDS> 6,839,180
0
0
<COMMON> 171,285
<OTHER-SE> 52,469,457
<TOTAL-LIABILITY-AND-EQUITY> 70,315,821
<SALES> 155,002,281
<TOTAL-REVENUES> 155,002,281
<CGS> 64,949,930
<TOTAL-COSTS> 64,949,930
<OTHER-EXPENSES> 65,246,577
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (177,606)
<INCOME-PRETAX> 24,983,380
<INCOME-TAX> 9,494,000
<INCOME-CONTINUING> 15,489,380
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,489,380
<EPS-BASIC> 0.91
<EPS-DILUTED> 0.88
</TABLE>
