Women's retailer Chico's FAS notches another outstanding quarter

Chico's FAS has notched another "outstanding" quarter.

The Fort Myers-based women's retailer reported strong earnings and operational income for the first quarter.

In a statement, Molly Langenstein, the company's CEO and president, said the results reflect a continued commitment to its four strategic pillars.

Those pillars – or goals – are to be customer led, product obsessed, digital first and operationally excellent.

"Total year-over-year sales were in line with our outlook, down 1.1%, on top of 39.4% growth in the first quarter last year," she said. "For the company as a whole, full-priced sales remained healthy."

The average spent per customer, and the average unit price paid by the customer edged up over the year.

"We gained market share across all brands," Langenstein noted.

In addition to its namesake Chico's brand, the public company, founded 40 years ago, owns White House Black Market and Soma.

Despite the strong quarterly performance, the company trimmed its outlook for the year, based on a shift in store traffic it began to see in late March.

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Chico's leads the way in growth

In the first quarter, Chico's, the retailer's largest and oldest brand, saw comparable sales growth of 4.9%, on top of a 52% year-over-year increase last year. Comparable sales represent sales made at same stores, or stores open at least a year.

"We believe Chico's is positioned for continued outsized growth," Langenstein said.

She noted it's now the fastest growing apparel brand for customers over 45 with household incomes of more than $100,000, according to Circana, a market research firm.

"Chico's is also expanding its demographic appeal, attracting new customers with an average age 10 years younger than existing customers," she said.

In an earnings call with investors, Langenstein said the apparel brand's customers are responding to "innovation and solution-oriented products, building complete outfits."

How did the other brands fare in the quarter?

In the quarter, sales continued to improve at Soma, the retailer's intimates brand, which sells everything from underwear to sleepwear.

The improved performance can be attributed to innovation and discipline, with its "best-in-class bra and panty offering" continuing to outperform last year, Langenstein told analysts.

At White House Black Market, the retailer's other apparel brand, sales declined, but it wasn't all bad news, as it "quickly sold through fashion inventories due to strong customer demand," Langenstein said.

Inventory should be more in line with demand by early fall, which should drive a "trend change" in the back half of the year, she assured.

"We are confident in our brand strategy and our ability to deliver on our long-term financial targets, as we continue to navigate the current macroeconomic environment," Langenstein stated. "Our three distinct brands each have a clear path to profitable growth, and we are positioned to further enhance our operating performance, strengthen our balance sheet and generate meaningful shareholder value."

Besides innovation, targeted marketing and enhanced loyalty programs are helping to increase customer count and spending across brands, along with "solution-oriented products," she said.

"Customers appreciate higher quality, and they are receptive to paying for value and solutions," Langenstein said in the earnings call.

Quarterly earnings rose by the double digits

Highlights of the quarter include growing earnings per share by 14.3% over the year. Earnings came in at $39.9 million, or 32 cents a share, up from $34.9 million, or 28 cents a share, last year.

The retailer generated net sales of nearly $535 million. That was down from $540.9 million in 2022, primarily reflecting an overall comparable sales decline of 0.6%, as well as the impact of store closures over the past year, as it continues to right-size its fleet.

On average, analysts expected sales of $541.95 million, with earnings of 27 cents a share, according to Yahoo Finance. So, the company beat on earnings, but missed on revenue.

In a research note, consumer research analyst Jeff Lick, with B. Riley Financial, noted it's one of only two firms that cover Chico's. He said the retailer's quarterly results were better than it expected across the board.

He maintains a "buy" rating on the stock, with the belief that its results, guidance, fundamentals and stock dynamics are all favorable.

In the quarter, Chico's FAS expanded its gross margin and increased its operating margin, while repaying $25 million of debt and repurchasing $20 million of stock. It ended the quarter with $131 million in cash and marketable securities.

The securities, or investments, can easily be sold if necessary, to fund operations, growth, or other strategic initiatives.

In the quarter, gross profit reached $225 million, up from $216.6 million last year. The company attributed the improvements primarily to higher sales prices, lower freight costs, and reduced corporate expenses.

Why did the company lower its outlook?

Despite all the positives, the company lowered its financial guidance for the year, based on more recent customer activity.

It expects net sales of $2.18 billion to $2.2 billion for the year, with earnings estimated at 70 to 82 cents a share.

In 2022, net sales rose 18.3% to $2.142 billion. Earnings came in at 88 cents a share.

In the earnings call, "PJ" Guido, the company's chief financial officer, said that starting in late March, and continuing through April, the retailer saw a decline in traffic and sales at Chico's and White House Black Market outlet stores that "cater to a more price-conscious customer, more sensitive to economic conditions."

He noted that traffic at its traditional stores remained robust, but became more inconsistent at the same time.

"We expect digital traffic and sales to remain strong and have incorporated some additional risk in our outlet and frontline store channel based on recent traffic and consistency," Guido explained.

Looking ahead, he said the company remains "cautiously optimistic" on customer demand, and the ability to react to a "dynamic environment."

"We are managing lean inventories and progressing on our key strategic initiatives and investments in digital, technology and stores to deliver both top-line and bottom-line growth over the long term," Guido said. Top line refers to revenues and bottom line to earnings.

In his note to investors, Lick described the updated outlook as "prudent and achievable, if not beatable."

Founded in 1983 on Sanibel Island, Chico's FAS operates more than 1,260 stores in the United States and sells its merchandise through 58 international franchise locations in Mexico, and two franchise locations at domestic airports.

Merchandise can also be purchased on its brand websites, as well as through other online retailers, such as Amazon.

This article originally appeared on Fort Myers News-Press: Chico's FAS sees 'outstanding' quarter, but is there turbulence ahead?