Chico's FAS, Inc.

Welcome to Chico's FAS fourth quarter and fiscal year end 2020 conference call and webcast. All purchase events will be in listen-only mode. Please note this call is being recorded. I would now like to turn the call over to David Oliver, interim chief financial officer and senior vice president controller. Mr. Oliver, please go ahead.

Good morning and welcome to the Chico's FAS fourth quarter and fiscal year 2020 conference call and webcast. Molly Langenstein, our CEO and President, also joins me today. For reference, our earnings release can be found on our website at www.chicosfas.com and under Press Releases on the Investor Relations page. Today's comments will include forward-looking statements regarding our current expectations, assumptions, plans, estimates, judgments, and projections about our business and our industries. which speak only as of today's date. You should not unduly rely on forward-looking statements. Important factors that could cause actual results or events to differ materially from those projected or implied by our forward-looking statements are included in our earnings release issued this morning, in our SEC filings, and in the comments that are made on this call. We disclaim any obligation to update or revise any information discussed on this call, except as may be otherwise required by law. And with that, I'll turn the call over to Molly.

Thank you, David, and good morning, everyone. Although 2020 and pandemic uncertainty created a sales environment that was challenging as reflected in our results, we successfully navigated this extraordinary landscape while also creating a solid foundation that we believe positions us for our return to growth in 2021 and the years ahead. We rapidly accelerated our transformation to a digital-first company, fast-tracking numerous innovation and technology investments, which drove higher consumer engagement and year-over-year digital sales increase of nearly 20%, led by SOMA's digital sales increase of 72%. As a brand, Soma generated comparable sales growth for the last seven months in fiscal 2020. And according to the NPD group, for the 12 months ended January 2021, Soma's growth exceeded that of the U.S. apparel market and the market leader for non-sport bras and panties and was in the top five brands overall in the sleepwear market. I am also pleased to report that SOMA's sales for the back half of fiscal 2020 were the highest in the history of the brand. We believe this is compelling evidence SOMA is well positioned to accelerate recent market share gains. Our enhanced marketing efforts drove traffic as well as new customers to our brand, and newly acquired customers were retained at a meaningfully higher rate than fiscal 2019. The average age of our new customers dropped 10 years for Chico's and 8 years for Soma. And the average age for the new White House black market customers complemented the current target customer, reinforcing the runway for all three brands. Our new apparel selections resonated with customers. We relaunched Zenergy in Chico's with new fabrication, styling, and marketing products. and also increased our gifting assortment and key item depth, which showed positive results. At White House Black Market, we pivoted to casualization and launched luxe weekend, new runway leggings, and a focus on denim that customers loved. We significantly enhanced our liquidity and financial flexibility by amending and extending our credit facility to $300 million and ended the year with a solid cash position. We obtained landlord commitments of $65 million in rent abatements and reductions and further rationalized our real estate position by permanently closing 40 underperforming locations over the last year. And we substantially streamlined our organization and permanently reduced our cost structure for more efficiently support our business. These efforts resulted in approximately $235 million of annual savings in fiscal 2020 or 23% greater than our original plan. Chicos FAS is a company of three unique brands, and we believe we are poised to take market share in each of these businesses when the pandemic-related consumer pause lifts. We are optimistic about store traffic rebounding as vaccines become more widely available and have in fact seen this correlation prove out. We believe Soma in particular has the opportunity for significant growth. Today, the intimate apparel and loungewear market is a nearly $7 billion business in the U.S. and is forecasted to reach over $11 billion by 2025. Soma's compelling position in Intimus and its seven months of comparable sales growth give us confidence that Soma is on track to take a meaningful piece of this market and become one of the largest intimate apparel brands in the country. At the same time, we believe there is opportunity to optimize and strengthen both Chico's and White House black market. The disruption in the competitive set has left white space that we can strategically take. At Chico's, we expect to reinvigorate growth through loyalty, community, and design at white house black market we expect to drive consumer enthusiasm for the brand by a focus on fabric fit and fashion that meets our customer where she is in her lifestyle today in order to maximize the opportunities in each of our brands we are targeting five key focus areas for 2021 first continuing our ongoing digital transformation. Second, further refining product through fit, quality, fabric, and innovation. Third, driving increased customer engagement through marketing. Number four, maintaining our operating and cost discipline. And finally, further enhancing the productivity of our real estate portfolio. Allow me to elaborate on each of these. Number one, continuing our ongoing digital transformation. Over the last year and a half, we prioritize digital as the primary sales channel for all three of our brands, making major strategic investments in talent and technology to pivot us to a digital-first company. We are enabling her to shop how she chooses in a way that is personalized and simplified across every touchpoint of her shopping experience. Innovative launches that we consider meaningful competitive advantage include Style Connect, our digital styling tool, My Closet, our personal closet feature, and Social Proofing. Each of these tools have gained traction and driven engagement and conversion. In the fourth quarter, Style Connect orders nearly doubled from last year. We have successfully enrolled 42% of our active customer file in StyleConnect, representing almost 3 million customers. Our prioritization to digital also incorporates mobile POS, AI search engine optimization, and enhanced navigation touchpoints across all brands. We have also accelerated the launch of new leading-edge digital selling and fulfillment tools to drive greater online customer demand. we will be rolling out more innovations in 2021, including an optimized mobile-first experience. We continue to leverage our digital investments, converting single-channel customers to be omnichannel customers, as the average omnichannel customer spend is nearly three and a half times more than a single-channel customer. Number two, further refining product through fit, quality, fabric, and innovations. At each of our brands, we are laser-focused on our customer, continually elevating our products so we can capture the greatest market share. At Selma, innovation is at our core. While beautiful solutions that extend to wellness and comfort are synonymous with our brand, our products serve our customers' lifestyles and promote health, including a great night's sleep and loungewear to live in. We've fueled our bra and panty franchises in our position to further expand our market share and drive results. We have a growing customer base with the most meaningful growth in our under 34 age group as a result of more inclusive branding and evolved product assortment. To continue capturing a broader audience, we will integrate our digitally native and younger Telltale brand onto the Selma site. which we successfully tested in the fourth quarter. At our apparel brands, as the world shifts toward comfort and work from home, we see increased interest in our core franchises of effortless chic pants and tops at Chicos, and denim with plenty of stretch, leggings, and feminine tops at White House Black Market. As women emerge from their homes and continue to reinvent their wardrobes, we have developed improved fabrics and integrated new technology and comfort features to adapt to her needs. Number three, driving increased customer engagement through marketing. Our goal is to increase brand awareness, drive engagement, generate traffic, and acquire new customers through continuous marketing improvement. We are especially excited about our partnership with Salesforce, which enables us to better leverage the unified view of our millions of customers. and act on our robust customer data that has been collected for more than three decades. We can track every omnichannel customer journey and interaction, connect every commerce channel, create more engaging, personalized, and targeted marketing, and messaging using predictive intelligence and adjust marketing in real time based on trends or customer actions. The Salesforce relationship also creates a data foundation to support the rollout of our enhanced loyalty program in the second half of this year. And our loyalty program already has some of the highest participation rates in retail at over 90%. We also have some of the most loyal and long-tenured customers in retail. Our Chico's customers average well over 12 years with us. White House black market customers average nine, and Selma customers average over six. demonstrating we have the ability to retain new customers for a very long period of time. We will continue to elevate our marketing efforts with more digital storytelling, the use of social influencers, and to build upon our organic social efforts and why-to-buy communication. Number four, maintaining our operating and cost discipline. We will continue to improve our sourcing logistics and operational processes to drive efficiency and speed and lower costs. We have teams focusing on a wider range of areas from further diversifying the supply chain, lowering dependence on agents, increasing the use of 3D design, and streamlining outbound shipping and ship-from-store processes, just to name a few. Over the last year, we have reduced our supplier base by 20%, and agents currently represent 32% of the business, and we expect to lower that to about 18% by 2022. And finally, number five, further enhancing the productivity of our real estate portfolio. Stores continue to be an important part of our omni-channel strategy, and digital sales are higher in markets where we have a retail presence. Soma is certainly a great example of that. While Soma is now a digital-first business, it is supported by 259 boutiques. In alignment with driving Soma to be one of the largest intimate apparel brands in the country, we are excited about opening Soma Shop and Shops in a number of Chico's boutiques. We have opened 10 so far this year, and we will open 40 more by early May. Our marketing data indicates that Soma and Chico's in-store cross-shop opportunities are abundant. and we believe the shop-in-shop format will deliver meaningful brand awareness and generate both store and digital sales in markets where we are underpenetrated. In addition, we plan to convert eight White House black market locations into SOMA boutiques. We will also continue rationalizing and tightening our real estate portfolio, reflecting our emphasis on digital and our priority for higher profitability standards. We are currently driving store sales with less inventory and increased productivity. We've closed 40 underperforming locations since the beginning of fiscal 2020 and ended the fiscal year with 1,302 boutiques. We will continue to shrink our store base to align with these standards, primarily as leases come due, lease kickouts are available, or buyouts make economic sense. We have strong lease flexibility with nearly 60% of our leases coming up for renewal or kick-out available over the next three years. To further improve store productivity, we anticipate closing 13 to 16% of our remaining store fleet over the next three years, with 40 to 45 of those closures occurring in fiscal 2021. The vast majority are expected to be mall-based Chico's and White House black market stores. This means from the beginning of fiscal 2019 through the end of fiscal 2023, we will close up to a total of 330 stores, well ahead of our original multi-year closure target of 250 stores. Now let me turn the call over to David to update you on our financial performance.