Chico's FAS, Inc.

Welcome to Chico's FAS First Quarter 2021 Conference Call and Webcast. All participants 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 CFO and SVP Controller. Mr. Oliver, please go ahead, sir.

Good morning, and welcome to the Chico's FAS First Quarter 21 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 industry, which speak only as today's date. You should not unduly rely on these 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 today's earnings release, our SEC filings, and the comments 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. Now I'll turn the call over to Molly.

Thank you, David, and good morning, everyone. Our first quarter results underscore the tremendous progress we are making in our turnaround strategy, the power of our three unique brands, and being a digital-first customer-led company. The strong Q1 performance across all three brands was fueled by our significant improvements in product and marketing. Our momentum started in Q4 2019 temporarily stalled by the pandemic, is now back on track to deliver meaningful growth in the years to come. Total first quarter sales grew 38% over last year, spurred by Soma's extraordinary sales growth of 65%, as well as fantastic customer response to Chico's and White House Black Market, which drove 31% growth in our apparel brands. We delivered meaningful year-over-year gross margin and SG&A rate improvement. And our balance sheet is strong with ample cash and liquidity and strategically lean inventories. We drove much higher gross margin by dramatically reducing the number of promotional days. Not only did SOMA post a 65% sales growth over last year's first quarter, a comparable sales grew a remarkable 39% over the first quarter of 2019. SOMA is well on its way to delivering an incremental $100 million in sales this year. According to NPD research data, SOMA outpaced the market leader in growth in bras, panties, and sleepwear, excluding sports bras, for the last 12 months. These powerful results give us confidence that Soma will continue to take meaningful share of the U.S. intimate apparel market and explode into a billion-dollar brand by 2025. The business strategies put in place in Soma around inventory, product, marketing, and digital are working, and we have every confidence Applying these same strategies at Chico's and White House Black Market will continue the apparel sales momentum. Exciting things are happening at Chico's and White House Black Market. And in the first quarter, the apparel brands posted faster sell-through rates and higher maintained margins than in 2019. This is proof that our marketing efforts are increasingly more compelling and that our elevated products and styling are truly resonating with our customers. Our first quarter results underscore the tremendous progress we are making on the five strategic priorities that I shared last quarter. Let me take a few minutes to update you on each. Number one, continuing our ongoing digital transformation. Over the last two years, we have successfully transformed into a seamless, digital-first customer-led model for all three of our brands, making major strategic investments in talent and technology. These efforts are paying off, as year-over-year first quarter digital sales grew a very healthy 13.4%. All three brands' digital sales grew year-over-year. Customers using our proprietary digital tools, StyleConnect and MyCloset, are more engaged and have our highest conversion rates. These tools fueled 10% sequential multi-channel customer growth, and these customers spend more than three times a single channel customer. Number two, further refining product through styling, fabric, and innovation. At each of our brands, we are laser-focused on our customer and on continually elevating our product in order to increase our market share and drive results. Innovation and creating comfortable, beautiful solutions are core in the Soma brand. Our products serve our customers' lifestyle and promote health, including a great night's sleep. Aloe-infused Restore and Cool Nights are two great examples. We continually innovate and introduced three new bras during the quarter, exceeding sales expectations. In both our apparel brands, we've changed the styling of the product to more closely align with the customer. We've embraced the comfort culture and developed innovative fabrics and technology to provide comfort features, shifting her from sweats to fabrics with ease. We are very encouraged by what we are seeing. At Chico's, she loves our core franchise bottoms and woven and knit tops in new fabrics. At White House Black Market, new elevated casuals in denim and tops are popular as she is buying coordinating outfits. And dresses are once again at the top of her list for both apparel brands. Number three. driving significant increased customer engagement through digital storytelling. Our enhanced marketing is driving brand awareness, generating traffic, and acquiring new customers through social media engagement and creative storytelling. Newly acquired customers are being retained at a meaningfully higher rate than in fiscal 2019. The year-over-year average age of new customers dropped 10 years at Chico's. At Selma, the average age dropped eight years. And at White House Black Market, the average age dropped slightly. These stats reinforce the runway for all three brands. At Selma, we are growing the customer base. One in three new customers is under 34. resulting from our more inclusive branding and evolved product assortment. Our brands use digital storytelling, the use of social influencers, and building upon our organic social efforts and Y2Y communications are some of the ways we are working to elevate our marketing and reach new customers. Our weekly Facebook Live events, for example, are driving significant engagement compared to industry benchmarks. Number four, maintaining our operating and cost discipline. Our biggest Q1 accomplishment was the strength in full price sales and corresponding reduced promotions. Our on-hand inventories are strategically lean and receipts are disciplined. On-hand inventory levels, which were down 29% versus last year's first quarter and down 21% compared to the first quarter of 2019, drove more full-price sales and generated a solid gross margin in the first quarter. Care city of product, improved product, and social proofing are driving a sense of urgency for customer purchasing. These factors should continue to strengthen gross margin performance. And number five, delivering higher productivity in our real estate portfolio. Stores continue to be an integral part of our strategy because data shows that digital sales are higher in markets where we have a retail presence. We also will support store growth where the investment delivers profitable returns. Soma is a great example of that. We have successfully opened 30 Soma Shop and Shop inside Chico stores. These started opening in February, and we will have 47 open by mid-June. These Shop and Shop are exceeding plans, driving brand awareness, and generating both store and digital sales in markets where Soma is not represented. At the same time, we continue to rationalize and tighten our real estate portfolio for higher store profitability standards. 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 lease flexibility with nearly 60% of our leases coming up for renewal or kickout available over the next three years. We anticipate closing 13 to 16 percent of our remaining store fleet over the next three years, with 40 to 45 of those closures occurring in fiscal 21. Our standalone boutiques outperform those in regional enclosed malls by about seven percentage points. Accordingly, the vast majority of closures are expected to be mall-based with a skew towards Chico's and White House black market stores. Now, let me turn the call over to David to update you on our financial performance.