Chico's FAS, Inc.

Welcome to Chico's FAS Second Quarter 2021 Conference Call and Webcast. All participants will be in listen-only mode. Please note, this call is being recorded. I'd now like to turn the call over to David Oliver, Interim CFO and Senior Vice President Controller. Mr. Oliver, please go ahead.

Good morning, and welcome to the Chico's FAS Second 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 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 of today's date. You should not annually 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 or 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. I'm excited to share our second quarter results as they underscore the incredible progress we continue to make in our turnaround strategy despite pandemic challenges. Our earnings per share of 21 cents is the best second quarter performance we have posted since 2013. This return to profitability was driven by our turnaround action plan that grew sales, expanded gross margin, and diligently controlled our expenses. Our robust second quarter sales growth of 54% was across all three brands and was propelled by our meaningful enhancements in product and marketing, which continued to significantly drive full price selling, reduce markdowns, and increased gross margins. Selma achieved the highest second quarter sales results in the brand's history. Not only did Selma post a 53% sales growth over last year's second quarter, comparable sales grew a remarkable 38% over the second quarter of 2019. In fact, We have had four consecutive quarters of comp growth at SOMA. Congratulations to the SOMA team. SOMA remains on track to delivering an incremental $100 million in sales this year. According to NPD research data, SOMA's growth outpaced the market in non-sports bras, panties, and sleepwear for the past 12 months, compared to the same period in 2019. In addition, as customers' preferences have shifted to comfort, Soma strategically increased its wireless bra assortment, taking more market share than any other brand for the last 12 months compared to the same period in 2019. We believe this data, along with our recent performance, is a strong indication that Soma is well-positioned to capture additional market share and explode into a billion-dollar brand by 2025. The business strategies put in place in Selma around inventory, product, marketing, and digital are working, and we are confident applying this proven playbook at Chico's and White House Black Market will continue their sales momentum. Exciting things are indeed happening at both Chico's and White House Black Market. as indicated by second quarter sales growth of 59% and 48% respectively. At both apparel brands, customers are enthusiastically responding to our elevated quality and styling enhancements, which are leading to meaningfully faster sell-through rates, higher productivity, and more full-price sales and better maintained margins. Our second quarter results once again highlight the incredible progress we are making on our five strategic priorities. So let me take a few minutes to update you on each. Priority number one, continuing our ongoing digital transformation. Over the last two and a half years, we have successfully transformed into a seamless digital-first, customer-led company, adding resources and making strategic investments in talent and technology. We have been thrilled with the trajectory of our digital sales over this time frame. As our store revenues continue to rebound, our second quarter digital sales grew 23% over 2019 levels. Style Connect and My Closet continue to gain traction, and customers using the proprietary digital tools are more engaged and have our highest conversion rates, UPTs, and average order values. These tools continue to drive new multi-channel customer growth, and these customers are our most valuable, spending more than three times a single-channel customer. Afterpay, the popular benefit launched in time for holiday last year, allowing for customers to pay for their purchases in installments, has also proven to be a terrific UPT and sales driver and is beating our expectations. Priority two, further refining products through styling, fabric, and innovation. At each of our brands, we are leveraging customer data and insights and continually elevating our products to take market share and drive results. Customers are clearly responding across all three brands. Continual newness and creating comfortable, beautiful solutions are core to the Selma brand. We are feeding a conveyor belt of innovation for wireless and sports bras, ensuring she has the absolute right bra for everything she does in her life. Sleepwear and panties continue to be strong and drove double-digit growth over last year and 2019 levels. Chicco's customers are continually responding to our newness, comfort features, novel technology, and innovative fabrics. with pronounced acceleration in the quarter in denim, pants, dresses, knits, and woven tops. White House black market also continued to benefit from elevated styling and quality improvements, and customers responded to our new pant and short programs as well as knits and dresses. Congratulations to the apparel teams for a great quarter. Next, driving significant increased customer engagement through digital storytelling. Through our enhanced customer data analytics and insights, we have elevated and targeted our marketing efforts, which are driving brand awareness, generating traffic, and acquiring new customers. We continue to allocate more resources to digital storytelling, social influencers, and other social efforts. Our social media customer engagement continues to grow, and customers are responding to influencers and associates. We continue to acquire new customers, and their average age continues to trend younger than existing customers, which reinforces the runway for all three brands. Priority four, maintaining our operating and cost disciplines. Our most meaningful second quarter accomplishment was our gross margin performance. In fact, we posted our highest gross margin rate in 13 consecutive quarters. This was driven by strength in full price sales and the corresponding reduction in promotions. Our on-hand inventories remain strategically lean, down 27% versus last year's second quarter and down 20% compared to the second quarter of 2019. Scarcity of product and social proofing continue to drive a sense of urgency for customer purchasing. These factors should continue to strengthen gross margin performance. However, we are facing certain headwinds in the back half of the year that will impact gross margin and sales, including cost pressures from logistics, sourcing, fulfillment, and the labor market. These considerations are included in our guidance that David will cover later in the call. And finally, our last priority, delivering higher productivity in our real estate portfolio. We delivered strong store growth during the quarter, and stores continue to be an integral part of our overall strategy, as data indicates that digital sales are higher in markets where we have a strong retail presence. Prudent store growth makes sense where the investment delivers profitable returns. We have successfully opened 47 Soma shop-and-shops inside Chico stores, which are exceeding expectations, driving new customers to both brands, and further expanding our digital business. More of these shop-and-shops are scheduled going forward, with a total of 70 expected by first quarter of next year. At the same time, we continue to rationalize and tighten our real estate portfolio for higher store profitability standards. Accordingly, we will continue to shrink our store base, 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 kick-out available over the next two to three years. We are still on track to close 13 to 16% of our remaining store fleet through the end of fiscal 2023 with 45 to 50 of those closures occurring this fiscal year. During the quarter, we closed nine stores bringing our year-to-date closings to 18 and we ended the quarter with 1,284 boutiques. Now let me turn the call over to David to update you on our financial performance.