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spk00: Please note, this call is being recorded. I would now like to turn the call over to corporate controller David Oliver. Mr. Oliver, please go ahead.
spk01: Good morning, and welcome to the Chico's FAS first quarter 2022 conference call and webcast. For reference, our intrelease can be found on our website at www.chicosfas.com under press releases on the investor relations page. Projections about our business, and our industry that speak only as of 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 implied by our correlating statements are included in today's earnings release, our SEC filings, and the comments made on this call. We disclaim any information discussed on this call except as may be otherwise required by law. Certain non-GAAP measures may be referenced in today's call. A GAAP and non-GAAP reconciliation schedule is included in our earnings presentation posted this morning on the Chico's FES investor relations page. Now I'll turn the call over to our CEO and President, Molly Langenstein.
spk10: Thank you, David, and good morning, everyone. Fiscal 22 is off to a great start. with year-over-year comparable sales up 41% and 11% over 2019, along with EPS that was well above the high end of our guidance. This strong financial performance and continued momentum demonstrate that our strategy is working.
spk05: We continue to leverage our proven business model and execute against our strategic pillars and
spk10: After achieving a successful turnaround, our team is focused on delivering our three-year growth plan and great progress is underway. Let me highlight some key accomplishments for the first quarter. We posted $0.28 diluted EPS, driven by the 41% comparable sales growth, along with significant growth margin expansion and diligent expense control. Our strong first quarter sales growth in both our store and digital channels was boosted by key enhancements in product and marketing that drove full price selling and higher average unit retail. White House black market was the standout in the quarter with comparable sales growth of 65%.
spk05: Driven by the introduction of new fabrics, features generated higher AUR, elevated full price balance and positive comparable sales to 2019. Driven below pre-pandemic levels. Cheap for the quarter, posting comparable sales growth of 52%. Customers responded enthusiastically to product innovation inventory compared to 2019 and drove increased AUR. According to data from market research firm NPD, both White House black market and Chico's grew faster than other markets and increased meaningful market share. SOMA posted its seventh consecutive quarter of growth over the prior year. achieving a 0.5% sales increase versus last year's first quarter.
spk10: Selma's core, bra, and panty business grew 5%, driven by the launch of our patent-pending smart bra, Botify, utilizing first-to-market technology. These solid results in the core business were partially offset by a slowdown in the lounge and cozy categories. Again, referring to NTD data, SOMA's growth continued to meaningfully outpace the market in non-sport bras and panties for the quarter. We have a strong position in basic replenishment, bra and panty inventory so we can meet our customers' needs. We continued to elevate our marketing, allocating targeted resources to digital, which drove increased traffic and customers to all three brands. were up over the prior year, with existing and new customers experiencing growth in the mid-teens.
spk05: Our total trend younger across all three brands. At 40%, the first quarter growth margin rate exceeded our outlook by 230 basis points and outperformed last year's by higher average unit retail with occupancy leverage partially offset by elevated raw materials and freight costs. We demonstrated ongoing cost discipline with 31.6% of net sales. The improvement of 300 basis points from last year's first quarter reflects the impact of sales leverage and ongoing benefit of cost cost-saving initiatives implemented in recent years.
spk10: Four clearly defined strategic pillars guided our turnaround and keep us focused to deliver our growth strategy. We are customer-led, product-obsessed, digital-first, and operationally excellent. Let me update you on each. We are customer-led, focused on community engagement and creating exceptional and memorable customer experiences. Three powerful commerce channels, creating connections, community, and collaboration, and enabling our customer to interact with us is a first impression of our brand, and an efficient platform to teach our customers how to use our merchandise.
spk05: Our physical stores serve as community centers for both connection and self-discovery, and bra experts. And finally, our social stylists can expertly connect the two. Each of our brands has, and we laid the groundwork last year with a new customer data platform that will fuel our new loyalty programs. Our existing loyalty programs already have some of the highest participation rates in retail at over 90%.
spk10: We launched our new summer loyalty program in the fourth quarter last year and plan to launch in the second quarter of this year.
spk05: We know our customer and look forward to further solidifying our already strong relationships through these new programs.
spk10: And we are product obsessed. delivering distinctive, innovative, premium, best-in-class goods that provide beautiful solutions, giving our customer confidence and joy. At each brand, we are focused on driving AUR and full-price sales growth.
spk05: At White House Black Market, customers enthusiastically responded to versatile dressing in seasonless fabric.
spk07: ...wardrobes.
spk05: Premium denim was strong, with the launch of new girlfriend style, and inspiring dresses were a huge win for the quarter. At Chicos, we are reinvigorating growth with the franchise, our traveler's collection, and pants and denim, featuring our so slimming bottom and 360-fit paneling. At both Chicos, Every category grew significantly over last year, demonstrating that product enhancements and innovation are moving both apparel brands forward. In fact, customers appreciate our elevated quality and are receptive to paying for value across our entire brand portfolio.
spk10: At SOMA, we continue to make investments in cutting-edge product innovation and comfort solutions in panties, sleep, active, and especially bras. We are the destination for all for bra needs.
spk05: We are a proprietary technology that adjusts to a world where they fluctuate throughout the month. At SOMA, we are well-positioned with replenishment and basic investments, especially critical in the foundations business.
spk10: We are digital first, leveraging technology to engage and deliver to our customers across channels by strengthening our core platform, data-driven insights and decision-making. In the quarter, we generated strong year-over-year double-digit growth. Our proprietary digital tools continue to fuel sales and engagement is growing. Combined digital tools grew 26% over last year's first quarter. Customers using these tools, like File Connect and My Closet, are more engaged and have higher conversion rates, units per transaction, and average order value. For example, customers using My Closet have a five times higher conversion rate than the site average and a significantly higher AOV than those not using the feature. Multi-channel customers spend more than three times single-channel customers, and this group continued to grow in customer count, sales, and spend for customer in the first quarter. All three of our brands have now successfully launched apps, and sales from the apps are tracking at two times plan, driven by higher average order values. Sales generated are approximately 15% higher than the site average. We are pleased that the app has garnered a 4.8-star rating on the Apple App Store. We will continue to invest in technology and talent, enhancing AI-driven customer engagement and science-based marketing. Our digital evolution continues. We strive for operational excellence. During 2021 and continuing into first quarter of 2022, we prudently managed our inventory. supply chain, expenses, and real estate. We also generated healthy cash flow and delivered a strong bottom line. All of this shows during the quarter we had exceptional gross margin performance driven by strength in full price sales, higher AURs, and improved leverage of occupancy costs on higher sales despite increases in raw materials. We actively manage the production calendar, inventory flow, and the supply chain challenges to assure goods arrive on time while controlling freight costs. For example, the decision to extend our production calendar by 10 weeks has allowed us to reduce costly air freight usage and even reduce year-over-year inbound logistic costs. Sales leverage and ongoing cost discipline efforts resulted in our best SG&A rate performance in several years.
spk05: Now, let me turn the call over to PJ to update you on our financial performance. PJ?
spk07: Thank you, Molly, and good morning, everyone.
spk02: Our powerful portfolio of three unique brands continues to outperform, with each brand contributing to growth and profit
spk07: profitability, and fueling continued momentum.
spk02: During the first quarter, we achieved 41% comparable sales growth over 2021, and we surpassed 2019 comparable sales by 11%. This performance was driven by the newness and innovation of our assortments and enhanced marketing at 40% compared to 32.7% last year, The 730 basis point improvement in gross margin rate primarily reflected higher AUR combined with occupancy leverage, both of which more than offset elevated raw material and freight costs. SG&A expenses for the quarter totaled $171 million, or 31.6 percent of sales, compared to 34.6 percent of sales in 2021, our best first quarter rate in five years. Buyer sales, coupled with proactive expense management, have enabled us to realize meaningful leverage that will give us more financial flexibility as we continue to grow and invest in all three brands. For the quarter, we generated $45 million of operating income and posted our highest operating margin in five years at 8.4%. We also generated $57 million of EBITDA, nearly a 10-times increase over last year. clear evidence of the strength of our operating model, which focuses equally on sales, earnings growth, and cash flow. Shifting to our balance sheet and the strength of our financial position, we ended the quarter with cash of $104 million and capacity on our credit facility of $157 million, equating to total liquidity of over $260 million. This provides us the flexibility to manage our current business while making investments to propel future growth. At the end of the first quarter, inventories totaled $326 million compared to $210 million at the end of last year's first quarter. The $116 million, or 55% increase from last year, primarily reflects on-hand inventories to align with higher consumer demand and an increase in in-transit inventories due to extended transit times, which are currently more than double what we have seen in prior years. Now, looking at sales relative to inventory levels of each brand, White House black market on-hand inventory was up 46%, and well in line with total sales growth of 62.5%. Tire in transit is well positioned to ensure steady flow of newness to meet demand through summer and early fall. Chico's on-hand inventory was up 43% and also well in line with total sales growth of 49.4% in the first quarter. In transit inventory for Chico's also represents summer and early fall assortments that we expect to deliver on time to satisfy planned demand for the second quarter up just over 40%, and 95% comprise of core bras and panties in basic replenishment colors and styles. In short, we believe our inventory is well-positioned relative to planned demand for each brand for the balance of the year. Now, let's shift to real estate. We continue to actively manage our real estate portfolio to enhance overall store and company profitability. It is important to note that our customers love to engage with our brands in the communities where they live, and our digital sales trend much higher in markets where we have a physical presence. We view our current real estate foot and competitive advantage given our prime locations across the U.S., and we plan to optimize this advantage over the coming years. At the end of the first quarter, we operated 1,264 boutiques compared to 1,410 boutiques for the same period in 2019. Despite this 10% reduction in the store fleet, total sales were 4.5% above the first quarter of 2019. Going forward, we plan to open up to 30 Soma standalone stores in the back half of this year.
spk07: And although we are targeting up to 40 store closures in both Chico's and White House black market, store performance continues to improve, and this number will remain a moving target.
spk02: Now, I will give some color on our outlook for the second quarter and full year. We expect strong top-line growth for the year, ahead of our 12.5% compound annual growth rate target under our current long-term plan.
spk06: All three brands are well positioned for success with innovative product launches that are mentioned through higher AUR and occupancy leverage. However, supply chain disruption and inflation are expected to remain a challenge that we are working to navigate as we successfully did in 2021.
spk02: We remain highly disciplined on expense control and have a lean cost structure. Although we are seeing labor inflation in our stores and distribution centers, we view both of these costs as investments that are closely linked to top line growth. And marketing, our second largest expense next to labor, is one that we can adjust as the environment dictates.
spk07: We are also excited about the selective investments we are making in e-commerce and marketing platforms
spk02: that are supporting all three brands and creating a closer, more personalized relationship with our customers. This will be key in driving both traffic and conversion across channels to complement higher AURs. We forecast our cash flow and liquidity will remain strong and provide us with the flexibility. With that, for the second quarter, we expect total sales of 535 to 550 million. gross margin rate to be in the 38.7% to 39.4% range, SG&A rate to be in the 31.2% to 31.6% range, an effective tax rate of approximately 26%, and that diluted EPS of 21 to 26 cents per share. With our first quarter exceeding expectations, we have raised our full year 2022 outlook and now expect total sales rate to be in the 38.3 to 38.6% range to be in the 32.6 to 32.9% range.
spk07: An effective tax rate of approximately 26% and diluted EPS of 64 to 74 cents per share.
spk02: Our planned capital expenditures for fiscal 2022 are $65 to $70 million, allocated approximately one-third for digital investments, one-third for new Selma stores, and one-third for supply chain store upgrades and facilities. In closing, we remain confident in our ability to take advantage of our existing momentum and deliver on our three-year plan we laid out in March. Our plan targets over $2.5 billion in sales by 2024 and includes more than $1 billion of digital sales. We are also planning to reach an annual gross margin of 40% and a minimum operating margin of 7.5%. And we plan to generate cumulative cash from operations of over $400 million. All this would help support an EPS target growth rate in excess of 15% annually. We look forward to keeping you posted on our progress. Now, I'll turn the call back over to the operator. Operator?
spk00: Thank you. At this time, we would be happy to take your questions. To ask a question, you may press star then one on your touch-tone phone. To remove yourself from queue, please press star then two. And in the interest of time and consideration to others, please limit yourself to one question. Today's first question comes from Susan Anderson at B. Riley. Please go ahead.
spk11: Good morning, Alec Legg. I'm for Susan. Thanks for taking our question. Nice job on the quarter. My first question just on the comps. So they were all positive versus 2019, but I'm just curious if you could talk about the store traffic versus conversion and the ADS and then maybe even the traffic of the mall.
spk06: All stores versus all small stores?
spk10: Absolutely, and thank you, Alec. So, first of all, we are excited about what we're seeing in the business and what we're seeing in the customer behavior. As it specifically relates to AUR and ADS, we are seeing strong customer demand across the three brands. In fact, if we look at our spend per customer, our spend per customer is up 22% year over year, and we are experiencing. We're also exhibiting strong, healthy customer when we look at the Q1 customer versus what the rolling 12. Perfect.
spk06: Thanks.
spk11: Just to follow up on the gross margins for the year, I guess, how big are you modeling in excess freight costs, and is there anything we should be mindful of as we enter the back half of this year, such as excess freight costs paid in the back half of 2021? Yeah, thanks, Alec.
spk02: I'll take that one. So, you know, for this quarter, we reached 40%, and that was, you know, which was higher than last year in 2019. It was driven primarily by AUR, which drove about 400 basis points. That was offset by about 340 basis points of raw material and freight costs. However, I would note that the majority of that was raw materials and less so on the freight impact. For the quarter and for the back half of the year, we are managing our mix of ocean and air. So although we expect continued elevated impact from inflation, we do expect the growth to slow and even in some respects be lower than last year because we are using more ocean and less freight. And that's a function of us extending our calendar by 10 weeks and just managing the inventory better. So AUR is outpacing average unit costs. So we're going to continue to manage that. And, again, throughout the year, you know, we do expect elevated costs, but, again, we're working through it and managing around it.
spk11: Perfect. Thank you. Best of luck the rest of the year.
spk02: Thank you, Alex.
spk00: Thank you. And our next question today comes from Dana Telsey at Telsey Advisory. Please go ahead.
spk04: Good morning, everyone, and nice to see the progress. As you think about supply chain and price increases, Where are you in that journey for each of the brands? And I think, Molly, you had mentioned some of the slowdown in loungewear. That was some of the pandemic-type clothing. How are you planning that going forward? And is space being reallocated? Thank you.
spk10: Good morning, Dana, and thank you. The supply chain challenges that we've experienced all the way through 2021 have obviously continued through 2022. And we have been nimble in responding to these challenges by taking positions in basics and shifting the calendar to mitigate the extended in transit time. We will continue to respond to these new challenges as they arise, and we'll keep actively managing our production calendar to avoid the costly air freight until we see the situation changing. And as PJ alluded to, we are seeing favorable based upon our mix in ocean and air, and we'll continue to manage that from a supply chain standpoint. As it relates to categories and how they are shifting, this is something that is just consistent in our business, that there are shifts in the business and staying close to the consumer behavior that you mentioned within SOMA. We have shifted to our core category in bras and panties. And if you look at for the first quarter, according to NPD data, the consumer demand for non-sport bras and panties fell, while Soma's share in these categories continued to grow. In fact, we had a double-digit spread between the market decline and Soma's growth, which is evidence that our strategy is working to continue to drive our core bra and panty business. And for the quarter, even though we posted a 0.5% increase, the core and bra and panty business grew 5% over last year based upon our launch of the Botify, which is one of our six new franchises within bras. So we'll continue to be able to drive those core categories to offset what would happen in lounge.
spk04: Got it. And then just as you think about planning inventory as we go through the year, how do you look at the cadence of inventory is up 55% now. How do you think about that cadence of growth going forward?
spk10: We believe our inventories are appropriately assorted and well positioned for growth in each brand. In particular, if you look at the apparel inventories, we are down 6% compared to the first quarter of fiscal 2019. And the total SOMA inventory, including on hand and in transit, was up 40% over last year. But if you look at the composition of that, Dana, you can see that 95% of that inventory is comprised of core bras and panties in basic replenishment colors and styles. Our markdown inventory is actually down double digits compared to last year. So anything that we had in the lounge category that we in the first quarter has been liquidated. So our inventory position that is over is in core panties and bras, which are not a liability.
spk00: Thank you. Our next question today comes from Marnie Shapiro in Retail Tracker. Please go ahead.
spk09: Hey, guys, congratulations on a great quarter and really beautiful assortments. PJ, if you could just walk through quickly again. I think you said you're going to open up up to 30 SOMAs, close 40 each White House black market. If you just can confirm that, and are you opening up any White House or Chico's? And then, Molly, if you could just talk about kind of following up on what Dana was saying. Spring, summer feels like the peak event, wedding period, White House's dresses have been absolutely beautiful, Chico's as well. So how are you thinking about the mix of kind of dress up to more wear to work in the back half of the year? And do you feel well positioned for that?
spk02: So thanks, Marnie. So on the store opening, so with regards to Soma, we're planning to open up to 30 in the back half of this year. We've identified 28. We're working on potentially two more. And then going forward, we do expect to continue to open Soma pursuant to our three-year plan. With regards to White House and Chico's, You know, we're targeting actually closing up to 40 mall-based Chico's and White House. We're not contemplating opening additional stores. But, again, managing our fleet is, you know, is an ongoing, you know, exercise. But that's the cadence that's in the plan right now for the fleet.
spk03: Great.
spk10: And, Marnie, as it relates to spring-summer mix and dress-up in the back half of the year, We are feeling very good about the position of our inventory. We have been very prudent about remaining lean in the apparel categories or actually in the fashion categories is probably the best way to say it. We spent a tremendous amount of time looking at new fabrications to launch in both of the apparel brands. And those are not unique to a season but really are things that have a lot of stretch and so that they can last for any type of occasion, whether she's at home working or whether she is in the office, or even versatility in our dresses. In particular, if you look at the new category that we've launched for the second quarter in Chicos, our dresses have a tremendous amount of versatility and can take you anywhere. So we're very focused on versatility to be able to manage how the customer is dressing in a much more broad manner. We believe that this is not only a customer change in how she wants to dress, but we believe this is really just a sea change on how we need to respond to the consumer. So as that spring-summer mix, we're very pleased with where our inventory levels are today. And as we look at the back half of this year, we have a balance of basic categories along with fashion. We have some new things that are in the pipeline as well. We just launched shoes and Chicos. We also have a new linen fabrication that we just launched that we're excited about. We also have something new that's coming in White House in July. And also in summer, we also continue that innovation pipeline as well.
spk05: We launched a new modified denim. and we also have some new online things that are coming later on this quarter.
spk10: So we're going to continue driving that innovation pipeline to be able to drive consumer demand and also maintain higher AURs.
spk09: Fantastic. Best of luck this summer.
spk10: Thank you, Marnie. Thank you.
spk00: And our next question today comes from Janet Kloppenberg with JJK Research Associates. Please go ahead.
spk08: Good morning, everyone, and let me add my congratulations. I wanted to... Just follow up a little bit on SOMA and be clear that the lounge, it's the lounge and what other category, Molly, that softened up? Did you expect that and are the inventories for the back half planned down, or do you see the category bouncing as we go into the remainder of the year? In terms of Chico's and White House black market, I was just wondering what level of price increases you've taken, what inning we're in on that, and how much you're thinking about the potential for the promotional environment to heat up as we go through the rest of the year with perhaps other competitors having too much inventory and maybe not inventory that's as appropriate as yours, you know, inventory that may not be resonating. Thanks so much.
spk10: Yes, and thank you, Janet. As regards to the health of the inventory, we've taken the lounge and cozy categories that we needed to that we saw really as the change in Q1. Where we see opportunity is in the core categories, and in the back half of the year for SOMA, we will continue to focus on our core categories of bras and panties and sleep. And that's where we're focused, and we believe that we have a inventory and receipts that are aligned to the demand that we see in the back half of the year that PJ mentioned in the outlook. As it relates to apparel and price increases and what we've taken in terms of tickets, the biggest thing that we focused on, Janet, is actually newness in the assortment. and not just taking like-for-like items up in prices. So it's been very important that we stay focused on this innovation pipeline, that we're offering new fit features in our bottoms, we're offering new bodies, and we're offering new fabrications and even new categories in our apparel brands and even in the modified launch in Selma, so that we are able to demonstrate to customers that this is what the product does, this is why it's extra value, and we are not seeing any customers that are having a challenge with the better quality garments that we're giving them and that they are paying for that price point. And that is evident in our units being up, our AUR being up, and our ADS being up. and also spend for customer being up double digits across the board, in addition to our customer count being up in all three brands. So we believe we have taken the necessary steps there. As it relates to promotions, we believe that lean inventories, in particular in fashion categories, are the key to not going backwards on promotion. We have actually taken more promotion out of the calendar in Q1 versus last year. and are remaining to stay focused on better product, better storytelling to be able to manage that. So we are going to remain vigilant, but we are also going to stay very close to the customer behavior. And currently what we have not seen is we have not seen a change in the customer behavior.
spk08: That's great. Thank you. PJ, I was unclear about whether – I heard what you said about the freight and the ocean and all that, but I was just wondering, does that mean that you have a tailwind on gross margin because of lower freight expense going into the back half, and does that help compensate for some of the raw material pressure you're facing right now?
spk02: Yeah, John, so the back half, you know, there's still limited visibility, and it's fluid. But what we can say is because we're managing our ocean and air better, we are seeing lower year-over-year inbound freight costs in the first quarter, which, as you know, will accrue to us, you know, going into the second quarter. So, you know, It can work managing that mix, and so there's a little bit of a tailwind right now, but, you know, it's volatile, so it's subject to change. But we've budgeted for higher supply chain costs in the back half, so we remain cautious there.
spk08: But even though you're seeing it come down, you put it in at a higher level just because things could change? Is that how I should read what you just said?
spk02: Yeah, we planned the back half a little bit more conservatively just given, you know, how the landscape has changed rapidly. So, yeah. But, you know, again, we had a benefit in Q1. We expect a benefit in Q2. And we'll continue to monitor it.
spk08: And what about receipt timeliness? Is it getting better or are you starting to to have shorter delays, et cetera. And I just had one more question on real estate after that. Thank you.
spk10: Yeah, absolutely, Janet. We believe that it was a key decision to move our production calendar 10 weeks, and that has allowed us to be able to have on-time deliveries and also that more favorable mix between ocean and air freight. So that key decision has allowed us to be able to have on-time deliveries. In fact, our on-time deliveries were well over 80% for the quarter. And the few things that were a little later than we had expected were not massively delayed. We're only talking about maybe a week change in the difference of what we had expected. So all manageable.
spk08: Okay, good. And just on the store closings of Chico's and White House back market, could you perhaps be negotiating better lease terms, PJ, that would make the stores P&L more viable and keep them open?
spk02: Yeah, Janet, so we are doing that. And in many respects, stores that were, you know, slated or at risk of close have come off that list. We targeted closing 40 to 50 stores last year. We closed less than 40. So yeah, we constantly evaluate the portfolio and negotiate the best deals we can. At the same time, we're seeing productivity at the stores improve. So that level of store closure could slow.
spk08: Thank you very much.
spk10: Thank you, Janet.
spk00: Ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Molly Lang. It's time for any closing remarks.
spk10: Thank you. Our results and continued momentum demonstrate that our strategy is working. We are a company with three powerful brands, each with a clear path for profitable growth, and our pillars of customer-led, product-obsessed, digital-first, and operational excellence continue to guide us. After achieving a successful turnaround, we are now focused on delivering on our three-year growth plan, and we are off to a great start. I want to thank the Chico's FAS team for continuing to deliver these great results and positioning us for an even better future. Thank you for your interest and confidence in Chico's FAS, and we look forward to speaking with you again during our second quarter call in August.
spk00: Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
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