Chico's FAS, Inc.

Welcome to the Chico's FAS first quarter 2023 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 the company's head of investor relations, Julie McMeaton. Ms. McMeaton, please go ahead.

Good morning, and welcome to the Chico's FAS first quarter 2023 conference call and webcast. For reference, our earnings release can be found on our website. at www.chicosfis.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 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. Certain non-GAAP measures may be referenced on today's call. A gap to non-GAAP reconciliation schedule is included in our earnings presentation posted this morning on the Chico's FAS Investor Relations page. Now, I'll turn the call over to our CEO and President, Molly Langenstein.

Thank you, Julie, and good morning, everyone. We delivered another outstanding quarter of operating income and earnings performance, demonstrating solid execution and underscoring our commitment to our four strategic pillars of being customer-led, product-obsessed, digital-first, and operationally excellent. First quarter earnings per share exceeded last year and our outlook, driven by gross margin performance and disciplined expense management. For all three brands, full price sales remained healthy. Spend per customer and average unit retail was up year over year, and we gained market share. Chicos, our largest brand, celebrating its 40th anniversary, demonstrated outstanding performance, posting comparable sales growth of 4.9% on top of 52% last year. We believe Chicos is positioned for continued outsized growth. SOMA sales trends continued to improve from prior quarters, while White House black market sales declined as we quickly sold through fashion inventories due to strong customer demand. Let me cover some highlights for the quarter. We delivered another quarter of meaningful gross margin expansion, which led to strong operating income and bottom line results. Operating income grew to 10% of net sales, improving 160 basis points over last year, and diluted EPS increased 14% over last year to $0.32. Our powerful portfolio together delivered total sales of $535 million and a two-year stacked comparable sales increase of 40%. Our largest brand, Chico's, led the way as customers responded to innovation and solution-oriented products, building complete outfits. Zalma has had four quarters of sequential year-over-year improvement in comparable sales performance, with the first quarter improving 250 basis points over last year's fourth quarter. Innovation and discipline drove double-digit AUR and profitability growth over last year's first quarter. Our best-in-class bra and panty offerings continued to outperform to last year, indicating the overall long-term power and strength of the brand. White House black market comparable sales fell 8% and were up 57% on a two-year stack basis. Customers responded to our newness in fabric, innovation, and fashion, building complete outfits. Quickly selling down our fashion inventory levels during the quarter. We expect to have more inventory in line with demand by early fall, which should drive a back half trend change. Our brands continued to take market share. According to Cercana, during the last 12 months, Chico's was the fastest growing apparel brand for customers over 45 with household incomes over $100,000. And White House Black Market gained share in this key market as well. During the same period, Soma gained market share with customers over 35 with household incomes over $100,000. Innovative products targeted marketing, and our impactful loyalty program drove more customers to our brand. Over the prior 12 months, multi-channel customer count and spend per customer were up mid-single digits, and total customer count was up, indicating the long-term opportunity for each brand. This same innovation and marketing has meaningfully increased spend per customer across all brands since 2019. demonstrating the quality and health of our customer file, a customer that is focused on fashion and newness rather than pricing and value. We ended the quarter with customer-facing inventory up 1%, well-positioned entering the second quarter. We further strengthened our balance sheet, ending the quarter with $131 million in cash after repaying $25 million of debt and returning nearly 20 million to shareholders through share repurchases. Let me give you a brief update on how each of our strategic pillars drove first quarter results. We are customer-led, connecting with our customers and driving long-term growth through three powerful platforms. Our physical stores are community centers, where our stylists and bra experts showcase our products, and they share their knowledge and enthusiasm. driving sales and brand loyalty. Digital is the hub for our product offerings and often the first impression of our brands. And our social stylists can expertly connect customers to our brands and drive growth within both channels. For the 12 months ended with the first quarter, customer count grew 2%. Spend per customer was up 7%, and the multi-channel customer count grew 6%. demonstrating the overall health of our brand. We also have a significant number of customers within our reactivated file that have not shopped with us for 36 months that are coming back to each of our brands. This means more demand in the pipeline and a very captive customer segment for us to engage with. Our loyalty programs we launched last summer continue to exceed expectations in customer sentiment and redemption rates. We are product obsessed, focused on delivering elevated, best-in-class merchandise to our Chico's, White House, Black Market, and Soma customers, offering a continual pipeline of innovation and beautiful solutions that inspire confidence and joy. All of this is delivering more full-price selling. lower promotional activity, bigger basket sizes, and higher AUR. At all three brands, customers continue to respond to our elevated fashion and solution-oriented product, demonstrating that product enhancements and innovation are moving the brand forward. Customers appreciate higher quality, and they are receptive to paying for value and solutions. At Chico's, we are attracting new customers and driving revenue increases through newness with fit, comfort, and solutions. Customers responded to our product innovation in fashion, including dresses, new proportions in bottoms and tops, and our expanded Travelers and Zenergy collections. She focused on completing her head-to-toe looks with easy care, wrinkle-free, climate-right fabrics. At White House Black Market, customers responded to newness in casual suiting, new proportions in bottoms, and fluid, easy fabrics in both jackets and bottoms, paired with layering tops for a polished look. Our customers responded favorably to our fashion offerings. So well, in fact, we sold through much of our fashion inventory during the quarter. We are enhancing our fashion offerings with the goal to complete the rebalance by the second half of the year. At Soma, customers responded to our expanded bra and panty assortment, including the launch of unlined and stretch lace bras and panties, and our expanded Bodify and Vanishing collections that included a wider range of bra and cup sizes. This newness drove sales in these categories ahead of last year. While sales of sleepwear declined due to lower levels of markdown inventory, we significantly had healthier margins at SOMA this year. We are digital first. leveraging technology to engage and deliver to our customers across channels and brands. For the last 12 months, digital sales represented 41% of total company revenues. Over the trailing 12 months, total customer count was up 2%. Chico's was up 6%, White House Black Market was up 4%, and Selma was down 3%. The new customers we are attracting to our brands are younger than existing customers. By 10 years at Chico's, two years at White House Black Market, and three years at Soma. Each digital touchpoint, including our customized digital styling tools, My Closet and Style Connect, and our mobile app, inspires the customer to find solutions and build her wardrobe across brands. We continue to leverage our digital tools to drive customer engagement, enhance our loyalty programs, and grow multichannel customers. We'll spend more than three times the single-channel customer. We continue to enhance areas such as digital marketing, attribution and search, personalization, and order management. This will allow us to better serve our customers by customizing product recommendations, enhancing our digital user experience, and providing best-in-class customer service. And finally, we are operationally excellent, constantly focusing on diligently managing our inventory, cost of sales, supply chain, expenses, and real estate, generating healthy cash flow, and delivering a strong bottom line. For the quarter, we had outstanding gross margin performance, driven by lower freight and higher AURs. And we continually work to drive efficiencies and reduce expenses in our sourcing, logistics, and operational areas. Now, I'll turn the call over to PJ to update you on our financial performance. PJ.