Chico's FAS, Inc.

For reference, our earnings release can be found on our website at www.tecosfas.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 filing, 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 GAAP to non-GAAP reconciliation schedule is included in our earnings presentation posted this morning on the Chico's FAS Investor Relations page. Now I will turn the call over to our CEO and President, Molly Langenstein.

Molly? Thank you, Julie, and good morning, everyone. We delivered another quarter of strong operating income and earnings performance, consistent with our outlook. Total second quarter year-over-year sales were also in line with our outlook on top of 18.4% growth in the second quarter of last year. On a year-over-year basis, we delivered a net sales increase of 2.1% at Soma, a modest decline at Chico's, and a sequential improvement over last quarter at White House Black Market. For all three brands, full price sales remained healthy and we attracted new customers and gained market share. Total company average dollar spend and units per transaction increased. We expanded average unit retail at both Chico's and Soma as apparel customers continued to buy head-to-toe dressing and our intimate customers responded to innovative new products. Let me provide some highlights for the quarter. We delivered adjusted earnings per diluted share of 28 cents. and operating income of 8.5%. This performance was driven by solid gross margin and continued expense management. Our diverse brand portfolio delivered total sales of $545 million and a two-year stacked comparable sales increase of 16.5%. In fact, we were just recognized by NRF as the ninth fastest growing retailer in 2022. SOMA's comparable sales were down 0.5% versus last year's second quarter. This marked a sequential comparable sales improvement over the last four consecutive quarters and an 870 basis point increase year over year. Product innovation and discipline drove year over year growth in AUR, spend for customer, gross margin, and profitability. New unlined and strapless bras, along with panties and sleepwear, continued to outperform last year. Chicos posted a 2.5% comparable sales decline, with a 27% two-year stacked growth. Customers continued to respond to innovation and our elevated product offerings, from casual to dressy styles, and remained focused on head-to-toe dressing. Chicos gained sales momentum in the quarter, which has continued into August. White House black market comparable sales fell 5.7%, a 230 basis point improvement over last quarter, and were up 26% on a two-year stacked basis. Customers continued to respond to fashion offerings and also focused on complete outfits. As we mentioned last quarter, our fashion inventory levels were depleted due to high demand. The second quarter was a transition quarter, and as we enter the fall season, our inventory levels are more in line with demand and should drive a back half trend change. Our brands continued to take market share during the quarter. According to Cercana, Chico's and White House Black Market took share for customers 45 plus with household incomes of over $100,000. Thoma substantially outpaced the market and gained share with customers 35 plus with household incomes over $100,000. Our innovative product pipeline, strategic marketing, and valuable loyalty programs continue to drive more customers to our brands. Over the prior 12 months, multi-channel customer count total customer count and spend per customer were up, indicating the long-term health and opportunity of each brand and demonstrating the quality and strength of our customer file. Our customers are more focused on fashion, elevated products, and newness rather than value and pricing. We ended the quarter with total inventory down 11% and on-hand inventory down 0.3%. appropriately positioned entering the second half of the year. We began the fall season with fresh inventory, with new fall inventory up 12% and spring and summer inventory down 12% versus last year. We see customers responding to our Trend Right product in August. We further strengthened our balance sheet, ending the quarter with $151 million in cash and total liquidity of $386 million, with only 24 million of debt. Let me give you a brief update on each of our four strategic pillars. First, we are customer-led, with each of our brands connecting with customers through three robust platforms, stores, digital, and social. All three work in tandem to provide our customers the very best experiences, drive engagement, and propel long-term profitable sales growth. Our stores are community destinations that allow our stylists and bra experts to showcase our products and share their knowledge and enthusiasm, driving sales and brand loyalty. Stores are also key to enrolling customers in our important loyalty programs. Digital is the hub for all of our product offerings and often the first impression of our brands. Our skilled social stylists expertly connect customers to our brand and drive growth. Within both the store and digital channels, social stylists are gaining traction, with sales for stylists growing month after month. We continue to attract new customers to each brand. In the second quarter versus last year, new Chicos FAS customers grew 7%, with increases over 13% at Chicos, almost 6% at White House Black Market, and 4% at SOMA. This is important as our customer's tenure is long, almost 12 years at Chico's, 9 years at White House Black Market, and 6 years at SOMA. We have an active and engaged customer base. For the rolling 12-month period, total customer count grew 1%, and spend for customer was up 3%. we continue to focus on growing multi-channel customers who spend more than three times single-channel customers. And this group grew nearly 3% over the last 12 months. These metrics demonstrate the overall health and appeal of our brand. Next, we are product obsessed. At each brand, customers continue to respond to our elevated fashion and solution-oriented product. demonstrating that product enhancements and our constant pipeline of innovation are moving the brand forward. Customers are selective, and they appreciate higher quality and are receptive to paying for value and our beautiful solutions. Chicco's generated higher year-over-year AUR in the quarter, largely driven by elevated product offerings in casual to dressy knits, accessories, and our popular franchises, like our Travelers Collection, No Iron Shirts, and Solution Bottoms. Customers in Chico's continue to buy complete outfits, and early fall selling indicates that customers are responding to our on-trend assortments, like new wider leg proportions and bottoms. At White House Black Market, head-to-toe sales resulted in higher year-over-year ADS and UPTs in the quarter. Customers are continuing to respond to new fabrications introduced last season. And we experienced momentum in casual to career dressing, with both coordinating jackets and bottoms growing year over year. These categories will be especially key in the fall season. And we are pleased with early fall fashion selling. At SOMA, ADS, AUR, and UPT rose during the quarter. as customers responded to product innovation and launches, including newness in strapless and unlined bras, stretch lace panties, and shapewear. Sleepwear was also strong for the quarter and will be even more important for the fall and holiday selling periods. We continue to be very disciplined on promotions, with gross margins improving over last year. And as we head into fall, inventories in Soma are appropriately balanced. We are digital first, leveraging technology to engage and deliver exceptional experiences to our customers across brands and channels. For the last 12 months, digital sales represented 41% of total company revenues. Each digital touchpoint, including our customized digital styling tools, My Closet, Style Connect, and our mobile apps, inspires the customer to find solutions and build her wardrobe across brands. We continue to offer more personalized digital experiences and leverage our digital tools to drive customer engagement, enhance our loyalty program, and grow our multi-channel customer base. The utilization of My Closet grew 14% over last year, and conversion is six times the site average. In addition, we are strategically leveraging the unique customer files in each of our brands to grow customers across brands. We experienced year-over-year growth with our shared customers expanding 5% over the quarter. Our apps have received over 1 million downloads. Our most loyal customers are using the app and convert at three times the site average. Our redesigned loyalty programs launched one year ago continue to top our expectations and customer sentiment, redemption rates, and shopping frequency. Nearly 90% of our apparel customers and nearly 80% of FOMA customers are enrolled in the new programs. These customers generate the vast majority of our revenues and drive higher UPTs and AURs. And the majority of new customers are enrolling in the programs as well. We are replatforming each of our websites, beginning with White House Black Market this fall, with the others to follow soon after. Improvements in site experience and conversion should generate future tailwinds for digital growth. We continue to make digital investments in marketing, attribution and search, personalization and order management, allowing us to better target our marketing dollars. In addition, we are investing more in upper funnel marketing strategies to continue to fuel new customer growth. And lastly, we strive to be operationally excellent. diligently focusing on managing our inventory, cost of sales, expenses, and real estate, generating healthy cash flow and delivering a strong bottom line. 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 Chief Financial Officer David Oliver to update you on our financial performance. David.

Thank you, Molly, and good morning everyone. As a reminder, certain numbers I will discuss today are non-GAAP adjusted numbers. We delivered another profitable quarter with strong overall top line and gross margin performance and disciplined expense management. We also generated strong free cash flow while continuing to invest in our long-term growth strategies. For the quarter, we generated adjusted diluted EPS of $0.28 compared to $0.34 in last year's second quarter. Total sales of $545 million were down 2.4% from last year and down 3% on a comparable sales basis. This performance was consistent with our outlook and is on top of a 19.5% comparable increase last year, representing two-year stacked growth of 16.5%. Overall, average dollar sale in units per transaction increased, offset by a decrease in transaction count. By brand, Soma was the lead performer for the quarter, posting a 2.1% net sales increase and a 0.5% decline on a comparable basis, marking the brand's fourth consecutive quarter of sequential trend improvement. Comparable sales decreased 2.5% at Chico's and 5.7% at White House Black Market, both on top of a nearly 30% increase on a two-year stacked basis. Gross margin of 39.8% exceeded our outlook, compared to last year's high rate of 41.4%. The current year rate is healthy normalized margin, indicative of steady inventory flow and normalized markdowns. SG&A expenses totaled $170 million, or 31.3% of sales, compared to $173 million, or 31%, in the prior year. We are disciplined and thoughtful in managing expenses. And we will remain lean while strategically investing in areas like marketing and store payroll to support customer growth, store productivity, and top line growth. The current year SG&A rate deleverage was primarily a function of sales. All three brands contributed to our consolidated operating income of 46.5 million, or 8.5% of sales. We generated 55.5 million of EBITDA for the quarter, or 10.2% of net sales, indicative of our ability to generate strong cash flow to support our strategic plan, and ongoing investment and growth. Now let me turn to our balance sheet. Our cash position, total liquidity, and operating cash flow remain very strong, providing us with flexibility to manage the business, make investments to further propel growth, and return excess cash to shareholders. We ended the quarter with $151 million of cash and total liquidity of $386 million, which includes capacity on our multi-year committed credit facility. With only $24 million of debt, our debt to EBITDA ratio on a 12-month basis was less than 0.2 times. At quarter end, inventory totaled $300 million compared to $339 million last year. The 11% decline primarily reflects a return to normalized supply chain conditions that resulted in significantly lower in-transit inventories. On-hand inventories were down 0.3%. Now, let's shift our focus to real estate. We believe our fleet is well positioned to deliver incremental growth and profitability going forward, and we are continually working to optimize our portfolio. This year, we have completed the upgrade of nearly 60 Chico's boutiques, which in the aggregate are meaningfully outperforming the remainder of the store base. For SOMA, we expect to open a total of three stores this year and are actively looking for additional locations should the right opportunities develop. In the aggregate, the 27 SOMA stores opened mostly in the third and fourth quarters of last year continue to outperform and should provide a digital halo and be a boost to comparable sales this fall season. We closed net 11 stores in the first half of the year. closing underperforming locations has been accretive to our P&L. And due to our strengthened financial position, we have been able to negotiate longer-term new and renewed leases with more favorable terms in more desirable locations. We ended the second quarter with 1,258 boutiques. Now let me provide our updated outlook for fiscal 23. On top of our 18% total company sales increase in fiscal 22, And accounting for our first-hand performance, we are now planning for fiscal 23 revenues to be flat to up in the low single-digit range compared to last year. This would imply two-year net sales growth of 18% to 20% over the second quarter for each of our brands, as we are seeing customers respond to our fresh fall assortments. The third quarter will continue to be a transition period for White House Black Market but we expect fourth quarter trends will rebound. We will continue to manage expenses and expect cash flow to remain strong as we invest in our long-term growth plan. We will also make prudent investments in our business that will drive traffic, conversion, customer growth, and revenues across all channels for many years to come. Our planned capital expenditures for fiscal 23 are expected to total between 75 to 85 million inclusive of cloud-based investment. As our cash flow at Ipatal remains very strong, we expect our financial position to continue to strengthen. In addition to funding strategic investments and reducing debt, cash flow will allow us to navigate the macro environment. So, for the third quarter, we expect total sales of $505 to $525 million. gross margin rate in the 38.5 to 39% range, SG&A rate in the 35.1 to 35.6% range, an effective tax rate of approximately 29%, and diluted EPS of 8 to 12 cents. For the full year, which consists of 53 weeks, we now expect total sales of 2.145 to 2.175 billion, gross margin rate in the 38.5 to 38.8% range, SG&A rate in the 33 to 33.3% range, an effective tax rate of approximately 26%, and diluted EPS of 66 to 74 cents. Looking ahead, we are optimistic about the green shoots we are seeing in August and are well-positioned to adjust to react to this ever-changing environment. As always, We are focused on controlling what we can control, our inventory assortments, balance sheet, and expenses. We continue to make progress on our key strategic initiatives and investments in digital, technology, and stores to deliver long-term top and bottom line growth. Now I'll turn the call back over to the operator. Operator?