US: Chico’s to discontinue Fitigues line as Q4 profit tumbles 59%
Years of almost uninterrupted expansion came to an abrupt halt Tuesday (6 March) as Chico's FAS reported a steep decline in fourth-quarter profits and a dip in February same-store sales and said it would discontinue its Fitigues division and slow the growth of its Soma intimate apparel unit.
The Fort Myers, Florida-based women's specialty store company also made a series of management appointments, highlighted by the promotion of Patricia Darrow-Smith to president of the White House|Black Market brand, of which she is co-founder.
Additionally, Michele Cloutier was named chief merchandising officer of the Chico's brand and Michael Leedy became executive vice president and chief marketing officer of the company.
In the 14 weeks ended 3 February, Chico's had net income of US$18.2m, or 10 cents a diluted share, 59.1% below the $44.5m, or 24 cents, registered during the 13-week 2005 quarter. The more recent figure includes a 3-cent-a-share charge related to plans to close the Fitigues brand during the current quarter, without which, the company said, EPS met previous quarterly guidance.
Net sales were up 18.8% to $446.3m from $375.7m a year ago. Comparable-store sales at company-owned units were off 2% during the quarter, with both Chico's and White House|Black Market finishing at that level. Gross margin declined to 54% of sales from 59.4% in the 2005 quarter.
"As we indicated in our third-quarter conference call, we faced fashion missteps that required much heavier markdowns than originally planned," said Scott Edmonds, president and chief executive officer.
"We committed to clearing our fashion mistakes by year-end and I'm pleased to report we were able to do just that. We have also begun to see some positive results from our operational initiatives.
The company also reported Tuesday that same-store sales during the four weeks ended 3 March declined 4.3% while net sales were up 15% to $113.6m.
"Although February sales and same-store sales were somewhat off planned levels, we are pleased with our initial sell-through of most of our spring line and our February gross margins, especially considering the weather," Edmonds continued.
"However, we have not fully realised the corrective measures we have been talking about at either Chico's or White House|Black Market, especially in providing our customers with a product offering that is more compelling in fashion terms."
Edmonds noted that the decision to slow down Soma's growth, which has taken it to its current store count of 51, was made "so that we can focus on strengthening the management team, improving profitability and expanding Soma beyond the Chico's customer for the long-term benefit of the Soma concept and our shareholders."
A similar deceleration was employed at Chico's in the mid-1990s with positive results, he noted.
However, management decided that "the Fitigues brand did not meet our internal expectations and opportunity for roll-out," Edmonds observed. "Thus, we think our shareholders are better served by closing down this brand at this time."
Although it built impairment charges for Fitigues into its fourth-quarter fiscal results, the remaining eight "front-line" stores and one outlet store bearing the brand will be closed during the current first quarter of fiscal 2007. Chico's paid $7.5m for Fitigues' assets during the now concluded fiscal year.
For the full year, Chico's net income declined 14.1% to $166.6m, or 93 cents a diluted share, from $194m, or $1.06, in 2005. Net sales rose 17.2% to $1.65bn from $1.4bn in the prior year. Same-store sales increased 2.1%, with Chico's "essentially flat" and White House|Black Market up 11%.
Gross margin for the year declined to 58.7% of sales from 61% in 2005. Operating margins declined 360 basis points at Chico's, 720 basis points at Soma and 250 basis points at White House|Black Market.
The company said it would discontinue providing quarterly or annual sales and earnings guidance but would comment on analysts' estimates when it deemed it appropriate to do so.
Darrow-Smith, named to head the White House|Black Market brand, was among the founders of the company and joined Chico's when it acquired White House|Black Market in 2003 as senior VP and chief creative officer of the brand.
Cloutier, now executive VP and chief merchant for Chico's, joined the firm last September as executive VP and general merchandise manager for Chico's. She previously had held senior positions with Ann Taylor and Gap.
Leedy, now executive VP and chief marketing officer of the firm, joined the firm in April 2006 after serving in senior marketing positions at American Eagle Outfitters over an 11-year period.
Other appointments at Chico's included: Carol Kauffman, VP of real estate law; Pam Avesian, VP of internal audit; Brian Sorlie, VP of real estate, West; Michelle Fichter, VP of stores for WH\GM; Michael Conway, VP, planning and replenishment for Soma; and James Tague, VP of planning and allocation for the Chico's brand.
By Arnold J Karr.
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