FRAN Francescas Holdings Corporation

Shares of Fort Myers, Florida-based specialty retailer, Chico's FAS, Inc. (CHS) fell 8.5% yesterday after the company posted disappointing fourth-quarter and fiscal 2013 results. The company’s adjusted earnings per share of 4 cents and 85 cents for the fourth quarter and fiscal 2013 respectively fell 80% and 22% from the year-ago comparable periods.

Moreover, the company’s bottom-line results for the fourth quarter and fiscal 2013 came below the Zacks Consensus Estimate of 16 cents and 97 cents per share, respectively. The year-over-year decline in bottom results was mainly due to lower sales and higher operating expenses.

Adjusted earnings for fourth-quarter fiscal 2013 did not include tax charges related to non-cash goodwill impairment charge of Boston Proper while for fourth-quarter fiscal 2012, non-recurring acquisition and integration costs were excluded.

After incorporating these charges, the company reported break-even earnings for the fourth quarter of fiscal 2013 against 19 cents per share reported in the fourth quarter of fiscal 2012. For fiscal 2013, on a reported basis, the company posted earnings per share of 41 cents versus $1.08 in fiscal 2012.

Net sales decreased 6.4% year over year to $610.2 million in the quarter and lagged the Zacks Consensus Estimate of $655.0 million. The top line in the quarter was negatively impacted by cautious consumer spending behavior and unfavorable weather conditions.

Net sales during fiscal 2013 improved marginally to $2,586.0 million from $2,581.1 million in fiscal 2012. However, fiscal 2013 sales remain below the Zacks Consensus Estimate of $2,630.0 million.

Quarter in Detail

Comparable store sales (comps) in the quarter fell 3.4% against a 3.7% increase reported in the year-ago quarter, reflecting decreased traffic as well as lower average dollar sale and transaction count.

In the reported quarter, Chico's/Soma Intimates comps declined 1.5% as against a 2.3% rise last year. White House | Black Market (WHBM) brands' same-store sales fell 6.6% compared with a 6.3% rise last year.

Gross profit declined 10.7% to $309.6 million in the reported quarter, while gross margin contracted 250 basis points (bps) from the year-ago quarter to 50.7%. The decline in gross margin was primarily due to increased promotion to drive traffic to stores, slightly offset by lower incentives as a percentage of sales.

Selling, general and administrative (SG&A) expenses in the reported quarter were $302.4 million, up 3.7% from the year-ago level. As a percentage of sales, SG&A expenses expanded 410 bps from the prior-year quarter to 49.5%, primarily due to increased occupancy expenses, along with the effect of investing in strategic initiatives. These were offset by lower incentive expenses as a percentage of net sales.

Operating income was roughly $7.3 million, compared with an operating income of $48.8 million in the year-ago quarter. The decline was primarily due to increased selling, general and administrative expenses, along with lower gross profit. Consequently, operating margin contracted 630 bps to 1.2% from 7.5% in the year-ago quarter.

Financial Update

Chico’s ended the fiscal with cash and marketable securities of $152.4 million, compared with $329.4 million in the year ago quarter and shareholders’ equity of $909.1 million.

The company spent $125.0 million during the quarter to buy back 6.7 million shares under its $300 million share repurchase program that was authorized in Feb 2013. In Dec 2013, the company’s board of directors approved a $300 million share repurchase program, which has remained entirely available.

In a separate press release, Chico’s revealed that its board has approved a quarterly cash dividend of 7.5 cents per share payable on Mar 31 to shareholders of record on Mar 17.

Store Update

During the quarter, this retailer of women’s clothing and accessories opened 12 outlets and closed 10, taking the total store count to 1,472.

Other Stocks to Consider

Currently, Chico’s carries a Zacks Rank #3 (Hold). However, some better-ranked apparel/shoe retailers include Francesca’s Holdings Corp. (FRAN), Skechers USA Inc.(SKX) and Deckers Outdoor Corp. (DECK), all of which have a Zacks Rank #2 (Buy).

 
CHICOS FAS INC (CHS): Free Stock Analysis Report
 
DECKERS OUTDOOR (DECK): Free Stock Analysis Report
 
FRANCESCAS HLDG (FRAN): Free Stock Analysis Report
 
SKECHERS USA-A (SKX): Free Stock Analysis Report
 
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