Feb. 27--Chico's FAS Inc. felt the chill of seasonal promotions offered by retailers in the final months of 2013.
The Fort Myers-based women's retailer saw its profits plummet more than 80 percent in the fourth quarter of last year, as retailers across the country drastically slashed prices in one the most discount-driven holiday seasons seen in years. Discounts ran as high as 80 percent in some of its competitor's store windows -- and Chico's dropped its prices to try to keep up.
The retailer faced several other challenges in the quarter, including shifts in buyer behavior, severe winter weather, and products that didn't fit customer demands.
The company reported adjusted earnings of $5.9 million, or 4 cents a share, down from $32.7 million, or 20 cents a share, a year ago. That excludes tax charges and other costs related to its purchase of Boston Proper. Including those one-time charges, the company went into the negative, swinging to a loss of about $348,000, compared to profits of $31.5 million, or 19 cents a share a year ago.
In its fiscal year ending Feb. 1, adjusted earnings fell to $137 million, or 85 cents a share, down from $182.2 million, or $1.09, in 2012. Including one-time charges, net income for 2013 dropped to $65.9 million, or 41 cents a share.
Results for both the fourth quarter and the year missed Wall Street's expectations for revenues and profits. On average, analysts expected earnings of 15 cents a share in the quarter, which turned out to be the retailer's slowest of the year.
"Needless to say, we are glad that 2013 is now in our rearview mirror," said David Dyer, the company's president and CEO, during a Thursday conference call.
Net sales fell 6.4 percent in the fourth quarter to $610.2 million, down from $615.9 million last year. While the company added 115 new stores over the year, those sales were offset by a 3.4 percent drop in same-store sales -- or sales made at stores open at least a year.
The results primarily reflect lower prices, transaction counts and traffic in a highly promotional environment.
For the year, net sales rose only slightly, growing 0.2 percent to $2.586 billion. Same-store sales fell 1.8 percent last year, following a 7.2 percent increase in 2012.
"Let there be no doubt, there were meaningful learnings in 2013," Dyer said. "We didn't achieve the goals that we set for ourselves. Our 2014 plan integrates these learnings and we will be diligent in executing against these plans. The foundation of our brands is to differentiate through innovation, quality and service, with the high inventory turn over demanded of a fashion brand."
The company has four brands -- its namesake Chico's, White House/Black Market, Soma Intimates and Boston Proper. It operates 1,472 stores in the U.S. and Canada. Last year, it opened its first Boston Proper stores in the U.S. and its first White House/Black Market stores in Canada. The company recently announced the launch of the Chico's brand in Mexico, through an exclusive franchise with El Puerto de Liverpool, S.A.B. de C. V.
Across its brands, the company expects to open another 130 stores this year.
Same-store sales in the fourth quarter fell slightly for its Chico's brand, with fashions overly career-oriented. White House/Black Market saw the biggest drop, at 6.6 percent over the year, with too much color and not enough specialty merchandise. Boston Proper's sales declined by $9.7 million, reflecting lower demand for an assortment that lacked the color, patterns and sexy boho or Bohemian style customers have come to expect.
Soma saw only a slight increase in sales, compared to a double-digt increase in the fourth quarter of 2012.
The board of directors declared a quarterly cash dividend of 0.075 cents per share, a 36 percent increase over the rate from April. It's payable on March 31, to investors owning shares as of the end of the business day on March 17.
Strategies for improving sales include digital technology investments, updated rewards programs, innovative TV advertising, breakthrough fashions, repositioning merchandise to meet customer demands, elevating the customer experience, and store growth.
The company plans $30 million to $35 million in strategic capital investments this year, which includes adding Boston Proper stores and international expansion.
Since Valentine's Day, same-store sales have turned positive, with warmer weather ahead, Dyer said.
Jennifer Black, CEO and president of Jennifer Black & Associates LLC in Oregon, headlined her research note about Chico's this way, "Winter Blues Brings Warm Spring Hues."
She blamed the disappointing fourth quarter results on traffic challenges and what she described as "mediocre" product offerings by the Chico's and White House/Black Market brands.
She sees better days ahead. "Chico's newest spring floorset is spot on," she wrote. "We love the warmer hues, influence of the safari theme with an infusion of animal prints. The merchandise also appears to be resonating with the Chico's customer as stores have been busy and women are calling to see if the merchandise is in stores yet."
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