Apparel retailer, Chico's FAS (CHS 7.94, -2.05, -20.52%), is trading sharply lower this morning after reporting disappointing Q1 (Apr) earnings results. Chico's portfolio consists of three brands: Chico's, White House Black Market (WHBM), and Soma, all of which cater to fashion-savvy women 35 years and older.
- The Chico's brand (52% of FY17 revs) sells exclusively designed, private branded clothing focusing on women 45 and older with a moderate to high income level. Chico's apparel, including the Black Label, Zenergy, and Travelers collections, emphasizes a style that has a comfortable and relaxed fit. Accessories and jewelry are designed to elevate the clothing assortment.
- The WHBM brand (33% of FY17 revs), which was acquired in 2003, primarily sells exclusively designed, private branded clothing focusing on women 35 and older with a moderate to high income level. WHBM offers a modern collection, selling stylish and versatile clothing and accessory items, including everyday basics, wear-to-work, denim, and elegant occasion. Historically known for its black and white color palette, WHBM's collection reflects on-trend colors and patterns. The accessories at WHBM, such as shoes, belts, scarves, handbags, and jewelry, are specifically designed to coordinate with each collection.
- The Soma brand (15% of FY17 revs) sells lingerie, sleepwear, loungewear, activewear, and beauty products focusing on women 35 and older with a moderate to high income level.
CHS has been in turnaround mode. Starting with the Chico's brand,
CHS has been making some changes, including expanding its special sizes and an
online launch of plus sizes. It also launched Chico's Off the Rack as a new
online outlet channel. Broadening its online offering is a big part of the
turnaround strategy, and so is improving the quality and assortment of its
clothing. This has allowed CHS to offer less discounts and to do better with
full price selling.
Turning to WHBM, CHS hired a new brand president in mid-December. His team is making progress and delivering customer favorites, including polished Wear to Work styles and a better balance of black and white. He also introduced the Soft Suit, a classic style of blazer and pants, with double-bonded stretch knit fabric.
Turning to the Q1 (Apr) results, EPS was expected to be near flat, but it fell 11% year/year to $0.23. Revenue fell 3.8% year/year to $561.8 mln, which was a bit better than expected. Same store comps is always a key metric for retailers and on that front CHS posted a -5.9% comp in AprQ. This was down slightly from the -5.2% comp in JanQ.
Breaking the comps down by segment: Chico's was -5.5%, WHBM was -6.6%, and Soma was -5.8%, showing consistent weakness was pretty across all brands. Looking ahead, CHS is anticipating a low-to-mid single digit decline in comps in Q2 (Jul). For full-year FY18, the company is anticipating a low-to-mid single digit decline in consolidated comps which is a bit worse than prior guidance for a low single digit decline.
While CHS was pleased with the launch of some new sales-driving initiatives, Q1 (Apr) customer traffic was challenging. However, there are some positives. CHS is seeing initial success with its recently-launched ShopRunner partnership and it looks forward to the ramp up of its brand offerings on Amazon.com and QVC.
The Amazon.com (AMZN) collaboration was announced by the company on April 30. Chico's FAS will be one of the few vertically-integrated specialty retailers with Prime eligibility on Amazon.com. Beginning in mid-May, shoppers have been able to find a select assortment of Chico's merchandise on Amazon, including the brand's core collections: Travelers, Zenergy athleisure, no-iron shirts, So Slimming pants, and jewelry. As the new business channel gains traction, additional Chico's merchandise will likely be made available, with the potential of adding White House Black Market and Soma products in the future.
In another collaboration, Soma debuted on the multi-platform retailer QVC on May 5 during the "AM Style" broadcast. The brand's popular Vanishing collection sold out in minutes. The company also launched its partnership with ShopRunner, the free two-day shipping and seamless payment e-commerce network, at the end of March. All three of the company's brands are available to ShopRunner's several million active members.
In sum, this was a rough quarter for CHS. The AprQ comps are being seen as a disappointment and the lowering of guidance for full year comps was not a welcome development. It's clear that the company's turnaround is going to take some time and there will be ups and downs. But today's report will add to investors' concerns. A big part of the problem is weak customer traffic as CHS has high exposure to malls and mall traffic is down as consumers increasingly rely on online shopping. On the positive side, it's good to see CHS working with Amazon and QVC.