Q4 2021 Chico's FAS Inc Earnings Call
Welcome to Chico's, Fas fourth quarter and fiscal year end 2021 conference call and webcast.
All participants are in a listen only mode.
Please note this call is being recorded.
I would now like to turn the call over to corporate controller, David Oliver Mr. Oliver. Please go ahead.
Morning, and welcome to the Chico's Fas fourth quarter and fiscal year 2021 conference call and webcast.
For reference our earnings release can be found on our website at www Dot Chico's Fas Dot 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.
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 forward. Looking statements are included in today's earnings release, our SEC filings 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.
Our comments and discussions of fourth quarter and full year 2021 financial results will be on an adjusted or non-GAAP basis.
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'll turn the call over to our CEO , our president Molly Lincolns filings.
Thank you David and good morning, everyone. Our 2021 performance clearly demonstrates the extraordinary progress we have made against our turnaround plan.
We delivered robust sales growth across all three brands for both the fourth quarter and the full year.
And produced our best gross margin and EPS performance in 2017.
Evidence that our strategy is working and we have strong momentum.
Key accomplishments for the year.
This year all three brands.
Leveraging our powerful shared platform contributed meaningfully to sales growth gross margin expansion and significantly higher operating income.
We posted 37 cents EPS for the fiscal year, the best performance since 2017.
Throughout the year, our sales growth was driven by increases in both our store and digital sales channels.
And was boosted by meaningful enhancements in product and marketing, which significantly drive full price selling.
Chico's continues to deliver sales improvement.
As demonstrated by the 33, 2% fourth quarter comparable sales increase.
And 37% sales increase for the year.
White House Black market also continues to deliver exceptional sales gains in fiscal 'twenty, one posting a $45 six comparable sales increase in the fourth quarter and 37% sales increase for the year.
Both chico's and White house black market benefit from elevated quality styling and product enhancements.
Inventories remain lean, which fueled high productivity and increased full price sales throughout the year for both brands.
Soma posted its sixth consecutive quarter of strong comparable sales growth.
And increased total sales over 30% since fiscal 2019.
Fueled by our pipeline of product innovation that customers are responding to.
Data from market research firm N. P. D show, that's almost growth is outpacing the market and non sports bras panties and sleepwear.
Pharma is well positioned to capture additional market share and grow into a 1 billion dollar brand, becoming one of the largest intimate apparel brands in the U S.
And finally, our enhanced marketing drove both digital and store traffic as well as new customers to our brands.
We further elevated our marketing efforts allocating more resources to digital storytelling, influencers and other social efforts.
Fueling total customer count growth of 17% over last year.
We began our turnaround in 2019 and have made significant progress despite COVID-19 and supply chain challenges and have emerged a stronger more focused company let.
Let me update you on our progress on our five strategic priority.
First continuing our ongoing digital transformation over the last three years, we made key investments in talent and technology.
As store revenues have continued to rebound in each brand digital sales have also continued to grow year over year in all three brands.
Digital now represents over 40% of our total revenue base.
Our proprietary digital tool will continue to fuel sales and engagement is growing.
Combined digital tool grew quarter over quarter and represented approximately 25% of total digital sales.
Customers using these tools lifestyle connect in my closet are more engaged and have higher conversion rates and average order values.
Multichannel customers spend more than three times, a single channel customer and this group continued to grow throughout the year.
Multichannel customers grew in customer count sales and spend per customer.
We successfully launched our Soma app during the fourth quarter and the results have exceeded our expectations for downloads and engagement.
After pay has also proven to be a terrific U P T and sales driver in Q4 revenues nearly doubled versus last year.
Second continually elevating our product at Chico's denim more than doubled for the quarter and grew 14% from 2019.
Every category in Chico's grew significantly over last year, demonstrating that product enhancement and innovation are moving the entire brand forward.
And that customers are responding to better quality and paying for value in each garment.
White House Black market Denim also continued its explosive growth from Q3 into Q4 and the business almost doubled from last year and was up nearly 60% from 2019.
New comfort features in jackets, and pants led to category growth of 50% compared to last year.
It's almost finished a record year of growth.
Adding more than $25 million of sales each quarter compared to 2019.
This growth was fueled by our pipeline of innovation and the fourth quarter delivered growth across key categories.
Bras panties and sleep grew against last year and 2019.
Soma continues to make investments in cutting edge product innovation and is well positioned with replenish inventory to drive growth.
We are most excited about our newest game changing brought innovation with our bottom <unk> launched lot introduced last month.
Three years in the making bought a Phi was influenced by 1500 customers and is the very first smart bra in the marketplace.
The patented 68 dollar bra includes proprietary technology that adjusts to a woman individual body measurements as they fluctuate throughout the month.
Our commitment to innovation allows us to build a pipeline of beautiful solutions for our customers.
Third driving customer engagement customer counts grew in each brand for the quarter spend per customer was up in each brand and each channel compared to last year.
Marketing and product momentum fueled customer growth in all three brands and the final group from Q3 to Q4.
All of these efforts are helping us acquire new customers with year over year customer growth in each of our brands and the average age of our new customers continuing to trend younger than existing customers.
We launched our new pharma loyalty program in the fourth quarter and plan to launch revamped loyalty program for our apparel brands in the first half of this year.
Our existing loyalty program already have some of the highest participation rate in retail at over 90%.
Customers are responding to digital storytelling, Facebook and Instagram live events.
Each touch point supports the customer to find solutions and build her wardrobe.
During the year, our apparel brands had over 10 million views across social selling live videos and real.
We are elevating our social engagement efforts, including using more organic and user generated content and we are enabling our store associates to create social content.
Next maintaining our operating and cost discipline, one of our strongest accomplishments is the gross margin performance.
Our full year gross margin rate rose to 36, 7%.
The company's best performance since fiscal 2017.
This improvement was driven by strength in full price sales higher AUR and improved leverage of occupancy costs on higher sales despite increases in raw material and freight costs.
Sales leverage and ongoing cost discipline efforts resulted in our best SG&A rate performance in several years.
And lastly, delivering higher real estate productivity.
Our traffic was very healthy in fiscal 'twenty, one and we once again delivered strong store sales growth during the fourth quarter.
Stores remain a core part of our growth strategy as data indicate that digital sales are more robust in markets, where we have strong retail presence.
We have successfully opened 73 soma shop in shops inside chico's stores, which are exceeding expectations driving new customers to both brands lifting store productivity and further expanding our digital business and.
And we plan to open up to 30, new Soma Standalone stores in the back half of this year.
Now, let me turn the call over to P. J to update you on our financial performance P. J.
Thank you Molly and good morning, everyone.
You mentioned continued in Q4, and we closed out a pivotal year for Chico's Fas.
Q4 marked yet another quarter of profitable growth with diluted EPS of nine <unk> for the quarter compared to a loss of 68.
Last year's fourth quarter, and a loss of <unk> for the fourth quarter of fiscal 2019.
Each of our three brands contributed higher sales.
Gross margin dollars and significantly higher operating income to consolidated results.
And our shared platform has unlock meaningful synergies across the portfolio.
Fourth quarter, net sales totaled $496 million compared to $386 million last year.
This 29% increase reflects a comparable sales increase of 29% and was driven by meaningful improvement in products and enhanced marketing efforts, which drove full price selling.
Offset by 36 store closures in the last 12 months.
At the brand level Chico's comparable sales grew 33% White house black market comparable sales grew 46% and Soma comparable sales grew 10% over 2020.
Fourth quarter gross margin was 34, 5% compared to 19% last year.
And 32, 5% in 2019.
The current year gross margin rate reflected strength in full price sales.
Higher average unit retails and improved leverage of occupancy costs.
This improvement was achieved despite ongoing supply chain challenges impacting the retail sector.
Moving down the P&L SG&A.
<unk> for the fourth quarter totaled 155 million or 31, 2% of sales compared to 35, 3% of sales in 2020, and 33, 6% of sales in 2019.
Higher sales, coupled with continued cost discipline and expense reduction initiatives have enabled us to realize meaningful leverage that will give us more financial flexibility as we continue to grow all three brands.
For the full year, we posted a healthy profit of 37 per share compared to losses in the prior two years.
Sales for the full year totaled $1 eight 1 billion, a 37% increase over 132 billion in the prior year.
Throughout 2021, we have realized meaningful gross margin expansion and SG&A leverage and as a result have seen our operating margin rapidly swing back to profitability.
We also generated just over $120 million of EBITDA in fiscal 2021.
Nearly 60% increase over EBITDA generated in the pre pandemic year of fiscal 2019.
A clear indication of the vastly improved strength of our operating model, which focuses equally on.
Sales and earnings growth.
In addition to giving us much more flexibility higher free cash flow generation is providing us with the fuel to invest behind strategies that are working.
Julian growth will be a key capital allocation priority going forward.
Now, let's turn to the balance sheet.
Our cash position and total liquidity remained very strong providing us with the flexibility to manage the business and make investments to further propel our growth.
We ended the year with cash of $115 million.
An increase over 109 million at last fiscal year and this is after reducing borrowings on our long term credit facility with a $50 million debt repayment in the third quarter of 2021.
At fiscal year end inventories totaled $323 million compared to 204 million last year and $247 million at the end of fiscal 2019, this year over year increase of $119 million or 59% reflects.
Nearly $80 million increase in in transit inventories due to accelerated handover dates to compensate for global supply chain delays and elevated on hand inventories to align with higher consumer demand.
Now, let's shift our focus to real estate.
During the fourth quarter, we closed 13 stores, bringing our year to date closings to 36, and we ended the quarter with 1266 boutiques.
We will continue to actively manage our real estate portfolio to enhance overall store and company profitability.
It is important to note that our customers love to engage with our brands in the communities where they live.
And our digital sales trend much higher in markets, where we have a physical presence.
Your current real estate footprint as a strategic asset and competitive advantage given our prime locations across the U S and we will plan to optimize this advantage over the coming years.
Now, let me give some color on our outlook for the first quarter and fiscal 2022.
We expect strong top line growth at all three brands are well positioned for success with innovative product launches that have resonated with our loyal customer base, while attracting new customers across a wider demographic spectrum.
Despite historic highs in average unit retail during 2021, there is still opportunity to expand our gross margin through strategic pricing and occupancy leverage.
Supply chain disruptions and inflation are expected to remain a challenge that we are working to navigate as we successfully did in 2021.
We remain highly disciplined on expense control and have a lean cost structure.
It is definitely labor inflation in our stores and distribution centers. However.
Both of these costs are investments that are closely linked to top line growth.
And our second largest expense next to labor marketing is one that we can dial up or down as the environment dictates.
We are also excited about the selective investments, we are making in both talent and technology.
Both of which will be focused around enhancing our e-commerce and marketing platforms that are supporting all three brands and.
And creating a closer more personalized relationship with our customers.
This will be key in driving both traffic and conversion across channels to match, our higher average unit retails.
We forecast our cash flow and liquidity will remain strong and provide us with the flexibility to execute on our strategic plan and continued to navigate a volatile and competitive retail landscape.
And we expect to deliver another year of strong EPS growth and total shareholder return.
So with that for the first quarter of 2022, we expect total sales of $485 million to $500 million.
Gross margin rate as a percent of sales to be in the $36 nine to 37, 7% range.
SG&A rate as a percent of sales to be in the $33 nine to 34, 3% range.
And effective tax rate of approximately 20%.
And.
EPS up seven to 11 cents per share.
And for the full year 2022, we expect total sales of 2.085 billion to $2 115 billion.
Gross margin rate as a percent of sales to be in the $36 seven to 37, 2% range.
G&A rate as a percent of sales to be in the 32.8 to 33, 2% range and effective tax rate of approximately 26%.
And diluted EPS up 40 to 50 cents.
For sure.
Our planned capital expenditures for fiscal 2022, or approximately $65 million to $70 million for new Soma stores investments in the existing fleet of stores and digital investment to drive traffic and conversion across channels.
In fiscal 2022, we expect to open up to 30, Soma stores and close approximately 40 stores, primarily underperforming mall base, Chico's and White house Black market boutiques.
In closing.
I would just like to say that we are incredibly energized about the future of Chico's Fas and believe we are poised for tremendous growth in the years ahead.
We have some of the best talent in retail across the company and we hope you will stay connected to the great story unfolding here.
Now I'll turn the call back over to the operator.
Operator.
At this time, we will be happy to take your questions.
For some time and consideration to others. Please limit yourself to one question.
If you'd like to ask a question. Please press Star then one on your comes from firm if you're using a speaker phone.
These pickup your handset before pressing the keys.
Your question. Please press Star then two.
Today's first question comes from Susan Anderson of B Riley. Please go ahead.
Hi, Good morning, Thanks for taking my question and nice to see the strong result, this quarter.
I'm curious as we look out to this year based on your gross margin guidance, maybe if you could talk about kind of the puts and takes there and then also if you think you can pull back on promotions further or should they be flattish year over year.
And also how much are you expecting to raise prices this year and will fully offset the inflationary cost that you guys are experiencing.
Thank you Suzanne and I will take the promotions and the flattish prices and then I'll pass it to P. J talk about the gross margin guidance how is that.
Correct.
Okay, Great Susan I want to start with conveying the power of this rebrand and each growing in gross margin op income customer growth and digital penetration in fact, chico's generated the highest op income and our company for the year. So my generated the highest gross margin.
And the company for a year and White house Black market had the highest comp sales growth in the year I mentioned this because when we look ahead at promotions and also look at keeping our prices in terms of our pricing, it's really important that the the power of the three brands leveraging a shared platform is.
It's something that we've been able to accomplish and how we are thinking about promotion and pricing going forward. So in terms of promotion, we do plan in the apparel brands to keep promotion flat targeted on key items and key categories and not entire entire promotions off the same discipline that we've had with installing them on <unk>.
Adam and category versus entire entire stocking inventory, so that will continue to be our approach and as it relates to <unk>.
In terms of ticketing based upon what's happening in the supply chain, we have taken.
<unk> prices up in key categories, where the value is there and where we have seen the customer responding to that better value.
And Susan as far as the puts and takes for gross margin. The biggest drivers of continued improvement going forward, which we do believe our fundamental shifts or the higher AUR as mollie talked about full price selling and.
And that is a direct result of elevated quality innovation newness in our Assortments, we will continue to manage our inventory actively and focus on faster turns higher profitability occupancy leverage as a result of the rent adjustments and store closures will give us a tailwind.
And we do expect increased supply chain related costs.
All of which are temporary but we do believe.
The inflation will continue and that's baked into our gross margin.
But we continue to to offset these with again.
<unk> <unk> <unk> and <unk>.
And inventory management, there are a lot of levers to gross margin, we're putting tension on all of them.
So right now again, a lot of volatility out there product cost is elevated due to higher raw materials inbound and outbound freight is elevated due to inflation and supply chain bottlenecks.
But again, what we can say we've reduced our occupancy costs at a time when store traffic is returning.
So we do believe we have that occupancy detailed tailwind and then going forward with scale premium unique product inventory discipline. We believe we have.
The opportunity to further expand margins.
Thank you, ladies and gentlemen, as a reminder, if you want to ask a question. Please press Star then one at this time. Our next question comes from Marni Shapiro with retail tracker. Please go ahead.
Good morning, everybody and congratulations on a great quarter.
And an outstanding new problem launch congratulations.
Can you talk a little bit about the fourth quarter in the cadence of the business in two parts to that question. One I guess first just product flow where their leap deliveries.
And do you feel like your deliveries are a little bit more timely now.
What does that even look like for the first quarter or the first half and then importantly, I'm. Just curious if you saw a slowdown in traffic and sales at all around omicron and have you seen.
A reversal of that slowdown to pick back up in the business.
Thank you Marni I guess I will tackle the cadence of the business deliveries and then kind of what we're seeing for the spring season.
As it relates to business and in the November December and January period, we did see fluctuations in traffic strong in November and December , but starting to wane, a little bit that last week of December and the store traffic in all three brands began to slow, which we believe was related to the uptick in OMA con.
At Chico's, we experienced also some intermittent store closures due to staffing shortages related to illness and this lasted through January but has returned to normal as the cases of armour con have begun to drop nationwide and we continue to successfully navigate the situation. So we've definitely seen that.
Traffic return.
In February and very pleased with our current business as we just closed February .
And all three brands.
As it relates to inventory slow, yes, we did experience some slowdowns in deliveries during the fourth quarter, although about three weeks a little on average more than we had expected so because of that we have advanced the calendar just a little bit more to protect spring.
And you'll notice that the ending on hand inventory in particular and the brands was bigger in Q4 than it was in Q3 that was intentional based upon pushing forward. Some critical launches that we had in spring so not only the modify launch for that you mentioned. Thank you for that we are very proud of that.
Launch and very proud of the patent pending technology that isn't that bra that we advanced that that came in in the December January time period. So that we were well positioned for the launch we also have some launches and in White house.
And new technology in some stretch create fabrication as well as some income stretch knit fabrication and a new girlfriend denim Jean and we also have some new technology with and she goes with our so slimming denim on and also the defined we done them that we just launched so all of those were brought in early so that we were positioned.
<unk> for growth for spring. So the bottom line is we are pushing forward deliveries on innovation in product to make sure that we have our big launches secured and power are seeing that those deliveries and how we're planning them right now are coming through as planned.
Thank you ladies and gentlemen, this concludes our question and answer session.
The conference back over to Martin for closing remarks.
Thank you.
We had a terrific year, our result, and momentum indicate that our strategy is working creating a strong foundation for future growth and success in Chico's Fas as we look ahead, we believe chico's White house Black market and Soma are competitively positioned for growth and on track to build it.
Additional market share we are confident in our ability to improve our overall operating performance further strengthened our balance sheet and generate long term shareholder returns.
Before I close I would like to invite you to enjoy to join US for our first investor day in over five years. The event will be held virtually and will take place at 10 am Eastern time on Friday March 25th our leadership team is excited to share with you our three year strategic growth plan and financial targets as well as update.
On our product innovation, our digital first investment and our ESG strategy, we expect concession to last about an hour and a half inclusive of Q&A to register please visit our Investor Relations page on our website, we have a compelling investment story to share and hope you can join us.
Thank you for your interest and confidence in Chico's, Fas and the Florida speaking with you again during our upcoming Investor day on March 25.
Thank you. This concludes today's conference call. We thank you all for attending today's presentation you may now.
I just want your lines will have a wonderful day.
Okay.