Chico’s CEO: “Our Best Third Quarter Earnings Since 2016” With Intimates To The Fore

Florida-based fashion group Chico’s stock did not see any gains today despite announcing an operating profit of $22 million in the third quarter ended October, after losses of $76 million in the same period in 2020. The company was also loss-making in Q3 2019 to the tune of $10 million.

The turnaround came as sales of $454 million in the three months swung sharply back to about 97% of their pre-pandemic level, with all three of the company’s brands seeing growth. The 29% year-on-year rise largely reflects the Covid-fueled shutdown of stores during 2020’s third quarter, though there have also been 31 net store closures since then.

Molly Langenstein, the CEO of Chico’s FAS—which originally stood for folk art specialties when it was founded as a small Sanibel Island gallery in 1983—said in a statement: “The third quarter represents our best Q3 earnings performance since 2016 (and) demonstrates the extraordinary progress we are making against our turnaround plan.”

Overall, all the company’s brands—Chico’s, White House Black Market, and Soma—grew as both store and digital sales channels outperformed, helped by product enhancements and marketing. According to Langenstein this had a positive impact on full-price sales, something all fashion and apparel brands have been laser focused on during the pandemic as they tiptoed away from discounting.

Soma is the only gainer on 2019

The biggest of the three houses is Chico’s which was up 23% year-on-year in the quarter while White House Black Market jumped 33% as sell-through rates quickened. Respectively, the two labels have 629 and 394 boutiques and outlets across the United States, Puerto Rico and the U.S. Virgin Islands.

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Specialist intimates house, Soma—with roughly 250 boutiques—posted a solid 30% comparable sales increase versus Q3 in 2020 and was also 44% ahead of the same pre-pandemic period in 2019. This marked five consecutive quarters of comparable sales growth at the brand, helped by a general demand for intimates during the pandemic, as Victoria’s Secret also found this year. It helps that Soma has embraced models of all sizes which has widened the brand’s appeal.

“To continue driving the Soma business forward, we have invested in inventory, capital and staffing, to position us to capture additional market share and become one of the largest intimate apparel brands in the United States,” said Langenstein.

The robust growth for the three brands, coupled with tighter expense management and lower inventory levels led to the company’s best Q3 gross margin performance in about seven years.

However, against pre-pandemic markers it wasn’t all good news. While Soma’s intimates excelled, sales at Chico’s and WHBM remained down by 16% and 5%, respectively on Q3 2019.

Consolidating routes to the customer

As with other many other fashion houses, digital has been a lifeline over the past 18 months. Chico’s FAS saw a penetration effect in line with the expected impact from lockdowns. From a 30% share of total sales in 2019, digital shot to 54% last year due to Covid store closures. In the quarter to October 2021 that share stabilized at 40%, which is still significantly up on 2019 and likely to remain at that level given Langenstein’s promise to be “a digital-first, customer-led” company.

Some of the online strategies to drive engagement include weekly social selling; leveraging influencers to communicate brand stories; and enabling store associates to create social content for the brand.

While e-commerce will remain a focus, enhancing the productivity of physical stores—described as a “strategic asset”—is also a priority. The company said: “Digital sales are typically higher in markets where we have a retail presence.”

In the third quarter, Chico’s FAS opened 17 shop-in-shops within Chico’s store estate to draw in new customers and it plans to grow Soma’s footprint from 256 stores this year to about 400 by 2025. The company also obtained $7 million in incremental rent reductions to bring total rent savings to $87 million since starting the program during the pandemic in 2020.

Looking ahead to the final quarter of the year covering the holidays, Chico’s FAS—where 92% of the management is female—expects net sales to reach approximately $500 million, driven by better store footfall and more digital engagement.

The Tycoon Herald