Chico's profits dropped 26 percent in third quarter

Women are buying from the boutiques operated by Chico's FAS, but they are spending less on average, cutting profits for the Fort Myers-based retailer.

The company Tuesday reported profits were down about 26 percent in the quarter ended Nov. 1 compared to a year ago. Net income of $26.5 million or 17 cents a share, was down compared to $35.8 million, or 22 cents a share, for the same period a year ago.

"A combination of a continued promotional environment and a higher inventory levels than desired negatively impacted our average dollar sale in the quarter," CEO David Dyer said.

Chico's operates 1,557 women's boutiques and related websites under the brands Chico's, White House/Black Market, Soma Intimates and Boston Proper.

For the third quarter, net sales were $665.6 million, an increase of 1.5 percent compared to $655.6 million in last year's third quarter. But that was mostly due to 87 additional stores compared to last year and was partially offset by a 1.6 percent decrease in sales at stores open at least a year.

It wasn't that women weren't coming in to shop or that they weren't buying, Dyer said in a conference call to analysts.

In fact, he said the conversion rate — the percentage of shoppers who actually buy something — "is at an all-time high. However, they were either buying fewer items or items priced for clearance."

Dyer said it also seems that online shopping has made shoppers more comfortable buying a single item at a time, rather than an outfit at a time.

"When we get a customer in (the store), we can start with an item and build the wardrobe," Dyer said. "That is harder and harder to do online."

Retail analyst Jennifer Black, CEO of Jennifer Black & Associates, said that is a trend being felt by other clothing
retailers, as well.

"People, especially the baby boomers, want to buy things that go with what she already has," Black said. "I think with what we have seen with housing sales and big ticket items increasing, apparel has sort of taken a back seat."

Black said the right clothing can break through that resistance.

"People will spend $300 to $400 on a leather jacket if it is exactly what they want," she said.

So far, the fourth quarter has remained a little challenging, especially at Chico's brand stores, Dyer said.

"We transitioned to our fall assortments in our normal cadence, but our customers weren't quite ready for dark colors and sweaters as the summer temperatures extended well into October," he said.

Holiday promotions will continue to reduce prices, but shoppers shouldn't expect savings across the entire story, Dyer said.

"I would say that I think that the dumbest markdowns that a store can do are percent-off of the entire store, because all the good stuff goes first and the stuff that you need to get rid of remains," Dyer said.

As a result of the lower sales, Chief Financial Officer Todd Vogensen said the company has reduced its orders of new inventory and trimmed its new store opening projections for 2015 to 60 to 70 new stores, down from 70 to 80.

Chico's stores will account for 20 to 22 stores, Soma Intimates are set for 19 to 22 stores; White House/Black Market will account for 10 to 12 stores and Boston Proper will add four to six stores.

Chico's FAS

• Founded: 1983 with a single store on Sanibel.

• Employees: About 1,500 in Fort Myers.

• Stores: 1,557 women's boutiques and related websites under the brands Chico's, White House/Black Market, Soma Intimates and Boston Proper.