FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT
| For the Quarter Ended: | Commission File Number: |
| August 2, 2003 | 0-21258 |
CHICO’S FAS, Inc.
(Exact name of registrant as specified in charter)
| Florida | 59-2389435 |
| (State of Incorporation) | (I.R.S. Employer Identification No.) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [ü] No [ ]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.
At August 22, 2003, there were 86,399,738 shares outstanding of Common Stock, $.01 par value per share.
CHICO’S FAS, Inc.
Index
PART I – Financial Information |
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Item 1. |
Financial Statements (Unaudited): | |||||
Consolidated Balance Sheets – August 2, 2003 and February 1, 2003 |
3 | |||||
Consolidated Statements of Income for the Thirteen and Twenty-Six Weeks
Ended August 2, 2003 and August 3, 2002 |
4 | |||||
Consolidated Statements of Cash Flows for the Twenty-Six Weeks
Ended August 2, 2003 and August 3, 2002 |
5 | |||||
Notes to Consolidated Financial Statements |
6 | |||||
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 9 | ||||
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 15 | ||||
Item 4. |
Controls and Procedures | 15 | ||||
PART II – Other Information |
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Item 1. |
Legal Proceedings | 16 | ||||
Item 4. |
Submission of Matters to a Vote of Security Holders | 17 | ||||
Item 6. |
Exhibits and Reports on Form 8-K | 17 | ||||
Signatures |
18 | |||||
2
CHICO’S FAS, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
| August 2, | February 1, | ||||||||||
| 2003 | 2003 | ||||||||||
ASSETS |
|||||||||||
Current Assets: |
|||||||||||
Cash and cash equivalents |
$ | 11,241,131 | $ | 8,753,089 | |||||||
Marketable securities, at market |
130,160,523 | 91,195,175 | |||||||||
Receivables |
3,672,923 | 2,226,068 | |||||||||
Inventories |
49,404,055 | 44,907,504 | |||||||||
Prepaid expenses |
6,889,313 | 6,222,526 | |||||||||
Deferred taxes |
7,830,000 | 7,125,000 | |||||||||
Total Current Assets |
209,197,945 | 160,429,362 | |||||||||
Property and Equipment: |
|||||||||||
Land and land improvements |
5,308,840 | 5,166,394 | |||||||||
Building and building improvements |
22,147,849 | 19,667,654 | |||||||||
Equipment, furniture and fixtures |
83,690,157 | 71,769,250 | |||||||||
Leasehold improvements |
88,866,616 | 78,792,080 | |||||||||
Total Property and Equipment |
200,013,462 | 175,395,378 | |||||||||
Less accumulated depreciation and amortization |
(45,740,685 | ) | (36,686,235 | ) | |||||||
Property and Equipment, Net |
154,272,777 | 138,709,143 | |||||||||
Other Assets: |
|||||||||||
Deferred taxes |
1,031,000 | 92,000 | |||||||||
Other assets |
4,368,804 | 2,313,242 | |||||||||
Total Other Assets |
5,399,804 | 2,405,242 | |||||||||
| $ | 368,870,526 | $ | 301,543,747 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current Liabilities: |
|||||||||||
Accounts payable |
$ | 31,129,044 | $ | 28,488,471 | |||||||
Accrued liabilities |
29,186,860 | 26,200,081 | |||||||||
Current portion of deferred liabilities |
191,866 | 171,217 | |||||||||
Total Current Liabilities |
60,507,770 | 54,859,769 | |||||||||
Noncurrent Liabilities: |
|||||||||||
Deferred liabilities |
8,675,811 | 6,550,856 | |||||||||
Total Noncurrent Liabilities |
8,675,811 | 6,550,856 | |||||||||
Stockholders’ Equity: |
|||||||||||
Common stock |
863,981 | 852,823 | |||||||||
Additional paid-in capital |
75,786,661 | 63,985,702 | |||||||||
Retained earnings |
222,943,105 | 175,109,145 | |||||||||
Accumulated other comprehensive income |
93,198 | 185,452 | |||||||||
Total Stockholders’ Equity |
299,686,945 | 240,133,122 | |||||||||
| $ | 368,870,526 | $ | 301,543,747 | ||||||||
See Accompanying Notes.
3
CHICO’S FAS, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
| Twenty-Six Weeks Ended | Thirteen Weeks Ended | ||||||||||||||||||||||||||||||||
| August 2, 2003 | August 3, 2002 | August 2, 2003 | August 3, 2002 | ||||||||||||||||||||||||||||||
| Amount | % of Sales | Amount | % of Sales | Amount | % of Sales | Amount | % of Sales | ||||||||||||||||||||||||||
Net Sales by Company stores |
$ | 328,309,949 | 95.9 | $ | 245,392,042 | 96.0 | $ | 166,869,427 | 96.2 | $ | 120,127,916 | 96.0 | |||||||||||||||||||||
Net Sales by catalog & Internet |
10,505,541 | 3.1 | 7,057,037 | 2.8 | 4,822,811 | 2.8 | 3,475,111 | 2.8 | |||||||||||||||||||||||||
Net Sales to Franchisees |
3,605,583 | 1.0 | 3,072,685 | 1.2 | 1,744,238 | 1.0 | 1,465,096 | 1.2 | |||||||||||||||||||||||||
Net sales |
342,421,073 | 100.0 | 255,521,764 | 100.0 | 173,436,476 | 100.0 | 125,068,123 | 100.0 | |||||||||||||||||||||||||
Cost of goods sold |
130,522,979 | 38.1 | 98,579,159 | 38.6 | 65,833,766 | 38.0 | 49,589,568 | 39.7 | |||||||||||||||||||||||||
Gross profit |
211,898,094 | 61.9 | 156,942,605 | 61.4 | 107,602,710 | 62.0 | 75,478,555 | 60.3 | |||||||||||||||||||||||||
General, administrative and
store operating expenses |
125,694,379 | 36.7 | 92,150,318 | 36.1 | 63,410,017 | 36.5 | 45,741,110 | 36.6 | |||||||||||||||||||||||||
Depreciation and amortization |
9,602,132 | 2.8 | 6,851,997 | 2.6 | 4,977,262 | 2.9 | 3,543,721 | 2.8 | |||||||||||||||||||||||||
Income from operations |
76,601,583 | 22.4 | 57,940,290 | 22.7 | 39,215,431 | 22.6 | 26,193,724 | 20.9 | |||||||||||||||||||||||||
Interest income, net |
549,377 | 0.1 | 393,281 | 0.1 | 246,067 | 0.1 | 239,564 | 0.2 | |||||||||||||||||||||||||
Income before taxes |
77,150,960 | 22.5 | 58,333,571 | 22.8 | 39,461,498 | 22.7 | 26,433,288 | 21.1 | |||||||||||||||||||||||||
Income tax provision |
29,317,000 | 8.5 | 22,168,000 | 8.6 | 14,995,000 | 8.6 | 10,045,000 | 8.0 | |||||||||||||||||||||||||
Net income |
$ | 47,833,960 | 14.0 | $ | 36,165,571 | 14.2 | $ | 24,466,498 | 14.1 | $ | 16,388,288 | 13.1 | |||||||||||||||||||||
Per share data: |
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Net income per common share–basic |
$ | 0.56 | $ | 0.44 | $ | 0.28 | $ | 0.20 | |||||||||||||||||||||||||
Net income per common and common
equivalent share–diluted |
$ | 0.55 | $ | 0.42 | $ | 0.28 | $ | 0.19 | |||||||||||||||||||||||||
Weighted average common shares
outstanding–basic |
85,741,005 | 82,177,172 | 85,969,259 | 82,468,442 | |||||||||||||||||||||||||||||
Weighted average common and
common equivalent shares
outstanding–diluted |
87,404,734 | 85,503,271 | 87,617,718 | 85,682,017 | |||||||||||||||||||||||||||||
See Accompanying Notes.
4
CHICO’S FAS, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
| Twenty-Six Weeks Ended | |||||||||||
| August 2, 2003 | August 3, 2002 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
$ | 47,833,960 | $ | 36,165,571 | |||||||
Adjustments to reconcile net income to net cash
provided by operating activities: |
|||||||||||
Depreciation and amortization, cost of goods sold |
702,298 | 360,927 | |||||||||
Depreciation and amortization, other |
9,602,132 | 6,851,997 | |||||||||
Deferred tax assets |
(1,644,000 | ) | (2,012,000 | ) | |||||||
Tax benefit of options exercised |
7,020,000 | 7,873,000 | |||||||||
Deferred rent expense, net |
884,580 | 685,678 | |||||||||
Loss from disposal of property and equipment |
518,648 | 799,853 | |||||||||
Net change in: |
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Receivables |
(1,446,855 | ) | (691,055 | ) | |||||||
Inventories |
(4,496,551 | ) | (11,154,229 | ) | |||||||
Prepaid expenses and other, net |
(1,496,286 | ) | (1,059,290 | ) | |||||||
Accounts payable |
2,640,573 | 5,727,111 | |||||||||
Accrued liabilities |
3,007,428 | 1,654,503 | |||||||||
Total adjustments |
15,291,967 | 9,036,495 | |||||||||
Net cash provided by operating activities |
63,125,927 | 45,202,066 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|||||||||||
Purchases of marketable securities, net |
(39,057,602 | ) | (19,970,773 | ) | |||||||
Purchases of property and equipment |
(26,372,400 | ) | (34,136,096 | ) | |||||||
Net cash used in investing activities |
(65,430,002 | ) | (54,106,869 | ) | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from issuance of common stock |
4,792,117 | 3,699,874 | |||||||||
Principal payments on debt |
— | (66,501 | ) | ||||||||
Net cash provided by financing activities |
4,792,117 | 3,633,373 | |||||||||
Net increase (decrease) in cash and cash equivalents |
2,488,042 | (5,271,430 | ) | ||||||||
CASH AND CASH EQUIVALENTS – Beginning of Period |
8,753,089 | 13,376,864 | |||||||||
CASH AND CASH EQUIVALENTS – End of Period |
$ | 11,241,131 | $ | 8,105,434 | |||||||
See Accompanying Notes.
5
CHICO’S FAS, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
August 2, 2003
(Unaudited)
ITEM 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements of Chico’s FAS, Inc. and its wholly-owned subsidiaries (collectively, “Chico’s” or the “Company”) have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and notes required by accounting principles generally accepted in the U.S. for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. All significant intercompany balances and transactions have been eliminated in consolidation. For further information, refer to the consolidated financial statements and notes thereto for the fiscal year ended February 1, 2003, included in the Company’s Annual Report on Form 10-K filed on April 28, 2003. The February 1, 2003 balance sheet amounts were derived from audited financial statements included in the Company’s Annual Report.
Operating results for the twenty-six weeks ended August 2, 2003 are not necessarily indicative of the results that may be expected for the entire year.
Note 2. Stock-Based Compensation
In December 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 148, “Accounting for Stock-Based Compensation Transition and Disclosure” (SFAS 148). SFAS 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS 123), to provide alternative methods of transition to the fair value method of accounting for stock based employee compensation. In addition, SFAS 148 amends the disclosure provisions of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS 148 does not amend SFAS 123 to require companies to account for their employee stock-based awards using the fair value method. However, the disclosure provisions are required for all companies with stock-based employee compensation, regardless of whether they utilize the fair value method of accounting described in SFAS 123 or the intrinsic value method described in Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25).
6
CHICO’S FAS, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
August 2, 2003
(Unaudited)
Note 2. Stock-Based Compensation (continued)
The Company uses the intrinsic value method for valuing its awards of stock options and recording the related compensation expense, if any, in accordance with APB 25. No stock-based employee or director compensation cost for stock options is reflected in net income, as all options granted during the period have exercise prices equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of SFAS 123 to all stock-based employee compensation.
| Twenty-Six Weeks | Thirteen Weeks Ended | ||||||||||||||||
| August 2, 2003 | August 3, 2002 | August 2, 2003 | August 3, 2002 | ||||||||||||||
Net income, as reported |
$ | 47,833,960 | $ | 36,165,571 | $ | 24,466,498 | $ | 16,388,288 | |||||||||
Deduct: Total
stock-based employee compensation expense determined under fair
value based methods for all awards, net of taxes |
$ | 4,442,928 | $ | 4,045,751 | $ | 2,238,579 | $ | 2,398,566 | |||||||||
Net income, pro forma |
$ | 43,391,032 | $ | 32,119,820 | $ | 22,227,919 | $ | 13,989,722 | <|||||||||