SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT

Chico’s FAS, Inc.

11215 Metro Parkway, Fort Myers, Florida 33912
(Address of principal executive offices)

239-277-6200
(Registrant’s telephone number, including area code)

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  þ     No  o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).   Yes  þ     No  o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.

At August 23, 2004, there were 89,407,000 shares outstanding of Common Stock, $.01 par value per share.

CHICO’S FAS, Inc.

Index

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CHICO’S FAS, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
(In thousands)

See Accompanying Notes.

3

CHICO’S FAS, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share amounts)

See Accompanying Notes.

4

CHICO’S FAS, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)

See Accompanying Notes.

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CHICO’S FAS, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
July 31, 2004
(Unaudited)
(In thousands, except share and per share amounts)

Note 1. Basis of Presentation

     The accompanying unaudited consolidated financial statements of Chico’s FAS, Inc. and its wholly-owned subsidiaries (collectively, 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 January 31, 2004, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 9, 2004. The January 31, 2004 balance sheet amounts were derived from audited financial statements included in the Company’s Annual Report.

     Operating results for the twenty-six weeks ended July 31, 2004 are not necessarily indicative of the results that may be expected for the entire year.

Note 2. Stock-Based Compensation

     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 Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25) and related interpretations. No stock-based employee or director compensation cost for stock options is reflected in net income for the twenty-six weeks ended July 31, 2004 and August 2, 2003, as all options granted during the periods 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 Statement of Financial Accounting Standard (SFAS) No. 123, “Accounting for Stock-Based Compensation” (SFAS 123), as amended by SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure”, to all stock-based employee compensation.

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CHICO’S FAS, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
July 31, 2004
(Unaudited)
(In thousands, except share and per share amounts)

Note 3. Net Income Per Share

     Basic Earnings Per Share (EPS) is based on the weighted average number of common shares outstanding and diluted EPS is based on the weighted average number of common shares outstanding plus the dilutive common equivalent shares outstanding during the period. The following is a reconciliation of the denominators of the basic and diluted EPS computations shown on the face of the accompanying consolidated statements of income:

Note 4. Goodwill and Intangible Assets

     The Company’s goodwill and indefinite-lived intangible asset are reviewed annually for impairment or more frequently if impairment indicators arise. The annual valuation will be performed during the fourth quarter of each year. The change in the carrying amount of goodwill for the twenty-six weeks ended July 31, 2004 is as follows:

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

     Chico’s FAS, Inc. (together with its subsidiaries, the “Company”) is a specialty retailer of exclusively designed, private label, sophisticated, casual-to-dressy clothing, complementary accessories, and other non-clothing gift items operating under the Chico’s, White House | Black Market and Soma by Chico’s brand names.

     Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the accompanying unaudited consolidated financial statements and notes thereto and the Company’s 2003 Annual Report to Stockholders.

Overview

     Factors that will be critical to determining the Company’s future success include, among others, managing the overall growth strategy, including the ability to open and operate stores effectively, maximizing efficiencies in the merchandising, product development and sourcing processes, maintaining high standards for customer service and assistance, maintaining the newness, fit and comfort in the merchandise offerings, and generating cash to fund the Company’s expansion needs. In order to monitor the Company’s success in regards to these critical success factors, the Company’s senior management monitors certain key performance indicators, including:

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Comparable store sales growth – For the thirteen-week and twenty-six week periods ended July 31, 2004, the Company’s comparable store sales growth (sales from stores open for at least twelve full months, including stores that have been expanded or relocated within the same general market) reached 14.1% and 17.0%, respectively. The thirteen-week increase of 14.1% represents the fifth consecutive quarter of comparable store sales growth of at least 14%, as well as the 27th out of the last 29 quarterly periods with at least double digit increases in comparable store sales. The Company believes that comparable store sales growth is a critical success factor and a positive indication of the Company’s ability to manage its expansion and its ability to open and operate stores effectively.

•

Positive operating cash flow – For the twenty-six week period ended July 31, 2004, cash flow from operating activities totaled $111 million compared with $63 million for the prior twenty-six week period ended August 2, 2003. Over 30% of the increase in operating cash flow was attributable to the tax benefit from an unusual volume of stock option exercises. The remaining cash flow increase represented a growth of over 50%. The Company believes that a key strength of its business is the ability to consistently generate cash. Strong cash flow generation is critical to the future success of the Company, not only to support the general operating needs of the Company, but also to fund capital expenditures related to new store openings, relocations, expansions and remodels, additional infrastructure costs associated with the distribution center, to continue funding implementation of state of the art information systems and to fund strategic acquisitions. See further discussion of the Company’s cash flows in the Liquidity and Capital Resources section.

•

Passport Club – Management believes that a significant indicator of the Company’s success with its personalized customer service training programs and the success of its marketing initiatives is the growth of its loyalty program, the “Passport Club.” For the thirteen-week and twenty-six week

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periods ended July 31, 2004, the Company added approximately 86,000 and 177,000 permanent Passport Club members, respectively, and approximately 238,000 and 481,000 preliminary Passport Club members, respectively. The Company believes that the continued growth of its Passport Club indicates that the Company is still generating strong interest from new customers, many of whom tend to become long-term loyal customers, due in large part to the Company’s commitment to personalized customer service.

•

Quality of merchandise offerings – To monitor and maintain the acceptance of its merchandise offerings, the Company monitors sell-through levels, inventory turns, gross margins and markdown rates on a classification and style level. Although the Company does not disclose these statistics for competitive reasons, these reviews help identify comfort, fit and newness issues at an early date and help the Company plan future product development and buying.

     For the thirteen weeks ended July 31, 2004, the Company reported net sales, operating income and net income of $255 million, $57 million and $35 million, respectively, up 46.9%, 44.8% and 45.1%, from the comparable period in the prior fiscal year. The Company’s gross margin decreased to 61.5% for the thirteen weeks ended July 31, 2004 from 62.0% for the comparable period in the prior fiscal year.

     For the twenty-six weeks ended July 31, 2004, the Company reported net sales, operating income and net income of $512 million, $114 million and $71 million, respectively, up 49.4%, 48.8% and 48.8%, from the comparable period in the prior fiscal year. The Company’s gross margin remained unchanged at 61.9% for the twenty-six weeks ended July 31, 2004 from the comparable period in the prior fiscal year.

Results of Operations – Thirteen Weeks Ended July 31, 2004 Compared to the Thirteen Weeks Ended August 2, 2003.

     Net Sales

     The following table shows net sales by Company-owned stores, net sales by catalog and Internet and net sales to franchisees in dollars and as a percentage of total net sales for the thirteen weeks ended July 31, 2004 (the “current period”) and August 2, 2003 (the “prior period”) (dollar amounts in thousands):

     Net sales by Company-owned stores increased in the current period from the prior period primarily due to new store openings, the acquisition of The White House, Inc. on September 5, 2003, as well as from the current trend of double-digit increases in the Company’s comparable store net sales (including stores within the comparable store base that have been expanded or relocated within the same general market). A summary of the factors impacting year-over-year sales increases is provided in the table below (dollar amounts in thousands):

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     The comparable store sales increase of 14.1% was driven primarily by an increase in the number of transactions compared to the prior period and, to a lesser extent, from an increase of 1.2% in the average unit retail price (which is a financial indicator, the percentage change of which is believed by management to represent a reasonable approximation of the percentage change in Company store net sales attributable to price changes). All of the net sales from White House | Black Market stores since the date of acquisition on September 5, 2003 and through the end of the current period and all of the net sales from the Company’s now discontinued Pazo store concept during the prior period are included in new store sales for the prior period; no such sales are included in comparable store sales.

     Net sales by catalog and Internet for the current period (which only included Chico’s merchandise) increased by $1.5 million, or 31.2%, compared to net sales by catalog and Internet for the prior period. It is believed that the increase was principally attributable to the increased page count and number of catalog mailings and additional television spots in the current period versus the prior period.

     Cost of Goods Sold/Gross Profit

     The following table shows cost of goods sold and gross profit in dollars and the related gross profit percentages for the thirteen weeks ended July 31, 2004 and August 2, 2003 (dollar amounts in thousands):

     The decrease in the gross profit percentage during the current period resulted primarily from White House | Black Market sales, which carry a lower merchandise gross profit percentage than sales at Chico’s frontline stores, increased product development costs, as a percentage of net sales, principally associated with the White House | Black Market brand and, to a lesser extent, slightly increased markdowns at the Chico’s frontline stores and costs associated with the upcoming initial launch of the Soma by Chico’s brand in the third fiscal quarter. These decreases were partially offset by significantly improved margins at the Company’s outlet stores and from operating efficiencies associated with the Company’s new distribution center (the costs of which are included in the Company’s cost of goods sold).

     General, Administrative and Store Operating Expenses

     The following table shows general, administrative and store operating expenses in dollars and as a percentage of total net sales for the thirteen weeks ended July 31, 2004 and August 2, 2003 (dollar amounts in thousands):

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     The increase in general, administrative and store operating expenses was, for the most part, the result of increases in the Company’s store operating expenses, including associate compensation, occupancy and other costs associated with additional store openings (including those costs associated with the White House | Black Market stores added by virtue of the acquisition in the third quarter of fiscal 2003) and, to a lesser degree, an increase in marketing expenses and other general corporate infrastructure costs to support the Company’s rapid growth. General, administrative and store operating expenses as a percentage of net sales was positively impacted by leverage improvements in the Chico’s frontline stores (primarily personnel and occupancy costs) associated with the Company’s current period comparable store sales increase of 14.1%, which improvements were offset by costs associated with White House | Black Market store operating expenses, which run substantially higher than Chico’s frontline stores as a percentage of net sales. To a lesser degree, general and administrative expenses as a percentage of net sales was affected by increased costs associated with the Company’s Sarbanes-Oxley initiatives and increased marketing costs as a percentage of net sales.

     Net Income

     The following table shows net income in dollars and as a percentage of total net sales for the thirteen weeks ended July 31, 2004 and August 2, 2003 (dollar amounts in thousands):

Results of Operations – Twenty-Six Weeks Ended July 31, 2004 Compared to the Twenty-Six Weeks Ended August 2, 2003.

     Net Sales

     The following table shows net sales by Company-owned stores, net sales by catalog and Internet and net sales to franchisees in dollars and as a percentage of total net sales for the twenty-six weeks ended July 31, 2004 (the “current period”) and August 2, 2003 (the “prior period”) (dollar amounts in thousands):

     Net sales by Company-owned stores increased in the current period from the prior period primarily due to new store openings, the acquisition of The White House, Inc. on September 5, 2003, as well as from

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the current trend of double-digit increases in the Company’s comparable store net sales (including stores within the comparable store base that have been expanded or relocated within the same general market). A summary of the factors impacting year-over-year sales increases is provided in the table below (dollar amounts in thousands):