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

239-277-6200

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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). 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 November 22, 2004, there were 89,298,223 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

See Accompanying Notes.

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CHICO’S FAS, Inc. and Subsidiaries

See Accompanying Notes.

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CHICO’S FAS, Inc. and Subsidiaries

See Accompanying Notes.

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CHICO’S FAS, Inc. and Subsidiaries

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.

     The Company’s fiscal years end on the Saturday closest to January 31 and are designated by the calendar year in which the fiscal year commences. Operating results for the thirty-nine weeks ended October 30, 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 thirty-nine weeks ended October 30, 2004 and November 1, 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
October 30, 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 thirty-nine weeks ended October 30, 2004 is as follows:

Note 5. Stock Repurchase Program

     In September 2004, the Company’s Board of Directors approved the repurchase, over a twelve-month period ending in September 2005, of up to $100 million of the Company’s outstanding common stock (the “Program”). Pursuant to the Program, purchases of shares of the Company’s common stock may be made from time to time on the open market, through block trades or otherwise, and/or in privately negotiated transactions depending upon prevailing market conditions. The Company repurchased and retired 137,500 shares of its common stock during the thirteen weeks ended October 30, 2004 in connection with the Program, at a total cost of approximately $5.0 million.

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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, intimates, 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

          The primary factors which historically have influenced the Company’s profitability and success have been its growth in number of stores, its growth in comparable store sales and its increased operating margin arising out of improved gross profit margin and leverage of operating costs. In the last five years the Company has grown from 162 stores as of January 31, 1999 to approximately 636 stores as of October 30, 2004, which includes the significant store growth resulting from the acquisition of the White House | Black Market in 2003. The Company continues to expand its presence through the opening of new stores, the development of new opportunities such as Soma by Chico’s and through the extension of its merchandise line. The Company anticipates that its rate of growth (measured by overall growth in sales, growth in comparable store sales, and other factors) can be expected to decrease from the 40% plus rate of overall sales growth experienced in prior years, largely reflecting the Company’s significantly increased size, its 20% net square footage growth goal and the expectation that its same store sales increases will moderate. Nevertheless, even at a reduced growth rate, the Company expects to continue its ability to generate the necessary cash flow to fund its expansion and to take advantage of new opportunities. The Company has no debt and foresees no current need to incur debt to support its continued growth.

          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, customer acceptance of new store concepts, 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 thirty-nine week periods ended October 30, 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 6.1% and 13.0%, respectively. 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.

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Positive operating cash flow – For the thirty-nine week period ended October 30, 2004, cash flow from operating activities totaled $157 million compared with $105 million for the prior thirty-nine week period ended November 1, 2003. Although over 25% of the increase in operating cash flow was attributable to the tax benefit from an unusual volume of stock option exercises, the remaining

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cash flow increase represented a growth of over 40%. The Company believes that a key strength of its business is the ability to consistently generate cash to support operations. 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, to fund 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 thirty-nine week periods ended October 30, 2004, the Company added approximately 87,000 and 264,000 permanent Passport Club members, respectively, and approximately 199,000 and 680,000 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. To that end, the Company introduced a new frequent shopper program at the White House | Black Market stores during October 2004 called “The Black Book”. Management currently reviews and analyzes the results of its Passport Club program on a weekly basis and intends to do the same with respect to The Black Book program.
	•		Quality and merit 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 October 30, 2004, the Company reported net sales, operating income and net income of $270 million, $59 million and $37 million, respectively, up 28.1%, 37.6% and 38.6%, from the comparable period in the prior fiscal year. The Company’s gross margin increased to 62.3% for the thirteen weeks ended October 30, 2004 from 61.4% for the comparable period in the prior fiscal year.

          For the thirty-nine weeks ended October 30, 2004, the Company reported net sales, operating income and net income of $781 million, $173 million and $108 million, respectively, up 41.3%, 44.8% and 45.1%, from the comparable period in the prior fiscal year. The Company’s gross margin increased to 62.0% for the thirty-nine weeks ended October 30, 2004 from 61.7% for the comparable period in the prior fiscal year.

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Results of Operations – Thirteen Weeks Ended October 30, 2004 Compared to the Thirteen Weeks Ended November 1, 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 October 30, 2004 (the “current period”) and November 1, 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 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):

          The comparable store sales increase of 6.1% was driven primarily by an increase in the number of transactions compared to the prior period but was offset to a lesser extent by a decrease of 0.2% 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). White House | Black Market stores acquired as part of The White House, Inc. acquisition were included in the comparable store sales calculation beginning in October 2004, which was 12 full months after the acquisition date of September 5, 2003. For October, the White House | Black Market same store sales represent approximately 11% of the total same store sales base, with the White House | Black Market same store sales increase being slightly ahead of the Chico’s same store sales increase. All of the net sales from the Company’s now discontinued Pazo store concept during the prior period have been included in the new store sales for the prior period and 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 $0.4 million, or 6.3%, 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.

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          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 October 30, 2004 and November 1, 2003 (dollar amounts in thousands):

          The increase in the gross profit percentage during the current period resulted primarily from improved margins at Chico’s and White House | Black Market frontline stores (which improvement generally resulted from improved initial merchandise markups) as well as from significantly improved margins at the Company’s outlet stores. To a lesser degree, this increase in gross profit percentage resulted from decreased inventory shrinkage costs and from operating efficiencies associated with the Company’s new distribution center (the costs of which are included in the Company’s costs of goods sold). These increases to gross profit percentage were partially offset by the increasing percentage of White House | Black Market sales, which carry a lower merchandise gross profit percentage than sales at Chico’s frontline stores and increased product development costs, as a percentage of net sales, principally associated with the White House | Black Market brand and, to a lesser extent, costs associated with the launch of the Soma by Chico’s brand in the fiscal third quarter.

          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 October 30, 2004 and November 1, 2003 (dollar amounts in thousands):

          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 improved 60 basis points over the prior period primarily because there had been $2.9 million of store closing costs associated with the conclusion of the Pazo test concept included in the prior period with no comparable expense in the current period. To a lesser extent, 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 6.1%, which improvements were offset by costs associated with White House | Black Market store operating expenses, which run higher than Chico’s frontline stores as a percentage of net sales. To a lesser degree, general and administrative

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expenses as a percentage of net sales was affected by increased marketing costs as a percentage of net sales and increased costs associated with the Company’s Sarbanes-Oxley initiatives.

          Net Income

          The following table shows net income in dollars and as a percentage of total net sales for the thirteen weeks ended October 30, 2004 and November 1, 2003 (dollar amounts in thousands):

Results of Operations – Thirty-Nine Weeks Ended October 30, 2004 Compared to the Thirty-Nine Weeks Ended November 1, 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 thirty-nine weeks ended October 30, 2004 (the “current period”) and November 1, 2003 (the “prior period”) (dollar amounts in thousands):