Fort Myers, FL—Increased promotions and lower traffic ate into Chico’s FAS Inc.’s second quarter profit, which was down 18%, missing analysts’ estimates.
“Traffic was our issue in the first quarter due to unseasonably cool weather,” David Dyer, president/ceo told analysts on a conference call today. “Traffic was also our issue in the second quarter. We were just not able to drive sufficient traffic to cycle against the record results from the second quarter of last year. Therefore, total sales for the quarter were up 1.2% to $650 million, with comparable sales of negative 2.6% versus comparable sales up 5.6% last year.”
For the quarter ended August 3, Chico’s reported net income of $43.59 million. or 27 cents a share, compared with net income of $53.40 million, or 32 cents a share, in the prior-year quarter. That missed analysts’ average estimate for 32 cents a share.
Lower Dollar Sale and Transaction Count
Net sales rose 1.2% to $649.50 million, but also missed analysts’ forecast for $676.98 million. The sales increase includes the addition of 112 new stores, an 8.8% increase in total square footage.
Total comparable store sales were down 2.6, reflecting declines in both average dollar sale and transaction count due to lower traffic.
Net sales at Chico’s/Soma Intimates remained flat at $415 million, while White House|Black Market net sales totaled $205 million, up from $194 million a year ago. Comparable store sales at Chico’s/Soma Intimates declined 3.1%. At White House|Black Market, comp sales dropped 1.5%. At its Boston Proper stores, net sales were down to $29.68 million from $32.61 million last year.
Gross margin narrowed to 54.8%, a 160 basis point decrease from last year’s second quarter, primarily reflecting increased promotional activity in response to lower traffic and investment in new distribution automation, partially offset by lower incentive compensation as a percent of net sales.
Operating margin dropped 260 basis points to 10.8% and a 100 basis points increase in total selling, general and administrative expenses as a percentage of total sales.