Chico's FAS on Wednesday reported that third quarter net sales fell 6.1% to $499.9 million, down from $532.3 million in the year-ago quarter. (Excluding a 1.6% or $9.1 million impact of hurricanes during last year's third quarter, sales fell 7.7%.) Net income in the quarter fell to $6.5 million from $16.7 million in the year-ago quarter, according to a company press release.
The sales decline reflected a store comp tumble of 6.8% and the consequences of 43 net store closures since last year, while the comp decline was driven by decreases in transaction count and lower average dollar sales, the company said — mostly at the flagship Chico's brand. By brand in the quarter: Store comps at Chico's fell 10.2%, at White House Black Market fell 5.1% and at Soma lingerie rose 2.4%.
The retailer also announced that Chico's brand president Diane Ellis is departing effective Nov. 30. A search for her replacement is being led by CEO Shelley Broader, who is serving in the role in the interim.
A style pivot launched in February at Chico's featuring "boho styles, bold colors and original prints that reflected the brand's artisanal heritage" did not go over well with the label's core customers, and the company is already making amends, Broader told analysts on Wednesday.
"We saw a strong response from target customers who connected with this look and feel. However, we took the associated merchandising marketing too far," she said, according to a transcript from Seeking Alpha. "We did not have the appropriate balance in clean, classic, polished silhouette or depth in the key basic items that appeal to our polished and our traditional customer. Actions are underway to turn around the brand's performance."
The consequences have been brutal. "Transactions are down and [average transaction value] is down, and that's never a good combination to experience," Ray Hartjen, marketing director of RetailNext, told Retail Dive in an email, adding that it's all the worse coming at the crucial holiday season. "Brands often need to pivot, but it's important to pivot in a way [that] adds to and complements the core customer. It's not about acquiring a new core customer. It's about adding to the core customer. That's one of the misses from Chico's. Its pivot is resulting in acquiring new customers at a slower rate than the exodus of its former core customer."
The miss was enough to warrant a changing of the guard, Hartjen also said, and wooing loyalists back will be a project. "[I]t will be critical for Chico's to re-establish a definitive brand identity," he said. "At the end of the day, an apparel brand lives and dies by its product assortment. ... [It] starts with assortment, and it will need to continue with marketing and promotional offers to cut through the market noise and attract shoppers back to the brand."
But the company does have strengths, including a turnaround at its White House Black Market label and ongoing strength in lingerie, a turbulent segment where several players are chasing a bit of market share being ceded by Victoria's Secret. "While Chico's disappointed in the quarter, continued inflection at WHBM and stronger than expected results from Soma are important positive data points," B. Riley analysts led by Susan Anderson said in a note emailed to Retail Dive, calling Chico's performance "a near term speed bump."
And the brand's sales through Amazon and omnichannel platform Shoprunner, and Soma's sales through QVC are also going well, "driving new customer growth and exceeding our expectations. Although not yet financially significant in total, performance across each has been strengthening," Broader said.
The company is continuing to trim its footprint, anticipating the closure of 45 to 50 stores this year and next, (about 3% of its total), the percentage that it has closed annually for the past four years, CFO Todd Vogensen told analysts. But the company is opening Chico's airport concept stores early next year and is expanding a successful cruise ship concession beyond the current 20, Broader said.