Chico’s on Wednesday reported that quarter two net sales fell 9% to $578.6 million from $635.7 million in last year's Q2, thanks to an 8.4% same-store sales decline driven by a low average dollar sale and a decline in transaction count, according to a company press release. That missed the FactSet consensus estimate cited by MarketWatch of $578.7 million.
By brand in the quarter, Chico’s same-store sales fell 9% and White House Black Market same-store sales fell 10.6%, while Soma same-store sales fared a bit better, falling 1.8%, according to the release.
The women’s apparel retailer also announced the appointment of Mary van Praag as president of its Soma lingerie unit, starting Sept. 5. She most recently served as CEO of skincare products company Perricone MD, and before that, held senior executive roles at Coty and Johnson & Johnson's beauty division, according to the company.
In recent years, Chico's has been distracted not just by tepid sales but also by a failed takeover attempt by private equity firm Sycamore Partners Management. Sycamore couldn’t line up the needed financing to buy the women’s apparel chain and dropped its buyout plans in February 2015.
Since then, there have been layoffs and continued troubles for the brand as it struggles to gain traction among its core customer base of older women, which analysts say is an underserved market. The apparel retail market in general has seen tepid sales as customer spending habits shift online and mall traffic declines. Because of the demographics of its customer base, Chico's brands are unlikely to see much of a bounce from the back-to-school season.
Bloated inventories continued to be a problem, forcing the company to discount. At the end of the quarter, inventories totaled $235.2 million compared to $235.6 million in the year-ago period, including a $16.9 million increase compared to the prior year due to a change in shipping terms with a supplier. Excluding that, inventory decreased 7.4%. For the second quarter, gross margin was $209.1 million, or 36.1% of net sales, compared to $240.8 million, or 37.9% of net sales, in last year's second quarter, a 180 basis point decrease reflecting store occupancy expenses and increased promotional activity to reduce inventory levels, the company said.
In her statement Wednesday, Chico’s CEO Shelley Broader called the results "disappointing," and said the company is working to adjust its assortments, especially for jackets at Chico’s and dresses at White House Black Market. Shares tumbled 10.6% in early trading Wednesday as the company's earnings in the quarter fell to $22.72 million or 18 cents per share, from $23.04 million or 17 cents per share last year, missing FactSet expectations cited by MarketWatch for 20 cents per share. The company said it expects full-year same-store sales to decline by high single-digits.
The lowered guidance and the misses on same-store sales and gross margin, though slight, implies continued weakness in the last half of the year, according to a note from FBR Capital Markets & Co. emailed to Retail Dive.
"While it is early in the third quarter, these key categories are showing encouraging progress," Broader said. "Our leadership team also continues to be keenly focused on driving our strategic priorities to transform Chico's FAS, Inc. into a more nimble, efficient and innovative retailer that continues to drive strong free cash flow in the long term."