ANNUAL REPORT 2018Omnichannel • STYLECONNECTSM • Virtual stylists • BOPIS • Ship from store Endless Aisle • Locate Tool • Client Book • Shop the Look In-store • QVC® • ShopRunner® • Amazon®Online • Digital Annual Report.indd 14/11/2019 9:21:01 AM Letter from the Chair
Dear Shareholders,
Chico’s FAS had a challenging conclusion to fiscal 2018, and under the direction of your Board of Directors, we are
addressing these challenges.
During the year, we took a number of important steps to better position the Company for growth and future success:
• We formed new relationships to raise the profile of our brands, including ShopRunner, Amazon and QVC, all
three of which saw promising results.
• We took steps to refine and repair our product offerings. New merchandise assortments at Soma and White
House Black Market resulted in fourth quarter sequential improvement in comp sales for these brands, and the
fourth quarter of fiscal 2018 was Soma’s best in 15 quarters.
• We added new digital capabilities, including endless aisle/buy online ship from store, STYLECONNECT™,
virtual stylists and buy online pick-up in store (BOPIS), which will begin to roll-out in June 2019.
• We maintained our record of disciplined financial management and active capital returns to shareholders. SG&A
expenses remained approximately the same as last year, and we achieved our 10th consecutive year of free cash
flow1 of approximately $100 million or more. We increased our dividend by 3% — our 9th annual increase,
which along with share repurchases, enabled us to return $124 million to shareholders.
However, these actions did not offset the challenges we experienced in the second half of the year at Chico’s, our
largest brand. The relaunched brand positioning with boho styles and bold colors did not resonate with many in our
customer base. Chico’s also struggled with product quality and fit. As a result, Chico’s FAS did not deliver on
expectations, impacting consolidated sales and earnings growth.
We are not satisfied with this performance and know more can be done to capitalize on the strength of the Chico’s
brand, its unique market positioning and loyal customer base. Accordingly, in April, the Board of Directors initiated
a CEO transition plan. During her tenure as CEO and President, Shelley Broader made a number of improvements
to the Company’s operations and we appreciate those contributions. However, a change in leadership was necessary,
and the Board is searching for a new Chief Executive Officer with a strong fashion apparel track record who can
move more aggressively to enhance the growth and positioning of Chico’s and our other brands to increase
shareholder value.
Bonnie Brooks, Board Member and Veteran Retail Executive and Merchant, Appointed Interim CEO of
Chico’s FAS
As the Board conducts its search for a new CEO, we are pleased that Bonnie Brooks, former Vice Chair, President
and CEO of Hudson’s Bay Company and a current member of the Chico’s FAS Board of Directors, has agreed to
serve as Interim CEO of Chico’s FAS.
Bonnie is a successful retail executive and merchant who has led the turnaround of other fashion retailers. She has
been a member of the Chico’s FAS Board since 2016 and has more than 30 years of global retail executive leadership
experience. Her knowledge of the industry as well as her time on the Chico’s FAS Board give her a deep
understanding of our brands and customers. We are confident that Bonnie will be able to quickly step into the
business to benefit the sales, products and merchandising across all of the Company’s brands.
Improving Our Brands and Our Operations
Bonnie is leading the business in rebuilding our Chico’s brand, while the CEO search is underway. Our attention is
directed towards establishing top line growth in all four brands, knowing that success at our flagship Chico’s brand
is necessary to realize the growth and profitability that we and our shareholders expect.
1 Free cash flow is a non-GAAP financial measurement. A reconciliation of net cash provided by operating activities on a GAAP basis to free
cash flow on a non-GAAP basis immediately follows our Form 10-K in this Annual Report.
At Chico’s, the team has been making adjustments to the product offering, its aesthetic, assortment architecture and
marketing strategy. We hired Karen McKibbin earlier this year to serve as Brand President to support these efforts.
Karen came to Chico’s following a successful career at Nordstrom, Inc., where she most recently served as President
of Nordstrom Rack. She is a proven leader who shares our commitment to beautiful products and superior customer
experiences, and clearly understands the growth potential of the Chico’s brand.
At White House Black Market, the combination of value and fashion drove stronger traffic in-store and online in
the second half of last year, and the brand is adjusting merchandise assortment to build on that trend in fiscal 2019.
We continue to expect polished workwear and polished casual to be key sales drivers for the brand.
At Soma, innovation in fabric, styling and fit is fueling momentum. Soma entered fiscal 2019 with plans for more
than 9 new product launches – the most ever in Soma’s history. Soma is expanding its Enbliss™ and Cool Nights®
collections to meet customers’ growing demand for these offerings. In addition, Soma recently launched
SOMAINNOFIT™, which uses a revolutionary way to help women find their optimal bra fit. And in April, we
announced the launch of TellTale™, a digital-first intimate apparel brand targeting women ages 25 to 40 to address
an opportunity in the market and capitalize on the Company’s intimates’ infrastructure and expertise.
Work is also continuing to optimize our retail store fleet and operations to help Chico’s FAS become a more agile,
flexible and cost-effective organization. This includes plans to close at least 250 stores in the U.S. over the next three
years as well as improvements to our sourcing, supply chain and marketing that we expect to result in meaningful
annualized cost savings.
Commitment to Highest Standards of Corporate Governance
Ensuring high standards of corporate governance remains a priority. We continue to benchmark our governance
policies against the Investor Stewardship Group framework for U.S. stewardship and governance. We completed the
board declassification process, and all directors will be annually elected beginning with our 2019 Annual Shareholder
Meeting.
At Chico’s FAS, we believe diversity is not just good governance, it is also good business, especially considering the
substantial amount of buying power in women’s hands. We have been recognized for our dedication and achievement
on this front:
•
•
•
•
In March, for the second consecutive year, Chico’s FAS was named one of the top companies for women
executives by the National Association for Female Executives (NAFE) and Working Mother magazine;
In 2018, Chico’s FAS was recognized as one of Mogul’s Top 100 Innovators in Diversity & Inclusion,
empowering women to succeed in every way possible;
In 2019, for the seventh consecutive year, Chico’s FAS was honored as a ‘‘Winning Company’’ by 2020 Women
on Boards; and
Recently, Chico’s FAS was nominated to receive the prestigious 2019 NACD NXT™ recognition award by the
National Association of Corporate Directors (NACD). This award acknowledges exemplary Board practices
related to diversity and inclusion.
Our commitment to diversity starts at the top. Women comprise 63% of the Chico’s FAS executive committee. In
addition, four directors on our eight-member Board are women, including our newest director, Kim Roy, who joined
in February of this year. With Kim’s appointment, we have added four new directors to the Board in the past three
years.
Kim has a strong track record with premier retail and consumer companies, including executive roles with Ralph
Lauren, Ann Taylor and Liz Claiborne. Her knowledge in brand strategy, merchandising, retail business operations,
multi-channel marketing and international brand development has already begun to help inform our strategies and
growth opportunities in these areas.
Throughout 2019, we will continue to reinforce our support of global women’s initiatives and our commitment to
environmental, social and governance (ESG) principles. We are working towards more thoroughly integrating social
and environmental sustainability standards into our supply-chain business practices to further support long-term value
creation.
As a Board, we are drawing from our expertise to support Bonnie in her role as Interim CEO as well as the executive
team. We are providing oversight across all of our strategic initiatives, including strengthening our brands’
positioning, advancing our omni-capabilities, product innovation, as well as digitizing and modernizing the customer
experience.
Confidence in Our Purpose and the Road Ahead
When Chico’s was founded 36 years ago, its purpose was to make women feel confident and beautiful, bringing out
their very best. Today, that purpose of empowering women remains at the very core of our company in all brands.
It defines how we recruit and develop our associates, from the storefront to the executive leadership team, how we
shape our products and serve our customers, and the partnerships we establish. Staying true to our purpose has
enabled us to build robust brands, and we firmly believe it will also guide us toward a strong future.
Each of our unique and differentiated brands has a loyal customer base, an advancing omnipresence, and delivers an
outstanding customer experience. These attributes give us great confidence in the road ahead for Chico’s FAS. 2019
will be a transitional and rebuilding year, particularly for the Chico’s brand, and one that we believe will better
position your company to compete, succeed and drive value creation over the long term.
We value the views of our shareholders, and members of Chico’s FAS’s management team have regularly engaged
with shareholders to understand their views. In 2019, we plan to have members of the Board more frequently also
take part in these conversations to further strengthen the Board’s understanding and appreciation of these important
perspectives.
On behalf of the Board, I thank you for your continued support and investment in Chico’s FAS.
Sincerely,
DAVID F. WALKER
Chair of the Board
All forward-looking information in this letter should be read with, and is qualified in its entirety by, the cautionary language regarding
forward-looking statements contained in Item 7 and the risk factors contained in Item 1A of our Form 10-K for the year ended February 2, 2019,
included elsewhere in this Annual Report.
Annual Report Inset.indd 1
4/11/2019 9:28:00 AM
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended February 2, 2019
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 001-16435
Chico’s FAS, Inc.
(Exact name of registrant as specified in charter)
Florida
(State or other jurisdiction
of incorporation or organization)
11215 Metro Parkway, Fort Myers, Florida
(Address of principal executive offices)
59-2389435
(I.R.S. Employer
Identification No.)
33966
(Zip code)
(239) 277-6200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Class
Common Stock, Par Value $0.01 Per Share
Name of Exchange on Which Registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
No
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 (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.406 of this chapter) is
not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K
.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller
reporting company”, "and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
State the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant:
Approximately $1,130,000,000 as of August 4, 2018, based upon the closing stock price on August 4, 2018 as reported by
the NYSE.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:
Common Stock, par value $0.01 per share – 116,497,167 shares as of March 4, 2019.
Documents incorporated by reference:
Portions of the Definitive Proxy Statement for the Company’s Annual Meeting of Shareholders presently scheduled for
June 27, 2019 are incorporated by reference into Part III of this Annual Report on Form 10-K.
CHICO’S FAS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE
FISCAL YEAR ENDED FEBRUARY 2, 2019
TABLE OF CONTENTS
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4. Mine Safety Disclosures
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Item 6.
Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
PART I
PART II
PART III
PART IV
2
2
8
16
17
17
17
18
18
20
21
32
33
62
62
64
64
64
64
64
65
65
66
66
70
PART I
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and are subject to risks, uncertainties,
and other factors which could cause actual results to differ materially from those expressed or implied by such forward-
looking statements. See “Item 1A. Risk Factors.”
ITEM 1. BUSINESS
Overview
Founded in 1983, Chico’s FAS, Inc.1, is a leading omnichannel specialty retailer of women's private branded,
sophisticated, casual-to-dressy apparel, intimates and complementary accessories. We operate under the Chico's, White House
Black Market ("WHBM") and Soma brand names. As of February 2, 2019, we operated 1,418 stores across 46 states, Puerto
Rico, the U.S. Virgin Islands and Canada, and sold merchandise through 83 international franchise locations in Mexico. Our
distinct lifestyle brands serve the needs of fashion-savvy women 35 years and older. We earn revenue and generate cash
through the sale of merchandise in our domestic and international retail stores, our various Company-operated e-commerce
websites, our call center (which takes orders for all of our brands), through an unaffiliated franchise partner in Mexico and
through third-party channels. We view our stores and e-commerce websites as a single, integrated sales function rather than as
separate sales channels operating independently.
We offer high quality and unique merchandise, supported by compelling marketing and outstanding personalized
customer service. While each of our brands has a distinct customer base, the overall portfolio caters to a broad age and
economic demographic, with household incomes in the moderate to high income level.
Our fiscal years end on the Saturday closest to January 31 and are designated by the calendar year in which the fiscal
year commences. The periods presented in this Annual Report on Form 10-K are the fiscal years ended February 2, 2019
(“fiscal 2018”, “2018” or “current period”), February 3, 2018 (“fiscal 2017”, “2017” or “prior period”), January 28, 2017
(“fiscal 2016” or “2016”), January 30, 2016 (“fiscal 2015” or “2015”) and January 31, 2015 (“fiscal 2014” or “2014”). Each of
these periods had 52 weeks, except for fiscal 2017, which consisted of 53 weeks.
Our Brands
The Company's brands, described in more detail below, are organized into three operating segments and aggregated into
one reportable segment due to the similarities of the economic and operating characteristics of the brands.
Chico’s
Our Chico’s brand began operations in 1983 and primarily sells exclusively designed, private branded clothing focusing
on women 45 and older. The style sensibility is unique with an individual expression created to illuminate the women wearing
the brand. Chico's apparel, including the Black Label, Zenergy and Travelers collections, emphasizes problem solving styles,
comfort and relaxed fit. Accessories and jewelry are original and designed to elevate the clothing assortment, allowing our
customer to individualize her personal style.
The distinctive nature of Chico’s clothing is also reflected in its sizing, which is comprised of sizes 000, 00 (size 0-2), 0
(size 4-6), 1 (size 8-10), 2 (size 12-14), 3 (size 16-18) and 4 (size 20-22). Chico’s will occasionally offer half-sizes (up to 3.5),
one-size-fits-all, petite sizes, short and tall inseams, and small, medium and large sizing for some items. The relaxed fit allows
us to utilize this kind of sizing and thus offer a wide selection of clothing without investing in a large number of sizes within a
single style.
Chico's is vertically integrated, controlling almost all aspects of the apparel design process, including choices of pattern,
print, construction, design specifications, fabric, finishes and color through in-house designers, purchased designs and
independent suppliers.
___________________________
1
As used in this report, all references to “we,” “us,” “our” and “the Company,” refer to Chico’s FAS, Inc., a Florida
corporation, and all of its wholly-owned subsidiaries.
2
White House Black Market
The WHBM brand began operations in 1985 and was acquired by the Company in September 2003. WHBM is dedicated
to being a go-to style destination and authority on wardrobe building. WHBM primarily sells exclusively designed, private
branded clothing focusing on women 35 and older. WHBM offers a modern collection to support her every lifestyle moment,
selling stylish and versatile clothing and accessory items, including everyday basics, polished casual apparel, relaxed
workwear, black and white pieces, and feminine all-occasion dresses. The accessories at WHBM, such as shoes, belts, scarves,
handbags and jewelry, are specifically designed to coordinate with each collection, allowing customers to easily individualize
their wardrobe selections.
WHBM uses American sizes in the 00-14 range (with online sizes up to 16), including petite sizing, as well as short and
long inseams, and small, medium and large sizing for some items. The fit of the WHBM clothing is tailored to complement the
figure of a body-conscious woman, while still remaining comfortable.
WHBM is vertically integrated, controlling almost all aspects of the apparel design process, including choices of
patterns, prints, construction, design specifications, fabric, finishes and color through in-house designers, purchased designs
and independent suppliers.
Soma
The Soma brand, which began operations in 2004, primarily sells exclusively designed, private branded lingerie,
sleepwear and loungewear products focusing on women who want solutions as comfortable as they are beautiful. The Soma
brand's core franchises emphasize innovative styles that focus on fit and uncompromising comfort, including vanishing back
bras, vanishing edge panties, slimming leggings and cool nights sleepwear.
Bras range in size from 32A-46H. The sleepwear and loungewear offerings range in size from extra small to extra-extra-
large.
The Soma team develops product offerings by working closely with a small number of independent suppliers to design
proprietary products in-house and, in some cases, designs provided by its independent suppliers under labels other than the
Soma brand.
Our Business Strategy
Our overall business strategy is focused on building a collection of distinct high-performing retail brands serving the
fashion needs of women 35 and older. We seek to accomplish this strategy through our five focus areas: (1) evolving the
customer experience, (2) strengthening our brands' positions, (3) leveraging actionable retail science, (4) building growth
platforms and (5) achieving operational excellence. Over the long term, we may build our brand portfolio by organic
development or acquisition of other specialty retail concepts if research indicates that the opportunity complements our current
brands and is appropriate and in the best interest of the shareholders.
We pursue improving the performance of our brands by building our omnichannel capabilities, managing our store base,
growing our online presence, executing marketing plans, effectively leveraging expenses, considering additional sales channels
and markets, and optimizing the merchandise offerings of each of our brands. We continue to invest heavily in our omnichannel
capabilities so our customers can fully experience our brands in the manner they choose.
We view our stores and e-commerce websites as a single, integrated sales function rather than as separate, independently
operated sales channels. As a result, we maintain a shared inventory platform for our operations, allowing us to fulfill orders for
all channels from our distribution center ("DC") in Winder, Georgia. Our domestic customers can return merchandise to a store
or to our DC, regardless of the original purchase location. Using our enhanced “Locate” tool, we ship in-store orders from other
locations directly to the customer, expediting delivery times while reducing our shipping costs. In addition, we expanded our
omnichannel capabilities in fiscal 2018 with the launch of Endless Aisle, our shared inventory system, enabling customers to
purchase online and ship from store.
We seek to acquire new customers and retain existing customers by leveraging existing customer-specific data and
through targeted marketing, including digital marketing, social media, television, catalogs and mailers. We seek to optimize the
potential of our brands with improved product offerings, potential new merchandise opportunities, and brand extensions that
enhance the current offerings, as well as through our continued emphasis on our trademark “Most Amazing Personal Service”
standard. We also will continue to consider potential alternative sales channels for our brands, including international franchise,
wholesale, licensing and other opportunities.
3
In fiscal 2016, we implemented cost reduction and operating efficiency initiatives, including realigning marketing and
digital commerce, improving supply chain efficiency and reducing non-merchandise expenses. In fiscal 2017, we focused on
our brand positioning and evolving the customer experience and leveraging actionable retail science to drive sales. In fiscal
2018, we launched multiple initiatives that utilize technology and new platforms to drive growth such as Endless Aisle and
Style ConnectTM (which enables store associates to personalize the customer experience). As a result of these multi-year
initiatives, we have the technology and tools in place to leverage our omnichannel capabilities, which should allow us to
capture and stay connected with our customers, whether in-store or online.
We are committed to enhancing our effectiveness and efficiency to better meet customer expectations and drive
profitable growth. In the fourth quarter of fiscal 2018, we announced a retail fleet optimization plan to rebalance the mix
between our physical store presence and our digital network with the closure of at least 250 stores in the United States over the
next three years. Building upon management's strategic decision to right-size our retail fleet, we also commenced a
comprehensive review of our operations to ensure the business is structured for agility, speed and innovation. These initiatives
are part of the Company's efforts to better capitalize on its omnichannel platform, reduce costs, improve profitability and return
on invested capital.
Our Customer Service Model
We strive to deliver outstanding and personalized customer service to our customers through our trademark “Most
Amazing Personal Service” standard. We believe this service model is one of our competitive advantages and a key to our
continued success. An important aspect to the successful implementation of this model involves specialized training we provide
our sales associates to help them better meet their customers’ fashion and wardrobe needs. Such needs may include clothing
and accessory style, color selection, coordination of complete outfits and suggestions on different ways to wear the clothing and
accessories. Our sales associates are encouraged to develop long-term relationships with their customers, to know their
customers’ preferences and to assist our customers in selecting merchandise best suited to their tastes and wardrobe needs. Our
brands utilize Style Connect to access customer purchase history and style preferences as a clienteling tool that enhances the
shopping experience in a personalized and efficient manner.
We also serve our customers’ needs and build customer loyalty through our customer rewards programs. Our programs
are designed to reward our loyal customers by leveraging the rich data our customers share with us to deliver a relevant and
engaging experience with our brands. The benefits provided are routinely evaluated in conjunction with our overall customer
relationship management and marketing activities to ensure they remain a compelling reason for customers to shop at our
brands.
•
•
•
Chico’s. A Chico’s customer can join the “Passport” program at no cost and receive additional benefits after
spending a fixed amount. Features of the program include a 5% discount, exclusive offers, special promotions, free
shipping, invitations to private sale events and advance notice regarding new arrivals.
WHBM. With “WHBM Rewards”, a customer can join at no cost for tier-based discounts, a 5% discount after
spending a specified amount, free shipping, special promotions and invitations to private sales based on annual
spend.
Soma. A Soma customer can join “Love Soma Rewards” at no cost and earns points based on purchases. Features
of the program include reward coupons at specified loyalty point levels, exclusive promotions and free shipping.
Our Boutiques and Outlet Stores
Our boutiques are located in upscale indoor shopping malls, outdoor shopping areas and standalone street-front locations
in the United States, Puerto Rico, the U.S. Virgin Islands and Canada. Boutique locations are determined based on various
factors, including, but not limited to: market and demographic characteristics, nearby competitors, our own network of existing
boutiques, the location of the shopping venue, including the site within the shopping center, proposed lease terms, anchor or
other co-tenants, parking accommodations and convenience. Our merchandise is also sold through international franchise
locations in Mexico, including boutique locations as well as shop-in-shop formats within a department store environment.
Our outlet stores are primarily located in quality outlet centers. The Chico’s and WHBM brand outlets contain a mixture
of made-for-outlet and clearance merchandise. The made-for-outlet product carries a higher margin than the clearance items
from our boutique stores. Soma outlets contain a mix of boutique and clearance merchandise. We also sell clearance
merchandise on our websites. We regularly review the appropriate ratio of made-for-outlet and clearance merchandise sold at
our outlets and adjust that ratio as appropriate.
4
As of February 2, 2019, we operated 1,418 retail stores in 46 states, Puerto Rico, the U.S. Virgin Islands and Canada,
and sold merchandise through 83 international franchise locations in Mexico. The following tables set forth information
concerning our retail stores during the past five fiscal years:
Stores
Stores at beginning of year
Opened
Closed
Total Stores
Stores by Brand
Chico’s frontline boutiques
Chico’s outlets
Chico's Canada
Chico’s total
WHBM frontline boutiques
WHBM outlets
WHBM Canada
WHBM total
Soma frontline boutiques
Soma outlets
Soma total
Boston Proper boutiques
Total Stores
2018
2017
Fiscal Year
2016
2015
2014
1,460
5
(47)
1,418
1,501
7
(48)
1,460
1,518
17
(34)
1,501
1,547
40
(69)
1,518
1,472
109
(34)
1,547
2018
2017
Fiscal Year End
2016
2015
2014
551
125
4
680
390
65
6
461
258
19
277
568
120
4
692
404
69
6
479
270
19
289
587
116
4
707
423
71
6
500
275
19
294
604
117
4
725
429
71
6
506
269
18
287
613
118
3
734
441
68
5
514
263
17
280
—
1,418
—
1,460
—
1,501
—
1,518
19
1,547
Under our retail fleet optimization plan, we expect to close approximately 100 Chico’s, 90 White House Black Market
and 60 Soma locations over the next three years, with the majority of the closings occurring in years two and three. We
continuously evaluate the appropriate store base in light of economic conditions and our business strategy and may adjust the
openings and closures as conditions require or as opportunities arise. Our unaffiliated franchisee expects to continue opening
international franchise locations in Mexico.
Information Technology/Data Analytics
We are committed to having information systems that enable us to obtain, analyze and act upon information on a timely
basis and to maintain effective financial and operational controls. We periodically test new technologies and platforms to
support and enhance our processes across all areas of our business. We use a proprietary customer database, together with data
analytics, to customize our communications and make targeted offers to customers in an effort to increase traffic in-store and
online and to increase conversion.
Digital Commerce
Each of our brands has a digital flagship: www.chicos.com, www.whbm.com and www.soma.com, which provide
customers the ability to browse and order merchandise, locate our stores and engage with content to enhance the shopping
experience. We also offer www.chicosofftherack.com, our e-commerce site that gives customers 24/7 access to the same
exclusive styles available at our Chico's Outlet locations.
Our websites are designed to complement the in-store experience and play a vital role in both our omnichannel strategy
and the customer experience. Some products are available exclusively online including extended sizes, additional style and
color choices, premier partner brands and clearance items. Online merchandise is also available for order through our call
center, through clienteling applications in our stores and through third parties, such as Amazon and Borderfree. We also utilize
5
ecommerce solutions, such as ShopRunner, and are exploring new digital opportunities to expand our customer base and drive
sales.
We remain focused on our omnichannel approach by ongoing enhancements to all brand websites through new features,
functionality, search engine optimization and content designed to improve and evolve the customer's experience.
Marketing and Advertising
Our brands use industry-leading transactional data to develop targeted and effective marketing strategies. In order to
optimize our marketing efforts and to attract new customers, we continue to shift our advertising from traditional media, instead
placing more emphasis on digital media. We also use predictive modeling and advanced segmentation methodologies to drive
customer retention and reactivation.
We use the following marketing and media-mix programs to engage current customers and attract prospective
customers:
• Loyalty and rewards programs;
• Direct marketing: catalogs, postcards, email and calling campaigns;
• Digital marketing: mobile paid search, product listing ads, display banner advertising and remarketing, affiliate
programs;
Social marketing: organic and paid efforts across social platforms;
•
• National and local print and broadcast advertising;
• Editorial content;
•
• Charitable giving and outreach programs.
Public relations; and
In 2019, our marketing efforts will focus on retaining existing and attracting new customers to our iconic brands'
differentiated positioning by leveraging retail science and introducing alternative sales channels.
Product Sourcing
Our product sourcing activities are performed by a centralized shared service team that is focused on maintaining our
quality standards and identifying cost-effective opportunities to improve production speed and flexibility. In fiscal 2018, China
sources accounted for approximately 48% of our merchandise cost. We take ownership of merchandise either in the foreign
country, at a designated point of entry into the United States, or at our DC, depending on the specific terms of sale.
The majority of our merchandise is purchased through key suppliers with whom we have established strategic
collaborations; these key suppliers represented 64% of our purchases in fiscal 2018 with our largest supplier accounting for
23% of the total. Currently, we believe our product sourcing is appropriately distributed among suppliers and across countries
of manufacture taking into consideration product quality execution, flexibility and speed at an acceptable cost and level of risk.
Merchandise Distribution
The distribution function for all brands is handled from our DC in Winder, Georgia. New merchandise is generally
received daily at the DC. Imported merchandise is shipped from the country-of-export either by sea, air, truck or rail, as
circumstances require. Domestic merchandise is primarily shipped by truck or rail. Upon arrival at our DC, merchandise is
sorted and packaged for shipment to individual stores or is held for future store replenishment or direct shipment to customers.
Merchandise is generally pre-ticketed with price and related informational tags at the point of manufacture.
Our DC has been granted Foreign Trade Zone status from both the U.S. Department of Commerce and U.S. Customs and
Border Protection. This status facilitates international expansion and allows us to move certain merchandise into the DC
without paying U.S. Customs duty until the merchandise is subsequently shipped to domestic stores or online customers.
6
Competition
The women’s retail apparel and intimate apparel business is highly competitive and includes local, national and
international department stores, specialty stores, boutique stores, catalog companies and online retailers. We believe that our
distinctively designed merchandise offerings and emphasis on customer service distinguish us from our competitors.
Trademarks and Service Marks
We are the owner of certain registered and common law trademarks and service marks (collectively referred to as
“Marks”).
Our Marks include, but are not limited to: CHICO’S, CHICO'S PASSPORT, ZENERGY, SO SLIMMING, WHITE
HOUSE BLACK MARKET, WHBM REWARDS, WORK KIT, SOMA, SOMA INTIMATES, ENTICING, COOL NIGHTS,
EMBRACEABLE, ENBLISS, VANISHING BACK, VANISHING EDGE, LOVE SOMA REWARDS and CHICO'S OFF THE
RACK. We have registered or are seeking to register a number of these Marks in the United States, Canada, Mexico and other
foreign countries.
In the opinion of management, our rights in the Marks are important to our business. Accordingly, we intend to maintain
our Marks and the related registrations and applications. We are not aware of any material claims of infringement or other
challenges to our rights to use any registered Marks in the United States.
Available Information
Through our investor relations website, www.chicosfas.com, we make available free of charge our Securities and
Exchange Commission (“SEC”) filings, including our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after those reports are electronically
filed with the SEC and are available at www.sec.gov. This website also includes recent press releases, corporate governance
information, beneficial ownership reports, institutional presentations, quarterly and institutional conference calls and other
financial data, including historical store square footage.
Our Code of Ethics, which is applicable to all of our employees, including the principal executive officer, the principal
financial officer and the Board of Directors ("Board"), is posted on our investor relations website. Any amendments to or
waivers from our Code of Ethics are also available on this website. Charters of each of the Audit Committee, Human
Resources, Compensation and Benefits Committee, Corporate Governance and Nominating Committee and Executive
Committee as well as the Corporate Governance Guidelines, Insider Trading Policy, Whistleblower Policy, Terms of
Commitment to Ethical Sourcing and Stock Ownership Guidelines are available on this website or upon written request by any
shareholder.
Employees
As of February 2, 2019, we employed approximately 18,500 people, 27% of whom were full-time employees and the
balance of whom were part-time employees. The number of part-time employees fluctuates during peak selling periods. As of
the above date, approximately 90% of our employees worked in our boutique and outlet stores. We have no collective
bargaining agreements covering any of our employees, have never experienced any material labor disruption and are unaware
of any efforts or plans to organize our employees. We consider the overall relations with our employees to be good.
7
ITEM 1A. RISK FACTORS
An investment in our common stock involves certain risks. The risks and uncertainties described below are not the only
risks that may have a material adverse effect on the Company, and the risks described herein are not listed in order of the potential
occurrence or severity. There is no assurance that we have identified, assessed and appropriately addressed all risks affecting our
business operations. Additional risks and uncertainties could adversely affect our business and our results. If any of the following
risks actually occur, our business, consolidated financial condition or results of operations could be negatively affected, and the
market price for our shares could decline. Further, to the extent that any of the information contained in this Annual Report on
Form 10-K constitutes forward-looking statements, the risk factors set forth below are cautionary statements, identifying important
factors that could cause the Company’s actual results to differ materially from those expressed in or implied by any forward-
looking statements made by or on behalf of the Company. There can also be no assurance that the actual future results, performance,
benefits or achievements that we expect from our strategies, systems, initiatives or products will occur.
Business Strategy
If we cannot successfully execute our business strategy, our consolidated financial condition and results of operations
could be materially adversely impacted. There are numerous risks associated with this strategy including, but not limited to, the
following:
Risk
Description
1. Failure to identify
and respond to fashion
trends that appeal to
our customer and
implement and manage
our business strategy
may adversely impact
sales and profitability
Our future success depends, in part, upon our ability to identify and respond to fashion trends in a
timely manner and develop innovative, high-quality merchandise in styles that appeal to our
consumers and in ways that favorably distinguish us from our competitors. The specialty retail
apparel business fluctuates according to changes in the economy and customer preferences,
influenced by fashion and season. These fluctuations affect the inventory sourced by our brands as
merchandise typically must be ordered well in advance of the selling season. There can be no
assurance that we will appropriately anticipate consumer demands and accurately plan brand-right
inventory in the future.
Our long-term omnichannel business strategy is dependent upon a number of other factors,
including, but not limited to, customer shopping habits (such as online versus in-store) and
discretionary income, identifying and developing new brand extensions, markets and channels of
distribution, effectively using and evolving our marketing resources and programs to communicate
with existing and potential customers, maintaining favorable brand recognition, effectively managing
our store base, including management of store productivity and negotiating acceptable lease terms,
effectively managing our franchise, wholesale and licensing relationships to optimize sales and
margin and to protect our brands, having the appropriate corporate resources to support our business
strategies, sourcing appropriate levels of inventory in line with sales expectations and then managing
its disposition, hiring, training and retention of qualified employees, generating sufficient operating
cash flows to fund our business strategies, maintaining brand-specific websites that offer the system
functionality, service and security customers expect, and correctly identifying, implementing and
maintaining appropriate technology to support our business strategies.
8
2. Competition
The women's specialty retail industry is highly competitive. We compete with local, national and
international department stores, specialty and discount stores, catalogs and internet businesses
offering similar categories of merchandise. Many of our competitors have advantages over us,
including substantially greater financial, marketing, distribution and other resources. Increased levels
of promotional activity by our competitors, some of whom may be able to adopt more aggressive
pricing policies than we can, both online and in stores, may negatively impact our sales and
profitability. There is no assurance that we can compete successfully with these companies in the
future. In addition to competing for sales, we compete for store and online traffic, for favorable store
locations and lease terms and for qualified associates. The growth of fast fashion, value fashion
retailers and expansion of off-price retailers has shifted shopper expectations to more affordable
pricing of well-known brands and has contributed to continued promotional pressure as well as a
shift in customers’ expectations with regard to the timing and costs of product deliveries and returns.
If we do not identify and respond to these emerging trends in consumer spending as well as the
growing preference of many customers for online e-commerce options, we may harm our ability to
retain our existing customers or attract new customers. Increased competition in any of these areas
may result in higher costs or otherwise reduce our sales or operating margins.
3. Risks of expanding
internationally
Our current strategy includes potential expansion of our operations and presence internationally. As
part of that strategy, we may face unanticipated and significant costs and challenges in setting up
foreign offices, hiring experienced management or franchising partners, negotiating profitable
licensing or franchising agreements, obtaining prime locations for stores, introducing and marketing
our brands, and others.
We may be unable to successfully grow our international business, or we may face operational issues
or resource constraints that delay our intended pace of international growth, such as an inability to
identify suitable franchising partners, to identify profitable markets for our brands and sites for store
locations, to anticipate and address the different operational or cultural challenges presented in a new
country, to find vendors that can meet our international merchandise needs, to provide adequate
resource and system support through our shared service model, to achieve acceptable operating
margins, compete with local competitors or adapt to different consumer demand and behavior. Any
challenges that we encounter may divert financial, operational and managerial resources from our
existing operations.
In addition, we are subject to certain U.S. laws that may impact our international operations or
expansion, including the Foreign Corrupt Practices Act, as well as the laws of the foreign countries
in which we operate. Violations of these laws could subject us to sanctions or other penalties that
could negatively affect our reputation, business and operating results.
General Economic Conditions
Numerous economic conditions, all of which are outside of our control, could negatively affect the level of our
customers' spending or our costs of operations. If these economic conditions persist for a sustained period, our consolidated
financial condition and results of operations could be materially adversely impacted. These economic conditions include, but
are not limited to, the following:
Risk
Description
4. Declines in
consumer spending
Consumer spending in our sector may decline as a result of: threatened or actual government shut
downs, higher unemployment levels, low levels of consumer credit, declines in consumer
confidence, inflation, changes in interest rates, recessionary pressures, increasing gas and other
energy costs, increased taxes, changes in housing prices, higher durable goods or other consumer
spending, volatility in the financial markets and changes in the political climate or conditions.
9
5. Fluctuating costs
Fluctuations in the price, availability and quality of fabrics and other raw materials used to
manufacture our products, as well as the price for labor and transportation, may contribute to
ongoing pricing pressures throughout our supply chain. The price and availability of such inputs to
the manufacturing process may fluctuate significantly, depending on several factors, including
commodity costs (such as higher cotton prices), energy costs (such as fuel), shipping costs,
inflationary pressures from emerging markets, increased labor costs, weather conditions and
currency fluctuations.
6. Impairment charges Significant negative industry or general economic trends, changes in customer demand for our
product, disruptions to our business and unexpected significant changes or planned changes in our
operating results or use of long-lived assets (such as boutique relocations or discontinuing use of
certain boutique fixtures) may result in impairments to goodwill, intangible assets and other long-
lived assets.
7. Fluctuating
comparable sales and
operating results
Our comparable sales and overall operating results have fluctuated in the past and are expected to
continue to fluctuate in the future. In addition to other factors discussed in this Item 1A., a variety of
factors affect comparable sales and operating results, including changes in fashion trends, changes in
our merchandise mix, customer acceptance of merchandise offerings, the timing of marketing
activities, calendar shifts of holiday periods, the periodic impact of a fifty-three-week fiscal year,
weather conditions and general economic conditions. In addition, our ability to address the current
challenges of sustained declining store traffic combined with a highly promotional retail environment
and our execution of our retail fleet optimization plan and related store closings may impact our
comparable sales, operating results and ability to maintain or gain market share. Past comparable
sales or operating results are not an indicator of future results.
Omnichannel Operations
Our omnichannel operations (including our websites and catalogs) are a critical part of our customers’ overall experience
with our brands and will be a significant contributor to our future business growth and profitability. Our inability or failure to
successfully manage and maintain those operations could materially and adversely impact our results of operations. Specific
risks include, but are not limited to, the following:
Risk
Description
8. Reliance on
technology
Our brands’ websites and select systems, including our integrated inventory management system, are
heavily dependent on technology, which creates numerous risks including unanticipated operating
problems, system failures, rapid technological change, failure of technology to operate the websites
and systems as anticipated, reliance on third-party computer hardware and software providers,
computer viruses, telecommunication failures, liability for online content, systems and data breaches,
denial of service attacks, spamming, phishing attacks, computer hackers and other similar
disruptions. Our failure to successfully assess and respond to these risks could negatively impact
sales, increase costs, inhibit our ability to acquire new customers and damage the reputation of our
brands.
9. Reliance on the
U.S. Postal Service
and other shipping
vendors
We utilize shipping vendors to support our operations. Any significant and unanticipated increase in
shipping costs, reduction in service, or slow-down in delivery could impair our ability to deliver
merchandise in a timely or economically efficient manner.
Postal rate increases or a reduction or delay in service could affect the cost of our order fulfillment
and catalog and promotional mailings. We use the Postal Service to mail millions of catalogs each
year to educate our customers about our products, acquire new customers, drive customers to our
boutiques and websites and promote catalog sales. We rely on discounts from the basic postal rate
structure, such as discounts for bulk mailings and sorting.
10
10. Inability to
successfully launch
other channels of sales,
marketing and
distribution
Our strategic plans include additional channels for the marketing and sale of our product and brands,
including through franchise, wholesale, licensing and alternative distribution models. Each of these
methods presents new operational, reputational and financial challenges for us. Our inability to find
the right markets, partners or business models, our inability to negotiate agreements that protect our
profit and brand quality and reputation, or our inability to accurately anticipate the resources,
systems and operational needs that go along with these new ventures could result in lower than
expected returns and adversely impact other areas of our business.
Information Technology Systems
In addition to the dependence of our retail websites and other systems on technology as discussed above, we also rely on
various information technology systems to manage our overall operations, and failure of those systems to operate as expected
or a significant interruption in service could materially adversely impact our consolidated financial condition and results of
operations. Risks include, but are not limited to, the following:
Risk
Description
11. Disruptions while
maintaining current
systems or difficulties
in integrating new
systems
We and third-party providers on whom we rely regularly maintain, upgrade, enhance or replace our
websites and information technology systems to support our business strategies and provide business
continuity. Replacing legacy systems with successor systems, making changes to existing systems or
acquiring new systems with new functionality have inherent risks including disruptions, delays, gaps
in functionality, user acceptance, adequate user training or other difficulties that may impair the
effectiveness of our information technology systems.
12. Cybersecurity/
Data Privacy
We are subject to cybersecurity risks. Cybersecurity refers to the combination of technologies,
processes and procedures established to protect information technology systems and data from
unauthorized access, attack, exfiltration, loss or damage. Our business involves the storage and/or
transmission of customers’ personal information, shipping preferences and credit card information,
as well as confidential information regarding our business, employees and third parties. In addition,
as part of our acceptance of customers’ debit and credit cards as forms of payment, we are required
to comply with the Payment Card Industry Data Security Standards (“PCI”) as well as other laws and
regulations, both foreign and in the United States.
While we have implemented measures reasonably designed to prevent security breaches and cyber
incidents, and while we have taken steps to comply with PCI and other laws, those measures may not
be effective and we may experience them in the future. We may not be able to anticipate or prevent
rapidly evolving types of cyber-attacks. Actual or anticipated attacks may cause us to incur
increasing costs including costs to deploy additional personnel and protection technologies, train
employees and engage third-party experts and consultants.
A breach or cyber incident through any means, including indirectly through third-party service
providers and vendors, could result in the loss or misuse of data and could result in significant fines,
penalties, damages, loss of business, legal expenses, remediation costs, reputational damage or loss
of our ability to accept debit and credit cards as forms for payment. In addition, changes in laws or
regulations, the PCI standards or technology, could result in increased expenses due to system or
administrative costs.
11
Sourcing and Distribution Strategies
Our sourcing and distribution strategies are subject to numerous risks that could materially adversely impact our
consolidated financial condition and results of operations. These risks include, but are not limited to, the following:
Risk
Description
13. Reliance on
foreign sources of
production
The majority of the merchandise we sell is produced outside the United States. As a result, our
business remains subject to the various risks of doing business in foreign markets and importing
merchandise from abroad, such as: geo-political instability, non-compliance with the Foreign Corrupt
Practices Act and other anti-corruption laws and regulations, potential changes to the North
American Free Trade Agreement and other international trade agreements, imposition of new
legislation relating to import quotas, imposition of new or increased duties, taxes, or other charges on
imports, foreign exchange rate challenges and pressures presented by implementation of monetary
policy by the Federal Reserve and other international central banks, challenges from local business
practices or political issues, transportation disruptions, our shift to a predominantly FOB (free on
board) shipping structure rather than predominantly DDP (delivered duty paid), natural disasters,
delays in the delivery of cargo due to port security considerations or government funding; seizure or
detention of goods by U.S. Customs authorities, or a reduction in the availability of shipping sources
caused by industry consolidation or other reasons. We continue to source a substantial portion of our
merchandise from Asia, including China. A change in exchange rates, labor laws or policies affecting
the costs of goods in Asia could negatively impact our merchandise costs. Furthermore, delays in
production or shipping product, whether due to work slow-downs, work stoppages, strikes,
port congestion, labor disputes, product regulations and customs inspections or other factors, could
also have a negative impact.
There have been ongoing discussions and commentary regarding potential significant changes to the
United States trade policies, treaties, tariffs and taxes, including trade policies and tariffs regarding
China. In 2018, the Office of the U.S. Trade Representative (the “USTR”) enacted tariffs on imports
into the U.S. from China. In September 2018, the USTR enacted another tariff on the import of other
Chinese products with an additional combined import value of approximately $200 billion. The tariff
became effective on September 24, 2018, with an initial rate of 10%, with the potential for
significant increases if the U.S. and China do not reach a new trade deal in the near term. There is
significant uncertainty about the future relationship between the United States and other countries
with respect to the trade policies, treaties, taxes, government regulations and tariffs that would be
applicable. It is unclear what changes might be considered or implemented and what response to any
such changes may be by the governments of other countries. Significant tariffs or other restrictions
placed on Chinese imports and any related counter-measures that are taken by China could have an
adverse effect on our financial condition or results of operations. Even in the absence of further
tariffs, the related uncertainty and the market's fear of an escalating trade war might create
forecasting difficulties for us and cause our customers and business partners to place fewer orders for
our products and services, which could have a material adverse effect on our business, liquidity,
financial condition, and/or results of operations. These developments, or the perception that any of
them could occur, may have a material adverse effect on global economic conditions and the stability
of global financial markets, and may significantly reduce global trade and, in particular, trade
between these nations and the United States. Any of these factors could depress economic activity
and restrict our access to suppliers or customers and have a material adverse effect on our business,
financial condition and results of operations and affect our strategy around the world. Given the
relatively fluid regulatory environment in China and the United States and relative uncertainty with
respect to tariffs, international trade agreements and policies, a trade war, further governmental
action related to tariffs or international trade policies, or additional tax or other regulatory changes in
the future could directly and adversely impact our financial results and results of operations.
12
14. Our suppliers’
inability to provide
quality goods in a
timely manner
We are subject to risk because we do not own or operate any manufacturing facilities and depend on
independent third parties to manufacture our merchandise. A key supplier may become unable to
address our manufacturing needs for a variety of reasons. If we were unexpectedly required to
change suppliers or if a key supplier were unable to supply quality merchandise in sufficient
quantities on acceptable terms, we could experience a significant impact to the supply or cost of
merchandise.
15. Reliance upon one
supplier
Approximately 23% of total purchases in fiscal 2018 and fiscal 2017 were made from one supplier,
and we cannot guarantee that this relationship will be maintained in the future or that the supplier
will continue to be available to supply merchandise. However, we have no material long-term or
exclusive contract with any apparel or accessory manufacturer or supplier. Our business depends on
our network of suppliers and our continued good relations with them.
16. Our suppliers’
failure to implement
acceptable labor
practices
Although we have adopted our Terms of Commitment to Ethical Sourcing and use the services of
third-party audit firms to monitor compliance with these terms, some of our independent suppliers
may not be in complete compliance with our guidelines at all times. The violation of labor or other
laws by any of our key independent suppliers or the divergence of an independent supplier’s labor
practices from those generally accepted by us as ethical could interrupt or otherwise disrupt the
shipment of finished merchandise or damage our reputation.
17. Reliance on one
location to distribute
goods for our brands
With minor exceptions, the distribution functions for all of our brands are handled from our DC in
Winder, Georgia and a significant interruption in the operation of that facility due to changes to
existing systems, use of other facilities, natural disasters, severe weather, accidents, system failures,
capacity constraints or other unforeseen causes could delay or impair our ability to distribute
merchandise to our stores and/or fulfill online or catalog orders.
Other Risks Factors
Our business is subject to numerous other risks that could materially adversely impact our consolidated financial
condition and results of operations. These risks include, but are not limited to, the following:
Risk
Description
18. Failure to comply
with applicable laws
and regulations
Our policies, procedures and internal controls are designed to help us comply with all applicable
foreign and domestic laws, accounting and reporting requirements, regulations and tax requirements,
including those imposed by the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform
and Consumer Protection Act, the Foreign Corrupt Practices Act, The Patient Protection and
Affordable Care Act, the SEC and the New York Stock Exchange (“NYSE”), as well as applicable
employment and data security laws and various applicable laws in foreign jurisdictions. We could be
subject to legal or regulatory action in the event of our failure to comply, which could be expensive
to defend and resolve and be disruptive to our business. Any changes in regulations, the imposition
of additional regulations or the enactment of any new legislation that affects us may increase the
complexity of the legal and regulatory environment in which we operate and the related costs of
compliance.
13
19. Adverse outcomes
of litigation matters
We are involved in litigation and other claims against our business. These matters arise primarily in
the ordinary course of business but could raise complex factual and legal issues, presenting multiple
risks and uncertainties and requiring significant management time. Our assessment could change in
light of the discovery of facts with respect to pending or potential legal actions against us, not
presently known to us, or determinations by judges, juries or other finders of fact which are
inconsistent with our evaluation of the possible liability or outcome of such litigation. In addition, we
may be subject to litigation which has not yet been filed.
20. Our inability to
retain or recruit key
personnel
Our success and ability to properly manage our business depends to a significant extent upon our
ability to attract, develop and retain qualified employees, including executive and senior
management and talented merchants. Competition for talented employees within our industry is
intense. Failure to recruit and retain such personnel and implement appropriate succession planning,
including the transition of new executives, particularly at the senior executive level, could jeopardize
our future success.
21. Our inability to
achieve the results of
our strategic initiatives
We have launched significant initiatives designed to reposition our brands, drive sales, acquire new
customers, establish new channels of distribution, achieve organization efficiency and further align
the organizational structure for long-term growth. These initiatives require substantial internal
change and effort, including reductions and changes in vendors and personnel, reductions in store
locations and significant adjustments in how we design and source product and how we ultimately
present and sell it to our customers. These initiatives may not deliver all of the results we expect.
Moreover, the process of implementing them places significant stress on the Company and could
result in unexpected short-term interruptions or negative impacts to our business, such as disruptions
to our current business processes as we migrate to the new processes, or failure to successfully
migrate to those new processes, which could negatively impact product flow, product quality or
inventory levels, or result in impairment of long-lived assets.
In addition, there is no assurance that we can complete the implementation of all of these initiatives
in the manner or in the time-frame planned, or that, once implemented, they will result in the
expected increases in the efficiency or productivity of our business.
22. The terms of our
Credit Agreement may
restrict our current and
future operations,
which could adversely
affect our ability to
respond to changes in
our business, manage
our operations, and it
may be difficult to
replace our credit
facility
Our credit agreement (the “Agreement”) contains customary representations, warranties, and
affirmative covenants, as well as customary negative covenants, that, among other things restrict,
subject to certain exceptions, the ability of the Company and certain of its domestic subsidiaries to:
(i) incur liens, (ii) make investments, (iii) issue or incur additional indebtedness, (iv) undergo
significant corporate changes, including mergers and acquisitions, (v) make dispositions, (vi) make
restricted payments, (vii) prepay other indebtedness and (viii) enter into certain other restrictive
agreements. The Company may pay cash dividends and repurchase shares under its share buyback
program, subject to certain thresholds of available borrowings based upon the lesser of the aggregate
amount of commitments under the Agreement and the borrowing base (the “Loan Cap”), determined
after giving effect to any such transaction or payment, on a pro forma basis. The ability of the
Company to comply with these provisions may be affected by events beyond our control. Failure to
comply with these covenants could result in an event of default which, if not cured or waived, could
accelerate the Company's repayment obligations. Also, the inability to obtain credit on commercially
reasonable terms in the future when this facility expires could adversely impact our liquidity and
results of operations. In addition, market conditions could potentially impact the size and terms of a
replacement facility or facilities.
23. War, terrorism or
other catastrophes
In the event of war, acts of terrorism or the threat of terrorist attacks, public health crises or weather
catastrophes, consumer spending could significantly decrease for a sustained period. In addition,
local authorities or shopping center management could close stores in response to any immediate
security concern, public health concern or weather catastrophe such as hurricanes, earthquakes or
tornadoes. Similarly, war, acts of terrorism, threats of terrorist attacks or a weather catastrophe could
severely and adversely affect our National Store Support Center (“NSSC”) campus, our DC, or our
entire supply chain.
14
24. Our inability to
protect our brands’
reputation
Our ability to protect our brands’ reputations is an integral part of our general success strategy and is
critical to the overall value of the brands. If we fail to maintain high standards for merchandise
quality and integrity in our business conduct or fail to address other risk factors, including threats to
data and privacy and cybersecurity, such failures could jeopardize our brands' reputations.
Consumers value readily available information from social media and other sources concerning
retailers and their goods and services and many times act on such information without further
investigation in regards to its accuracy. Any negative publicity, whether true or not, may affect our
reputation and brand and, consequently, reduce demand for our merchandise, decrease customer and
investor loyalty and affect our vendor relationships.
25. Our inability to
protect our intellectual
property
Although we devote resources to protect our intellectual property, others may still attempt to imitate
our products or infringe upon our intellectual property rights. Other parties may also claim that some
of our products infringe on their trademarks, copyrights or other intellectual property rights.
26. Stock price
volatility
In addition, the intellectual property laws and enforcement practices in many foreign countries can
be substantially different from those in the United States. There are also inherent challenges with
enforcing intellectual property rights on third party e-commerce websites, especially those based in
foreign jurisdictions. We cannot guarantee that such rights are not infringed.
The market price of our common stock has fluctuated substantially in the past and may continue to
do so in the future. Future announcements or management discussions concerning us or our
competitors, sales and profitability results, quarterly variations in operating results or comparable
sales, updates on our strategic initiatives, changes in earnings estimates by analysts or the failure of
investors or analysts to understand our business strategies or fundamental changes in our business or
sector, among other factors, could cause the market price of our common stock to fluctuate
substantially. In addition, stock markets have experienced periods of significant price or volume
volatility in recent years. This volatility has had a substantial effect on the market prices of securities
of many public companies for reasons frequently unrelated to the operating performance of the
specific companies.
27. Our business
could be impacted as a
result of actions by
activist shareholders or
others
From time to time, we may be subject to legal and business challenges in the operation of our
Company due to proxy contests, shareholder proposals, media campaigns and other such actions
instituted by activist shareholders or others. Responding to such actions is costly and time-
consuming, disrupts our operations, may not align with our business strategies and may divert the
attention of our Board of Directors and management from the pursuit of current business strategies.
Perceived uncertainties as to our future direction or changes to the composition of our Board of
Directors as a result of shareholder activism may lead to the perception of instability in the
organization and its future and may make it more difficult to attract and retain qualified personnel
and business partners.
28. Disadvantageous
lease obligations and
commercial retail
consolidation
We have, and will continue to have, significant lease obligations. If an existing or future store is not
profitable, and we decide to close it, we may nonetheless be committed to fulfill our obligations
under the applicable lease including paying the base rent for the balance of the lease term.
Additionally, continued consolidation in the commercial retail real estate market could affect our
ability to successfully negotiate favorable rental terms for our stores in the future and could
concentrate our leases with fewer landlords who may then be in a position to dictate unfavorable
terms to us due to their significant negotiating leverage. If we are unable to enter into new leases or
renew existing leases on terms acceptable to us or be released from our obligations under leases for
stores that we close this could affect our ability to profitably operate our stores.
15
29. Changes to
accounting rules and
regulations may
adversely affect our
financial results,
financial position and
cash flows
Generally accepted accounting principles and related accounting pronouncements, implementation
guidelines and interpretations that are relevant to our business, including but not limited to revenue
recognition, leases, impairment of goodwill and intangible assets, inventory, income taxes and
litigation, are highly complex and involve many subjective assumptions, estimates and judgments.
Changes in these rules or their interpretation or changes in underlying assumptions, estimates or
judgments could significantly change or increase volatility of our reported or expected financial
performance or financial condition. See Note 1, to our consolidated financial statements under the
heading “Recently Issued Accounting Pronouncements” for a description of recently issued
accounting pronouncements, and “Critical Accounting Policies,” included in Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of
accounting policies considered to be important to our operational results and financial condition.
These and other future changes to accounting rules or regulations could have an adverse impact on
our business, operational results, financial position and cash flow presentation.
30. Fluctuations in
our tax obligations and
effective tax rate may
result in volatility in
our results of
operations
We are subject to income and other taxes in local, national and international jurisdictions. Our tax
returns and other tax matters are also subject to examination by the Internal Revenue Service and
other tax authorities and governmental bodies. These examinations may challenge certain of our tax
positions, such as the timing and amount of deductions and allocations of taxable income to various
jurisdictions. The results of any tax audits could adversely affect our financial results. Furthermore,
our effective tax rate in a given period may be materially impacted by changes in the mix and level
of earnings by taxing jurisdiction and deductibility of excess share-based compensation.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "Tax Act") was signed into law
making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a
corporate tax rate decrease from 35% to 21% effective January 1, 2018. See Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations - Executive Overview”
and Note 15 to our consolidated financial statements under the heading “Income Taxes” for further
information on the provisions of the Tax Act and its impact on the Company’s financial condition
and results of operations. The Company has recorded the impact of the Tax Act through its provision
for income taxes in fiscal 2018 pursuant to Accounting Standards Codification ("ASC") 740, Income
Taxes, and the SEC Staff Accounting Bulletin 118.
31. The Company
cannot provide any
assurance that in the
future the Company
will continue to pay
dividends or continue
to repurchase stock
pursuant to
its share repurchase
program
All decisions regarding authorization to pay a dividend on the Company’s common stock or approve
a share repurchase program will be made by the Company’s Board of Directors (the “Board”) from
time to time based on the Board’s evaluation of the best interests of the Company and its
shareholders. The Board will complete each evaluation based on a review of the Company’s stock
price, future earnings, financial condition and other factors deemed relevant. There is no assurance
that the Board will continue to declare dividends on the Company’s common stock in the future. The
Company’s current share repurchase program authorizes $300 million in share repurchases of the
Company’s common stock, of which $55.2 million remained available under the program as of
February 2, 2019. However, the Company is not obligated to make any purchases under the share
repurchase program and the program may be discontinued at any time.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
16
ITEM 2.
PROPERTIES
Stores
At fiscal year-end for 2018, 2017 and 2016 our total consolidated selling square feet was 3.4 million, 3.5 million and 3.6
million, respectively. For a general description of our leases, see Note 1 to our consolidated financial statements under the
heading "Operating Leases." As of February 2, 2019, our 1,418 stores were located in 46 states, Puerto Rico, the U.S. Virgin
Islands and Canada, as follows:
Alabama
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
19 Maryland
34 Massachusetts
12 Michigan
143 Minnesota
24 Mississippi
21 Missouri
8 Montana
124 Nebraska
56 Nevada
5 New Hampshire
59 New Jersey
23 New Mexico
7 New York
14 North Carolina
16 North Dakota
19 Ohio
3 Oklahoma
38 Oregon
30 Pennsylvania
36 Rhode Island
27 South Carolina
11 South Dakota
27 Tennessee
3 Texas
9 Utah
18 Virginia
6 Washington
49 West Virginia
7 Wisconsin
56 U.S. Virgin Islands
45 Puerto Rico
4 Ontario, Canada
46
14
15
66
4
35
4
33
134
9
44
24
4
17
1
5
10
NSSC and Distribution Centers
Our NSSC is located on approximately 63 acres in Fort Myers, Florida and consists of approximately 504,000 square
feet of office space. Our distribution center is located on approximately 110 acres in Winder, Georgia and consists of
approximately 550,000 square feet of distribution, fulfillment, call center and office space.
ITEM 3. LEGAL PROCEEDINGS
Information regarding legal proceedings is incorporated by reference from Note 12 to the accompanying consolidated
financial statements under the heading “Commitments and Contingencies.”
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
17
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our Common Stock trades on the NYSE under the symbol “CHS”. On March 4, 2019, the last reported sale price of the
Common Stock on the NYSE was $5.86 per share. The number of holders of record of common stock on March 4, 2019 was
1,083.
In November 2015, we announced a $300 million share repurchase authorization for the Company's common stock.
During the fourth quarter of fiscal 2018, we repurchased 8.6 million shares of the Company's common stock, for a total fiscal
2018 repurchase of 12.2 million shares at approximately $81.1 million. In fiscal 2017, we repurchased 2.7 million shares of the
Company's common stock at approximately $27.4 million. There was approximately $55.2 million remaining under the
program at the end of fiscal 2018. The repurchase program has no specific termination date and will expire when we have
repurchased all securities authorized for repurchase thereunder, unless terminated earlier by our Board of Directors.
In fiscal 2018, we repurchased 411,240 restricted shares in connection with employee tax withholding obligations under
employee compensation plans, of which 54,657 were repurchased in the fourth quarter and are included in the following chart
(amounts in thousands except share and per share amounts):
Period
November 4, 2018 – December 1, 2018
December 2, 2018 – January 5, 2019
January 6, 2019 – February 2, 2019
Total
Total
Number of
Shares
Purchased
Average Price
Paid per
Share
$
609,857
6,528,743
1,552,024
8,690,624
5.24
5.78
6.15
5.81
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans
555,200
6,528,743
1,552,024
8,635,967
Approximate
Dollar Value of
Shares that May
Yet Be
Purchased Under
the Publicly
Announced Plans
102,466
$
64,742
55,192
18
Five Year Performance Graph
The following graph compares the cumulative total return on our common stock with the cumulative total return of the
companies in the Standard & Poor’s (“S&P”) 500 Index and the S&P 500 Apparel Retail Index. Cumulative total return for
each of the periods shown in the Performance Graph is measured assuming an initial investment of $100 on February 1, 2014
and the reinvestment of dividends.
Comparison of Cumulative Five Year Total Return
Chico's FAS, Inc.
S&P 500 Index
S&P 500 Apparel Retail Index
$200
$150
$100
$50
$0
2/01/14
1/31/15
1/30/16
1/28/17
2/03/18
2/02/19
Chico’s FAS, Inc.
S&P 500 Index
S&P 500 Apparel Retail Index
02/01/14
100
$
100
100
01/31/15
102
$
114
126
01/30/16
65
$
113
136
01/28/17
82
$
137
135
02/03/18
62
$
168
144
02/02/19
40
$
168
163
19
ITEM 6.
SELECTED FINANCIAL DATA
Selected Financial Data at the dates and for the periods indicated should be read in conjunction with, and is qualified in
its entirety by reference to the consolidated financial statements and the notes thereto referenced in this Annual Report on Form
10-K.
2018
(52 weeks)
2017
(53 weeks)
Fiscal Year
2016
(52 weeks)
2015
(52 weeks)
2014
(52 weeks)
(dollars in thousands, except per share amounts and number of stores data)
$ 2,131,140
763,414
$ 2,282,379
864,777
$ 2,476,410
946,836
$ 2,660,635
1,026,871
$ 2,693,929
1,034,238
35.8 %
43,666
37.9 %
38.2 %
145,170
140,702
38.6 %
(13,084)
38.4%
116,343
2.0 %
6.4 %
35,613
101,000
1.6 %
4.4 %
5.7 %
91,229
3.7 %
(0.5)%
1,946
0.1 %
4.3%
64,641
2.4%
$
$
$
$
$
$
$
$
0.28
0.28
122,662
122,729
0.34
186,115
1,007,034
209,954
57,500
579,964
$
$
$
$
0.79
0.79
125,341
125,403
0.33
220,131
1,087,605
247,557
53,601
656,382
$
$
$
$
0.69
0.69
128,995
129,237
0.32
192,505
1,108,994
174,766
68,535
609,173
$
$
$
$
0.01
0.01
138,366
138,741
0.31
140,145
1,166,052
167,190
82,219
639,788
$
$
$
$
0.42
0.42
148,622
149,126
0.30
259,912
1,438,581
255,405
—
943,621
(4.9)%
(7.7)%
(3.7)%
(1.5)%
0.0%
54,187
91,333
$
$
48,530
96,310
$
$
47,836
109,251
$
$
84,841
118,800
— $
— $
— $
112,455
— $
— $
1,418
3,413
1,460
3,513
31,027
1,501
3,612
$
48,801
1,518
3,652
$
$
$
$
119,817
122,269
30,100
16,745
1,547
3,706
Summary of Operations:1
Net sales
Gross margin
Gross margin as a percent of net sales
Income (loss) from operations
Income (loss) from operations as a
percent of net sales
Net income
Net income as a percent of net sales
Per Share Data:
Net income per common share-basic
Net income per common and common
equivalent share–diluted
Weighted average common shares
outstanding–basic
Weighted average common and common
equivalent shares outstanding–diluted
Cash dividends per share
Balance Sheet Data (at year-end):
Cash and marketable securities
Total assets
Working capital
Long-term debt
Shareholders’ equity
Other Selected Operating Data:
Percentage (decrease) increase in
comparable sales
Purchases of property and equipment,
net
Total depreciation and amortization
Goodwill and trade name impairment,
pre-tax charges
Restructuring and strategic charges, pre-
tax
Total stores at year end
Total selling square feet (in thousands)
____________________________
1
Five-year table includes the operating results of Boston Proper through fiscal 2015, when the Company exited the business.
20
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes
thereto. References herein to “Notes” refer to the Notes to our consolidated financial statements. Each of the periods presented
had fifty-two weeks, except for fiscal 2017, which consisted of fifty-three weeks.
EXECUTIVE OVERVIEW
We are a leading omnichannel specialty retailer of women’s private branded, sophisticated, casual-to-dressy apparel,
intimates and complementary accessories, operating under the Chico’s, White House Black Market (“WHBM”) and Soma
brand names in the United States, Puerto Rico, the U.S. Virgin Islands and Canada. Our distinct lifestyle brands serve the needs
of fashion-savvy women 35 years and older. We earn revenue and generate cash through the sale of merchandise in our
domestic and international retail stores, our various Company-operated e-commerce websites, our call center (which takes
orders for all of our brands), through an unaffiliated franchise partner in Mexico and through third-party channels.
We utilize an integrated, omnichannel approach to managing our business. We want our customers to experience our
brands holistically and to view the various retail channels we operate as a single, integrated experience rather than as separate
sales channels operating independently. This approach allows our customers to browse, purchase, return or exchange our
merchandise through whatever sales channel and at whatever time is most convenient. As a result, we track total sales and
comparable sales on a combined basis.
2018 Financial Highlights
Earnings per share of $0.28
$124 million returned to shareholders, consisting of $81 million in share repurchases and $43 million in dividends
Income from Operations and Select Charges
The following table depicts income from operations and select charges for fiscal 2018, 2017 and 2016:
Income from operations
Restructuring and strategic charges
$
Fiscal 2018
Fiscal 2017
Fiscal 2016
(dollars in millions)
145
$
—
$
44
—
141
31
Earnings per diluted share for fiscal 2018 was $0.28 compared to $0.79 in fiscal 2017. The change in earnings per share
reflects a decrease in net income partially offset by the impact of share repurchases in fiscal 2018. Fiscal 2018 net income
includes the unfavorable impact of impairment and accelerated depreciation charges of approximately $8 million, after-tax,
related to our retail fleet optimization plan, partially offset by the favorable tax benefit of approximately $5 million related to
the Tax Act. Fiscal 2017 net income includes the favorable impact of the Tax Act of approximately $10 million, as well as the
benefit of the fifty-third week of approximately $4 million after-tax, partially offset by the unfavorable impact of hurricanes
Harvey, Irma and Maria (collectively, "the Hurricanes") of approximately $5 million, after-tax.
Key Initiatives
Fiscal 2018 key initiatives included:
made significant progress developing a fully integrated omnichannel platform
initiated retail fleet optimization plan
• expanded review of Company operations
forged new key relationships, including ShopRunner, Amazon and QVC
21
Future Outlook
The Company’s anticipated fiscal 2019 outlook is as follows1:
a low-single-digit percentage decline in total net sales and consolidated comparable sales compared to fiscal 2018
gross margin, as a percent of sales, to be approximately flat to down 50 basis points compared to fiscal 2018, due to
incremental costs associated with our omnichannel programs 2
selling, general and administrative expenses to be approximately flat compared to fiscal 2018, reflecting investments
in Soma marketing, offset by continued cost management
fiscal 2019 tax rate in the range of 30% to 33%, primarily as a result of an increase in tax expense related to the
accounting for share-based awards
capital expenditures to be approximately $55 million, primarily driven by technology enhancements and focused store
reinvestments
approximately 60 to 80 store closures, net
1 The Company's outlook could be impacted by changes in expected charges related to our retail fleet optimization plan as guidance for
Accounting Standard Update 2016-02, Leases, continues to develop.
2 The fiscal 2018 gross margin rate of 35.8% includes the unfavorable impact of approximately $11 million, or 50-basis points, related to our
retail fleet optimization plan.
RESULTS OF OPERATIONS
Net Sales
The following table depicts net sales by Chico’s, WHBM and Soma in dollars and as a percentage of total net sales for
fiscal 2018, 2017 and 2016:
Chico’s
WHBM
Soma
Total net sales
Fiscal 2018
%
Fiscal 2017
%
Fiscal 2016
%
(dollars in millions)
$
$
1,099
51.6% $
1,188
52.0% $
1,286
51.9%
695
338
32.6
15.8
751
344
32.9
15.1
846
344
34.2
13.9
2,131
100.0% $
2,282
100.0% $
2,476
100.0%
For fiscal 2018, net sales were $2.1 billion compared to $2.3 billion in fiscal 2017. This decrease of 6.6% reflects a
comparable sales decline of 4.9%, the $29 million benefit of the fifty-third week in fiscal 2017 and the impact of a 2.9% net
decrease in selling square footage in 2018. The comparable sales decline was driven by a decrease in transaction count and
lower average dollar sale. Comparable sales is defined as sales from stores open for the preceding twelve months, including
stores that have been expanded, remodeled or relocated within the same general market and includes online and catalog sales.
The comparable sales calculation excludes the negative impact of stores closed four or more days, international sales and sales
attributable to the fifty-third week in fiscal 2017.
For fiscal 2017, net sales were $2.3 billion compared to $2.5 billion in fiscal 2016. This decrease of 7.8% primarily
reflects a comparable sales decline of 7.7% as well as a 2.7% net decrease in selling square footage in 2017, partially offset by
the $29 million benefit of the fifty-third week in fiscal 2017. The comparable sales decline consisted of lower average dollar
sale and a decline in transaction count.
The following table depicts comparable sales percentages for Chico's, WHBM and Soma for fiscal 2018, 2017 and 2016:
Chico's
WHBM
Soma
Total Company
Fiscal 2018 1
Fiscal 2017 2
Fiscal 2016
(6.8)%
(4.6)%
0.6 %
(4.9)%
(7.2)%
(10.9)%
(1.5)%
(7.7)%
(5.3)%
(2.8)%
0.5 %
(3.7)%
1 Comparable sales for the fifty-two weeks ended February 2, 2019 have been adjusted to eliminate the impact of the calendar shift
due to the fifty-third week in fiscal 2017. Fiscal 2018 comparable sales represent sales for the fifty-two weeks ended February 2, 2019
compared to sales for the fifty-two weeks ended February 3, 2018.
2 The fifty-third week of fiscal 2017 is excluded from the comparable sales calculation.
22
Cost of Goods Sold/Gross Margin
The following table depicts cost of goods sold and gross margin in dollars and gross margin as a percentage of total net
sales for fiscal 2018, 2017 and 2016:
Cost of goods sold
Gross margin
Gross margin percentage
Fiscal 2018
Fiscal 2017
Fiscal 2016
$
$
1,368
763
35.8%
(dollars in millions)
$
$
1,418
865
37.9%
$
$
1,530
947
38.2%
For fiscal 2018, gross margin was $763 million, or 35.8%, compared to $865 million, or 37.9%, in fiscal 2017. The
decline in gross margin primarily reflects the continued expansion of our omnichannel programs and deleverage of occupancy
costs as well as a 50-basis point charge due to our retail fleet optimization plan, partially offset by an improvement in
merchandise margin.
For fiscal 2017, gross margin was $865 million, or 37.9%, compared to $947 million, or 38.2%, in fiscal 2016. This 30-
basis point decrease from fiscal 2016 primarily reflects deleverage of occupancy costs as a percent of sales, partially offset by
an improvement in merchandise margin and a decrease in incentive compensation.
Selling, General and Administrative Expenses
The following table depicts selling, general and administrative expenses ("SG&A"), which includes store and direct
operating expenses, marketing expenses and NSSC expenses, in dollars and as a percentage of total net sales for fiscal 2018,
2017 and 2016:
Selling, general and administrative expenses
Percentage of total net sales
$
Fiscal 2018
Fiscal 2017
Fiscal 2016
(dollars in millions)
$
720
31.5%
$
720
33.8%
775
31.2%
23
For fiscal 2018, SG&A was $720 million, or 33.8%, compared to $720 million, or 31.5%, in fiscal 2017. This 230-basis
point increase primarily reflects investments in marketing and technology as well as deleverage of store-operating costs.
For fiscal 2017, SG&A was $720 million, or 31.5%, compared to $775 million, or 31.2%, in fiscal 2016. This $56
million decrease, or 7.2% decline, primarily reflects a reduction in store-related costs and marketing spend, partially offset by
the impact of the fifty-third week in fiscal 2017.
Retail Fleet Optimization Plan
In the fourth quarter of fiscal 2018, the Company announced a retail fleet optimization plan to rebalance the mix
between our physical store presence and our digital network with the closure of at least 250 stores in the United States over the
next three years. This initiative is part of the Company's efforts to better capitalize on its omnichannel platform, reduce costs,
improve profitability and return on invested capital. In fiscal 2018, the Company recorded pre-tax impairment and accelerated
depreciation charges within cost of goods sold of approximately $9 million and $1 million, respectively, associated with this
retail fleet optimization plan. The fiscal 2018 after-tax impact of these charges was approximately $8 million.
Restructuring and Strategic Charges
In the fourth quarter of fiscal 2014, we initiated a restructuring program, including the acceleration of domestic store
closures and an organizational realignment, to ensure that resources align with long-term growth initiatives, including
omnichannel. Restructuring and strategic charges for fiscal 2016 were $31 million, primarily consisting of $12 million in
outside services, $9 million in severance costs and $6 million in proxy solicitation costs. The fiscal 2016 after-tax impact of the
restructuring and strategic charges totaled $19 million. We substantially completed this restructuring and strategic program in
fiscal 2016 and closed the stores identified for closure in connection with this program. We did not incur any material
additional expenses related to this restructuring and strategic program in fiscal 2017 or fiscal 2018.
Provision for Income Taxes
Our effective tax rate was 17.8%, 29.7% and 34.2%, for fiscal 2018, 2017 and 2016, respectively. The fiscal 2018
effective tax rate reflects benefits from the Tax Act which include the lower federal statutory rate of 21% compared to a fiscal
2017 blended federal tax rate of 33.8% due to the timing of the effective date of the Tax Act. The fiscal 2018 effective tax rate
also reflects approximately $5 million of transitional tax reform benefits related to fiscal 2017, partially offset by an
approximate $1 million increase in tax expense related to the accounting for employee share-based awards. The fiscal 2017
effective tax rate reflects an approximate $10 million benefit related to the Tax Act, partially offset by the recognition of the tax
impact of deficiencies resulting from our adoption of the new accounting guidance related to employee share-based payment
transactions. The fiscal 2016 effective tax rate reflects the impact of the disposition of Boston Proper's stock and goodwill
impairment charges, partially offset by an outside basis difference realized upon the sale and subsequent liquidation of the
Boston Proper business, which the Company liquidated in fiscal 2015. Excluding the aforementioned favorable and
unfavorable impacts to the effective tax rates, the fiscal 2018, 2017 and 2016 effective rates would have been 25.8%, 36.4%
and 37.2%, respectively.
24
Net Income and Earnings Per Diluted Share
Net income for fiscal 2018 was $36 million, or $0.28 per diluted share, compared to net income for fiscal 2017 of $101
million, or $0.79 per diluted share. The change in earnings per share reflects a decrease in net income partially offset by the
impact of share repurchases in fiscal 2018. Fiscal 2018 net income includes the unfavorable impact of impairment and
accelerated depreciation charges of approximately $8 million, after-tax, related to our retail fleet optimization plan, partially
offset by the favorable tax benefit of approximately $5 million related to the Tax Act.
Net income for fiscal 2017 was $101 million, or $0.79 per diluted share, compared to net income for fiscal 2016 of $91
million, or $0.69 per diluted share. The change in earnings per share primarily reflects the increase in fiscal 2017 net income.
Fiscal 2017 net income includes the favorable impact of the Tax Act of approximately $10 million when compared to fiscal
2016 and the benefit of the fifty-third week of approximately $4 million, after-tax, partially offset by the unfavorable impact of
the Hurricanes of approximately $5 million, after-tax, recorded in the third quarter of fiscal 2017. Fiscal 2016 results include
the impact of restructuring and strategic charges primarily related to outside services, severance costs and proxy solicitation
costs of approximately $19 million, after-tax, partially offset by the favorable tax benefit of approximately $4 million related to
the disposition of the Boston Proper direct-to-consumer business.
Cash, Marketable Securities and Debt
At the end of fiscal 2018, cash and marketable securities totaled $186 million, a decrease of $34 million compared to the
end of fiscal 2017, while debt totaled $58 million, a decrease of $11 million compared to the end of fiscal 2017. This $34
million decrease in cash and marketable securities includes $124 million in return of cash to shareholders through dividends
and our share repurchase program.
Inventories
At the end of fiscal 2018, inventories totaled $235 million compared to $234 million at the end of fiscal 2017. This $1
million increase, or 0.6%, primarily reflects accelerated in-transits in fiscal 2018 due to the timing of the Chinese New Year,
partially offset by a 7% decrease in on-hand inventory compared to the end of fiscal 2017.
Liquidity and Capital Resources
Overview
We believe that our existing cash and marketable securities balances, cash generated from operations, available credit
facilities and potential future borrowings will be sufficient to fund capital expenditures, working capital needs, dividend
payments, potential share repurchases, commitments and other liquidity requirements associated with our operations for the
foreseeable future. Furthermore, while it is our intention to repurchase our stock and pay a quarterly cash dividend in the future,
any determination to repurchase additional shares of our stock or pay future dividends will be made by the Board of Directors
and will depend on our stock price, future earnings, financial condition and other factors considered by the Board.
Our ongoing capital requirements will continue to be primarily for enhancing and expanding our omnichannel
capabilities, including expanded, relocated and remodeled stores; information technology; and supply chain.
The following table summarizes cash flows for fiscal 2018, 2017 and 2016:
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Operating Activities
Fiscal 2018
Fiscal 2017
Fiscal 2016
(dollars in millions)
$
$
$
158
(56)
(138)
(36) $
167
(58)
(91)
18
$
$
231
(32)
(147)
52
Net cash provided by operating activities in fiscal 2018 was $158 million compared to $167 million for fiscal 2017. This
$9 million decrease primarily reflects a decline in fiscal 2018 net income and an increase in income tax receivables which was
partially offset by the timing of vendor payments and payroll accruals, payments made in fiscal 2017 for outside services, the
clearing of seasonal merchandise and the impact of lower incentive compensation payments.
25
Net cash provided by operating activities in fiscal 2017 was $167 million, a decrease of approximately $64 million from
fiscal 2016. This decrease primarily results from the settlement of fiscal 2016 accruals for outside services and severance, the
timing of tax payments and the impact of a decrease in the incentive compensation accrual, partially offset by the timing of
vendor payments.
Investing Activities
Net cash used in investing activities for fiscal 2018 was $56 million compared to $58 million for fiscal 2017. The change
in net cash used in investing activities reflects an $8 million net decrease in marketable securities activity as a result of the
timing of securities purchases and sales, partially offset by an increase in purchases of property and equipment.
Net cash used in investing activities for fiscal 2017 was $58 million compared to $32 million for fiscal 2016. The change
in net cash used in investing activities primarily reflects a $10 million net increase in marketable securities related to the
investment of cash from operations in fiscal 2017 and the impact of $16 million in proceeds from the sale of land in fiscal
2016.
Financing Activities
Net cash used in financing activities for fiscal 2018 was $138 million compared to $91 million in fiscal 2017. This $47
million increase in net cash used in financing activities primarily reflects a $54 million increase in share repurchases in fiscal
2018 compared to fiscal 2017, partially offset by a decrease in payments on net borrowings under our credit agreement in fiscal
2018. In fiscal 2018, we paid four cash dividends at $0.085 per share on our common stock, totaling $43 million, and received
approximately $2 million in proceeds from issuing approximately 2 million shares related to employee stock ownership plans
and stock option exercises.
Net cash used in financing activities for fiscal 2017 was $91 million compared to $147 million in fiscal 2016. The
decrease in net cash used in financing activities primarily reflects a $69 million decline in share repurchases in fiscal 2017
compared to fiscal 2016, partially offset by higher payments on borrowings under our previous credit agreement (entered into
on May 4, 2015) in fiscal 2017. In fiscal 2017, we paid four cash dividends at $0.0825 per share on our common stock, totaling
$43 million, and received approximately $2 million in proceeds from issuing approximately 2 million shares related to
employee stock ownership plans and stock option exercises.
Store and Franchise Activity
During fiscal 2018, we had 42 net store closures, consisting of 12 Chico's stores, 18 WHBM stores and 12 Soma stores.
As part of our retail fleet optimization plan, the Company expects to close approximately 100 Chico’s, 90 White House Black
Market and 60 Soma locations over the next three years, with the majority of the closings occurring in years two and three. We
continuously evaluate the appropriate store base in light of economic conditions and our business strategy and may adjust the
openings and closures as conditions require or as opportunities arise. As of February 2, 2019, the Company's franchise
operations consisted of 83 international retail locations in Mexico.
Contractual Obligations
The following table summarizes our contractual obligations at February 2, 2019:
Total
One year or
less
2-3 years
4-5 years
After 5
years
Operating leases
Purchase orders
Capital expenditures
Long-term debt obligations
Interest payments on long-term debt
Total
$
$
803
336
11
58
9
1,217
$
$
(in millions)
186
329
10
—
2
527
$
$
316
5
1
—
4
326
$
$
190
2
—
58
3
253
$
$
111
—
—
—
—
111
As of February 2, 2019, our contractual obligations consisted of: 1) amounts outstanding under operating leases, 2) open
purchase orders for inventory and other operating expenses, in the normal course of business, 3) contractual commitments for
fiscal 2019 capital expenditures, 4) long-term debt obligations and 5) interest payments on long-term debt.
26
Until formal resolutions are reached between us and the relevant taxing authorities, we are unable to estimate a final
determination related to our uncertain tax positions and therefore, we have excluded the uncertain tax positions, totaling
approximately $2 million at February 2, 2019 from the above table.
Credit Facility
On August 2, 2018, the Company and certain of its domestic subsidiaries entered into a credit agreement (the
“Agreement”) as borrowers and guarantors, with Wells Fargo Bank, National Association, as Agent, letter of credit issuer and
swing line lender, and certain lenders party thereto. Our obligations under the Agreement are guaranteed by the subsidiary
guarantors and secured by a lien on certain assets of the Company and the subsidiary borrowers and guarantors, including
inventory, accounts receivable, cash deposits, and certain insurance proceeds.
The Agreement provides for a five-year asset-based senior secured revolving loan and letter of credit facility of up to
$200 million, maturing August 2, 2023. In addition, during the term of the Agreement, the Company may increase the
commitments under the Agreement by up to an additional $100 million, subject to customary conditions, including obtaining
the agreements from the lenders to provide such commitment increase.
The interest rate applicable to the loans under the Agreement will be equal to, at the Company’s option, either a base
rate, determined by reference to the federal funds rate, plus an interest rate margin, or a LIBO rate, plus an interest rate margin,
in each case, depending on availability under the Agreement. The Company expects borrowings to be at a LIBO rate, plus an
interest rate margin. In addition, the Company will pay a commitment fee per annum on the unused portion of the commitments
under the Agreement.
The previous credit agreement entered into on May 4, 2015 with JPMorgan Chase Bank, N.A., as Administrative Agent,
Bank of America, N.A., as Syndication Agent and other lenders, which was unsecured and had provided for a term loan
commitment in the amount of $100 million and a $100 million revolving credit facility, was terminated on August 2, 2018 in
connection with the Company entering into the Agreement described above, and all outstanding amounts thereunder were
repaid. We used the proceeds from the initial draw of the revolving loan of the Agreement to repay such obligations.
As of February 2, 2019, $57.5 million in net borrowings were outstanding under the Agreement and is reflected as long-
term debt in the accompanying consolidated balance sheet.
Off-Balance Sheet Arrangements
At February 2, 2019 and February 3, 2018, we did not have any relationship with unconsolidated entities or financial
partnerships for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes.
Critical Accounting Policies
The discussion and analysis of our consolidated financial condition and results of operations are based upon the
consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of consolidated financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We base
our estimates on historical experience and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or
conditions. Management has discussed the development and selection of these critical accounting policies and estimates with
the Audit Committee of our Board of Directors, and believes the following assumptions and estimates are significant to
reporting our consolidated results of operations and financial position.
Inventory Valuation and Shrinkage
We identify potentially excess and slow-moving inventories by evaluating inventory aging, turn rates and inventory
levels in conjunction with our overall sales trend. Further, inventory realization exposure is identified through analysis of gross
margins and markdowns in combination with changes in current business trends. We record excess and slow-moving
inventories at net realizable value and may liquidate certain slow-moving inventory through third parties. Historically, the
variation of those estimates to actual results is immaterial and material variation is not expected in the future.
27
We estimate our expected shrinkage of inventories between our physical inventory counts by using average store
shrinkage experience rates, which are updated on a regular basis. Historically, the variation of those estimates to actual results
is immaterial and material variation is not expected in the future.
Revenue Recognition
Retail sales by our stores are recorded at the point of sale and are net of estimated customer returns, sales discounts
under rewards programs and company issued coupons, promotional discounts and employee discounts. For sales from our
websites and catalogs, revenue is recognized at the point of shipment. Amounts related to shipping and handling costs billed to
customers are recorded in net sales and the related shipping and handling costs are recorded in cost of goods sold in the
accompanying consolidated statements of income. Amounts paid by customers to cover shipping and handling costs are
immaterial.
We sell gift cards in stores, on our e-commerce website and through third parties. Our gift cards do not have expiration
dates. We account for gift cards by recognizing a liability at the time the gift card is sold. The liability is relieved and revenue is
recognized for gift cards upon redemption. In addition, we recognize revenue for the amount of gift cards expected to go
unredeemed (commonly referred to as gift card breakage) under the redemption recognition method. This method records gift
card breakage as revenue on a proportional basis over the redemption period based on our historical gift card breakage rate. We
determine the gift card breakage rate based on our historical redemption patterns. We recognize revenue on the remaining
unredeemed gift cards based on determining that the likelihood of the gift card being redeemed is remote and that there is no
legal obligation to remit the unredeemed gift cards to relevant jurisdictions.
Soma offers a points-based loyalty program in which customers earn points based on purchases. Attaining specified
loyalty point levels results in the issuance of reward coupons to discount future purchases. As program members accumulate
points, we accrue the estimated future liability, adjusted for expected redemption rates and expirations. The liability is relieved
and revenue is recognized for loyalty point reward coupons upon redemption. In addition, we recognize revenue on
unredeemed points when it can be determined that the likelihood of the point being redeemed is remote and there is no legal
obligation to remit the point value. We determined the loyalty point breakage rate based on historical and redemption patterns.
As part of the normal sales cycle, we receive customer merchandise returns related to store, website and catalog sales. To
account for the financial impact of potential customer merchandise returns, we estimate future returns on previously sold
merchandise. Reductions in sales and gross margin are recorded for estimated merchandise returns based on return history,
current sales levels and projected future return levels.
Our policy towards taxes assessed by a government authority directly imposed on revenue producing transactions
between a seller and a customer is, and has been, to exclude all such taxes from revenue.
Evaluation of Long-Lived Assets, Goodwill and Indefinite-Lived Intangible Assets
Long-lived assets are reviewed periodically for impairment if events or changes in circumstances indicate that the
carrying amount may not be recoverable. If future undiscounted cash flows expected to be generated by the asset are less than
its carrying amount, an asset is determined to be impaired, and a loss is recorded for the amount by which the carrying value of
the asset exceeds its fair value. The fair value of an asset is estimated using estimated future cash flows of the asset discounted
by a rate commensurate with the risk involved with such asset while incorporating marketplace assumptions. The estimate of
future cash flows requires management to make certain assumptions and to apply judgment, including forecasting future sales
and the useful lives of the assets. We exercise our best judgment based on the most current facts and circumstances surrounding
our business when applying these impairment rules. We establish our assumptions and arrive at the estimates used in these
calculations based upon our historical experience, knowledge of the retail industry and by incorporating third-party data, which
we believe results in a reasonably accurate approximation of fair value. Nevertheless, changes in the assumptions used could
have an impact on our assessment of recoverability.
We review our goodwill for impairment at the reporting unit level on an annual basis, or when circumstances indicate its
carrying value may not be recoverable. We evaluate the appropriateness of performing a qualitative assessment, on a reporting
unit level, based on current circumstances. If we do not perform a qualitative assessment, or if we determine that it is not more
likely than not that the carrying value of the reporting unit exceeds its fair value, we will calculate the estimated fair value of
the reporting unit. Fair value is determined based on both an income approach and market approach. The income approach is
based on estimated future cash flows, discounted at a rate that approximates the cost of capital of a market participant, while
the market approach is based on sales and EBITDA multiples of similar companies and/or transactions, or other available
indications of value. These approaches use significant estimates and assumptions, including projected future cash flows and the
timing of those cash flows, discount rates reflecting risks inherent in future cash flows, perpetual growth rates and
28
determination of appropriate market comparables. Estimating the fair value is judgmental in nature, which could have a
significant impact on whether or not an impairment charge is recognized and the magnitude of any such charges. Upon
adoption of Accounting Standards Update ("ASU") 2017-04 as further discussed in Note 1, goodwill impairment charges are
calculated as the amount by which a reporting unit's carrying amount exceeds its fair value up to the amount of reported
goodwill.
We review our other indefinite-lived intangible assets for impairment on an annual basis, or when circumstances indicate
its carrying value may not be recoverable. We evaluate the appropriateness of performing a qualitative assessment based on
current circumstances. If the results of the qualitative assessment indicate that it is more likely than not that the fair value of a
reporting unit is less than its carrying amount, we calculate the fair value of the indefinite-lived intangible assets using a
discounted cash flow method, based on the relief from royalty concept.
Operating Leases
Rent expense under store operating leases is recognized on a straight-line basis over the term of the leases. Landlord
incentives, “rent-free” periods, rent escalation clauses and other rental expenses are also amortized on a straight-line basis over
the term of the leases, including the construction period. This is generally 60–90 days prior to the store opening date, when we
generally begin improvements in preparation for our intended use. Tenant improvement allowances are recorded as a deferred
lease credit within deferred liabilities and amortized as a reduction of rent expense over the term of the lease.
Income Taxes
Income taxes are accounted for in accordance with authoritative guidance, which requires the use of the asset and
liability method. Deferred tax assets and liabilities are recognized based on the difference between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. Inherent in the measurement of deferred
balances are certain judgments and interpretations of existing tax law and published guidance as applicable to our operations.
Deferred tax assets are reduced, if necessary, by a valuation allowance to the extent future realization of those tax benefits are
uncertain. Our effective tax rate considers management’s judgment of expected tax liabilities within the various taxing
jurisdictions in which we are subject to tax.
We record amounts for uncertain tax positions that management believes are supportable, but are potentially subject to
successful challenge by the applicable taxing authority. Consequently, changes in our assumptions and judgments could affect
amounts recognized related to income tax uncertainties and may affect our consolidated results of operations or financial
position. We believe our assumptions for estimates continue to be reasonable, although actual results may have a positive or
negative material impact on the balances of such tax positions. Historically, the variation of estimates to actual results is
immaterial and material variation is not expected in the future.
Share-Based Compensation Expense
Share-based compensation expense for all awards is based on the grant date fair value of the award, net of estimated
forfeitures, and is recognized over the requisite service period of the awards. Compensation expense for restricted stock awards
and stock options with a service condition is recognized on a straight-line basis over the requisite service period. Compensation
expense for performance-based awards with a service condition is recognized ratably for each vesting tranche based on our
estimate of the level and likelihood of meeting certain Company-specific performance goals. The calculation of share-based
compensation expense involves estimates that require management’s judgment. We have elected to estimate the expected
forfeiture rate for all share-based awards, and only recognize expense for those shares expected to vest. In determining the
portion of the share-based payment award that is ultimately expected to be earned, we derive forfeiture rates based on historical
data. In accordance with the authoritative guidance, we revise our forfeiture rates, when necessary, in subsequent periods if
actual forfeitures differ from those originally estimated. As a result, in the event that a grant’s actual forfeiture rate is materially
different from its estimate at the completion of the vesting period, the share-based compensation expense could be significantly
different from what we recorded in current and prior periods.
For performance-based awards, estimates include the probable number of shares that will ultimately be issued based on
the likelihood of meeting the respective performance condition. We estimate the probable vesting based on current financial
performance forecasts for the relevant performance metrics. The assumptions used in calculating the fair value of share-based
payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application
of management’s judgment.
29
Recently Issued Accounting Pronouncements
See Note 1 to the accompanying consolidated financial statements for a description of certain newly issued accounting
pronouncements which may impact our financial statements in future reporting periods.
Forward-Looking Statements
This Form 10-K may contain certain “forward-looking statements” within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect our current views
with respect to certain events that could have an effect on our future financial performance, including but without limitation,
statements regarding our plans, objectives, and the future success of our store concepts and business initiatives. These
statements may address items such as future sales and sales initiatives, strategic initiatives, customer traffic, gross margin
expectations, SG&A expectations, including expected savings, operating margin expectations, earnings per share expectations,
planned store openings, closings and expansions, proposed business ventures, new channels of sales or distribution, expected
impact of ongoing litigation, future stock repurchase plans, future plans to pay dividends, future comparable sales, future
product sourcing plans, future inventory levels, including the ability to leverage inventory management and targeted
promotions, planned marketing expenditures, planned capital expenditures and future cash needs.
These statements relate to expectations concerning matters that are not historical fact and may include the words or
phrases such as “will,” “should,” “expects,” “believes,” “anticipates,” “plans,” “intends,” “estimates,” “approximately,” “our
planning assumptions,” “future outlook” and similar expressions. Except for historical information, matters discussed in this
Form 10-K are forward-looking statements. These forward-looking statements are based largely on information currently
available to our management and on our current expectations, assumptions, plans, estimates, judgments and projections about
our business and our industry, and are subject to various risks and uncertainties that could cause actual results to differ
materially from historical results or those currently anticipated. Although we believe our expectations are based on reasonable
estimates and assumptions, they are not guarantees of performance and there are a number of known and unknown risks,
uncertainties, contingencies and other factors (many of which are outside our control) that could cause actual results to differ
materially from those expressed or implied by such forward-looking statements. Accordingly, there is no assurance that our
expectations will, in fact, occur or that our estimates or assumptions will be correct, and we caution investors and all others not
to place undue reliance on such forward-looking statements. Factors that could cause or contribute to such differences include,
but are not limited to, those described in Item 1A, “Risk Factors” in this Annual Report on Form 10-K and the following:
The financial strength of retailing in particular and the economy in general; the extent of financial difficulties or
economic uncertainty that may be experienced by customers; our ability to secure and maintain customer acceptance of styles
and in-store and online concepts; the ability to leverage inventory management and targeted promotions; the ability to
effectively manage our inventory and allocation processes; the extent and nature of competition in the markets in which we
operate; the ability to remain competitive with customer shipping terms and costs pertaining to product deliveries and returns;
the extent of the market demand and overall level of spending for women’s private branded clothing and related accessories;
the effectiveness of our brand strategies, awareness and marketing programs; the ability to coordinate product development
with buying and planning; the quality and timeliness of merchandise received from suppliers; changes in the costs of
manufacturing, raw materials, transportation, distribution, labor and advertising; the availability of quality store sites; our
ability to manage our store fleet and the risk that our investments in merchandise or marketing initiatives may not deliver the
results we anticipate; our ability to successfully navigate the increasing use of on-line retailers for fashion purchases and the
pressure that puts on traffic and transactions in our physical stores; the ability to operate our own retail websites in a manner
that produces profitable sales; the ability to successfully identify and implement additional sales and distribution channels; the
ability to successfully execute our business strategies and particular strategic initiatives (including, but not limited to, the
Chico’s Brand Performance Improvement Plan, the Company’s retail fleet optimization plan and the expanded review of the
Company’s operations) and to achieve the expected results from them; the continuing performance, implementation and
integration of management information systems; the impact of any systems failures, cyber security or other data or security
breaches, including any security breaches that result in theft, transfer, or unauthorized disclosure of customer, employee, or
company information or our compliance with information security and privacy laws and regulations in the event of such an
incident; the ability to hire, train, motivate and retain qualified sales associates, managerial employees and other employees; the
successful leadership transition for the Chico’s brand and successful integration of the new members of our senior management
team; the ability to respond effectively to actions of activist shareholders and others; the ability to utilize our distribution center
and other support facilities in an efficient and effective manner; the ability to secure and protect trademarks and other
intellectual property rights and to protect our reputation and brand images; the risk that natural disasters, public health crises,
political uprisings, uncertainty or unrest, or other catastrophic events could adversely affect our operations and financial results;
the impact of unanticipated changes in legal, regulatory or tax laws; the risks and uncertainties that are related to our reliance
on sourcing from foreign suppliers, including significant economic (including the impact of changes in tariffs, taxes or other
30
import regulations, particularly with respect to China), labor, political or other shifts; and changes in governmental policies in
or towards foreign countries; currency exchange rates and other similar factors.
All forward-looking statements that are made or attributable to us are expressly qualified in their entirety by this
cautionary notice. The forward-looking statements included herein are only made as of the date of this Quarterly Report on
Form 10-K. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
31
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk of our financial instruments as of February 2, 2019 has not significantly changed since February 3,
2018. We are exposed to market risk from changes in interest rates on any future indebtedness and our marketable securities
and from foreign currency exchange rate fluctuations.
Our exposure to interest rate risk relates in part to our revolving line of credit with our bank. On August 2, 2018, we
entered into a new credit agreement, as further discussed in Note 10 to the accompanying consolidated financial statements.
The Agreement, which matures on August 2, 2023, has borrowing options which accrue interest, at our election, at either a base
rate, determined by reference to the federal funds rate, plus an interest rate margin, or LIBO rate, plus an interest rate margin, as
defined in the Agreement. As of February 2, 2019, $57.5 million in net borrowings were outstanding under the Agreement and
is reflected as long-term debt in the accompanying consolidated balance sheet. An increase or decrease in market interest rates
of 100 basis points would not have a material effect on annual interest expense. This hypothetical analysis may differ from the
actual experience or market developments that could result in a change in interest rates under the Agreement.
Our investment portfolio is maintained in accordance with our investment policy which identifies allowable investments,
specifies credit quality standards and limits the credit exposure of any single issuer. Our investment portfolio consists of cash
equivalents and marketable securities including corporate bonds, municipal bonds, and U.S. government and agency securities.
The marketable securities portfolio as of February 2, 2019, consisted of $42.6 million of securities with maturity dates within
one year or less and $19.4 million with maturity dates over one year and less than or equal to two years. We consider all
securities available-for-sale, including those with maturity dates beyond 12 months, and therefore classify these securities as
short-term investments within current assets on the consolidated balance sheets as they are available to support current
operational liquidity needs. As of February 2, 2019, an increase or decrease of 100 basis points in interest rates would not have
a material effect on the fair value of our marketable securities portfolio.
32
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Chico’s FAS, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Chico’s FAS, Inc. and subsidiaries (the Company) as of
February 2, 2019 and February 3, 2018, the related consolidated statements of income, comprehensive income, shareholders'
equity and cash flows for each of the three fiscal years in the period ended February 2, 2019, and the related notes (collectively
referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company at February 2, 2019 and February 3, 2018, and the results of its
operations and its cash flows for each of the three fiscal years in the period ended February 2, 2019, in conformity with U.S.
generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company’s internal control over financial reporting as of February 2, 2019, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) and our report dated March 19, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ ERNST & YOUNG LLP
We have served as the Company’s auditor since 2002.
Tampa, Florida
March 19, 2019
33
CHICO’S FAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Net Sales
Cost of goods sold
Gross Margin
Selling, general and administrative expenses
Restructuring and strategic charges
Income from Operations
Interest expense, net
Income before Income Taxes
Income tax provision
Net Income
Per Share Data:
Net income per common share-basic
Net income per common and common equivalent
share–diluted
Weighted average common shares outstanding–basic
Weighted average common and common equivalent
shares outstanding–diluted
February 2, 2019
(52 weeks)
FISCAL YEAR ENDED
February 3, 2018
(53 weeks)
January 28, 2017
(52 weeks)
Amount
% of
Sales
Amount
% of
Sales
Amount
% of
Sales
$2,131,140
100.0% $2,282,379
100.0% $2,476,410
100.0%
1,367,726
763,414
719,748
—
43,666
(353)
43,313
7,700
35,613
0.28
0.28
122,662
122,729
$
$
$
64.2
35.8
33.8
0.0
2.0
0.0
2.0
0.4
1,417,602
864,777
719,607
—
145,170
(1,570)
143,600
42,600
62.1
37.9
31.5
0.0
6.4
(0.1)
6.3
1.9
1,529,574
946,836
775,107
31,027
140,702
(1,973)
138,729
47,500
61.8
38.2
31.2
1.3
5.7
(0.1)
5.6
1.9
1.6% $ 101,000
4.4% $
91,229
3.7%
$
$
0.79
0.79
125,341
125,403
$
$
0.69
0.69
128,995
129,237
The accompanying notes are an integral part of these consolidated statements.
34
CHICO’S FAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net Income
Other comprehensive income:
Unrealized gains (losses) on marketable
securities, net of taxes
Foreign currency translation (losses) gains
Comprehensive Income
$
$
February 2, 2019
(52 weeks)
FISCAL YEAR ENDED
February 3, 2018
(53 weeks)
January 28, 2017
(52 weeks)
35,613
$
101,000
$
91,229
189
(467)
35,335
$
(135)
119
100,984
$
(39)
(29)
91,161
The accompanying notes are an integral part of these consolidated statements.
35
CHICO’S FAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents
Marketable securities, at fair value
Inventories
Prepaid expenses and other current assets
Total Current Assets
Property and Equipment, net
Other Assets:
Goodwill
Other intangible assets, net
Other assets, net
Total Other Assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable
Current debt
Other current and deferred liabilities
Total Current Liabilities
Noncurrent Liabilities:
Long-term debt
Other noncurrent and deferred liabilities
Deferred taxes
Total Noncurrent Liabilities
Commitments and Contingencies: (see Note 12)
Shareholders’ Equity:
Preferred stock, $.01 par value; 2,500 shares authorized; no shares issued and
outstanding
Common stock, $.01 par value; 400,000 shares authorized; 158,246 and 156,585 shares
issued; and 116,949 and 127,471 shares outstanding, respectively
Additional paid-in capital
Treasury stock, at cost, 41,297 shares and 29,114 shares, respectively
Retained earnings
Accumulated other comprehensive loss
Total Shareholders’ Equity
February 2,
2019
February 3,
2018
$
124,128
$
160,071
61,987
235,218
63,845
485,178
370,932
96,774
38,930
15,220
150,924
60,060
233,726
60,668
514,525
421,038
96,774
38,930
16,338
152,042
$
1,007,034
$
1,087,605
$
143,404
$
118,253
—
131,820
275,224
57,500
89,109
5,237
151,846
15,000
133,715
266,968
53,601
103,282
7,372
164,255
—
—
1,169
486,406
(494,395)
587,145
(361)
579,964
1,007,034
$
1,275
468,806
(413,465)
599,810
(44)
656,382
1,087,605
$
The accompanying notes are an integral part of these consolidated statements.
36
CHICO’S FAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
Common Stock
Shares
Par Value
Additional
Paid-in
Capital
Treasury Stock
Shares
Amount
Retained
Earnings
BALANCE, January 30, 2016
135,531
$
1,355
$ 435,881
18,307
$(289,813) $ 492,325
Accumulated
Other
Comprehensive
Income (Loss)
40
$
Total
$ 639,788
91,229
—
91,229
BALANCE, February 3, 2018
127,471
1,275
468,806
29,114
(413,465)
599,810
(44)
656,382
Net income
Unrealized loss on marketable
securities, net of taxes
Foreign currency translation
adjustment
Issuance of common stock
Dividends paid on common
stock ($0.32 per share)
Repurchase of common stock
Share-based compensation
Excess tax benefit from share-
based compensation
—
—
—
1,763
—
(8,541)
—
—
—
—
—
18
—
—
—
—
4,341
—
—
—
—
—
—
—
—
—
—
—
(85)
(5,512)
8,110
(96,281)
—
—
21,249
(3,203)
—
—
—
—
BALANCE, January 28, 2017
128,753
1,288
452,756
26,417
(386,094)
541,251
Net income
Unrealized loss on marketable
securities, net of taxes
Foreign currency translation
adjustment
Issuance of common stock
Dividends paid on common
stock ($0.33 per share)
Repurchase of common stock
Share-based compensation
—
—
—
1,931
—
(3,213)
—
—
—
—
19
—
—
—
—
2,108
—
—
—
—
—
—
—
—
—
—
(32)
—
(6,735)
2,697
(27,371)
20,677
—
—
— 101,000
Cumulative effect of adoption
of ASU 2018-02, ASU 2016-16
and ASU 2014-09 (see Note 1)
BALANCE, February 3,
2018, as adjusted
Net income
Unrealized gain on marketable
securities, net of taxes
Foreign currency translation
adjustment
Issuance of common stock
Dividends paid on common
stock ($0.34 per share)
—
—
—
—
—
(5,015)
127,471
1,275
468,806
29,114
(413,465)
594,795
—
—
—
2,073
—
—
—
—
21
—
—
—
—
1,527
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(42,303)
—
—
—
—
—
—
(42,441)
—
—
35,613
—
—
—
(43,263)
—
—
(39)
(29)
—
—
(39)
(29)
4,359
(42,303)
— (101,878)
—
—
(28)
—
21,249
(3,203)
609,173
101,000
(135)
(135)
119
—
—
—
—
119
2,127
(42,441)
(34,138)
20,677
(39)
(83)
—
189
(467)
—
—
—
—
(5,054)
651,328
35,613
189
(467)
1,548
(43,263)
(84,767)
19,783
Repurchase of common stock
(12,595)
Share-based compensation
—
(127)
—
(3,710)
12,183
(80,930)
19,783
—
—
BALANCE, February 2, 2019
116,949
$
1,169
$ 486,406
41,297
$(494,395) $ 587,145
$
(361) $ 579,964
The accompanying notes are an integral part of these consolidated statements.
37
CHICO’S FAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash Flows from Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
Loss on disposal and impairment of property and equipment
Deferred tax benefit
Share-based compensation
Deferred rent and lease credits
Changes in assets and liabilities:
Inventories
Prepaid expenses and other assets
Income tax receivable
Accounts payable
Accrued and other liabilities
Net cash provided by operating activities
Cash Flows from Investing Activities:
Purchases of marketable securities
Proceeds from sale of marketable securities
Purchases of property and equipment, net
Proceeds from sale of land
Net cash used in investing activities
Cash Flows from Financing Activities:
Proceeds from borrowings
Payments on borrowings
Proceeds from issuance of common stock
Dividends paid
Repurchase of common stock
Payments of tax withholdings related to share-based awards
Net cash used in financing activities
Effects of exchange rate changes on cash and cash
equivalents
Net (decrease) increase in cash and cash equivalents
Cash and Cash Equivalents, Beginning of period
Cash and Cash Equivalents, End of period
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest
Cash paid for income taxes, net
$
$
$
February 2,
2019
(52 weeks)
FISCAL YEAR ENDED
February 3,
2018
(53 weeks)
January 28,
2017
(52 weeks)
$
35,613
$
101,000
$
91,229
91,333
13,628
(2,100)
19,783
(19,527)
(2,316)
10,446
(9,196)
25,097
(4,687)
158,074
(38,693)
37,007
(54,187)
—
(55,873)
61,250
(72,500)
1,548
(43,208)
(81,052)
(3,715)
(137,677)
(467)
(35,943)
160,071
124,128
3,272
22,697
$
$
$
96,310
7,042
(2,070)
20,677
(19,692)
(1,363)
(4,584)
(311)
1,950
(32,086)
166,873
(39,794)
30,045
(48,530)
—
(58,279)
—
(16,250)
2,127
(42,516)
(27,398)
(6,740)
(90,777)
119
17,936
142,135
160,071
2,546
49,758
$
$
$
109,251
10,523
(8,427)
21,249
(18,811)
1,472
(7,565)
26,749
(13,015)
18,659
231,314
(50,717)
50,508
(47,836)
16,217
(31,828)
—
(7,500)
4,359
(42,254)
(96,363)
(5,515)
(147,273)
(29)
52,184
89,951
142,135
2,316
25,863
The accompanying notes are an integral part of these consolidated statements.
38
CHICO’S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts and where otherwise indicated)
1.
BUSINESS ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of Business
The accompanying consolidated financial statements include the accounts of Chico’s FAS, Inc., a Florida corporation,
and its wholly-owned subsidiaries (“the Company”, “we”, “us” and “our”). We operate as an omnichannel specialty retailer of
women’s private branded, sophisticated, casual-to-dressy clothing, intimates and complementary accessories. We currently sell
our products through retail stores, catalogs and via our websites at www.chicos.com, www.chicosofftherack.com,
www.whbm.com and www.soma.com. As of February 2, 2019, we had 1,418 stores located throughout the United States,
Puerto Rico, the U.S. Virgin Islands and Canada, and sold merchandise through 83 international franchise locations in Mexico.
Fiscal Year
Our fiscal years end on the Saturday closest to January 31 and are designated by the calendar year in which the fiscal
year commences. The periods presented in these consolidated financial statements are the fiscal years ended February 2, 2019
(“fiscal 2018” or “current period”), February 3, 2018 (“fiscal 2017” or “prior period”) and January 28, 2017 (“fiscal 2016”).
Fiscal 2018 and 2016 each contained 52 weeks while fiscal 2017 contained 53 weeks.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in consolidation.
Segment Information
Our brands, Chico’s, White House Black Market ("WHBM") and Soma have been identified as separate operating
segments and aggregated into one reportable segment due to the similarities of the economic and operating characteristics of
the brands.
Adoption of New Accounting Pronouncements
On August 17, 2018, the SEC adopted a final rule that eliminates or amends certain disclosure requirements that were
deemed redundant and outdated in light of changes in SEC requirements, U.S. GAAP or changes in technology or the business
environment. The final rule became effective November 5, 2018. The eliminated or amended disclosures did not have a
material impact on the Company’s consolidated financial statements.
In the third quarter of fiscal 2018, we early adopted the guidance of Accounting Standards Update ("ASU") 2018-15,
Intangibles - Goodwill and Other - Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a
Cloud Computing Arrangement that is a Service Contract, which aligns the requirements for capitalizing implementation costs
in a cloud computing arrangement (“CCA”) service contract with the requirements for capitalizing implementation costs
incurred for an internal-use software license. Under this guidance, entities that enter into hosted CCA service contracts will
apply the existing internal-use software guidance to determine which implementation costs are capitalized or expensed
depending on the nature of the costs and project stage during which they are incurred. Capitalized implementation costs are
presented in the same line item of the balance sheet that a prepayment of fees for the associated hosting arrangement is
presented and will be amortized over the term of the associated hosted CCA service on a straight-line basis. Amortization of
capitalized implementation costs will be presented in the same line on the income statement as fees for the associated hosted
CCA service. The provisions of ASU 2018-15 were adopted on a prospective basis and prior period amounts have not been
adjusted and continue to be reported in accordance with the previous guidance. In fiscal 2018, the Company recorded $1.1
million in capitalized CCA service contract implementation costs which is presented it in other assets, net, in the accompanying
consolidated balance sheets.
In the first quarter of fiscal 2018, we early adopted the guidance of ASU 2018-02, Income Statement - Reporting
Comprehensive Income, which provides entities the option to reclassify to retained earnings tax effects related to items in
accumulated other comprehensive income (“OCI”) that have been stranded in accumulated OCI as a result of the Tax Cuts and
Jobs Act of 2017 (the “Tax Act”). The provisions of ASU 2018-02 were adopted on a prospective basis with a cumulative
39
adjustment to opening retained earnings, and prior period amounts have not been adjusted and continue to be reported in
accordance with the previous guidance. In the first quarter of fiscal 2018, the Company recorded an immaterial cumulative
effect adjustment as an increase to opening retained earnings upon adoption of ASU 2018-02 as detailed in the table below.
In the second quarter of fiscal 2018, we adopted the guidance of ASU 2017-04, Intangibles - Goodwill and Other:
Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill by eliminating the
second step from the quantitative goodwill impairment test. Under this guidance, annual or interim goodwill impairment testing
will be performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge will then be
recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the carrying
value of goodwill. The provisions of ASU 2017-04 were adopted on a prospective basis and did not have an impact on the
Company’s consolidated financial statements.
In the first quarter of fiscal 2018, we adopted the guidance of ASU 2016-16, Income Taxes: Intra-Entity Asset Transfers
of Assets Other than Inventory, which requires companies to recognize the income tax effects of intercompany sales or transfers
of other assets in the income statement as income tax expense (benefit) in the period the sale or transfer occurs. Additionally,
companies are required to evaluate whether the tax effects of the intercompany sales or transfers of non-inventory assets should
be included in their estimates of annual effective tax rates by using today’s interim guidance on income tax accounting. The
provisions of ASU 2016-16 were adopted on a modified retrospective basis with a cumulative adjustment to opening retained
earnings, and prior period amounts have not been adjusted and continue to be reported in accordance with the previous
guidance. In the first quarter of fiscal 2018, the Company recorded a cumulative effect adjustment of $5.7 million as a decrease
to opening retained earnings upon adoption of ASU 2016-16. Any further tax impacts on sales or transfers of intercompany
assets other than inventory will be recognized as incurred.
In the first quarter of fiscal 2018, we adopted the guidance of ASU 2016-01, Recognition and Measurement of Financial
Assets and Financial Liabilities, under which entities are no longer able to recognize unrealized holding gains and losses on
equity securities they classify as available-for-sale in other comprehensive income but instead must recognize the change in fair
value in net income. The updated guidance further eliminated equity security classification categories (i.e., trading and
available-for-sale). The new standard does not change the guidance for classifying and measuring investments in debt
securities. The provisions of ASU 2016-01 were adopted on a prospective basis and did not have an impact on the Company’s
consolidated financial statements.
In the first quarter of fiscal 2018, we adopted the guidance of ASU 2014-09, Revenue from Contracts with Customers.
The updated guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from
contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. ASU
2014-09 requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in
an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. Through
our evaluation of the impact of this ASU 2014-09, we identified certain changes that were made to our accounting policies,
practices, systems and controls upon adoption which include: 1) revenue related to our online sales are recognized at the
shipping point rather than upon delivery to customer; 2) timing of our recognition of advertising expenses, whereby certain
expenses that previously were amortized over their expected period of future benefit are expensed the first time the
advertisement appears; 3) presentation of estimated merchandise returns as both an asset, equal to the inventory value net of
processing costs, and a corresponding return liability, compared to the previous practice of recording an estimated net return
liability; and 4) the recognition of any future franchise development fees will be recognized over the license period. Upon
adoption, the Company’s accounting policies and treatment over revenue recognition are consistent with the provisions of ASU
2014-09 and represent a faithful depiction of the transfer of promised goods or services to customers in an amount that reflects
the consideration the Company expects to be entitled to in exchange for those goods or services. The provisions of ASU
2014-09 were adopted on a modified retrospective basis with a cumulative adjustment to opening retained earnings, and prior
period amounts have not been adjusted and continue to be reported in accordance with the previous guidance. In the first
quarter of fiscal 2018, the Company recorded a cumulative effect adjustment of $0.7 million as an increase to opening retained
earnings upon adoption of ASU 2014-09.
40
Adjustments to Presentation Upon Adoption of New Accounting Pronouncements
The following table presents the effects that the aforementioned adopted accounting standards had on our February 3,
2018 consolidated balance sheet (in thousands):
February 3,
2018
(As Reported)
ASU 2018-02
ASU 2016-16
ASU 2014-09
February 3,
2018
(As Adjusted)
ASSETS
Inventories
Prepaid expenses and other current
assets
Other assets, net
$
233,726
$
— $
— $
(824) $
232,902
60,668
16,338
—
—
(500)
(5,206)
5,389
—
65,557
11,132
LIABILITIES AND SHAREHOLDERS’ EQUITY
Other current and deferred liabilities
$
133,715
$
— $
— $
3,677
$
137,392
Deferred taxes
Retained earnings
Accumulated other comprehensive
loss
7,372
599,810
(44)
—
39
(39)
—
(5,706)
—
236
652
—
7,608
594,795
(83)
Had the Company not adopted the provisions of ASU 2014-09, the effects of adoption of this standard on our
consolidated statement of income for fiscal 2018 and consolidated balance sheet as of February 2, 2019 were as follows:
FISCAL YEAR ENDED
February 2, 2019
Effects of
Standard
Balances
Without
Adoption of
ASU 2014-09
(2,670) $
(1,887)
(621)
2,128,470
1,365,839
719,127
As Reported
$
2,131,140
$
1,367,726
719,748
February 2, 2019
As Reported
Effects of
Standard
Balances
Without
Adoption of
ASU 2014-09
$
$
235,218
$
63,845
$
1,409
(4,169)
236,627
59,676
131,820
$
(2,598) $
129,222
Sales
Cost of Goods Sold
Selling, general and administrative expenses
ASSETS
Inventory
Prepaid expenses and other current assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Other current and deferred liabilities
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those estimates.
41
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and in banks, short-term highly liquid investments with original
maturities of three months or less and payments due from banks for third-party credit card and debit transactions for
approximately 3 to 5 days of sales.
Marketable Securities
Marketable securities are classified as available-for-sale and are carried at fair value, with the unrealized holding gains
and losses, net of income taxes, reflected in accumulated other comprehensive income until realized. For the purposes of
computing realized and unrealized gains and losses, cost and fair value are determined on a specific identification basis. We
consider all securities available-for-sale, including those with maturity dates beyond 12 months, and therefore classify these
securities within current assets on the consolidated balance sheets as they are available to support current operational liquidity
needs.
Fair Value of Financial Instruments
Our consolidated financial instruments consist of cash, money market accounts, marketable securities, assets held in our
non-qualified deferred compensation plan, accounts receivable, accounts payable and debt. Cash, accounts receivable and
accounts payable are carried at cost, which approximates their fair value due to the short-term nature of the instruments.
Inventories
We use the weighted average cost method to determine the cost of merchandise inventories. We identify potentially
excess and slow-moving inventories by evaluating inventory aging, turn rates and inventory levels in conjunction with our
overall sales trend. Further, inventory realization exposure is identified through analysis of gross margins and markdowns in
combination with changes in current business trends. We record excess and slow-moving inventories at net realizable value and
may liquidate certain slow-moving inventory through third parties. We estimate our expected shrinkage of inventories between
physical inventory counts by using average store shrinkage experience rates, which are updated on a regular basis. Substantially
all of our inventories consist of finished goods.
Costs associated with sourcing are generally capitalized while merchandising, distribution and product development
costs are generally expensed as incurred and are included in the accompanying consolidated statements of income as a
component of cost of goods sold ("COGS"). Approximately 23% of total purchases in fiscal 2018 and 2017 were made from
one supplier. In fiscal 2018 and 2017, approximately 48% and 52% of our merchandise cost originated in China, respectively.
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation and amortization. Depreciation of property and
equipment is provided on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements are
amortized over the shorter of their estimated useful lives (generally 10 years or less) or the related lease term, plus one
anticipated renewal when there is an economic cost associated with non-renewal.
Our property and equipment is generally depreciated using the following estimated useful lives:
Land improvements
Building and building improvements
Equipment, furniture and fixtures
Leasehold improvements
Estimated Useful Lives
15 - 35 years
20 - 35 years
2 - 20 years
10 years or term
of lease, if shorter
Maintenance and repairs of property and equipment are expensed as incurred, and major improvements are capitalized.
Upon retirement, sale or other disposition of property and equipment, the cost and accumulated depreciation or amortization are
eliminated from the accounts, and any gain or loss is charged to income.
42
Operating Leases
We lease retail stores and a limited amount of office space under operating leases. The majority of our lease agreements
provide for tenant improvement allowances, rent escalation clauses and/or contingent rent provisions. Tenant improvement
allowances are recorded as a deferred lease credit within deferred liabilities and amortized as a reduction of rent expense over
the term of the lease. Rent escalation clauses, “rent-free” periods and other rental expenses are amortized on a straight-line
basis over the term of the leases, including the construction period.
Certain leases provide for contingent rents, in addition to a basic fixed rent, which are determined as a percentage of
gross sales in excess of specified levels. We record a contingent rent liability in accrued liabilities on the consolidated balance
sheets and the corresponding rent expense when specified levels have been achieved or when it is determined that achieving the
specified levels during the lease year is probable.
Goodwill and Other Intangible Assets
Goodwill and other indefinite-lived intangible assets are assessed for impairment at least annually. We perform our
annual impairment test during the fourth quarter, or more frequently should events or circumstances change that would indicate
that impairment may have occurred.
Goodwill represents the excess of the purchase price over the fair value of identifiable tangible and intangible assets
acquired and liabilities assumed in a business combination. Impairment testing for goodwill is done at a reporting unit level.
Reporting units are defined as an operating segment or one level below an operating segment, called a component. Using these
criteria, we identified our reporting units and concluded that the goodwill related to the territorial franchise rights for the state
of Minnesota should be allocated to the Chico’s reporting unit and the goodwill associated with the WHBM acquisition should
be assigned to the WHBM reporting unit.
We evaluate the appropriateness of performing a qualitative assessment, on a reporting unit level, based on current
circumstances. If we do not perform a qualitative assessment, or if we determine that it is not more likely than not that the
carrying value of the reporting unit exceeds its fair value, we calculate the estimated fair value of the reporting unit. Fair value
is determined based on both an income approach and market approach. The income approach is based on estimated future cash
flows, discounted at a rate that approximates the cost of capital of a market participant, while the market approach is based on
sales and EBITDA multiples of similar companies and/or transactions, or other available indications of value.
For fiscal 2017 and fiscal 2016, we performed a qualitative assessment of the goodwill associated with the Chico's and
WHBM reporting units and concluded it was more likely than not that the fair value exceeded the carrying amount as of the
annual assessment dates. Had the Company elected to skip the qualitative assessment, or if the results of the qualitative
assessment indicated that it was more likely than not that the fair value of a reporting unit was less than its carrying amount, a
two-step impairment test would have been performed. The first step of the impairment test compares the fair value of our
reporting units with their carrying amounts, including goodwill. If the carrying amount exceeds fair value, then the second step
of the impairment test is performed to measure the amount of any impairment loss.
In fiscal 2018, the Company adopted ASU 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the
subsequent measurement of goodwill by eliminating the second step from the quantitative goodwill impairment test. Under this
guidance, annual or interim goodwill impairment testing will be performed by comparing the fair value of a reporting unit with
its carrying amount. An impairment charge will then be recognized for the amount by which the carrying amount exceeds the
reporting unit’s fair value, not to exceed the carrying value of goodwill. For 2018, we elected to skip the qualitative assessment
and perform impairment testing for each of our reporting units. The estimated fair value of each of our reporting units exceeded
the respective carrying value and, as such, we concluded that the goodwill was not impaired.
We test indefinite-lived intangible assets for impairment by first assessing qualitative factors to determine whether it is
more likely than not that the fair value of the intangible is less than its carrying amount. If the results of the qualitative
assessment indicate that it is more likely than not that the fair value of the intangible is less than its carrying amount, we
calculate the value of the indefinite-lived intangible assets using a discounted cash flow method, based on the relief from
royalty concept, and compare the fair value to the carrying value to determine if the asset is impaired. We may elect to skip the
qualitative assessment when appropriate based on current circumstances. For fiscal 2017 and 2016, we performed a qualitative
assessment of the WHBM trade name and concluded it was more likely than not that the fair value exceeded the carrying
amount as of the annual assessment dates. For fiscal 2018, we elected to skip the qualitative assessment and perform
impairment testing on the WHBM trade name. The estimated fair value of the WHBM trade name exceeded the respective
carrying value and, as such, we concluded the WHBM trade name was not impaired.
43
Accounting for the Impairment of Long-lived Assets
Long-lived assets, including definite-lived intangibles, are reviewed periodically for impairment if events or changes in
circumstances indicate that the carrying amount may not be recoverable. If future undiscounted cash flows expected to be
generated by the asset are less than its carrying amount, an asset is determined to be impaired. The fair value of an asset is
estimated using estimated future cash flows of the asset discounted by a rate commensurate with the risk involved with such
asset while incorporating marketplace assumptions. The impairment loss recorded is the amount by which the carrying value of
the asset exceeds its fair value. In fiscal 2018, 2017 and 2016, we completed an evaluation of long-lived assets at certain
underperforming stores for indicators of impairment and, as a result, recorded impairment charges of approximately $13.3
million, $6.0 million and $2.5 million, respectively, which are primarily included in costs of goods sold in the accompanying
consolidated statements of income. Impairment charges in fiscal 2018 included $9.4 million in connection with our retail fleet
optimization plan as further discussed in Note 3. Impairment charges in fiscal 2017 included $2.9 million resulting from
hurricanes Harvey, Irma and Maria.
Revenue Recognition
Retail sales by our stores are recorded at the point of sale and are net of estimated customer returns, sales discounts
under rewards programs and company issued coupons, promotional discounts and employee discounts. For sales from our
websites and catalogs, in fiscal 2018 revenue is recognized at the point of shipment whereas in fiscal 2017 and 2016, revenue
was recognized at the time we estimated the customer received the product, which was typically within a few days of shipment.
Amounts related to shipping and handling costs billed to customers are recorded in net sales and the related shipping and
handling costs are recorded in COGS in the accompanying consolidated statements of income.
We sell gift cards in stores, on our e-commerce website and through third parties. Our gift cards do not have expiration
dates. We account for gift cards by recognizing a liability at the time the gift card is sold. The liability is relieved and revenue is
recognized, net of third-party sales commissions, for gift cards upon redemption. In addition, we recognize revenue for the
amount of gift cards expected to go unredeemed (commonly referred to as gift card breakage) under the redemption recognition
method. This method records gift card breakage as revenue on a proportional basis over the redemption period based on our
historical gift card breakage rate. We determine the gift card breakage rate based on our historical redemption patterns. We
recognize revenue on the remaining unredeemed gift cards based on determining that the likelihood of the gift card being
redeemed is remote and that there is no legal obligation to remit the unredeemed gift cards to relevant jurisdictions.
As part of the normal sales cycle, we receive customer merchandise returns related to store, website and catalog sales. To
account for the financial impact of potential customer merchandise returns, we estimate future returns on previously sold
merchandise. Reductions in sales and gross margin are recorded for estimated merchandise returns based on return history,
current sales levels and projected future return levels.
Our policy towards taxes assessed by a government authority directly imposed on revenue producing transactions
between a seller and a customer is, and has been, to exclude all such taxes from revenue.
Advertising Costs
For fiscal 2018, 2017 and 2016, advertising costs associated with the production of non-media advertising are charged to
expense as incurred. For fiscal 2018, media production costs (such as television, magazine and catalogs) are expensed when the
advertising first takes place whereas in 2017 and 2016, these expenses were amortized over their expected period of future
benefit, which was typically less than six weeks. For fiscal 2018, 2017 and 2016, advertising expense was approximately
$102.5 million, $94.5 million and $115.4 million, respectively, and is included within selling, general and administrative
expenses ("SG&A") in the accompanying consolidated statements of income.
Treasury Stock
Treasury stock is accounted for at cost. These shares are not retired and are excluded from the calculation of earnings per
share.
Share-Based Compensation
Share-based compensation for all awards is based on the grant date fair value of the award, net of estimated forfeitures,
and is recognized over the requisite service period of the awards. The fair value of restricted stock awards and performance-
based awards is determined by using the closing price of the Company’s common stock on the date of the grant. Compensation
expense for performance-based awards is recorded based on the amount of the award ultimately expected to vest, depending on
the level and likelihood of the performance condition being met.
44
Shipping and Handling Costs
Shipping and handling costs to transport goods to customers amounted to $58.5 million, $40.5 million and $35.9 million
in fiscal 2018, 2017 and 2016, respectively, and are included within COGS in the accompanying consolidated statements of
income.
Store Occupancy and Pre-Opening Costs
Store occupancy and pre-opening costs (including store-related costs and training expenses) incurred prior to the
opening of new stores are expensed as incurred and are included within cost of sales in the accompanying consolidated
statements of income.
Income Taxes
Income taxes are accounted for in accordance with authoritative guidance, which requires the use of the asset and
liability method. Deferred tax assets and liabilities are recognized based on the difference between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. Additionally, we follow a comprehensive
model to recognize, measure, present and disclose in our consolidated financial statements the estimated aggregate tax liability
of uncertain tax positions that we have taken or expect to take on a tax return. This model states that a tax benefit from an
uncertain tax position may be recognized if it is “more likely than not” that the position is sustainable, based upon its technical
merits. The tax benefit of a qualifying position is the largest amount of tax benefit that has greater than a 50% likelihood of
being realized upon the ultimate settlement with a taxing authority having full knowledge of all relevant information.
Foreign Currency
The functional currency of our foreign operations is generally the applicable local currency. Assets and liabilities are
translated into U.S. dollars using the current exchange rates in effect as of the balance sheet date, while revenues and expenses
are translated at the current exchange rate in effect as of the date of the transaction. The resulting translation adjustments are
recorded as a component of comprehensive income in the consolidated statements of comprehensive income. Transaction gains
and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the local functional
currency are included in the consolidated statements of income.
Self-Insurance
We are self-insured for certain losses relating to workers’ compensation, medical and general liability claims. Self-
insurance claims filed and claims incurred but not reported are accrued based upon management’s estimates of the aggregate
liability for uninsured claims incurred based on historical experience. While we do not expect the amount we will ultimately
pay to differ significantly from our estimates, self-insurance accruals could be affected if future claims experience differs
significantly from the historical trends and assumptions.
Supplier Allowances
From time to time, we receive allowances and/or credits from certain of our suppliers. The aggregate amount of such
allowances and credits, which is included in COGS, is immaterial to our consolidated results of operations.
Earnings Per Share
In accordance with relevant accounting guidance, unvested share-based payment awards that include non-forfeitable
rights to dividends, whether paid or unpaid, are considered participating securities. As a result, such awards are required to be
included in the calculation of earnings per common share pursuant to the “two-class” method. For us, participating securities
are composed entirely of unvested restricted stock awards and performance-based restricted stock units ("PSU's") that have met
their relevant performance criteria.
Under the two-class method, net income is reduced by the amount of dividends declared in the period for common stock
and participating securities. The remaining undistributed earnings are then allocated to common stock and participating
securities as if all of the net income for the period had been distributed. Basic EPS excludes dilution and is computed by
dividing net income available to common shareholders by the weighted-average number of common shares outstanding during
the period including the participating securities. Diluted EPS reflects the dilutive effect of potential common shares from non-
participating securities such as stock options, PSU's and restricted stock units.
45
Recently Issued Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (the “FASB”) issued ASU 2018-13, Fair Value Measurement
(Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the
disclosure requirements on fair value measurements. ASU 2018-13 is effective for fiscal years, and interim periods within those
years, beginning after December 15, 2019. The amendments related to the range and weighted average of significant
unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty
should be applied prospectively. All other amendments should be applied retrospectively. An entity is permitted to early adopt
any removed or modified disclosures upon issuance of ASU 2018-13 and delay adoption of the additional disclosures until their
effective date. We do not anticipate adoption to have a material impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases, which replaces the existing guidance in Accounting Standard
Codification 840 (“ASC 840”), Leases. The FASB has also issued subsequent ASUs related to ASU 2016-02, which detail
amendments to the ASU, implementation considerations, narrow-scope improvements and practical expedients. ASU 2016-02
is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The guidance is
required to be adopted using the modified retrospective approach, which provides an entity the option to apply the guidance at
the beginning of the earliest comparative period presented, or at the beginning of the period in which it is adopted. The
Company has elected to apply the guidance at the beginning of the period in which it is adopted. The standard requires a dual
approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both
finance leases and operating leases will result in the lessee recognizing a right-of-use ("ROU") asset and corresponding lease
liability. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset and for
operating leases, the lessee would recognize straight-line total rent expense. The Company expects to utilize the related
package of practical expedients permitted by the transition guidance in ASU 2016-02, which allows the Company to carry
forward its identification of contracts that are or contain leases, its historical lease classification and its initial direct costs for
existing leases. The Company has implemented ASU 2016-02 compliant lease accounting software and currently expects to
recognize lease liabilities for its operating leases totaling between $800 million and $900 million upon adoption. The initial
ROU assets recognized will be equal to the initial operating lease liabilities, adjusted for the balance on adoption date of
prepaid and accrued rent and lease incentives. The Company currently expects to recognize ROU assets totaling between $700
million and $800 million upon adoption. The Company has not completed its validation work over the implementation and its
impact on the financial statements, and therefore, the amounts recorded in fiscal 2019 may differ from these estimates, which
are based upon information available and procedures completed to date. The Company is assessing the impact of adoption on
impairment accounting that may ultimately impact the quantified carrying value of the ROU assets for stores that were deemed
to be impaired as part of our retail fleet optimization plan. The Company does not believe adoption of this standard will have a
material effect on the Company's consolidated results of operations or cash flow presentation.
2.
REVENUE RECOGNITION:
Disaggregated Revenue
The following table disaggregates our operating segment revenue by brand, which we believe provides a meaningful
depiction of the nature of our revenue. Amounts shown include licensing and wholesale income, which is not a significant
component of total revenue, and is aggregated within the respective brands in the table below.
Chico’s
WHBM
Soma
Total net sales
Accounting Policies
Fiscal 2018
%
Fiscal 2017
%
Fiscal 2016
%
(in thousands)
$ 1,098,707
51.6% $ 1,187,603
52.0% $ 1,285,830
51.9%
694,804
32.6
750,912
32.9
846,035
34.2
337,629
$ 2,131,140
343,864
15.8
100.0% $ 2,282,379
15.1
344,545
100.0% $ 2,476,410
13.9
100.0%
Beginning in fiscal 2018, the Company recognizes revenue pursuant ASC 606 as established by ASU 2014-09, Revenue
from Contracts with Customers: Topic 606. See Note 1 for the Company's policy over revenue recognition.
46
Contract Liability
Contract liabilities on the condensed consolidated balance sheets were comprised of obligations associated with our gift
card and customer loyalty programs. As of February 2, 2019 and February 3, 2018, contract liabilities primarily consisted of
gift cards of $42.6 million and $43.6 million, respectively. For fiscal 2018, the Company recognized $28.7 million of revenue
that was previously included in the gift card contract liability as of February 3, 2018. The contract liability for our loyalty
program was not material as of February 2, 2019 or February 3, 2018.
Performance Obligation
For fiscal 2018, revenue recognized from performance obligations related to prior periods was not material. Revenue to
be recognized in future periods related to performance obligations is not expected to be material.
3.
RETAIL FLEET OPTIMIZATION PLAN:
In the fourth quarter of fiscal 2018, the Company announced a retail fleet optimization plan to rebalance the mix
between our physical store presence and our digital network with the closure of at least 250 stores in the United States over the
next three years. Under this plan, we expect to close approximately 100 Chico's, 90 WHBM and 60 Soma locations over the
next three years, with the majority of the closings occurring in years two and three. This initiative is part of the Company's
efforts to better capitalize on its omnichannel platform, reduce costs, improve profitability and return on invested capital. In
fiscal 2018, the Company recorded pre-tax impairment and accelerated depreciation charges within COGS of $9.4 million and
$1.3 million, respectively, associated with this retail fleet optimization plan.
A summary of the retail fleet optimization charges is presented in the table below:
Impairment (1)
Accelerated Depreciation (1) (2)
Fleet Optimization charges, pre-tax
Fiscal 2018
(in thousands)
$
$
9,434
1,268
10,702
(1) Adjustments for impairment and accelerated depreciation charges reflect the impact of incremental store closures included in the
Company’s retail fleet optimization plan.
(2) Accelerated depreciation represents incremental depreciation due to the change in the useful life of store assets as a result of the retail fleet
optimization plan.
4.
RESTRUCTURING AND STRATEGIC CHARGES:
During the first quarter of fiscal 2016, we expanded our restructuring program that was initiated in fiscal 2014 to include
components of our strategic initiatives that further aligned the organizational structure with long-term growth initiatives and to
reduce COGS and SG&A. These strategic initiatives included realigning marketing and digital commerce, improving supply
chain efficiency, reducing non-merchandise expenses, optimizing marketing spend and transition of executive leadership. We
also adjusted the estimated store closures to 150 through fiscal 2017 in connection with this restructuring and strategic
program. In fiscal 2016, the Company recorded pre-tax restructuring and strategic charges of $31.0 million, primarily related to
outside services, severance and proxy solicitation costs. We substantially completed this restructuring and strategic program in
fiscal 2016 and closed the stores identified for closure in connection with this program. We did not incur any material
additional expenses related to this restructuring and strategic program in fiscal 2017 or fiscal 2018.
47
A summary of the restructuring and strategic charges is presented in the table below:
Impairment charges
Continuing employee-related costs
Severance charges
Proxy solicitation costs
Lease terminations
Outside services
Other charges
Restructuring and strategic charges, pre-tax
5.
MARKETABLE SECURITIES:
Fiscal 2016
(in thousands)
1,453
1,796
9,485
5,697
427
12,013
156
31,027
$
$
Marketable securities are classified as available-for-sale and generally consist of corporate bonds, commercial paper,
U.S. government agencies and municipal securities. At February 2, 2019, we had $42.6 million of securities with maturity dates
within one year or less and $19.4 million with maturity dates over one year and less than two years. As of February 2, 2019,
marketable securities consisted of corporate bonds and commercial paper.
The following tables summarize our investments in marketable securities at February 2, 2019 and February 3, 2018:
February 2, 2019
(in thousands)
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Total marketable securities
$
62,048
$
38
$
(99) $
61,987
February 3, 2018
(in thousands)
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Total marketable securities
$
60,361
$
— $
(301) $
60,060
6.
FAIR VALUE MEASUREMENTS:
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or
most advantageous market in an orderly transaction between market participants on the measurement date. Entities are required
to use a three-level hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value.
The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the
measurement date. The three levels are defined as follows:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities
Level 2 – Unadjusted quoted prices in active markets for similar assets or liabilities, or; Unadjusted quoted
prices for identical or similar assets or liabilities in markets that are not active, or; Inputs other than quoted
prices that are observable for the asset or liability
Level 3 – Unobservable inputs for the asset or liability.
48
We measure certain financial assets at fair value on a recurring basis, including our marketable securities, which are
classified as available-for-sale securities, certain cash equivalents, specifically our money market accounts and assets held in
our non-qualified deferred compensation plan. The money market accounts are valued based on quoted market prices in active
markets. Our marketable securities are generally valued based on other observable inputs for those securities (including market
corroborated pricing or other models that utilize observable inputs such as interest rates and yield curves) based on information
provided by independent third-party pricing entities, except for U.S. government securities which are valued based on quoted
market prices in active markets. The investments in our non-qualified deferred compensation plan are valued using quoted
market prices and are included in other assets on our consolidated balance sheets.
From time to time, we measure certain assets at fair value on a non-recurring basis. This includes the evaluation of long-
lived assets, goodwill and other intangible assets for impairment using Company-specific assumptions which would fall within
Level 3 of the fair value hierarchy.
To assess the fair value of goodwill, we utilize both an income approach and a market approach. Inputs used to calculate
the fair value based on the income approach primarily include estimated future cash flows, discounted at a rate that
approximates the cost of capital of a market participant. Inputs used to calculate the fair value based on the market approach
include identifying sales and EBITDA multiples based on guidelines for similar publicly traded companies and recent
transactions.
To assess the fair value of trade names, we utilize a relief from royalty approach. Inputs used to calculate the fair value
of the trade names primarily include future sales projections, discounted at a rate that approximates the cost of capital of a
market participant and an estimated royalty rate.
In fiscal 2018, the $57.5 million outstanding debt under our revolving loan and letter of credit facility approximates fair
value as this instrument has a variable interest rate which approximates current market rates (Level 2 criteria).
To assess the fair value of long-term debt in fiscal 2017, we utilized a discounted future cash flow model using current
borrowing rates for similar types of debt of comparable maturities.
Fair value calculations contain significant judgments and estimates, which may differ from actual results due to, among
other things, economic conditions, changes to the business model or changes in operating performance.
During fiscal 2018, we did not make any transfers between Level 1 and Level 2 financial assets. Furthermore, during
fiscal 2018 and fiscal 2017, we did not have any Level 3 financial assets measured on a recurring basis. We conduct reviews on
a quarterly basis to verify pricing, assess liquidity and determine if significant inputs have changed that would impact the fair
value hierarchy disclosure.
49
In accordance with the provisions of the guidance, we categorized our financial assets and liabilities which are valued on
a recurring basis, based on the priority of the inputs to the valuation technique for the instruments, as follows:
Fair Value Measurements at Reporting Date Using
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Balance as of
February 2,
2019
Financial Assets:
Current Assets
Cash equivalents:
(in thousands)
Money market accounts
$
711
$
711
$
— $
Marketable securities:
Corporate bonds
Commercial paper
Noncurrent Assets
Deferred compensation plan
Total
Financial Liabilities:
Long-term debt 1
$
$
60,281
1,706
—
—
6,644
69,342
$
6,644
7,355
$
60,281
1,706
—
61,987
$
57,500
$
— $
57,500
$
—
—
—
—
—
—
Fair Value Measurements at Reporting Date Using
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Balance as of
February 3,
2018
Financial Assets:
Current Assets
Cash equivalents:
(in thousands)
Money market accounts
$
1,250
$
1,250
$
— $
Marketable securities:
Municipal securities
U.S. government agencies
Corporate bonds
Commercial paper
Noncurrent Assets
Deferred compensation plan
Total
6,557
12,744
37,030
3,729
—
—
—
—
6,557
12,744
37,030
3,729
7,315
68,625
$
$
7,315
8,565
$
—
60,060
$
—
—
—
—
—
—
—
Financial Liabilities:
Long-term debt 1
1 As of February 2, 2019, long-term debt consists only of borrowings under our revolving credit facility as further discussed in
Note 10. The carrying value of long-term debt as of February 3, 2018 includes the current and long-term portions and the
remaining unamortized debt issuance costs.
68,601
69,036
— $
$
$
$
—
50
7.
PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consisted of the following:
Prepaid expenses
Accounts receivable
Other current assets
Prepaid expenses and other current assets
8.
PROPERTY AND EQUIPMENT, NET:
Property and equipment, net, consisted of the following:
February 2, 2019
February 3, 2018
$
$
(in thousands)
37,559
21,394
4,892
63,845
$
$
52,189
8,479
—
60,668
Land and land improvements
Building and building improvements
Equipment, furniture and fixtures
Leasehold improvements
Total property and equipment
Less: accumulated depreciation and amortization
Property and equipment, net
February 2, 2019
February 3, 2018
$
$
(in thousands)
30,620
125,868
650,391
496,972
1,303,851
(932,919)
370,932
$
$
30,572
125,504
636,542
529,835
1,322,453
(901,415)
421,038
Total depreciation expense for fiscal 2018, 2017 and 2016 was $91.2 million, $96.2 million and $109.1 million,
respectively. Depreciation expense in fiscal 2018 included $1.3 million in connection with our retail fleet optimization plan as
further discussed in Note 3.
9.
OTHER CURRENT AND DEFERRED LIABILITIES:
Other current and deferred liabilities consisted of the following:
February 2, 2019
February 3, 2018
(in thousands)
Allowance for customer returns, gift cards and store credits
outstanding
Accrued payroll, benefits, bonuses and severance costs and
termination benefits
Current portion of deferred rent and lease credits
Other
Other current and deferred liabilities
$
$
57,827
$
55,948
24,391
19,397
30,205
131,820
$
29,685
19,158
28,924
133,715
10.
DEBT:
On August 2, 2018, the Company and certain of its domestic subsidiaries entered into a credit agreement (the
“Agreement”) as borrowers and guarantors, with Wells Fargo Bank, National Association, as Agent, letter of credit issuer and
swing line lender, and certain lenders party thereto. Our obligations under the Agreement are guaranteed by the subsidiary
guarantors and secured by a lien on certain assets of the Company and the subsidiary borrowers and guarantors, including
51
inventory, accounts receivable, cash deposits, and certain insurance proceeds. The Agreement provides for a five-year asset-
based senior secured revolving loan and letter of credit facility of up to $200 million, maturing August 2, 2023. In addition,
during the term of the Agreement, the Company may increase the commitments under the Agreement by up to an additional
$100 million, subject to customary conditions, including obtaining the agreements from the lenders to provide such
commitment increase.
The Agreement contains customary representations, warranties, and affirmative covenants, as well as customary negative
covenants, that, among other things restrict, subject to certain exceptions, the ability of the Company and certain of its domestic
subsidiaries to: (i) incur liens, (ii) make investments, (iii) issue or incur additional indebtedness, (iv) undergo significant
corporate changes, including mergers and acquisitions, (v) make dispositions, (vi) make restricted payments, (vii) prepay other
indebtedness and (viii) enter into certain other restrictive agreements. The Company may pay cash dividends and repurchase
shares under its share buyback program, subject to certain thresholds of available borrowings based upon the lesser of the
aggregate amount of commitments under the Agreement and the borrowing base (the “Loan Cap”), determined after giving
effect to any such transaction or payment, on a pro forma basis.
The interest rate applicable to loans under the Agreement will be equal to, at the Company’s option, either a base rate,
determined by reference to the federal funds rate, plus a margin of 0.25%, or a LIBO rate, plus a margin of 1.25%, in each case,
depending on availability under the Agreement. In addition, the Company will pay a commitment fee of 0.20% per annum on
the unused portion of the commitments under the Agreement.
As of February 2, 2019, our outstanding debt consisted of $57.5 million in borrowings under the Agreement and is
presented as long-term debt in the accompanying consolidated balance sheet. As of February 2, 2019, we have $142.5 million
available for borrowings under the revolving loan and letter of credit facility. We also have unamortized debt discount of $0.5
million outstanding related to the Agreement, which is presented in other current assets in the accompanying consolidated
balance sheet.
The previous credit agreement entered into on May 4, 2015 with JPMorgan Chase Bank, N.A., as Administrative Agent,
Bank of America, N.A., as Syndication Agent and other lenders, which was unsecured and had provided for a term loan
commitment in the amount of $100 million and a $100 million revolving credit facility, was terminated on August 2, 2018 in
connection with the Company entering into the Agreement described above, and all outstanding amounts thereunder were
repaid. We used the proceeds from the initial draw of the revolving loan of the Agreement to repay such obligations.
The following table provides details on our debt outstanding as of February 2, 2019 and February 3, 2018:
Credit Agreement, net
Less: current debt
Long-term debt
February 2, 2019
February 3, 2018
$
$
(in thousands)
57,500
—
57,500
$
$
68,601
(15,000)
53,601
There are no debt payments due through fiscal year 2022 and $57.5 million is due in fiscal 2023.
11.
OTHER NONCURRENT AND DEFERRED LIABILITIES:
Other Noncurrent and Deferred liabilities consisted of the following:
Deferred rent
Deferred lease credits, net
Other noncurrent and deferred liabilities
Noncurrent and deferred liabilities
Less: current portion of deferred rent and lease credits
Other noncurrent and deferred liabilities
February 2, 2019
February 3, 2018
$
$
(in thousands)
46,228
50,336
10,570
107,134
(18,025)
89,109
$
$
50,529
63,932
7,979
122,440
(19,158)
103,282
52
Deferred rent represents the difference between operating lease obligations currently due and operating lease expense,
which is recorded on a straight-line basis over the appropriate respective terms of the leases.
Deferred lease credits represent construction allowances received from landlords and are amortized as a reduction of rent
expense over the appropriate respective terms of the related leases.
12.
COMMITMENTS AND CONTINGENCIES:
Leases
We lease retail stores, a limited amount of office space and certain office equipment under operating leases expiring in
various years through the fiscal year ending 2028. Certain operating leases provide for renewal options that generally
approximate five years at a pre-determined rental value. In the normal course of business, operating leases are typically
renewed or replaced by other leases.
Minimum future rental payments under non-cancelable operating leases (including leases with certain minimum sales
cancellation clauses described below and exclusive of common area maintenance charges and/or contingent rental payments
based on sales) as of February 2, 2019, are approximately as follows:
FISCAL YEAR ENDING:
(in thousands)
February 1, 2020
January 30, 2021
January 29, 2022
January 28, 2023
February 3, 2024
Thereafter
Total minimum lease payments
$
$
186,280
169,477
146,390
114,293
75,410
110,812
802,662
Certain leases provide that we may cancel the lease if our retail sales at that location fall below an established level. A
majority of our store operating leases contain cancellation clauses that allow the leases to be terminated at our discretion, if
certain minimum sales levels are not met within the first few years of the lease term. We have not historically met or exercised
a significant number of these cancellation clauses and, therefore, have included commitments for the full lease terms of such
leases in the above table. For fiscal 2018, 2017 and 2016, total rent expense under operating leases was approximately $261.3
million, $263.7 million and $268.5 million, respectively, including common area maintenance charges of approximately $48.0
million, $47.9 million and $47.6 million, respectively, other rental charges of approximately $40.9 million, $40.3 million and
$41.2 million, respectively, and contingent rental expense, based on sales, of approximately $3.6 million, $4.3 million and $5.2
million, respectively.
Open Purchase Orders
At February 2, 2019 and February 3, 2018, we had approximately $321.8 million and $316.5 million, respectively, of
open purchase orders for inventory, in the normal course of business.
Legal Proceedings
In July 2015, White House Black Market, Inc. (“WHBM”) was named as a defendant in Altman v. White House Black
Market, Inc., a putative class action filed in the United States District Court for the Northern District of Georgia (“District
Court”). The complaint alleges that WHBM, in violation of federal law, willfully published more than the last five digits of a
credit or debit card number on customers’ point-of-sale receipts. The plaintiff seeks an award of statutory damages
of $100 to $1,000 for each alleged willful violation of the law, as well as attorneys’ fees, costs and punitive damages. WHBM
denies the material allegations of the complaint and believes the case is without merit. On February 12, 2018, the District Court
issued an order certifying the class.
On April 9, 2018, the District Court, sua sponte, issued an order granting WHBM’s earlier 2016 request to appeal, to the
Eleventh Circuit Court of Appeals (“Eleventh Circuit”), the District Court’s ruling that the plaintiff has standing to maintain the
53
lawsuit. On April 19, 2018, WHBM filed a petition for review in the Eleventh Circuit. In the meantime, the District Court
stayed all further proceedings in the case pending the outcome of the appeal in the Eleventh Circuit.
On July 12, 2018, the plaintiff and WHBM notified the Eleventh Circuit that the plaintiff and WHBM had reached a
class settlement on all claims and therefore voluntarily dismissed WHBM’s appeal to the Eleventh Circuit. On August 2, 2018,
the District Court reopened the case for purposes of reviewing/approving the proposed settlement. On October 22, 2018, the
plaintiff filed the settlement papers with the District Court, along with a motion to stay the District Court’s consideration of the
settlement pending the Eleventh Circuit’s final disposition of Muransky v. Godiva Chocolatier, Inc., in which the Eleventh
Circuit held, in an opinion issued October 3, 2018, that the display of the first five and last four digits of a credit or debit card
number on a customer’s receipt given at the point of sale establishes a “concrete injury” sufficient to confer Article III standing,
enabling the customer to maintain a lawsuit. The motion to stay was granted on November 15, 2018. A petition for rehearing
was filed in the Muransky case on October 24, 2018 and is currently pending before the Eleventh Circuit. The Muransky
opinion, if not altered on the petition for rehearing, would bind the District Court in the Altman case and likely establish that
the plaintiff has standing to maintain her lawsuit against WHBM. In such event, the stay will be lifted and the proposed
settlement will be reviewed by the District Court. If the Eleventh Circuit does not find standing in the Muransky case, the
parties have agreed to submit the proposed settlement to the Superior Court for Cobb County, Georgia for approval. The
proposed settlement would not have a material adverse effect on the Company’s consolidated financial condition or results of
operations.
However, no assurance can be given that the proposed settlement will be approved. If the proposed settlement is rejected
and the case were to proceed as a class action and WHBM were to be unsuccessful in its defense on the merits, then the
ultimate resolution of the case could have a material adverse effect on the Company’s consolidated financial condition or
results of operations.
In May 2016, Chico’s Retail Services, Inc. (“CRS”) was named as a defendant in Corporate Cleaners, Inc. v. Chico’s
Retail Services, Inc., an action filed in the Seventeenth Judicial Circuit of Florida. The plaintiff alleges that CRS breached a
contract (and related amendments thereto) with the plaintiff by, among other reasons, failing to pay outstanding invoices and
failing to allow the plaintiff the exclusive right to provide certain cleaning services. The plaintiff seeks an award of lost profits,
lost revenue, as well as attorneys’ fees and costs. CRS denies the material allegations brought by the plaintiff and filed a
counterclaim seeking recovery of amounts associated with alleged misrepresentations by the plaintiff as to the quantity of
inventory units cleaned by the plaintiff. Discovery, including document productions, depositions, as well as expert discovery,
remain ongoing.
On September 4, 2018, CRS and the plaintiff participated in mediation. Although unsuccessful at that time, the
mediation remains adjourned with the expectation that the parties will continue mediation after expert disclosures have been
exchanged. Discovery and trial deadlines have been extended. As such, discovery, including expert discovery, remains
ongoing, with CRS’ expert scheduled to be deposed in April 2019. A trial date is now set for September 17, 2019. No assurance
can be given that CRS will be successful in its defense of this case or in its counterclaim. However, management does not
believe that any resolution of the case would have a material adverse effect on the Company’s consolidated financial condition
or results of operations.
Other than as noted above, we are not currently a party to any material legal proceedings other than claims and lawsuits
arising in the normal course of business. All such matters are subject to uncertainties, and outcomes may not be predictable.
Consequently, the ultimate aggregate amounts of monetary liability or financial impact with respect to other matters as
of February 2, 2019 are not estimable. However, while such matters could affect our consolidated operating results when
resolved in future periods, management believes that upon final disposition, any monetary liability or financial impact to us
would not be material to our annual consolidated financial statements.
54
13. SHARE-BASED COMPENSATION PLANS AND CAPITAL STOCK TRANSACTIONS:
General
In April 2017, the Board approved the Amended and Restated 2012 Omnibus Stock and Incentive Plan (the "Amended
Omnibus Plan"), which replaced the Chico's FAS, Inc. 2012 Omnibus Stock and Incentive Plan, effective upon shareholder
approval on June 22, 2017. The aggregate number of shares of our common stock that may be issued under the Amended
Omnibus Plan (since inception) is 15.5 million shares plus any shares represented by awards granted under prior plans that are
forfeited, expired or canceled without delivery of shares. Awards under the Amended Omnibus Plan may be in the form of
restricted stock, restricted stock units, performance-based restricted stock, performance-based stock units, stock options and
stock appreciation rights, in accordance with the terms and conditions of the Amended Omnibus Plan. The terms of each award
will be determined by the Human Resources, Compensation and Benefits Committee of the Board of Directors or by the Board
of Directors.
We have historically issued restricted stock, including non-vested restricted stock, performance-based stock units and
stock options. Shares of non-vested restricted stock have the same voting rights as common stock, are entitled to receive
dividends and other distributions thereon, and are considered to be currently issued and outstanding. The Company's
performance-based stock units are subject to vesting conditions, including meeting specified annual Company performance
objectives. Each performance based award recipient could vest 0% to 175% of the target shares granted contingent on the
achievement of the Company's financial performance metrics. Performance-based stock units are entitled to dividend
equivalents only to the extent certain Company-specific performance goals are met and are entitled to voting rights only upon
the issuance of shares after meeting these Company-specific performance goals. Generally, share-based awards vest evenly
over three years or cliff-vest after a three-year period; stock options generally have a 10-year term. As of February 2, 2019,
approximately 0.2 million nonqualified stock options are outstanding under a predecessor plan and approximately 7.2 million
shares remain available for future grants of share-based awards.
Share-based compensation expense for all awards is based on the grant date fair value of the award, net of estimated
forfeitures, and is recognized over the requisite service period of the awards. Compensation expense for restricted stock awards
and stock options with a service condition is recognized on a straight-line basis over the requisite service period. Compensation
expense for performance-based awards with a service condition is recognized ratably for each vesting tranche based on our
estimate of the level and likelihood of meeting certain Company-specific performance goals. We estimate the expected
forfeiture rate for all share-based awards, and only recognize expense for those shares expected to vest. In determining the
portion of the share-based payment award that is ultimately expected to be earned, we derive forfeiture rates based on historical
data. In accordance with the authoritative guidance, we revise our forfeiture rates, when necessary, in subsequent periods if
actual forfeitures differ from those originally estimated. Total compensation expense related to share-based awards in fiscal
2018, 2017 and 2016 was $19.8 million, $20.7 million and $21.2 million, respectively. The total tax benefit associated with
share-based compensation for fiscal 2018, 2017 and 2016 was $5.0 million, $7.6 million and $8.1 million, respectively.
Restricted Stock Awards
Restricted stock activity for fiscal 2018 was as follows:
Unvested, beginning of period
Granted
Vested
Forfeited
Unvested, end of period
Number of
Shares
Weighted
Average Grant
Date Fair
Value
$
2,328,259
1,944,280
(1,187,553)
(369,520)
2,715,466
13.08
9.68
12.90
11.64
10.92
Total fair value of shares of restricted stock that vested during fiscal 2018, 2017 and 2016 was $10.6 million, $15.6
million and $14.7 million, respectively. The weighted average grant date fair value of restricted stock granted during fiscal
2018, 2017 and 2016 was $9.68, $13.23 and $12.38, respectively. As of February 2, 2019, there was $15.6 million of
unrecognized share-based compensation expense related to non-vested restricted stock awards. That cost is expected to be
recognized over a weighted average remaining period of approximately 1.7 years.
55
Performance-based Stock Units
Performance-based stock unit activity for fiscal 2018 was as follows:
Unvested, beginning of period
Granted
Vested
Forfeited
Unvested, end of period
Number of
Shares
Weighted
Average Grant
Date Fair
Value
$
690,950
725,300
(190,777)
(158,135)
1,067,338
13.65
9.87
13.08
12.65
11.40
Total fair value of performance-based stock units that vested during fiscal 2018, 2017 and 2016 was $1.9 million, $4.2
million and $2.9 million, respectively. There was $3.8 million of unrecognized share-based compensation expense related to
performance-based stock units expected to vest. That cost is expected to be recognized over a weighted average period of
approximately 1.8 years.
Stock Option Awards
We used the Black-Scholes option-pricing model to value our stock options. No stock options have been issued since
fiscal 2011 and all have been fully vested since fiscal 2014. Using this option-pricing model, the fair value of each stock option
award was estimated on the date of grant. The fair value of the stock option awards, which are subject to pro-rata vesting
generally over three years, was expensed on a straight-line basis over the vesting period of the stock options.
Stock option activity for fiscal 2018 was as follows:
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
(in thousands)
Number of
Shares
Outstanding, beginning of period
Granted
Exercised
Forfeited or expired
Outstanding, end of period
Vested at February 2, 2019
Exercisable at February 2, 2019
$
368,745
—
(42,200)
(112,268)
214,277
214,277
214,277
12.36
—
3.60
13.39
13.54
13.54
13.54
1.8
$
1.8
1.8
—
—
—
Total intrinsic value of options exercised during fiscal 2018, 2017 and 2016 was $0.2 million, $0.01 million and $0.7
million, respectively.
Employee Stock Purchase Plan
We sponsor an employee stock purchase plan (“ESPP”) under which substantially all full-time employees are given the
right to purchase shares of our common stock during each of the two specified offering periods each fiscal year at a price equal
to 85 percent of the value of the stock immediately prior to the beginning of each offering period. During fiscal 2018, 2017 and
2016, approximately 175,000, 232,000 and 191,000 shares, respectively, were purchased under the ESPP. Cash received from
purchases under the ESPP for fiscal 2018 was $1.4 million.
Share Repurchase Program
In fiscal 2018 and fiscal 2017, we repurchased 12.2 million and 2.7 million shares at a total cost of $81.1 million and
$27.4 million, respectively, under the Company's $300 million share repurchase program announced in November 2015. As of
February 2, 2019, $55.2 million remains under the share repurchase program. However, we have no continuing obligation to
56
repurchase shares under this authorization, and the timing, actual number and value of any additional shares to be purchased
will depend on the performance of our stock price, market conditions and other considerations.
14.
RETIREMENT PLANS:
We have a 401(k) defined contribution employee retirement benefit plan (the “Plan”) covering all employees upon the
completion of one year of service, working 1000 hours or more (prior to January 1, 2019), or six months of service and 500
hours worked (as of January 1, 2019). Participants must meet a minimum age requirement of 21. Employees’ rights to
Company contributions vest fully upon completing five years of service, with incremental vesting starting in service year two.
Under the Plan, employees may contribute up to 75 percent of their annual compensation, subject to certain statutory
limitations. We have elected to match employee contributions at 50 percent on the first 6 percent of the employees’
contributions and can elect to make additional contributions over and above the mandatory match. For fiscal 2018, 2017 and
2016, our costs under the Plan were approximately $3.3 million, $3.3 million and $3.4 million, respectively.
In April 2002, we adopted the Chico’s FAS, Inc. Deferred Compensation Plan (the “Deferred Plan”) to provide
supplemental retirement income benefits for highly compensated employees. Eligible participants may elect to defer up to 80
percent of their base salary and 100 percent of their bonus earned under an approved bonus plan pursuant to the terms and
conditions of the Deferred Plan. The Deferred Plan generally provides for payments upon retirement, death, disability,
termination of employment or a defined period of years. As of January 1, 2019, the Company introduced a match on employee
contributions of 50% on the first 2.5% of base salary deferrals. The amount of the deferred compensation liability payable to
the participants is included in deferred liabilities in the consolidated balance sheets. These obligations are funded through the
purchase of corporate owned life insurance (COLI), cash and other securities held within a grantor trust established by the
Company to hold assets for the payment of benefits under the Deferred Plan to participants. The trust assets are reflected in
other assets in the accompanying consolidated balance sheets.
15.
INCOME TAXES:
The income tax provision consisted of the following:
Fiscal 2018
Fiscal 2017
Fiscal 2016
(in thousands)
Current:
Federal
State
Foreign
Total
Deferred:
Federal
State
Total
$
5,903
$
39,376
$
3,378
282
9,563
(1,949)
86
(1,863)
7,700
$
4,877
266
44,519
(3,669)
1,750
(1,919)
42,600
$
49,994
5,654
260
55,908
(8,483)
75
(8,408)
47,500
Income tax provision
$
The foreign component of pre-tax income (loss), arising principally from operating foreign stores and other management
and cost sharing charges we are required to allocate under U.S. tax law, for fiscal 2018, 2017 and 2016 was $(1.7) million, $0.1
million and $0.1 million, respectively.
On December 22, 2017, the Tax Act was signed into law making significant changes to the Internal Revenue Code.
Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective January 1, 2018. As a result,
the Company’s 2018 federal tax rate was 21% and blended federal tax rate for fiscal 2017 was 33.8%.
57
As a result of the Tax Act and in accordance with SEC Staff Accounting Bulletin 118, the Company recorded provisional
tax expense in the fourth quarter of fiscal 2017 related to executive compensation and other deferred tax balances. During fiscal
2018, the Company made a $4.9 million reduction, or 11.2% benefit to the effective tax rate, to the provisional tax expense
related to the acceleration of certain tax deductions into fiscal 2017 and the subsequent revaluation of the associated deferred
tax liabilities to reflect the new rate. The change was a result of additional analysis, changes in interpretation and assumptions,
as well as additional regulatory guidance that was issued.
The Tax Act requires a one-time transition tax that is based on total post-1986 earnings and profits (“E & P”) previously
deferred from U.S. income taxes. As the Company does not have any post-1986 E & P in its foreign subsidiaries, no one-time
transition tax was recorded.
No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the one-
time transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be
indefinitely reinvested in foreign operations. There were no significant undistributed foreign earnings at February 2, 2019,
February 3, 2018 and January 28, 2017.
As of December 22, 2018, the Company has completed its accounting for the income tax effects of the Tax Act.
A reconciliation between the statutory federal income tax rate and the effective income tax rate follows:
Federal income tax rate (blended rate for fiscal 2017 due to
the Tax Act)
State income tax, net of federal tax benefit
Impact of the Tax Act
Excess share-based compensation
Outside basis difference - Boston Proper Sale
Other state benefits associated with sale and liquidation of
Boston Proper
Enhanced charitable contribution
Executive compensation limitations
Foreign losses with full Valuation Allowance
Federal tax credits
Other items, net
Total
Fiscal 2018
Fiscal 2017
Fiscal 2016
21.0%
5.7
(11.2)
3.2
—
—
(3.0)
2.1
1.1
(1.1)
—
17.8%
33.8%
3.2
(5.6)
0.9
—
—
(1.1)
0.7
0.1
(1.2)
(1.1)
29.7%
35.0%
3.4
—
—
(2.8)
(0.3)
(1.9)
1.2
0.2
(0.5)
(0.1)
34.2%
58
Deferred tax assets and liabilities are recorded due to different carrying amounts for financial and income tax reporting
purposes arising from cumulative temporary differences. These differences consist of the following as of February 2, 2019 and
February 3, 2018:
Deferred tax assets:
Accrued liabilities and allowances
Accrued straight-line rent
Share-based compensation
Property related
Charitable contribution limitation carryforwards
State tax credits and net operating loss carryforwards
Other
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Other
Prepaid expenses
Property related
Other intangible assets
Total deferred tax liabilities
Net deferred taxes
February 2,
2019
February 3,
2018
(in thousands)
$
$
$
10,984
12,302
5,936
1,881
4,400
5,337
2,681
43,521
(1,111)
42,410
—
(1,760)
(26,733)
(17,416)
(45,909)
(3,499) $
9,690
13,364
5,606
2,009
2,604
5,548
1,879
40,700
(444)
40,256
(119)
(4,823)
(23,961)
(16,666)
(45,569)
(5,313)
As of February 2, 2019, the Company had available for state and local income tax purposes net operating losses and tax
credit carryovers in the amounts of $21.8 million and $5.2 million, respectively, presented on a gross basis. The net operating
losses and tax credit carryovers expire, if unused, in the years 2020 - 2035 and 2019 - 2027, respectively.
Accumulated other comprehensive income is shown net of deferred tax assets and deferred tax liabilities. The amount
was not significant at February 2, 2019 or February 3, 2018.
A reconciliation of the beginning and ending amounts of uncertain tax positions for each of fiscal 2018, fiscal 2017 and
fiscal 2016 is as follows:
Fiscal 2018
Fiscal 2017
Fiscal 2016
(in thousands)
Balance at beginning of year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Additions for tax positions for the current year
Settlements/payments with tax authorities
Reductions due to lapse of applicable statutes of limitation
Balance at end of year
$
$
1,522
117
(24)
87
(197)
—
1,505
$
$
5,158
—
(105)
289
(3,667)
(153)
1,522
$
$
4,840
1,280
(1)
246
(850)
(357)
5,158
At February 2, 2019, February 3, 2018 and January 28, 2017, balances included $1.2 million, $1.2 million and $4.4
million respectively, of unrecognized tax benefits that, if recognized, would favorably impact the effective tax rate in future
periods. We do not expect any events to occur that would cause a change to our unrecognized tax benefits or income tax
expense within the next twelve months.
59
Our continuing practice is to recognize potential accrued interest and penalties relating to unrecognized tax benefits in
the income tax provision. For fiscal 2018, 2017 and 2016, we accrued $0.1 million, $0.1 million and $0.2 million, respectively
for interest and penalties. We had approximately $0.3 million, $0.3 million and $0.5 million, respectively for the payment of
interest and penalties accrued at February 2, 2019, February 3, 2018 and January 28, 2017, respectively. The amounts included
in the reconciliation of uncertain tax positions do not include accruals for interest and penalties.
In fiscal 2006, we began participating in the IRS’s real time audit program, Compliance Assurance Process (“CAP”).
Under the CAP program, material tax issues and initiatives are disclosed to the IRS throughout the year with the objective of
reaching an agreement as to the proper reporting treatment when the federal return is filed. Previous years through fiscal 2016
have been accepted. Fiscal 2017 is in the post-filing review process.
We are no longer subject to state and local examinations for years before fiscal 2011. Various state examinations are
currently underway for fiscal periods spanning from 2012 through 2016; however, we do not expect any significant change to
our uncertain tax positions within the next year.
16.
NET INCOME PER SHARE:
The following table sets forth the computation of basic and diluted net income per share shown on the face of the
accompanying consolidated statements of income (in thousands, except per share amounts):
February 2,
2019
February 3,
2018
January 28,
2017
Numerator
Net income
Net income and dividends declared allocated to
participating securities
Net income available to common shareholders
Denominator
Weighted average common shares outstanding – basic
Dilutive effect of non-participating securities
Weighted average common and common equivalent shares
outstanding – diluted
Net income per common share:
Basic
Diluted
$
$
$
$
35,613
$
101,000
$
91,229
(879)
34,734
$
(2,300)
98,700
$
(1,915)
89,314
122,662
67
125,341
62
128,995
242
122,729
125,403
129,237
0.28
0.28
$
$
0.79
0.79
$
$
0.69
0.69
In each of the fiscal years 2018, 2017 and 2016, 0.7 million of potential shares of common stock were excluded from the
diluted per share calculation relating to non-participating securities, because the effect of including these potential shares was
antidilutive.
60
17.
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
Net Sales
Gross
Margin
Net Income
Net
Income Per
Common
Share - Basic
Net Income
Per
Common and
Common
Equivalent
Share - Diluted
(dollars in thousands, except per share amounts)
Fiscal year ended February 2, 2019:
First quarter
$
561,815
$
226,868
$
29,004
$
Second quarter
Third quarter 1
Fourth quarter (thirteen weeks) 2
Fiscal year ended February 3, 2018:
544,720
499,877
524,728
First quarter
$
583,728
$
Second quarter
Third quarter 3
Fourth quarter (fourteen weeks) 4
578,581
532,287
587,783
$
$
196,867
180,978
158,701
237,413
209,101
196,702
221,561
16,768
6,481
(16,640)
33,619
$
22,716
16,690
27,975
$
$
0.23
0.13
0.05
(0.14)
0.26
0.18
0.13
0.22
0.23
0.13
0.05
(0.14)
0.26
0.18
0.13
0.22
1 Third quarter fiscal 2018 results include the favorable tax benefit of approximately $5 million related to the Tax Act.
2 Fourth quarter fiscal 2018 results include the unfavorable impact of impairment and accelerated depreciation charges of approximately $8
million, after-tax, related to our retail fleet optimization plan.
3 Third quarter fiscal 2017 results include the unfavorable impact of the Hurricanes of approximately $5 million, after-tax.
2 Fourth quarter fiscal 2017 results include the favorable impact of the Tax Act of approximately $10 million.
18.
SUBSEQUENT EVENTS:
On February 28, 2019, we announced that our Board of Directors declared a quarterly dividend of $0.0875 per share on
our common stock. The dividend will be payable on April 1, 2019 to shareholders of record at the close of business on March
18, 2019. Although it is our Company’s intention to continue to pay a quarterly cash dividend in the future, any decision to pay
future cash dividends will be made by the Board of Directors and will depend on future earnings, financial condition and other
factors.
61
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be
disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that information required to be disclosed in reports filed
under the Exchange Act is accumulated and communicated to management, including the principal executive and principal
financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required
disclosure.
As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the
participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of such period, our
disclosure controls and procedures were effective in providing reasonable assurance in timely alerting them to material
information relating to us (including our consolidated subsidiaries) and that information required to be disclosed in our reports
is recorded, processed, summarized and reported as required to be included in our periodic SEC filings.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during the fourth fiscal quarter that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting as of February 2, 2019 as required by Rule 13a-15(c) under the Exchange Act. In
making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control - Integrated Framework (2013 framework). Based on our evaluation, management
concluded that our internal control over financial reporting was effective as of February 2, 2019.
No system of controls, no matter how well designed and operated, can provide absolute assurance that the objectives of
the system of controls are met, and no evaluation of controls can provide absolute assurance that the system of controls has
operated effectively in all cases. Therefore, even those systems determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies and procedures may deteriorate.
The Company’s independent registered public accounting firm, Ernst & Young LLP, that audited the consolidated
financial statements included in this Annual Report on Form 10-K, issued an attestation report on the Company’s internal
control over financial reporting as of February 2, 2019, which follows.
62
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Chico’s FAS, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Chico’s FAS, Inc. and subsidiaries’ internal control over financial reporting as of February 2, 2019, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Chico’s FAS, Inc. and subsidiaries (the
Company) maintained, in all material respects, effective internal control over financial reporting as of February 2, 2019, based
on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of Chico’s FAS, Inc. and subsidiaries as of February 2, 2019 and February 3, 2018,
the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three
fiscal years in the period ended February 2, 2019, and the related notes and our report dated March 19, 2019 expressed an
unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ ERNST & YOUNG LLP
Tampa, Florida
March 19, 2019
63
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information about our executive officers, directors and nominees for director, procedures by which security holders may
recommend director nominees, the code of ethics, the audit committee, audit committee membership and our audit committee
financial expert and Section 16(a) beneficial ownership reporting compliance in our 2019 Annual Meeting proxy statement is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information about executive compensation, compensation committee interlocks and insider participation, and the Human
Resources, Compensation and Benefits Committee report in our 2019 Annual Meeting proxy statement is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Except as provided below, the information required by this item is included in our 2019 Annual Meeting proxy statement
and is incorporated herein by reference.
Equity Compensation Plan Information
The following table shows information concerning our equity compensation plans as of February 2, 2019:
Plan Category
Equity compensation
plans approved by
security holders 1
Equity compensation
plans not approved by
security holders
Total
Number of Securities to
be Issued upon Exercise
of Outstanding Options,
Warrants and Rights
(a)
1,314,755
—
1,314,755
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
(b) 2
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in Column (a))
(c) 3
$13.54
—
$13.54
7,782,678
—
7,782,678
1. Consists of the Amended and Restated 2012 Omnibus Stock and Incentive Plan, the Amended and Restated 2002
Omnibus Stock and Incentive Plan, and the Second Amended and Restated 2002 Employee Stock Purchase Plan.
2. The weighted average exercise price is calculated based solely on the outstanding stock options. It does not take into
account the shares issuable upon vesting of outstanding restricted stock, restricted stock units or performance stock
units, which have no exercise price.
3. Consists of (i) 7.2 million shares that were available for future issuance under the Amended and Restated 2012
Omnibus Stock and Incentive Plan as of February 2, 2019 and (ii) 0.6 million shares that were available for future
issuance under the Second Amended and Restated 2002 Employee Stock Purchase Plan as of February 2, 2019,
including shares subject to purchase during the current offering period.
64
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is included in our 2019 Annual Meeting proxy statement and is incorporated
herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is included in our 2019 Annual Meeting proxy statement and is incorporated
herein by reference.
65
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
Documents filed as part of this Report.
(1)
The following consolidated financial statements are contained in Item 8:
Consolidated Financial Statements
Report of Ernst & Young LLP, independent registered public accounting firm
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page in this Report
33
34
35
36
37
38
39
(2)
The following Financial Statement Schedules are included herein:
Schedules are not submitted because they are not applicable, not required or because the required information
is included in the financial statements or the notes thereto.
(3)
The following exhibits are filed as part of this report:
3.1
3.2
4.1
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
Amended and Restated By-laws of Chico’s FAS, Inc. (incorporated by reference to Exhibit 3.1 to the
Company’s Form 10-Q, as filed with the Commission on November 22, 2016)
Amended and Restated Articles of Incorporation of Chico’s FAS, Inc. (incorporated by reference to Exhibit
3.2 to the Company’s Form 10-Q, as filed with the Commission on November 22, 2016)
Form of specimen Common Stock Certificate (incorporated by reference to Exhibit 4.9 to the Company’s
Form 10-K, as filed with the Commission on March 14, 2014)
Amended and Restated 2002 Omnibus Stock and Incentive Plan (incorporated by reference to Exhibit 10.1
to the Company’s Form 8-K, as filed with the Commission on July 2, 2008)
Form of 2002 Omnibus Stock and Incentive Plan Non-Qualified Stock Option Certificate for Employees
(incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K, as filed with the Commission on
February 3, 2005)
Revised Form of 2002 Omnibus Stock and Incentive Plan Non-Qualified Stock Option Certificate for
Employees (incorporated by reference to Exhibit 10.22 to the Company’s Form 10-K, as filed with the
Commission on March 22, 2011)
Chico’s FAS, Inc. Second Amended and Restated 2002 Employee Stock Purchase Plan (incorporated by
reference to Exhibit 10.1 to the Company’s Form 10-Q, as filed with the Commission on August 24, 2011)
Indemnification Agreement with David F. Walker (incorporated by reference to Exhibit 10.1 to the
Company’s Form 10-Q, as filed with the Commission on November 29, 2005)
Indemnification Agreement with John J. Mahoney (incorporated by reference to Exhibit 10.1 to the
Company’s Form 8-K as filed with the Commission on July 25, 2008)
Indemnification Agreement with Andrea M. Weiss (incorporated by reference to Exhibit 10.43 to the
Company’s Form 10-K, as filed with the Commission on March 22, 2011)
Indemnification Agreement with Stephen E. Watson (incorporated by reference to Exhibit 10.44 to the
Company’s Form 10-K, as filed with the Commission on March 22, 2011)
Chico’s FAS, Inc. Deferred Compensation Plan effective April 1, 2002 (incorporated by reference to
Exhibit 10.53 to the Company’s Form 10-K, as filed with the Commission on April 24, 2002)
10.10*
Chico’s FAS, Inc. Deferred Compensation Plan (as Amended and Restated Effective January 1, 2019)
66
10.11
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
10.26*
10.27*
10.28*
10.29*
10.30*
10.31*
Lease Agreement between Joint Development Authority of Winder-Barrow County and Chico’s Real Estate,
LLC dated as of March 25, 2002 (incorporated by reference to Exhibit 10.54 to the Company’s Form 10-K,
as filed with the Commission on April 24, 2002)
Indemnification Agreement with Janice L. Fields (incorporated by reference to Exhibit 10.1 to the
Company’s Form 8-K, as filed with the Commission on May 7, 2013)
Participation Agreement between the Company and Todd E. Vogensen (incorporated by reference to Exhibit
10.2 to the Company's Form 8-K, as filed with the Commission on April 1, 2015)
Chico’s FAS, Inc. Cash Bonus Incentive Plan (incorporated by reference to Appendix A to the Company’s
definitive proxy statement, as filed with the Commission on May 8, 2015)
Employment letter agreement between the Company and Todd E. Vogensen, dated as of March 3, 2015
(incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q, as filed with the Commission on
May 28, 2015)
Employment letter agreement between the Company and Shelley Broader (incorporated by reference to
Exhibit 10.1 to the Company's Form 8-K, as filed with the Commission on October 30, 2015)
Amendment No.1 to Second Amended and Restated 2002 Employee Stock Purchase Plan (incorporated by
reference to Exhibit 10.59 to the Company's Form 10-K, as filed with the Commission on March 8, 2016)
Participation Agreement between the Company and Shelley Broader (incorporated by reference to Exhibit
10.61 to the Company's Form 10-K, as filed with the Commission on March 8, 2016)
Amendment to employment letter agreement between the Company and Shelley Broader dated April 14,
2016 (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K, as filed with the Commission
on April 14, 2016)
Amended Form of 2012 Omnibus Stock and Incentive Plan Restricted Stock Agreement (Non-Soma
Officers) (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q, as filed with the
Commission on November 22, 2016)
Amended Form of 2012 Omnibus Stock and Incentive Plan Restricted Stock Agreement (Soma Officers)
(incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q, as filed with the Commission on
November 22, 2016)
Indemnification Agreement with Bonnie R. Brooks (incorporated by reference to Exhibit 10.46 to the
Company's Form 10-K, as filed with the Commission on March 7, 2017)
Indemnification Agreement with William S. Simon (incorporated by reference to Exhibit 10.47 to the
Company's Form 10-K, as filed with the Commission on March 7, 2017)
Officer Severance Plan (as amended and restated September 1, 2016) (incorporated by reference to Exhibit
10.49 to the Company's Form 10-K, as filed with the Commission on March 7, 2017)
Form of 2012 Omnibus Stock and Incentive Plan Restricted Stock Agreement (incorporated by reference to
Exhibit 10.50 to the Company's Form 10-K, as filed with the Commission on March 7, 2017)
Form of 2012 Omnibus Stock and Incentive Plan Performance Award Agreement for Restricted Stock Units
(incorporated by reference to Exhibit 10.51 to the Company's Form 10-K, as filed with the Commission on
March 7, 2017)
Incentive Compensation Clawback Policy, effective April 6, 2017 (incorporated by reference to Exhibit
10.1 to the Company's Form 10-Q, as filed with the Commission on May 25, 2017)
Chico's FAS, Inc. Amended and Restated 2012 Omnibus Stock and Incentive Plan (incorporated by
reference to Exhibit 10.55 to the Company's Form 8-K as filed with the Commission on June 27, 2017)
Form of Amended and Restated 2012 Omnibus Stock and Incentive Plan Restricted Stock Agreement for
Employees (for awards on or after June 22, 2017) (incorporated by reference to Exhibit 10.1 to the
Company's Form 10-Q, as filed with the Commission on August 31, 2017)
Form of Amended and Restated 2012 Omnibus Stock and Incentive Plan Restricted Stock Agreement for
Non-Employee Directors (for awards on or after June 22, 2017) (incorporated by reference to Exhibit 10.2
to the Company's Form 10-Q, as filed with the Commission on August 31, 2017)
Form of Amended and Restated 2012 Omnibus Stock and Incentive Plan Restricted Stock Unit Agreement
for Non-Employee Directors (for awards on or after June 22, 2017) (incorporated by reference to Exhibit
10.3 to the Company's Form 10-Q, as filed with the Commission on August 31, 2017)
67
10.32*
10.33*
10.34*
10.35*
10.36*
10.37*
10.38*
10.39*
10.40*
10.41*
10.42
10.43*
10.44*
10.45*
10.46*
21
23
31.1
31.2
32.1
32.2
Amended and Restated Indemnification Agreement with Shelley G. Broader, dated June 19, 2017
(incorporated by reference to Exhibit 10.4 to the Company's Form 10-Q, as filed with the Commission on
August 31, 2017)
Amended and Restated Indemnification Agreement with Todd E. Vogensen, dated July 6, 2017
(incorporated by reference to Exhibit 10.5 to the Company's Form 10-Q, as filed with the Commission on
August 31, 2017)
Employment Letter Agreement between the Company and Mary van Praag, dated August 1, 2017
(incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q, as filed with the Commission on
November 22, 2017)
Restrictive Covenant Agreement between the Company and Mary van Praag, dated August 22, 2017
(incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q, as filed with the Commission on
November 22, 2017)
Indemnification Agreement with Deborah L. Kerr, dated November 15, 2017 (incorporated by reference to
Exhibit 10.3 to the Company’s Form 10-Q, as filed with the Commission on November 22, 2017)
Form of Amended and Restated 2012 Omnibus Stock and Incentive Plan Performance Award Agreement
for Performance Share Units for Employees (for awards on or after March 1, 2018) (incorporated by
reference to Exhibit 10.1 to the Company's Form 8-K, as filed with the Commission on February 16, 2018)
Form of Amended and Restated 2012 Omnibus Stock and Incentive Plan Restricted Stock Agreement for
Employees (for awards on or after March 1, 2018) (incorporated by reference to Exhibit 10.44 to the
Company's Form 10-K, as filed with the Commission on March 13, 2018)
Employment letter agreement between the Company and David Pastrana, dated as of December 11, 2017
(incorporated by reference to Exhibit 10.45 to the Company's Form 10-K, as filed with the Commission on
March 13, 2018)
Restrictive covenant agreement between the Company and David Pastrana, dated as of December 12, 2017
(incorporated by reference to Exhibit 10.46 to the Company's Form 10-K, as filed with the Commission on
March 13, 2018)
Separation Agreement and Release between the Company and Donna Colaco, dated as of January 31, 2018
(incorporated by reference to Exhibit 10.47 to the Company's Form 10-K, as filed with the Commission on
March 13, 2018)
Credit Agreement among the Company, certain of its subsidiaries, Wells Fargo Bank, National Association
and the Lenders parties thereto dated as of August 2, 2018 (incorporated by reference to Exhibit 10.49 to
the Company's Form 8-K, as filed with the Commission on August 3, 2018)
Separation Agreement and Release between the Company and Diane Ellis, dated as of November 30, 2018
Indemnification agreement with Kim Roy, dated February 18, 2019
Employment letter agreement between the Company and Karen McKibbin, dated as of March 4, 2019
(incorporated by reference to Exhibit 10.1 to the Company's Form 8-K, as filed with the Commission on
March 6, 2019)
Restrictive covenant agreement between the Company and Karen McKibbin, dated as of March 4, 2019,
2019 (incorporated by reference to Exhibit 10.2 to the Company's Form 8-K, as filed with the Commission
on March 6, 2019)
Subsidiaries of the Registrant
Consent of Ernst & Young LLP
Chico’s FAS, Inc. and Subsidiaries Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002- Chief Executive Officer
Chico’s FAS, Inc. and Subsidiaries Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002- Chief Financial Officer
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
68
101.INS
iXBRL Instance Document
101.SCH
iXBRL Taxonomy Extension Schema Document
101.CAL
iXBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
iXBRL Taxonomy Definition Linkbase Document
101.LAB
iXBRL Taxonomy Extension Label Linkbase Document
101.PRE
iXBRL Taxonomy Extension Presentation Linkbase Document
* Denotes management contract
69
ITEM 16. FORM 10-K SUMMARY
Not applicable.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
CHICO’S FAS, INC.
Date: March 19, 2019
/s/ Shelley G. Broader
By:
Shelley G. Broader
Chief Executive Officer, President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
70
Signature
Title
Date
/s/ Shelley G. Broader
Shelley G. Broader
Chief Executive Officer, President and Director
(Principal Executive Officer)
March 19, 2019
/s/ Todd E. Vogensen
Todd E. Vogensen
Executive Vice President,
Chief Financial Officer and Assistant Corporate
Secretary
March 19, 2019
/s/ David M. Oliver
David M. Oliver
/s/ David F. Walker
David F. Walker
/s/ Bonnie R. Brooks
Bonnie R. Brooks
/s/ Janice L. Fields
Janice L. Fields
/s/ Deborah L. Kerr
Deborah L. Kerr
/s/ John J. Mahoney
John J. Mahoney
/s/ Kim Roy
Kim Roy
/s/ William S. Simon
William S. Simon
/s/ Stephen E. Watson
Stephen E. Watson
Senior Vice President - Finance, Controller
and Chief Accounting Officer
March 19, 2019
Chairman of the Board
March 19, 2019
March 19, 2019
March 19, 2019
March 19, 2019
March 19, 2019
March 19, 2019
March 19, 2019
March 19, 2019
Director
Director
Director
Director
Director
Director
Director
71
GAAP to Non-GAAP Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow
In addition to presenting results prepared in accordance with generally accepted accounting principles (or “GAAP”), the
Company has provided free cash flow which is a non-GAAP financial measurement. A reconciliation of net cash provided
by operating activities on a GAAP basis to free cash flow on a non-GAAP basis over the last ten years is presented in the
table below:
Chico’s FAS, Inc. and Subsidiaries
Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow
(Unaudited)
(in millions)
2009
2010
2011
2012
2013
2014
2015
2016
$
$
$
$
$
$
$
$
239.6
(73.0)
166.6
255.2
(131.8)
123.4
368.3
(164.7)
203.6
236.7
(138.5)
98.2
282.5
(119.8)
162.7
197.0
(84.8)
112.2
$
$
$
$
$
$
$
$
215.4
(67.9)
147.5
$
2017
166.9
(48.5)
118.4
$
2018
$
158.1
(54.2)
103.9
$
231.3
(31.6)
199.7
1
Net cash provided by operating activities
Less: Purchases of property and equipment, net
Free cash flow
1 Incl udes $16.2 mi l l i on from proceeds from s a l e of l a nd
Executive Officers
BONNIE R. BROOKS
Interim President, Chief Executive Officer and Director of
Chico's FAS, Inc.
TODD E. VOGENSEN
Executive Vice President – Chief Financial Officer and
Assistant Corporate Secretary
KAREN MCKIBBIN
Brand President – Chico’s
DAVID PASTRANA
Brand President – White House Black Market
MARY VAN PRAAG
President of the Intimate Apparel Group
ANN E. JOYCE
Chief Customer Officer and Executive Vice President - Technology,
Supply Chain and Field Operations
KRISTIN M. GWINNER
Senior Vice President – Chief Human Resources Officer
GREGORY S. BAKER
Senior Vice President – General Counsel and Corporate Secretary
DAVID M. OLIVER
Senior Vice President – Finance, Controller and Chief Accounting
Officer
Board of Directors
DAVID F. WALKER (1) (4)
Former Partner at Arthur Anderson, LLP
BONNIE R. BROOKS (5)
Interim President and Chief Executive Officer of Chico's FAS, Inc.
JANICE L. FIELDS (2) (5)
Retired President of McDonald’s USA, LLC
DEBORAH L. KERR (6) (7)
Managing Director at Warburg Pincus
JOHN J. MAHONEY (3) (5) (8)
Retired Vice Chairman, Staples, Inc.
KIM ROY (8)
Former Group President, North America Wholesale, Ralph Lauren
Corporation
WILLIAM S. SIMON (7)
Retired President and Chief Executive Officer of Walmart U.S.
STEPHEN E. WATSON (6)
Former Chairman and Chief Executive Officer of Dayton Hudson
Department Stores Co.
Reports on Form 10-K
A copy of the Company’s annual report on Form 10-K
filed with the Securities and Exchange Commission will
be sent to any shareholder without charge upon written
request to Investor Relations at the mailing address or
website address below:
Chico’s FAS, Inc. National Store Support
Center
11215 Metro Parkway, Fort Myers, Florida 33966-1206
239-277-6200 | Web site: www.chicosfas.com
Transfer Agent and Registrar:
American Stock Transfer & Trust Company, LLC (AST)
6201 15th Avenue, Brooklyn, NY 11219
Phone 888-490-1287 | email: info@amstock.com
Website: www.amstock.com
Stock Exchange Listing:
The common stock of Chico’s FAS, Inc. is listed
for trading on the New York Stock Exchange
under the symbol CHS.
Independent Public Accountants:
Ernst & Young LLP | Tampa, Florida
Annual Shareholders Meeting:
June 27, 2019
Chico’s FAS, Inc. National Store Support Center
Fort Myers, Florida
Brand Web Sites:
www.chicos.com
www.whbm.com
www.soma.com
www.chicosofftherack.com
www.mytelltale.com
(1) Chair of the Executive Committee
(2) Chair of the Corporate Governance and Nominating Committee
(3) Chair of the Human Resources, Compensation and Benefits Committee
(4) Chair of the Audit Committee
(5) Member of the Executive Committee
(6) Member of the Corporate Governance and Nominating Committee
(7) Member of the Human Resources, Compensation and Benefits Committee
(8) Member of the Audit Committee
Annual Report Inside Cover 2018.indd 1
4/11/2019 9:25:39 AM
ANNUAL REPORT 2018Omnichannel • STYLECONNECTSM • Virtual stylists • BOPIS • Ship from store Endless Aisle • Locate Tool • Client Book • Shop the Look In-store • QVC® • ShopRunner® • Amazon®Online • Digital Annual Report.indd 14/11/2019 9:21:01 AM