Chico’s opened a net number of 48 new stores excluding the 10 Fitigues closures during the first half of the year.

These openings include 19 net new White House | Black Market stores, 17 net new Chico''s stores, and 12 net new Soma Intimate stores. Beyond that, the firm has expanded or relocated 29 additional stores during the first six months.

Rest of the year shakes out with approximately 55 to 60 or so net new store openings in the third quarter and 25 to 30 net new stores in the fourth quarter, along with another 20 to 25 relocations and expansions that are weighted toward the third quarter. This should leave the firm with for the year with 55 to 60 net new Chico''s stores, 55 to 60 net new White House | Black Market stores, and approximately 18 Soma Intimates stores for a total of 130 to 140 net new stores for fiscal 2007 with about 50 relocations and expansions.

During the quarter, the company sold 105 acres of land.

This land was originally acquired for a new corporate headquarters for a small gain, and subsequent to the end of the second quarter, the firm realized a roughly 2 cents non-operating income gain from the sale of Lucy investment to VF Corp. At this point, the firm is no longer associated with the Lucy chain.

Performance Analysis of Brands

Chico’s Brand

The segments’ product mix combined with the decision not to deliver a June catalog, resulted in poor performance for the Chico’s brand. Although, the firm positioned the sale postcard to anniversary the last year volume, it fails to deliver the sales of a full catalog presentation. This is in key higher priced fashion in novelty led to a suboptimal product mix dominated by lower priced wear-now merchandise. In addition, by distorting the casual side of the assortment, the firm fails to maximize its dressing product offerings, forcing its customer to shop elsewhere for her occasion dressing.

Despite these challenges, the firm navigated through the quarter by effectively managing markdowns and drove successes in several key product key areas. Although, the macro economic issues have continued in August, the firm has found some success in its strategy to increase its bottoms business, and has seen some nice selling in its transitional and fall product, particularly in sweaters and outerwear.

Even though the August results for Chico month-to-date are trending similar to the past few months, the firm is seeing the beginnings of a positive reaction to its first fall catalog, which arrived in customer zones within the past week. The outlook on the balance of the season remains optimistic. The company is seeing payback on its pants and denim investment, and it is on track to deliver increasing amounts of novelty and fashion. The firm has corrected its assortment imbalance and it will deliver many new product choices that it believes should satisfy both its customers’ casual and dressing needs. As a result of the continued optimism, the company has decided to substantially increase its marketing spending in the second half of 2007 compared to the second half of 2006. The management believes that this initiative will help to protect and enhance its market share and should also serve to highlight its fall and holiday offerings.

White House | Black Market

After struggling through the first quarter and identifying significant fashion misses, the company chased the emerging trends into the second quarter. The brand over reacted to first quarter selling in certain categories and chased overly aggressive buys. As the brand built the inventory, the sales never materialized to the firm’s expectations, leading to over assortment and high inventory levels. Even with chased buys, the company still did not maximize the most current fashion trends and wound up with duplication across silhouette, print, and categories. This left the brand with heavy markdown to clear in the month of July and August.

Coming off difficult second quarter, the House | Black Market business continues to struggle with product and merchandising challenges. The assortment did not transition well as the firm ended August, which resulted sluggish full price business. Fashion and newness is working, and the highest productivity. However, the investments are small and do not have the velocity to sustain and drive strong top line full price sales. As for the next steps in opportunities, the White House | Black Market team is quickly responding to emerging business and fashion trends and is currently reevaluating fourth quarter deliveries. The firm is also working on repositioning its investments in inventory to increase penetration of fashionable, brand-right merchandise and rebalance by category where appropriate.

Soma Intimates

Although, the firm is realizing improvement in the Soma Intimates business, it still has a lot of hard work ahead. The firm has usefully converted Soma Intimates to the SAP software and this conversion had a negative impact on the business in the first quarter. There was somewhat more than expected. The Soma Intimates team has since become proficient with the system and is gaining better understanding of how the SAP software can be used to more effectively manage into business.

The company is planning several exciting product launches for Soma in second half of 2007 and it will be supporting these launches with additional marketing dollars. The firm expects an improvement in the Soma Intimates brand in the second half of 2007.

Direct-to-Consumer

The management continues to be very excited about the growth of its direct-to-consumer business, with second quarter revenue increases of 42% and Web traffic up 108% over the same period last year. The company continues to take market share from its competitors through this channel. The firm will continue to fund this area of tremendous growth for all three of its brands through additional investments in technology, head count and added infrastructure.

Key questions and answers from the second quarter fiscal 2007 earnings call conducted by Chico’s FAS Inc. on August 30, 2007.

Lauren Levitan (Cowen and Company): What are your thoughts on the higher hurdle rates and higher return on invested capital rates that you are looking for and could you apply that to where the square footage cuts are being contemplated?