This summary is based on the second quarter fiscal 2007 earnings call conducted by Chico’s FAS Inc. (CHS: chart) on August 30, 2007.

President, CEO, and Director: Scott A. Edmonds
CFO and EVP, Finance: Charles J. Kleman
EVP and Chief Marketing Officer: Michael J. Leedy
EVP and Chief Merchandising Officer: Michele M. Cloutier
VP Investor and Community Relations: F. Michael Smith

Key Investors Issues

- Earnings per share declined to 22 cents from 30 cents in the prior year.
- Quarterly sales increased to $436 million from $403 million in the previous year.
- During the quarter, Chico’s FAS opened 48 new stores and relocated 29 stores.

Second Quarter Fiscal 2007 Financial Highlights

Net sales for the second quarter increased 8.1% to $436 million from $403 million for the fiscal 2006 second quarter.

The comparable store sales decreased 5.6% for the thirteen week period ended August 4, 2007 compared to the comparable thirteen week period last year ended August 5, 2006 (with the Chico’s brand same store sales decrease being approximately 6% and the WH|BM brand’s same store sales decrease being approximately 3%).

- The Chico’s/Soma brand sales, excluding catalog and Internet, increased by 2.6% from $301 million in last year to $309 million in this year’s second quarter, while WH|BM brand sales increased by 25.2% from $88 million to $110 million quarter over quarter. The average transaction size for both the Chico’s and WH|BM front-line stores decreased by 5% compared to last year. The average unit retail for the Chico’s front-line stores declined by 10% as compared to last year, while the WH|BM average unit retail decreased by 8% quarter over quarter.

- Net sales by catalog and Internet increased by 42% from $12 million in last
year to $17 million in this year’s second quarter. The company believes this increase is attributable to the implementation of its planned improvements in its website and call center infrastructure and its updated approach to merchandising on the website. The company intends to continue making such improvements to further promote sales through these channels.

Gross profit for the second quarter increased 3.2% to $252 million from $244 million in the prior year’s second quarter.

Gross profit as a percentage of sales for the current quarter was 57.7%, compared to 60.4% in the prior year’s second quarter. WH|BM front-line stores’ merchandise margins in the second quarter decreased by approximately 360 basis points compared to the prior year’s second quarter. The margin decrease at WH|BM was attributable primarily to a higher markdown rate. At the same time, the Chico’s frontline stores’ merchandise margins decreased by approximately 120 basis points due primarily to a higher markdown rate and, to a lesser extent, from a slightly lower initial markup on new products. To a lesser extent, the company’s overall gross margin was also impacted by the mix effect resulting from the WH|BM and Soma Intimates sales continuing to become a larger portion of the company’s overall net sales and by the company’s continued investment in its product development and merchandising functions for each of its three brands.

Selling, general and administrative expenses (SG&A) increased 20.7% to $194 million from $161 million in the prior year’s second quarter.

As a percentage of sales, SG&A in the second quarter increased by approximately 470 basis points compared to the prior period due to increased store operating and shared services expenses offset slightly by a reduction in marketing costs as a percentage of sales.

Store operating expenses as a percentage of sales in the second quarter increased by approximately 380 basis points compared to the prior period primarily due to increased occupancy and personnel costs attributable mainly to the investment in larger sized Chico’s and WH|BM new and expanded stores; the company’s continuing increased investment in store payroll to improve service levels; the mix effect of the WH|BM and Soma Intimates stores becoming a larger portion of the company’s store base; and from the deleverage associated with the company’s negative same store sales. To a lesser degree, store operating expenses as a percentage of sales also increased as a result of additional store level promotion and outreach events across all brands.

Marketing costs as a percentage of sales decreased by approximately 10 basis points. The company intends to increase its marketing spend in the second half of fiscal 2007, compared to the second half of fiscal 2006, in an effort to protect and enhance its market share and to highlight its Fall and Holiday product offerings.

Shared services expenses (including headquarters and other non-brand specific expenses) for the fiscal 2007 second quarter increased by 100 basis points mainly due to increased relocation, recruitment, technology and marketing support costs and from the deleverage associated with the Company’s negative same store sales. This increase was offset, in part, by a reduction in incentive compensation and stock-based compensation for the fiscal 2007 second quarter when compared to the prior year’s second quarter.

The company has also implemented a more stringent capital allocation process with the higher bar for cash flows and return on invested capital.

To that end, the firm is going to take a more conservative approach to its annual square footage growth for 2008 and 2009. It is now planning for square footage growth of approximately 12% to 15% for fiscal year 2008 and in the range of 10% for fiscal year 2009. These plans, however, will depend on the market conditions over the next 6 to 12 months.

The firm’s inventories are again somewhat below plan at the end of the quarter.

This was due to firm’s more conservative open to buy and it aggressively cleared its spring and summer products through June and July. The management is pleased with a relatively clean inventory at $58 per square foot versus last year’s $68 per foot. Year-over-year, inventories are up about 11% and about 12% sales increase for the first six months. The firm expects to see inventories first increasing from the $58 per foot as it moved through fall, although, they are again likely to be down on the per square foot basis at the end of the third quarter. The large store opening program in last year’s October and November timeframe, distorted inventory per foot last year at the end of the third quarter, as the firm ended up at a $77 per foot level, principally to support the new and relocated store programs. Inventory levels at the end of the third quarter are traditionally are highest, but generally that is likely to be in the high 60s or low 70s per foot and that’s what the firm expects at this year.