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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 3, 2001
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-21258
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CHICO'S FAS, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-2389435
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
11215 METRO PARKWAY, FORT MYERS, FLORIDA 33912
(Address of principal executive offices) (Zip code)
(941) 277-6200
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EXCHANGE
TITLE OF CLASS ON WHICH REGISTERED
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Common Stock, Par Value $.01 Per Share New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
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 /X/ No / /
Indicate by check mark if disclosure of delinquent fliers pursuant to
Item 405 of Regulation S-K 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 / /
State the aggregate market value of the voting stock held by non-affiliates
of the registrant:
Approximately $594,833,000 as of April 16, 2001 (based upon the closing
sales price reported by the NYSE and published in the Wall Street Journal on
April 17, 2001).
Indicate the number of shares outstanding of each of the registrant's
classes of common equity, as of the latest practicable date:
Common Stock, par value $.01 per share--17,700,319 shares as of April 16,
2001.
DOCUMENTS INCORPORATED BY REFERENCE:
Part II Annual Report to Stockholders for the Fiscal Year Ended February 3,
2001.
Part III Definitive Proxy Statement for the Company's Annual Meeting of
Stockholders presently scheduled for June 19, 2001.
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CHICO'S FAS, INC.
ANNUAL REPORT ON FORM 10-K
for the
YEAR ENDED FEBRUARY 3, 2001
TABLE OF CONTENTS
PART I........................................................................................... 1
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 19
Item 3. Legal Proceedings........................................... 20
Item 4. Submission of Matters to a Vote of Security-Holders......... 20
PART II.......................................................................................... 23
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 23
Item 6. Selected Financial Data..................................... 24
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 25
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 25
Item 8. Financial Statements and Supplementary Data................. 25
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 25
PART III......................................................................................... 25
Item 10. Directors and Executive Officers of the Registrant.......... 25
Item 11. Executive Compensation...................................... 25
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 25
Item 13. Certain Relationships and Related Transactions.............. 25
PART IV.......................................................................................... 26
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 26
PART I
ITEM 1. BUSINESS
GENERAL
Chico's FAS, Inc., (Chico's or the Company), directly and through its wholly
owned subsidiaries, Chico's Distribution, Inc., Chico's Concept, Inc., and
Chico's Media, Inc., is a specialty retailer of exclusively designed, private
label, sophisticated, casual-to-dressy clothing, complementary accessories and
other non-clothing gift items. Virtually all of the clothing, accessories and
non-clothing gift items offered at Chico's stores is designed by the Company's
in-house product development team and bears the "CHICO'S" trademark. Each
Chico's store offers separates, as well as collections, of color-coordinated
tops, pants, shorts, skirts, dresses, vests, jackets, outerwear and accessories,
including belts, scarves, earrings, necklaces and bracelets. Emphasizing casual
yet stylish comfort, Chico's clothing is made from natural fabric (including
100% cotton, rayon, linen and silk) blends and newer sophisticated synthetics.
The styling is relaxed, figure-flattering and designed for easy care. During the
past several fiscal years, the Company has successfully introduced certain
synthetic fabrics which provide a more seasonless look, yet which still offer
the relaxed fit and easy care characteristics. Chico's believes that its target
customer includes women of all ages who seek style, attitude and comfort in
their casual clothing, with a particular focus on 30 to 60 year old women with
moderate and higher income levels.
The Company has sought to employ several innovative approaches to retailing,
including: offering Chico's exclusively designed private label clothing that
provides a relaxed fit at moderate prices; continually introducing new
merchandise and designs which complement other Chico's merchandise that its
customers may have in their existing wardrobes; using a boutique store design
and personalized service and customer assistance to enhance the shopping
experience; and utilizing Chico's Outlets to help maintain the integrity of the
Company's pricing strategy.
Since 1997 the Company has moved more toward a markdown strategy where first
and second markdowns have been taken in front-line stores. During this time, the
Company's same store sales have generally been in positive double digits and the
Company has generally not pursued opening additional outlet stores. The Company
now believes it would benefit both front-line and outlet margins if it were to
open additional outlet stores and the Company is currently re-evaluating its
markdown strategies and the manner in which it uses outlets as clearance
vehicles.
Also during the past few fiscal years, the Company has been testing the sale
of non-clothing products, such as footwear, which complement the clothing
products and such as aroma-therapy candles, watches, and other products which
are designed by the Company as gift items. All of these new items are intended
to promote the Chico's brand name in areas beyond clothing. Because of the
additional space required to accommodate the non-clothing items and to improve
the visual ambiance of its clothing and accessory presentations, the Company is
actively pursuing larger spaces for its existing and new stores. Rather than
targeting a 1,400 net selling square foot store, the Company now believes the
ideal store size is nearer 1,800-2,500 net selling square feet. Although the
Company will still open stores within the 1,200-1,500 net selling square foot
range, it is actively pursuing stores with 1,800-2,500 net selling square feet.
As of April 20, 2001, the Company's retail store system consisted of 255
stores (averaging approximately 1,607 net selling square feet), of which 237
were Company-owned front-line "Chico's" stores, 11 were franchised front-line
"Chico's" stores and 7 were "Chico's Outlet" stores. Of this total, 44 stores
are located in the Northeast states (NY, NJ, CT, PA & MA), 43 stores are located
in Florida, 33 stores are located in California, 20 stores are located in Texas
and the remaining 115 stores are located in 31 other states and the District of
Columbia. Chico's intends to continue locating its front-line Company-owned
stores primarily in established upscale, outdoor destination shopping areas and
high-end enclosed malls located either in tourist areas or in, or near,
mid-to-larger sized markets.
1
The Company opened 50 new Company-owned front-line and one new outlet store in
the fiscal year ended February 3, 2001 (fiscal 2000/2001), while during the same
period it closed two Company-owned front-line stores and one Company-owned
outlet store. In addition, a franchisee opened two new front-line franchise
stores in fiscal 2000/2001. The Company plans to open a minimum of 55 new
Company-owned stores in the fiscal year ending February 2, 2002 (fiscal
2001/2002), but also expects to close between two and four existing stores
during this time frame.
During fiscal 2000/2001, the Company added ordering capability to its
existing mailers and also initially offered a limited amount of Chico's products
available for purchase over the Internet. The Company believes it is important
to offer these channels of distribution to the consumer and that it will become
increasingly important as the Internet becomes more user friendly in the apparel
arena. The Company intends to increase the number and depth of items available
through these distribution channels in fiscal 2001/2002.
BUSINESS STRATEGIES
DISTINCTIVE IN-HOUSE DESIGNED CASUAL CLOTHING AND COORDINATED
ACCESSORIES. The most important element of the Company's business strategies is
the distinctive private label casual clothing and complementary accessories
offered for sale at Chico's stores. Emphasizing casual comfort, Chico's clothing
is made from natural fabric (including cotton, rayon, linen and silk) blends and
sophisticated synthetics. The fit is relaxed and designed for easy care.
Accessories, such as belts and jewelry, including earrings, necklaces and
bracelets, are specifically purchased and designed to coordinate with the colors
and patterns of Chico's clothing, enabling customers to easily enhance and
individualize their wardrobe selections.
Virtually all of the clothing offered by Chico's is designed in-house, and
the Company controls most aspects of the design process, including choices of
pattern, construction, fabric, treatment and color. A majority of the accessory
designs also are developed in-house or are modified at Chico's request by the
manufacturer to complement specific items of clothing or support a look that is
distinctively Chico's.
Chico's private label clothing is designed through the coordinated efforts
of the Company's merchandising and product development departments. Style,
pattern, color and fabric for individual items of the Company's private label
clothing are developed based upon historical sales data, anticipated future
sales and perceived current and future fashion trends that will appeal to
Chico's target customer. New fashion trends are tested in key stores in small
quantities in an effort to minimize risk.
The Company's design team develops these in-house designs and design
modifications. By conceptualizing and designing in-house and then contracting
directly with manufacturers and providing some on-site quality control, the
Company has been able to realize higher average gross profit margins than the
industry while at the same time providing value to its customers.
The distinctive nature of Chico's clothing is carried through in its sizing.
Chico's incorporates international type sizing, utilizing sizes 0 (size 4-6), 1
(size 8-10), 2 (size 10-12), and 3 (size 14-16). As in the past, the Company
occasionally offers one-size-fits-all sizing for some items. Because of the
relaxed nature of Chico's clothing, this sizing allows Chico's to offer a wide
selection of clothing without having to invest in a large number of different
sizes within a single style. The Company has also been testing pants with more
standard sizing of 8-14 which generally have produced mixed results.
CERTAIN BUILDING BLOCKS OF THE COMPANY'S MERCHANDISING STRATEGY. The
Company continues to follow certain important elements of the merchandising
strategy that it has sought to follow since the early 1990's. These important
elements include the Company's focus on its target customer, the
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continual introduction of new merchandise, its pricing policies, the store
design, merchandise presentation, customer service and its quality assurance
programs.
FOCUS ON THE TARGET CUSTOMER. Based upon studies done internally
through its customer databases and externally through nationally
available databases, as well as informally gathered information from
customers, sales associates and store managers, the Company seeks to
anticipate and respond to the perceived needs and preferences of its
target customer. Chico's target customers are believed to include women
of all ages who seek style and attitude in distinctive, casual clothing
which represents good value, with a particular focus on 30 to 60 year
old women in the moderate and higher income levels. Although the Company
had experienced changes in design direction in 1994 and 1996 that caused
it to vary from the preferences of those women who historically shopped
at Chico's, the current merchandising plan intends to continually focus
the entire product development team on the Company's target customer. As
part of this focus, the Company reestablished its frequent shopper club
("Passport Club") in early 1999. In addition to promoting customer
loyalty, the Passport Club program also allows the Company to monitor
spending habits based on known demographics. The Company continues to
gather transaction-based and demographic data and intends to use this
data to help direct its marketing and store opening efforts. See the
"Customer Loyalty" section on page 5 for more details on the "Passport
Club".
CONTINUAL INTRODUCTION OF NEW MERCHANDISE. The Company keeps its
stores fresh by continually introducing new merchandise and designs. The
Company is continuing its design philosophy for new merchandise whereby
merchandise is evolutionary, rather than revolutionary. Chico's intends
to continue its focus on trying to make certain that new merchandise
items will generally complement the colors and styles of other
previously offered Chico's merchandise. This approach is designed to
allow Chico's customers to supplement the wardrobe purchases made today
with the new merchandise that will arrive in Chico's stores in the
future. The Company believes its target customer prefers this continuity
in Chico's styles and colors.
As part of the Company's strategy to continually introduce new
merchandise, Chico's seeks to provide a somewhat limited supply of each
novelty item of merchandise to each store and in most cases seeks to
restock its stores, after the initial shipment is redistributed to all
stores, with new styles and designs instead of continually providing
additional quantity of existing styles and designs (except for certain
core items). This merchandising strategy is intended to foster a sense
of urgency for Chico's customers by creating a limited period of time to
buy new novelty styles and designs. Slower selling items and the
remaining pieces of better-selling items still in a store when new
merchandise arrives are frequently consolidated in certain front-line
stores and, then marked down and/or sent to its outlet stores. If the
style becomes out-of-place due to seasonality, color, etc., it may be
subjected to additional markdowns or returned to the Company's
distribution center to be held for replenishment at outlet stores or for
liquidation.
PRICING POLICIES. The Company's strategy is to offer its exclusively
designed private label clothing and complementary accessories at
moderate prices that are believed to be generally competitive with the
prices charged for similar quality goods by other specialty apparel
retailers and by upscale department stores. For example, tops, pants and
jackets are offered at retail price points generally ranging from $22 to
$128 per item and accessories are offered at retail price points
generally ranging from $14 to $48 per item.
Historically, the Company's philosophy has generally been to avoid
store-wide price markdowns at its front-line stores and the Company
believes that in the past it utilized price markdowns to a lesser degree
than have its principal competitors. Since fiscal 1998, the
3
Company shifted its strategy for markdowns and clearance of slower
moving merchandise. Rather than placing the emphasis on clearing most of
the goods at outlet stores or local warehouse sales, the Company has
been making more extensive use of its front line stores to clear slower
selling merchandise through chain-wide markdowns of these items and by
initiating such markdowns at an earlier date in the product life cycle.
The Company believed this strategy reduced the need to rely on its
outlet stores as a principal means of clearing slower selling
merchandise. The Company is re-evaluating its outlet and overall
clearance strategies in front-line stores with the intent to reduce
markdowns in most front-line stores, but particularly in those stores
that are selling in excess of $1,000 per net selling square feet. This
is likely to result in the opening of several additional outlet stores
and could involve specific buying programs to supplement the clearance
of goods in the Company-owned outlets. The Company expects to continue
to complement its pricing policies with its strategy to continually
replace merchandise at its front-line stores and to transfer older
merchandise to its outlet stores or the Company's distribution center
for liquidation, although the Company intends on continuing markdowns in
certain front-line stores to provide more immediate clearance of goods.
STORE DESIGN AND MERCHANDISE PRESENTATION. Chico's historical store
design, interior layout and merchandise presentation tends to complement
Chico's private label casual clothing and personalized service, helping
to create a "boutique" atmosphere with an open and comfortable ambiance.
A typical store has a warm feel with wood and stainless steel including
hardwood or natural concrete floors, antiques and brushed aluminum or
wood fixtures. However, each store can be quite different as the Company
has many different sizes and shapes of stores and as the interior decor
and storefront is chosen carefully to complement the setting including
both its location and the building itself. These individual touches are
balanced against a certain amount of standardization. Merchandise is
generally presented on wooden or stainless steel fixtures with
coordinating colors and outfits shown together rather than being grouped
by tops, bottoms, etc.
To encourage sales of multiple wardrobe items, Chico's stores also
may use "color areas," which present coordinated colors or seasonal
themes in different areas of the store. Rather than displaying clothing
by type (for example, tops with tops, pants with pants, etc.),
merchandise is grouped by color coordinated items of clothing and
accessories. Such a grouping typically includes several different
coordinated tops, pants, shorts or other items of clothing as well as
accessories such as belts, earrings and necklaces that could be used to
create several different ensembles and looks that appeal to various
lifestyles. Sales associates are trained to assist customers in creating
such ensembles. Management believes the color coordinated grouping of
merchandise strengthens the style image of the merchandise and enhances
the likelihood for multiple item purchases. Accessories and other
non-apparel items accounted for approximately 14% of the Company's net
sales in fiscal 2001, compared to a range of 12% to 13% over the
previous three fiscal years. Continuing efforts are being made to
improve the volume of accessory and other non-apparel item sales in
fiscal 2002 through better coordination of accessories with clothing and
continual testing of non-apparel branded items.
QUALITY ASSURANCE. Currently, approximately half of the clothing
offered for sale at Chico's stores is manufactured abroad. The Company
has diversified its manufacturing sources to a number of different
countries but continually finds it necessary to address quality control.
The Company has now developed a more focused system for inspection of
clothing during the manufacturing process and upon receipt in this
country and has had some greater experience with vendors to identify
those who provide the level of quality Chico's demands. Also, Chico's
has been more careful to utilize each vendor to manufacture the
merchandise, or fabric, with
4
which the vendor has the most experience. The Company has in more recent
years been expanding its use of domestic vendors, where possible, and it
intends on continually exploring opportunities with domestic vendors and
also with vendors in China, Hong Kong, India and Mexico.
PERSONALIZED SERVICE AND CUSTOMER ASSISTANCE. The Company has always
considered personalized customer service one of the most important factors in
determining its success. The Company intends, through training efforts, to make
certain that Chico's sales associates offer assistance and advice on various
aspects of their customers' fashion and wardrobe needs, including clothing and
accessory style and color selection, coordination of complete outfits and
suggestions on different ways in which to wear Chico's clothing and accessories.
As part of its strategy to reinforce the casual aspects of Chico's clothing,
Chico's sales associates are trained to demonstrate to customers the most
attractive ways to wear Chico's clothing. Dressing rooms are generally not
equipped with mirrors, encouraging customers to come out of the dressing rooms
in Chico's clothes so that store personnel can provide such assistance. The
Company has not found it necessary to offer alteration services.
Chico's sales associates are encouraged to know their regular customers'
preferences and to assist those customers in selecting merchandise best suited
to their tastes and wardrobe needs. The Company strongly encourages its sales
associates to wear Chico's clothing and accessories in its stores at all times
and to complement this it offers substantial employee discounts. To better serve
the Chico's customer, sales associates are encouraged to become familiar with
new styles and designs of clothing and accessories by trying on new merchandise.
Chico's takes pride in empowering its employees to make decisions that best
service the customer. This healthy sense of empowerment enables Chico's
employees to exceed customers' expectations. In addition, many of the Company's
store managers and sales associates were themselves Chico's customers prior to
joining the Company and can therefore more easily identify with customers.
Chico's employees are expected to keep individual stores open until the last
customer in the store has been served. If an item is not available at a
particular store, sales associates are encouraged to arrange for the item to be
shipped directly to the customer from another Chico's store.
CUSTOMER LOYALTY. Chico's preferred customer club established in the early
90's and known as the "Passport Club", was designed to encourage repeat sales
and customer loyalty. Features of the club include discounts, special
promotions, invitations to private sales and personalized phone calls regarding
new merchandise. In late 1994, the Company decided to limit the number of new
members and to evaluate ways to restructure the program. During 1997 and 1998,
the Company established a new database of customers that shop at Chico's using
credit cards. In 1998, the Company also performed an independent study of its
then existing Passport members (approximately 20,000 members were still active
from this club which included over 40,000 members at its peak) and store
managers to determine the most important features of the Club and to help assess
feasibility of relaunching the Club.
Based on this study and the past experiences of the Company with the
Passport Club, the Company relaunched the Passport Club in mid-February of 1999
by mailing approximately 300,000 invitations to customers whose names were
maintained in its credit card, guest book and Passport databases. The
invitations included a temporary enrollment card and simply required a purchase
by the customer to activate their preassigned temporary Passport Club membership
number ("temporary member"). Once the customer spends $500, she becomes a
permanent member of the club and entitled to a 5% discount on future purchases.
Since the relaunch in early 1999, the Company has been very successful in
increasing its database of "temporary" and "permanent" Passport members. As of
April 20, 2001, the Company had over 250,000 permanent Passport members and over
612,000 "temporary" Passport members, which now account for approximately 60%
and 23% of overall sales, respectively. During the current year, the
5
Company signed up an average of 30,700 "temporary" new members per month of
which an average of 11,800 per month spent the required $500 to become a
permanent member. Prior to the relaunch of the Passport Club, the permanent
members accounted for approximately 10% of overall sales and the Company was
unable to effectively track "temporary" Passport members sales.
The Company believes that permanent Passport members shop more frequently
and spend more on the average transaction than "temporary" Passport members.
During the fiscal year ended February 3, 2001, the average permanent passport
member spent $132 per transaction and shopped five to eight times per year,
while the "temporary" Passport members averaged $85 per transaction and shopped
one to three times per year.
With the more sophisticated database hardware and software the Company has
acquired to manage the SKU-level transactions being recorded for both temporary
and permanent Passport Club members, the Company believes it is better able to
more sharply focus its marketing, design and merchandising efforts to better
address and define the desires of its target customer.
HIGH-ENERGY, LOYAL EMPLOYEES. The Company believes that the dedication,
high energy level and experience of the members of its senior management team,
support staff and store employees are key to its continued growth and success
and help to encourage personalized attention to the needs of Chico's customers.
In selecting its employees at all levels of responsibility, Chico's looks
for quality individuals with high energy levels who project a positive outlook.
The Company has found that such persons perform most effectively for the Company
and contribute to a fun and exciting shopping experience for Chico's customers.
Sales associates are compensated with a base hourly wage but also have
opportunities to earn substantial incentive compensation based on their
individual sales. For the most part, these incentives are based upon the dollar
amount of sales to individual customers, thereby encouraging sales of multiple
items. In addition, the Company periodically sponsors sales-based contests for
its Company-owned stores. Store managers receive base salaries and are eligible
to earn various incentive bonuses tied to individual sales and storewide sales
performance. District managers also have the opportunity to earn incentive
compensation based upon the sales performance of stores in their districts, as
well as the Company's overall sales performance.
The Company offers its employees other recognition programs and the
opportunity to participate in its stock option, stock purchase and 401(k)
programs. Management believes that all these programs and policies offer Chico's
sales associates and other employees opportunities to earn total compensation at
levels generally above the average in the retail industry for comparable
positions.
Chico's emphasis where possible on a "promote from within" philosophy,
combined with increases in the number of new Company-owned stores, provides
opportunities for qualified employees to advance to higher positions in the
Company.
ADDITIONAL COMPANY-OWNED STORES. Management believes that the ability to
open additional Company-owned Chico's stores will be a factor in the future
success of the Company. During fiscal 1998/1999, the Company opened 22 new
company stores and one new franchised store while closing two outlet stores.
During fiscal 1999/2000, the Company opened 40 new company stores and one new
franchised store while closing three front-line stores. During fiscal 2000/2001,
which was just completed, the Company opened 51 new Company-owned stores and two
new franchised stores while closing two front-line stores and one outlet store.
As of April 20, 2001, the Company has opened 5 front-line stores of a minimum of
55 new Company-owned stores planned to be opened in fiscal 2001/2002, and the
Company has signed leases for several new Chico's store locations. The Company
also is currently engaged in negotiations for the leasing of numerous additional
sites. The Company generally expects to open 10 new stores in the first quarter
and 15 each quarter for the rest of this fiscal year.
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In general the Company intends to locate its new stores predominantly
outside of Florida. In deciding whether to open a new store, the Company
undertakes an extensive analysis which includes the following: identifying an
appropriate geographic market; satisfying certain local demographic
requirements; evaluating the location of the shopping area or mall and the site
within the shopping area or mall; assessing proposed lease terms; and evaluating
the sales volume necessary to achieve certain profitability criteria. Once the
Company takes occupancy, it usually takes from three to five weeks to open a
store. After opening, Chico's front-line stores have typically generated
positive cash flow within the first year of operation (after allocation of a
portion of home office administrative expense based on sales and after recovery
of the Company's out-of-pocket cash expenses in opening the new store) and have
typically had a ten month to eighteen month payback of all initial capital and
inventory costs. However, there can be no assurance that new Chico's stores will
achieve operating results similar to those achieved in the past.
The Company plans to grow by opening additional Company-owned stores and the
Company does not currently intend to increase the number of franchisees. The
Company intends to continue providing full support for its franchise network and
anticipates that one of its existing franchisees may be able to further meet the
Company's criteria for opening additional stores in its limited territory. This
franchisee opened one new franchised store in fiscal 1998/1999, one in fiscal
1999/2000 and two in fiscal 2000/2001.
STORE LOCATIONS
Chico's stores are situated, for the most part, either in tourist areas or
in, or near, mid-to-larger sized markets. The Company's front-line stores are
located almost exclusively in upscale outdoor destination shopping areas,
high-end enclosed shopping malls and, to a lesser degree, regional malls which
offer high traffic of Chico's target customers. The Company seeks to locate the
Company-owned front-line stores where there are other upscale specialty stores
and, as to its mall locations, where there are two or more mid-to-high end
department stores as anchor tenants. Chico's outlet stores are currently located
in outlet centers, although the Company is evaluating the possibility of opening
in value centers and other more upscale centers.
Chico's Company-owned, front-line stores average approximately 1,586 net
selling square feet, while the Company-owned outlet stores average approximately
2,353 net selling square feet. In fiscal 1998/1999 and fiscal 1999/2000, the
Company began a strategy of opening somewhat larger stores than it has opened in
the past. Currently, the Company is seeking to open front-line stores with
approximately 1,800-2,500 net selling square feet to promote an improved visual
ambiance and the expanded offerings of its current products. However, in
locations where the Company has a desire to establish a store but where the
optimum store size is unavailable, the Company often will lease a front-line
store with as few as 1,200 net selling square feet or as many as 3,500 net
selling square feet. If the volume of business at one of these smaller stores is
sufficient, and there is no ability to expand the existing store, the Company
has chosen in the past to open additional stores nearby, operating more than one
Chico's store in the same general shopping area.
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At April 20, 2001, there were 255 Chico's stores, of which 237 were
Company-owned front-line Chico's stores, eleven were franchised Chico's stores
and seven were Chico's Outlet stores. Chico's stores are located in the
following jurisdictions:
COMPANY COMPANY-OWNED FRANCHISED
OWNED OUTLET STORES STORES TOTAL STORES
-------- ------------- ---------- ------------
Florida......................................... 39 3 1 43
California...................................... 32 1 -- 33
Texas........................................... 20 -- -- 20
New Jersey...................................... 12 -- -- 12
Illinois........................................ 10 1 -- 11
New York........................................ 11 -- -- 11
Ohio............................................ 11 -- -- 11
Connecticut..................................... 8 -- -- 8
Minnesota....................................... -- -- 8 8
Michigan........................................ 6 -- 1 7
Pennsylvania.................................... 7 -- -- 7
Virginia........................................ 7 -- -- 7
Massachusetts................................... 6 -- -- 6
Georgia......................................... 5 -- -- 5
Maryland........................................ 5 -- -- 5
North Carolina.................................. 5 -- -- 5
South Carolina.................................. 5 -- -- 5
Tennessee....................................... 4 1 -- 5
Louisiana....................................... 4 -- -- 4
Washington...................................... 4 -- -- 4
Alabama......................................... 2 1 -- 3
Arizona......................................... 3 -- -- 3
Colorado........................................ 3 -- -- 3
Utah............................................ 3 -- -- 3
District of Columbia............................ 2 -- -- 2
Indiana......................................... 1 -- 1 2
Kansas.......................................... 2 -- -- 2
Kentucky........................................ 2 -- -- 2
Missouri........................................ 2 -- -- 2
Nevada.......................................... 2 -- -- 2
New Mexico...................................... 2 -- -- 2
Oklahoma........................................ 2 -- -- 2
Oregon.......................................... 2 -- -- 2
Rhode Island.................................... 2 -- -- 2
Maine........................................... 1 -- -- 1
Mississippi..................................... 1 -- -- 1
Nebraska........................................ 1 -- -- 1
Vermont......................................... 1 -- -- 1
Wisconsin....................................... 1 -- -- 1
Wyoming......................................... 1 -- -- 1
--- -------- -- ---
TOTAL................................... 237 7 11 255
=== ======== == ===
In a typical new front-line Chico's store, the Company's cost of leasehold
improvements, fixtures, store equipment and beginning inventory ranges from
$250,000 to $550,000 (after taking into account landlord construction allowances
and other concessions).
8
Chico's utilizes teams of employees experienced in new store openings who
are able to supervise final build-out and set up store interiors rapidly,
including, where necessary, the flooring, furniture, fixturing, equipment and
initial inventory displays. The use of in-house crews allows the Company to open
a new store generally within three to five weeks after taking occupancy.
Management believes that, as a result, the Company opens its new stores more
rapidly and at less cost than many of its competitors. The Company has an
arrangement whereby the final design and initial build-out of the space is
handled by third-party architectural and contracting firms, with offices or
affiliates throughout the country. Under this arrangement, Chico's in-house
crews are still responsible for approving the final stages of the build-out and
for setting up the store interiors.
The following table sets forth information concerning changes in the number
of Chico's Company-owned and franchise stores during the past five fiscal years:
FISCAL YEAR ENDED
-------------------------------------------------------------------
FEBRUARY 1, JANUARY 31, JANUARY 30, JANUARY 29, FEBRUARY 3,
1997** 1998 1999 2000 2001
(53 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS) (53 WEEKS)
----------- ----------- ----------- ----------- -----------
NUMBER OF COMPANY-OWNED STORES
Stores at beginning of year.................. 111 123 132 154 191
Opened*.................................... 13 14 22 40 51
Acquired from franchisees.................. 1 1 2 -- --
Closed..................................... (2) (6) (2) (3) (3)
--- --- --- --- ---
Stores at end of period...................... 123 132 154 191 239
--- --- --- --- ---
NUMBER OF FRANCHISE STORES
Stores at beginning of year................ 12 10 9 8 9
Opened*.................................... -- -- 1 1 2
Sold to Company............................ (1) (1) (2) -- --
Closed..................................... (1) -- -- -- --
--- --- --- --- ---
Stores at end of period...................... 10 9 8 9 11
--- --- --- --- ---
NUMBER OF TOTAL STORES....................... 133 141 162 200 250
=== === === === ===
- ------------------------
* Does not include stores that opened as relocations of previously existing
stores within the same general market area (approximately five miles) or
substantial expansions of stores.
** Numbers of stores relate to a thirteen month period which runs from
January 1, 1996 through February 1, 1997.
OUTLET STORES
As of April 20, 2001, the Company operated seven outlet stores under the
name "Chico's." Chico's outlet stores carry slower-selling items removed from
front-line stores, remaining pieces of better-selling items replaced by new
shipments of merchandise to front-line stores, returns of merchandise accepted
from franchise stores under the Company's franchisee return policy and seconds
of the Company's merchandise. Chico's outlet stores act as a vehicle for marking
down the prices on such merchandise while continuing to allow Chico's front-line
stores to maintain a somewhat limited markdown policy. Prices at Chico's outlet
stores generally range from 30% to 70% below regular retail prices at Chico's
front-line stores. Although service is also important at Chico's outlet stores,
there is somewhat less emphasis in the outlet stores on personalized customer
service. Sales from the Company's outlet stores represented approximately 3% of
the Company's net sales during fiscal 2000/2001. Chico's outlet stores have not
been intended to be profit centers, but the Company is re-evaluating its
approach to outlet
9
stores, including possibly supplementing merchandise received from its franchise
and front-line stores with direct purchases.
Chico's outlet stores are generally larger than front-line stores, averaging
approximately 2,353 net selling square feet. The Company opened one outlet store
in fiscal 2000/2001 and no new outlet stores in fiscal 1999/2000.
FRANCHISE STORES
Currently, there are eleven franchised Chico's stores operated by four
owners, none of whom is otherwise affiliated with the Company. Each franchisee
paid an initial franchise fee of between $5,000 and $75,000 per store and is not
required to pay any continuing monthly royalty. Each franchisee has been
provided an exclusive license at a specified location to operate a Chico's store
and to utilize the Company's trademarks, service marks and other rights of the
Company relating to the sale of Chico's merchandise. The term of the franchise
is generally ten years, renewable for additional ten-year periods if certain
conditions pertaining to the renewal are met (including the payment of a renewal
fee). Franchisees are required to operate their Chico's stores in compliance
with the Company's methods, standards and specifications regarding such matters
as store design, fixturing and furnishings, decor and signage, merchandise type
and presentation, and customer service. The franchisee has full discretion to
determine the prices to be charged to customers generally by changing or
replacing any pre-ticketed price tags. Franchisees are required to purchase all
Chico's brand clothing and all accessories from Chico's or from suppliers
approved by the Company. Currently, the merchandise offered by Chico's
franchisees at their stores is purchased from the Company at prices equal to 48%
to 50% of suggested retail prices, subject to rebates of between 2% and 6% as
described below. In certain situations, franchise stores may carry other brands
of clothing or accessories if such merchandise is approved by the Company. In
such cases, franchisees may be required to pay to the Company a monthly royalty
equal to 5% of gross sales of any approved merchandise not purchased from
Chico's. In the current period, the Company's net sales to franchisees was
approximately $4.6 million, or 1.8% of total net sales.
Some franchisees have entered into franchise territory development
agreements with the Company, which grant to the franchisee the right to develop
and own a specified number of Chico's stores within a specified period of time
or which preclude the Company from opening Company or franchised stores without
first giving the franchisees the right to open the proposed Chico's store within
the respective limited territories granted to such franchisees. As of April 7,
2001, the franchisee holding franchise rights in Minnesota has the right to open
additional Chico's stores, and one other franchisee has the right to preclude
the Company from opening a Company or franchised store in the respective
territory without first giving the franchisee the right to open the store. With
respect to the franchise rights granted in Minnesota, the Company granted an
exclusive right to develop Chico's stores and subfranchise within the state of
Minnesota. Certain of these franchisees, including the Minnesota franchisee, may
technically have the ability to open an unlimited number of additional stores
within their respective limited territories. However, the Company believes that
economic, logistic and other practical considerations effectively limit the
number of additional stores that these franchisees may open in the future. The
Company does not believe that these territory and right of first refusal rights
will significantly limit the Company's ability to expand.
The Company intends to continue supporting its existing franchise network.
However, the Company does not intend at this time to pursue any new franchises
or to enter into any additional franchise territory development agreements. In
the past, the Company has acquired certain franchise stores that have been
offered for sale to the Company. During the current period, the Company did not
repurchase any of its franchise stores although it will consider additional
purchases of franchise stores that may be offered to the Company from time to
time in the future. In addition, the Company may terminate franchises where
performance or circumstances so justify. Management expects that
10
Chico's franchise stores will play an increasingly less important role in the
Company's future sales and profitability.
Beginning in February 2000, the Company offered franchisees an additional 2%
to 6% increase in their discount rate if they agreed to modify their purchase
agreements and reduce returns of merchandise to the Company. All franchise
owners agreed to the modifications. The Company believes this additional
incentive has been instrumental in reducing franchise returns, as a percent of
purchases, although it has also reduced franchise gross margins.
STORE OPERATIONS
Chico's stores typically employ a manager, two assistant managers, and
numerous sales associates who are either full-time or part-time employees.
During the peak selling seasons, stores generally hire additional sales
associates.
Store managers take an active part in selling at the stores and are expected
to be on the sales floor at all times during business hours. Purchasing,
merchandising, advertising, accounting, cash management and other store support
functions are handled by the Company's corporate headquarters. The Company
attempts to keep administrative tasks for the store managers to a minimum,
thereby allowing the store managers more time to focus on store sales,
personalized customer service and in-store and local community merchandising
strategies including outreach programs.
The Company has established a formalized training program that is intended
to reinforce and enhance the personalized customer service offered by all
associates as well as increase their merchandise knowledge. The comprehensive
training program includes a Fashion Information Training (F.I.T.) module and a
Most Amazing Personal Services (M.A.P.S.) module which the Company believes will
help assure sales associates better understand the Chico's product and improve
the level of service provided to its customers.
The Company currently supervises store operations through its Vice
President-Director of Stores, its Vice President-National Sales Manager, a
National Operations Manager, three to four Regional Sales Managers, sixteen to
eighteen District Sales Managers and four to six Area Sales Managers. The
National Sales Manager and National Operations Manager provide assistance to the
Director of Stores in supervision of the Regional Sales Managers, while the
Regional Sales Managers have direct supervision responsibility of the District
and Area Sales Managers. Each District and Area Sales Manager supervises
multiple store locations. Area Sales Managers are in training for District Sales
Manager status and generally supervise less stores in a smaller territory.
District and Area Sales Managers have primary responsibility for assisting
individual store managers in meeting established sales goals, and carrying out
merchandise presentation, staffing, training and expense-control programs
established by headquarters. Management is continually reviewing its supervisory
structure with the intent of improving the performance of individual stores and
store managers.
11
MANAGEMENT INFORMATION SYSTEMS
The Company's current management information systems are based on an IBM
AS400 and numerous Windows NT networks located at the home office in Ft. Myers,
which provide a full range of retail, catalog, Internet, financial and
merchandising information systems, including purchasing, inventory distribution
and control, sales reporting, accounting, warehousing and merchandise management
using Island Pacific, STS Marketworks, JDA's Arthur software products, and
Mozart by Commercialware.
All Chico's stores utilize point of sale cash register computers, which are
polled nightly to collect store-level sales data and inventory receipt and
transfer information for each item of merchandise, including information by
item, style, color and size. Management evaluates this information, together
with its weekly reports on merchandise shipments to the stores, to analyze
profitability, formulate and implement company-wide merchandise pricing
decisions, assist management in the scheduling and compensation of employees
(including the determination of incentives earned) and, most importantly, to
implement merchandising decisions regarding needs for additional merchandise,
allocation of merchandise, future design and manufacturing needs and movement of
merchandise from front-line stores to Chico's outlet stores.
During the first six months of 2001, the Company intends to replace its
in-house developed, DOS-based, cash register systems with a cash register using
a Windows NT platform in a wide area network and using the CRS Retail Systems
software used by many other retailers. It is anticipated this new register will
improve customer service, reporting, training and overall functionality,
including allowing the Company to integrate all three channels of distribution
and allowing the use of computer-based training to complement its existing
training programs. Over the past several months, the Company successfully
installed this CRS system in over 50 stores throughout the United States. The
Company anticipates it will roll out the new register systems to the rest of the
Company-owned stores over the next six months. In fiscal 2001/2002, the Company
will also be installing JDA's Arthur software system to assist in merchandise
planning and allocation.
In fiscal 1998/1999, the Company acquired sophisticated database marketing
software from STS Systems, Inc. to keep track of its Passport Club purchases and
to assist in analyzing merchandise selling within certain customer demographics.
This system became fully operational in fiscal 1999/2000. In addition, during
fiscal 2000/2001 the Company installed the Mozart software from Commercialware
to manage its catalog and Internet activities. It is anticipated that the
Company will be evaluating a change in its warehouse management software in
2001.
The Company is committed to an ongoing review and improvement of its
information systems to enable the Company to obtain useful information on a
timely basis and to maintain effective financial and operational controls. This
review includes testing of new products and systems to assure that the Company
is able to take advantage of technological developments.
MERCHANDISE DISTRIBUTION
New merchandise is generally received several times per week at the
Company's distribution center in Ft. Myers, Florida. Merchandise from the United
States vendors is trucked to Ft. Myers or arrives by air as the circumstances
require. Most of the merchandise from foreign vendors arrives in this country
via air (and occasionally by sea) at Miami, Florida, and is transported via
truck to Ft. Myers. After arrival at the distribution center, merchandise is
sorted and packaged for shipment to individual stores. Merchandise is generally
pre-ticketed with price and all other tags at the time of manufacture. Over the
past several years, the Company found it necessary to rely more heavily on air
shipments in order to keep its stores supplied with merchandise, thus impacting
the cost of obtaining merchandise and the gross profit margins. However, until
the Company is able to address its merchandising challenges to implement
stronger lines of communication and controls, it is likely that air shipments
may still need to
12
be relied upon for much of the Company's merchandise supply. The Company's plan
is to improve its scheduling and distribution systems so as to reduce the need
to rely as heavily on air transportation to obtain merchandise.
The Company's distribution center is automated, thus generally permitting
turnaround time between distribution center receipt of merchandise and arrival
at Chico's stores to average approximately 24 to 48 hours for its Florida stores
and two days to a week for its other stores. In an attempt to ensure a steady
flow of new merchandise, the Company ships merchandise continuously to its
stores. The Company uses common carriers, such as United Parcel Service and
Burlington Air, for most shipments to its stores.
The Company has allocated sufficient space in its headquarters facility to
permit fulfillment of mail order and Internet sales directly from its
distribution center. The Company intends to continue fulfilling these orders
from its distribution center.
The Company began to evaluate its distribution space needs for the short and
long term in fiscal 2000/2001. Based on this initial study performed by an
outside consulting firm, the Company has decided to lease an additional 19,400
square feet of distribution space adjacent to its property. In addition, the
Company has decided it will restructure its physical distribution operations,
and evaluate acquiring a new software package to improve productivity. Over the
long term, the Company is evaluating whether its distribution needs can be met
by continuing to maintain all, or some, of its distribution facilities in Ft.
Myers and whether establishing distribution facilities in other locations may be
advisable.
The capacity of the Company's distribution center, with the above committed
changes, should be sufficient, in the opinion of management, to service the
Company's needs for at least two years of future growth. The Company is
committed to review its facilities in fiscal 2001/2002 to properly address its
long term distribution needs.
MERCHANDISE DESIGN AND PRODUCT DEVELOPMENT
The Company's private label clothing is developed through the coordinated
efforts of the Company's merchandising, creative and product development
departments. Style, pattern, color and fabric for individual items of the
Company's private label clothing are developed based upon historical sales data,
anticipated future sales and perceived current and future fashion trends that
will appeal to Chico's target customer. The Company's creative and product
development departments report to Tedford G. Marlow, Executive Vice President
and Patricia A. Murphy, Senior Vice President--General Merchandise Manager and
are headed up by Linda Costello, Director of Product Development, and Janet C.
Ydavoy, Vice President, Production and Sourcing. Patricia A. Murphy, the
Company's Senior Vice President-General Merchandise Manager, also has the
responsibility of overseeing and coordinating the buying, planning, and
allocation of merchandise.
The creative and product development teams develop the Company's in-house
designs and design modifications. In addition to selecting distinctive patterns
and colors, the Company's product development teams are particularly attentive
to the design and specification of clothing style, construction, trim and fabric
treatment. The Company believes this attention to design detail assists in
distinguishing Chico's clothing and strengthening the customer's perception of
quality and value.
Although the Company develops merchandise for specific seasons, the product
development efforts are a constant process which result in the continual
introduction of new merchandise in the Company's front-line stores. This
continual process supports the Company's merchandising and inventory strategy,
and serves to reduce somewhat the Company's exposure to fashion risk.
The Company has historically purchased most of its clothing and accessories
from companies that manufacture such merchandise in foreign countries except for
the "cut and sew" operations described
13
below. The Company does business with all of its foreign vendors and importers
in United States currency, often supported through letters of credit. Clothing
manufacturers utilize the designs and specifications provided by the Company
through its CAD programs. Except for certain U.S. based "cut and sew"
operations, the Company generally does not purchase and supply the raw materials
for its clothing, leaving the responsibility for purchasing raw materials with
the manufacturers. Since late 1997, the Company has been buying specialized
cloth and providing the cloth to domestic "cut and sew" manufacturers in the
United States who are engaged by the Company to make the specified designs and
styles. The Company anticipates it is likely to continue this practice in the
future.
Currently, the Company contracts with approximately 25 to 30 apparel
vendors, 60 to 75 accessory vendors, several fabric suppliers and several "cut
and sew" vendors. Over the past several years, there has been a significant
shift from vendors in Turkey and Guatemala to vendors in China, India and the
United States. However, because of certain perceived lower sourcing costs that
can be associated with the Company's vendors in various parts of the world and
certain other long term uncertainties presented by such vendor relationships,
the Company intends to continue to redirect a portion of its sourcing activities
towards new vendors in China, India, Mexico and other areas.
In the current period, United States sources (including the cost of fabric
and "cut and sew" vendors) accounted for approximately 50% of the Company's
purchases, China sources accounted for approximately 23% of the Company's
purchases, India sources accounted for approximately 12% of overall purchases,
and Turkey sources accounted for approximately 10% of overall purchases, while
Indonesia, Japan, Mexico, Peru and other sources, in the aggregate, amounted to
under 5% of overall purchases. In fiscal 2001/2002, the Company expects sourcing
from China could become 30 to 40% of overall purchases, while vendors in Turkey
can be expected to continue to provide approximately 10 to 15% of total
purchases. Purchases from vendors in India are likely to grow to 15 to 20% of
total purchases, while United States vendors are expected to decrease as a
percentage of overall purchases.
Although there are no manufacturers that produced more than 10% of the
Company's merchandise during the last fiscal year, the Company has contracted
with one intermediary vendor that accounted for 36% of the Company's purchases
(including all fabric and labor) during the last fiscal year through separate
subcontracts with seven "cut and sew" factories in the United States. With
respect to purchases made through this intermediary, the Company, for the most
part, purchases the necessary specialized cloth and then coordinates with this
intermediary who arranges for various independent United States "cut and sew"
manufacturers to make the specified designs and styles. Although the Company
believes that its relationship with this particular intermediary is good, there
can be no assurance that this relationship can be maintained in the future or
that the intermediary will continue to be available to coordinate and facilitate
production and supply of merchandise. If there should be any significant
disruption in the supply of merchandise through this intermediary in particular,
management believes that it can successfully implement its contingency plans so
as to continue to secure the required volume of product. Nevertheless, there is
some potential that any such disruption in supply could have a short term
material adverse impact, and possibly even a longer term material adverse
impact, on the Company's operations.
As with most apparel importers, the Company has infrequently experienced
certain difficulties with the quality and timeliness of delivery of merchandise
manufactured overseas. Although the Company has been sensitive to quality
control and has taken certain steps to better control the quality of merchandise
secured from foreign vendors, there can be no assurance that the Company will
not experience problems in the future with matters such as quality or timeliness
of delivery. If political instability, economic instability, natural disasters
or other factors in a foreign country in which merchandise is produced for the
Company disrupt, curtail or otherwise impact overseas production, or curtail
delivery of such merchandise to the United States, the Company's operations
could be materially and adversely affected.
14
The Company has no long-term or exclusive contracts with any manufacturer or
supplier and competes for production facilities with other companies offering
clothing and accessories utilizing similar manufacturing processes. Although the
Company believes that its relationships with its existing vendors are good,
there can be no assurance that these relationships can be maintained in the
future. If there should be any significant disruption in the delivery of
merchandise from one or more of its current key vendors, management believes
there would likely be a material adverse impact on the Company's operations.
Also, the Company is in the process of developing relationships with several new
vendors in India, and other countries. Although the Company has investigated the
past performance of these vendors and has inspected factories and sample
merchandise, there can be no assurance that the Company will not experience
delays or other problems with these new sources of supply. New relationships
often present a number of uncertainties, including payment terms, cost of
manufacturing, adequacy of manufacturing capacity, quality control, timeliness
of delivery and possible limitations imposed by trade restrictions. Although
management believes it could establish satisfactory relationships with other new
vendors if required to do so, any such further new relationships would involve
similar uncertainties.
IMPORTS AND IMPORT RESTRICTIONS
Although Chico's has shifted a significant portion of its manufacturing of
clothing to United States manufacturers, a majority of Chico's clothing and
accessories are likely to be manufactured outside of the United States. As a
result, the Company's business remains subject to the various risks of doing
business abroad and to the imposition of United States customs duties. In the
ordinary course of its business, the Company may from time to time be subject to
claims by the United States Custom Service for tariffs, duties and other
charges.
Imports from Turkey, Hong Kong, China, India, Mexico, Japan and Peru
currently all receive the preferential tariff treatment that is accorded goods
from countries qualifying for normal trade relations status ("NTR"), formerly
known as most favored nation status. If the NTR status of any of these countries
were to be lost and the merchandise purchased by the Company were then to enter
the United States without the benefit of NTR treatment or subject to retaliatory
tariffs, it would be subject to significantly higher duty rates. Increased
duties, whether as a result of a change in NTR status or any overall change in
foreign trade policy, could have a material adverse effect on the cost and
supply of merchandise from these countries. Although Chico's expects NTR status
to continue for the countries where its principal vendors are located, the
Company cannot predict whether the U.S. Government will act to remove NTR status
for any of the countries or impose an overall increase in duties on foreign made
goods.
The NTR status for China has in the past been subject to an annual review,
and this annual review has generated considerable debate. On October 10, 2000,
then-President Clinton signed legislation that would eliminate the need for this
annual review and establish permanent NTR status between the United States and
China. However, such permanent NTR status will go into effect only after China
finalizes its accession protocol with the World Trade Organization ("WTO"). The
Company cannot provide assurance that this will occur or when it will occur. In
addition, the U.S. and China recently have been involved in a dispute concerning
a U.S. intelligence-gathering aircraft forced to land in Chinese territory, and
this dispute has led members of Congress to introduce legislation that would
repeal NTR status for China, notwithstanding its possible accession to the WTO.
The countries' disagreements continue to be unresolved, and the Company cannot
predict whether the pending NTR repeal legislation will be pursued. Even
assuming amicable resolution of the countries' present dispute and the accession
of China into the WTO, future diplomatic tension could again result in pressure
to repeal China's NTR status.
The import of the Company's clothing and some of its accessories is also
subject to constraints imposed by bilateral textile agreements between the
United States and a number of foreign
15
jurisdictions. These agreements impose quotas that limit the amount of certain
categories of clothing that can be imported from these countries into the United
States. The bilateral agreements through which quotas are imposed have been
negotiated under the framework established by the Arrangement Regarding
International Trade, known as the "Multifiber Arrangement."
In 1994, the member-countries of the International Trade Organization
completed the Uruguay Round of trade negotiations of the General Agreement on
Tariffs and Trade and the Agreement was approved by the United States Congress.
This pact, as it applies to textiles, which is now known as the WTO Agreement on
Textiles and Clothing (the "ATC"), was implemented on January 1, 1995 and, as a
result, the Multifiber Arrangement is being phased out over a period of ten
years, thus eliminating many of the existing restrictions on the Company's
ability to import Chico's merchandise, including quotas. The ATC could have an
impact on the Company's sourcing strategy as the Multifiber Arrangement phases
out. The Company cannot accurately assess at this time how the ATC will affect
its financial results and operations or whether there might be other
arrangements added in the future which impose other types of restrictions on
imports of apparel and related accessories.
In recent years, the Company's imports from countries subject to the
Multifiber Arrangement have all fallen within the applicable quota limits. There
can be no assurance that, as long as the quotas remain in effect, the Company's
vendors will be able to continue to secure sufficient quotas for shipments to
Chico's or will continue to allocate to Chico's a sufficient portion of their
respective quotas.
The Omnibus Trade and Competitiveness Act of 1988 added a new provision to
the Trade Act of 1974 dealing with intellectual property rights. This provision,
which is commonly referred to as "Special 301" and which remains effective even
following the approval of the ATC, directed the United States Trade
Representative (the "USTR") to designate those countries that deny adequate and
effective intellectual property rights or fair and equitable market access to
United States firms that rely on intellectual property. From the countries
designated, the USTR is to identify as "priority" countries those where the lack
of intellectual property rights protection is most egregious and has the
greatest adverse impact on United States products. The USTR is to identify and
investigate as priority foreign countries only those that have not entered into
good faith negotiations or made significant progress in protecting intellectual
property. Where such an investigation does not lead to a satisfactory resolution
of such practices, through consultations or otherwise, the USTR is authorized to
take retaliatory action, including the imposition of retaliatory tariffs and
import restraints on goods from the priority foreign country.
Under Special 301, the USTR has also created a two-tier "watch list" that
requires the country so listed to make progress on intellectual property
protection reform or risk designation as a priority foreign country. Countries
named on the first tier of the watch list, i.e., the priority watch list, are
requested to make progress in certain areas by specific dates. Countries named
to the second tier, i.e., the secondary watch list, are asked to improve their
intellectual property protection efforts.
As of April 6, 2001, of the countries where the Company's existing or
planned key vendors have manufacturing operations or suppliers, none was a
priority foreign country. Turkey, India and Peru were on the priority watch list
and Mexico was on the secondary watch list.
In addition, Super 301 (an even more powerful portion of Special 301) was
revived in 1999. Super 301 requires the administration to identify and
investigate annually foreign trade practices that do the most harm in blocking
U.S. exports. This identification is intended to be followed by negotiations
backed with the threat of sanctions. India has recently been subject to Super
301 review for certain tariff practices relating to textiles. The USTR has
pledged to "take appropriate action as necessary" to address the areas of
concern raised by the Super 301 review, but the Company cannot predict whether
any further action will be taken by the USTR against India or whether any such
action would affect the Company's relationships with its vendors in India. The
USTR has also relied upon Super 301 to review
16
certain of Mexico's customs valuation practices, and has concluded that those
practices violate international agreements. The USTR has requested bilateral
consultations with the Mexican government in order to seek changes that would
bring the disputed policies into compliance with the international agreements
alleged to have been violated. The Company cannot predict whether any further
action will be taken by the USTR against Mexico or whether any such action would
affect the Company's relationships with its vendors in Mexico. As of April 6,
2001, none of the other countries where the Company's existing or planned key
vendors have manufacturing operations has been cited under Super 301.
China continues to be monitored under a related provision of the Trade Act
of 1974, section 306. The United States Trade Representative will be in a
position to impose sanctions if China fails to adequately enforce existing
bilateral agreements concerning intellectual property rights.
Of countries where the Company's existing or planned key vendors have
manufacturing operations, Turkey, India, Indonesia and Peru have enjoyed
Designated Beneficiary Developing Country ("DBDC") status under the Generalized
System of Preferences ("GSP"), a special status that is granted by the United
States to developing nations. DBDC status allows certain products imported from
those countries to enter the United States under a reduced rate of duty. In
order to maintain that status, the countries are required to meet several
criteria.
The GSP will expire by its terms on September 30, 2001. Although the USTR
and key members of Congress have expressed support for extension of the GSP
program, no bill extending the GSP program has been introduced in Congress, and
the likelihood of this extension is uncertain.
The Company cannot predict whether any of the foreign countries in which its
clothing and accessories are currently manufactured or any of the countries in
which the Company's clothing and accessories may be manufactured in the future
will be subject to these or other import restrictions by the United States
Government, including the likelihood, type or effect of any trade retaliation.
Trade restrictions, including increased tariffs or more restrictive quotas, or
both, applicable to apparel items could affect the importation of apparel
generally and, in that event, could increase the cost or reduce the supply of
apparel available to the Company and adversely affect the Company's business,
financial condition and results of operations. The Company's merchandise flow
may also be adversely affected by political instability in any of the countries
in which its goods are manufactured, significant fluctuation in the value of the
U.S. dollar against applicable foreign currencies and restrictions on the
transfer of funds.
ADVERTISING AND PROMOTION
The marketing program for the Company currently consists of the following
integrated components:
- The Passport program (see page 5)
- Direct mailer/catalogs
- National print and TV advertising
- Internet and direct phone sales
- Outreach programs
Chico's historically has not allocated significant resources to mass media
advertising other than direct mail. Chico's has preferred instead to attract
customers through its direct mail programs (which began in 1997), word-of-mouth
advertising, its general reputation, its relaunched Passport Club and the visual
appeal of its stores and window presentations of its merchandise. Chico's sales
associates promote this often by making personal telephone calls to existing
customers informing them about new
17
merchandise. Over the past several years the Company increased its use of
brochures, catalogs and other merchandise image pieces mailed to customers and
made available at Chico's stores.
In September 1999, an integrated marketing program was initiated with store
mailers and national print advertising reinforcing each other. The Passport
program database was expanded with inquiries from advertising prospect mailings
and signup drives in the stores. The mailers were successful in pushing traffic
into the stores and this program was expanded in the fiscal year ended
February 3, 2001. The Chico's customers maintained in the database currently
receive an average of one mailer per month. The national print ad program
currently focuses on magazines that have produced the best response rates for
Chico's measured by inquiries over the telephone and the Company's website. A
regional and national test of television ads was conducted in the first quarter
of the current fiscal year with a strong response. The Company plans a second
test in April 2001, with more television advertising presence thereafter if the
strong results continue.
Internet and telephone sales began in late May of 2000 and forecast internal
sales budgets were exceeded. The Company's website was expanded to include over
400 items in January 2001, and Internet and telephone sales dramatically
increased. The Company had been anticipating direct sales (catalog and Internet)
of $7.5 million in the current fiscal year. Chico's is ahead of its monthly
forecast as of April 16, 2001, with March 2001 being the first month to
experience in excess of $1 million shipped. The Company's web presence and call
center also take in thousands of store location and catalog request inquiries
per week. In the year ended February 3, 2001, Chico's received over 120,000
catalog requests, most stemming from national ads. Each component of the
marketing program supports and reinforces the other. The Company anticipates
13 million catalogs or mailers, together with national print, television ads,
and web presence will be part of a marketing budget that will be between 3% and
3.5% of net sales in the fiscal year ended February 2, 2002.
Chico's also places additional emphasis on what it refers to as its
"outreach programs." Chico's outreach programs include, among other events,
fashion shows and wardrobing parties that are organized and hosted by Chico's
store managers and sales associates. As part of these outreach programs, the
Company also encourages Chico's managers and sales associates to become involved
in community projects. The Company has found its outreach programs are effective
in providing introductions to new customers. The Company believes that these
programs are effective marketing vehicles and it has developed programs to help
its store level employees use these programs.
COMPETITION
The women's retail apparel business is highly competitive and has become
even more competitive in the past several years. Chico's stores compete with a
broad range of national and regional retail chains, including other women's
apparel stores, department stores and specialty stores, as well as local
retailers in the areas served by individual Chico's stores, all of which sell
merchandise generally similar to that offered in Chico's stores. Even discount
department stores have begun to carry merchandise which is designed to compete
for the consumers that historically have been the Company's target customer.
Although management believes that there is limited direct competition for
Chico's merchandise largely because of the distinctive nature of Chico's stores
and merchandise, the retailers that are believed to most directly compete with
Chico's stores in many of the same local market areas are the mid-to-high end
department stores including Nordstrom's, Dillards, Neiman-Marcus and Saks Fifth
Avenue and specialty stores which include The Gap, Talbots, J. Jill, The Limited
and Banana Republic as well as local boutique retailers in the areas served by
individual Chico's stores. The number of competitors and the level of
competition facing Chico's stores varies by the specific local market area
served by individual Chico's stores.
The Company believes that the distinctive designs of Chico's casual clothing
and accessories which provide good value, their exclusive availability at
Chico's stores, the Company's emphasis on
18
personalized service and customer assistance, and the locations of its stores
are the principal means by which the Company competes. The Company's performance
is impacted by the fact that many of the Company's competitors are significantly
larger and have substantially greater financial, marketing and other resources
and enjoy greater national, regional and local name recognition than does the
Company. It should also be noted that while the Company believes it also
competes effectively for favorable site locations and lease terms, competition
is intense for prime locations within upscale shopping districts and high-end
malls, and women's apparel stores have tended to oversaturate these prime
locations.
EMPLOYEES
As of February 3, 2001, the Company employed approximately 2,750 persons,
approximately 45% of whom were full-time employees and approximately 55% of whom
were part-time employees. The number of part-time employees fluctuates during
peak selling periods. As of the above date, 89% of the Company's employees
worked in Chico's stores, Chico's Outlet stores and in direct field supervision,
2% worked in the distribution center and 9% worked in corporate headquarters and
support functions.
The Company has no collective bargaining agreements covering any of its
employees, has never experienced any material labor disruption and is unaware of
any efforts or plans to organize its employees. The Company contributes part of
the cost of medical and life insurance coverage for eligible employees and also
maintains a 401(k), stock option plan and stock purchase plan. All employees
also receive substantial discounts on Company merchandise. The Company considers
relations with its employees to be good.
TRADEMARKS AND SERVICE MARKS
The Company is the owner in the United States of the trademarks "CHICO'S",
"Passport" and "MAPS", each of which is registered with the United States Patent
and Trademark Office. Each of the registrations has a term of 10 years (expiring
in 2009, 2010 and 2009, respectively) and is renewable indefinitely if the mark
is still in use at the time of renewal. The Company has also applied for
trademarks in the United States on its "Goddess" collections, and in Canada for
all of its marks. In the opinion of management, the Company's rights in the
marks are important to the Company's business. This is particularly the case for
the "CHICO'S" and "Passport" marks because these marks are well known by Chico's
customers. Accordingly, the Company intends to maintain its marks and the
related registrations. The Company is not aware of any claims of infringement or
other challenges to the Company's right to use its marks in the United States.
ITEM 2. PROPERTIES
STORES
Chico's stores are located throughout the United States, with a significant
concentration in Florida, California, Texas and the northeast United States.
As a matter of policy, the Company prefers to lease its stores and all of
the Chico's and Chico's Outlet stores currently operated by the Company are
leased. Lease terms typically range from three to ten years and approximately
44% contain one or more renewal options. Historically, the Company has exercised
most of its lease renewal options. Almost 80% of the leases have percentage rent
clauses which require the payment of additional rent based on the store's net
sales in excess of a certain threshold.
The following table, which covers all of the 244 Company-owned stores
existing as of April 20, 2001, sets forth (i) the number of leases that will
expire each year if the Company does not exercise
19
renewal options and (ii) the number of leases that will expire each year if the
Company exercises all of its renewal options (assuming in each case the lease is
not otherwise terminated by either party pursuant to any other provision
thereof):
LEASES EXPIRING EACH YEAR LEASES EXPIRING EACH YEAR
FISCAL YEAR ENDING IF NO RENEWALS EXERCISED IF ALL RENEWALS EXERCISED
- ------------------ ------------------------- -------------------------
February 2, 2002................. 19 11
February 1, 2003................. 19 11
January 31, 2004................. 21 14
January 29, 2005 and
thereafter..................... 185 208
DISTRIBUTION CENTER AND HEADQUARTERS
The Company's World Headquarters, which is located on approximately 27 acres
in Ft. Myers, Florida, was completed and opened in September 1994 and consists
of a distribution center, and corporate and administrative headquarters. In the
current period, the Company opened a 32,000 square foot addition to its existing
corporate and administrative offices. The combined facilities comprise
approximately 147,000 square feet, consisting of approximately 75,000 square
feet for distribution and approximately 77,000 square feet for administrative
purposes, its call center facilities and its design offices including pattern
making, sewing and sampling activities. In addition, the Company has subsequent
to the fiscal year end, leased an additional 19,400 square feet of distribution
space as more fully described on page 13.
The original construction cost of the combined corporate headquarters and
distribution center was approximately $9.6 million, which includes the
$1.3 million purchase price for the land. Further, the Company spent
approximately $1.6 million for distribution center equipment, software and
furnishings. The cost of the addition opened in the current period was
approximately $5.0 million, including approximately $800,000 in fixtures for the
new facility. Currently, certain assets of the Company's World Headquarters
secure a $5.2 million mortgage loan that matures in 2003.
The capacity of the Company's distribution center, after taking into account
the changes and additional leased space more fully described on page 13, should
be sufficient, in the opinion of management, to service the Company's needs for
at least two years of future growth. The Company is committed to review its
facilities in fiscal 2001/2002 to properly address its long term distribution
needs.
ITEM 3. LEGAL PROCEEDINGS
Chico's is not a party to any legal proceedings, other than various claims
and lawsuits arising in the normal course of the Company's business, which the
Company believes should not have a material adverse effect on its financial
condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
20
ITEM A. EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the Company's
existing executive officers:
YEARS WITH
NAME AGE COMPANY POSITIONS
- ---- -------- ---------- ------------------------------------------------------
Marvin J. Gralnick... 66 17 Chief Executive Officer, President, Chairman of the
Board and Director
Helene B. Gralnick... 53 17 Senior Vice President-Design and Concept and Director
Charles J. Kleman.... 50 12 Executive Vice President-Finance, Chief Financial
Officer, Secretary/Treasurer and Director
Scott A. Edmonds..... 43 7 Chief Operating Officer and Assistant Secretary
Mori C. MacKenzie.... 50 5 Vice President-Director of Stores
Patricia A. Murphy... 57 3 Senior Vice President-General Merchandise Manager
Tedford G. Marlow.... 48 -- Executive Vice President-Merchandising, Marketing and
Product Development
Marvin J. Gralnick, together with his wife, Helene B. Gralnick, founded
Chico's in December 1983. He served the Company as its Chief Executive Officer
until September 1993, at which time Jeffrey J. Zwick succeeded Mr. Gralnick in
this position. In connection with the resignation of Jeffrey J. Zwick as Chief
Executive Officer, President and a director of the Company in November 1994,
Mr. Gralnick and Ms. Gralnick returned to the Company on a full time basis to
head up merchandise design, marketing and image for the Company. In
February 1995, Mr. Gralnick re-assumed the role of Chief Executive Officer and
in March 1997 re-assumed the position of President following the departure of
Melissa Payner. In addition, Mr. Gralnick continues to serve as Chairman of the
Board and as a director. Mr. Gralnick served as President from the Company's
founding until 1990 when he became Chairman of the Board and was given the
official title of Chief Executive Officer. Mr. and Ms. Gralnick's vision and
creative talents led the development and evolution of the Company's philosophy
and the design and feel of Chico's merchandise and Chico's stores through
September 1, 1993 and since November 1994 have continued to lead the Company in
this regard.
Helene B. Gralnick was a co-founder of Chico's, together with her husband,
Marvin J. Gralnick, and has served the Company in various senior executive
capacities throughout its history. She was first elected Vice
President/Secretary in 1983. Ms. Gralnick was elected as Senior Vice President-
Merchandise Concept in 1992. In September 1993, Ms. Gralnick stepped down from
all officer positions with the Company. In connection with the November 7, 1994
resignation of Jeffrey J. Zwick as Chief Executive Officer, President and a
director of the Company, Ms. Gralnick, together with Mr. Gralnick, returned to
the Company on a full time basis to head up merchandise design, marketing and
image for the Company. In February 1995, Ms. Gralnick was elected as Senior Vice
President-Design and Concept. In addition, she continues to serve as a director
of the Company.
Charles J. Kleman has been employed by Chico's since January 1989, when he
was hired as the Company's Controller. In 1991, he was elected as Vice
President/Assistant Secretary. In 1992, Mr. Kleman was designated as the
Company's Chief Financial Officer. In September 1993, he was elected to the
additional position of Secretary/Treasurer, served as Senior Vice
President-Finance from January 1996 through November 1996 and effective
December 1996, was promoted to the position of Executive Vice President-Finance.
Prior to joining Chico's, Mr. Kleman was an independent accounting consultant in
1988, and from 1986 to 1988 Mr. Kleman was employed by Electronic Monitoring &
Controls, Inc., a manufacturer and distributor of energy management systems, as
its Vice President/ Controller. Prior to 1986, Mr. Kleman was employed by
various independent certified public accounting firms, spending over four years
of that time with Arthur Andersen & Co. Mr. Kleman is responsible for
21
accounting, financial reporting, management information systems, investor
relations and overall management of the distribution center.
Scott A. Edmonds has been employed by Chico's since September 1993, when he
was hired as Operations Manager. In February 1994, he was elected to the
position of Vice President-Operations and effective January 1, 1996 he was
promoted to the position of Senior Vice President-Operations. In February 2000,
Mr. Edmonds was further promoted to Chief Operating Officer. Mr. Edmonds is
responsible for human resources, store development and operations, store leasing
and maintenance, franchise operations, and management of the general
headquarters activities. From March 1985 until September 1993, he was
President/General Manager of the Ft. Myers branch of Ferguson
Enterprises, Inc., an electric and plumbing wholesaler.
Mori C. MacKenzie has been with the Company since October 1995, when she was
hired as the Director of Stores. In June 1999, she was elected Vice
President-Director of Stores. Ms. MacKenzie is responsible for store and field
operations management, hiring and training. From January 1995 until
October 1995, Ms. MacKenzie was the Vice President of Store Operations for
Canadians Corporation. From August 1994 until December 1994, she was the Vice
President of Store Development for Goody's Family Clothing. From April 1992
until August 1994, Ms. MacKenzie was the Vice President of Stores for United
Retail Group ("URG") and from August 1991 until April 1992 she was employed by
Conston Corporation, a predecessor of URG. In addition, Ms. MacKenzie was Vice
President-Stores for Park Lane from November 1987 until July 1991, and was
Regional Director of Stores for the Limited, Inc. from June 1976 until
October 1987.
Patricia A. Murphy has been with the Company since September 1997, when she
was hired as the Senior Merchant. In April 1998, she was promoted to the
position of General Merchandise Manager, in June 1999 she was promoted to Vice
President-General Merchandise Manager and in August 2000 was promoted to Senior
Vice President-General Merchandise Manager. Ms. Murphy is principally
responsible for the buying, planning and distribution activities associated with
procurement of merchandise. From February 1987 until September 1997, Ms. Murphy
was Vice President of Merchandising and Director of Fashion for Doncaster and
from October 1985 until February 1987 was Merchandiser and National Sales
Manager for Caribou Sportswear. From 1981 until 1985, she held various positions
including Divisional Merchandise Manager and Director of Fashion Coordination
for Lane Bryant, a division of the Limited.
Tedford G. Marlow joined the Company in September 2000 as Executive Vice
President-Merchandising, Marketing and Product Development. From December 1998
to September 2000, he was Senior Vice President, Product Development and a
member of the Executive Committee of Saks Fifth Avenue. Previously, Mr. Marlow
spent over seven years at The Limited, from July 1991 to July 1995 as Executive
Vice President & General Merchandise Manager of Structure, and from
February 1995 to December 1998 as President and Chief Executive Officer of Henri
Bendel in New York. Mr. Marlow has also held various senior merchandising
positions with AX/Armani Jeans, Marshall Field's and Neiman Marcus.
Marvin J. Gralnick and Helene B. Gralnick are husband and wife. None of the
other executive officers or directors are related to one another.
There are no arrangements or understandings pursuant to which any officer
was elected to office. Executive officers are elected by and serve at the
discretion of the Board of Directors.
22
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On April 11, 2001, the Company's Common Stock began trading on the New York
Stock Exchange under the new symbol "CHS". The Company's Common Stock had
previously been traded on the Nasdaq National Market System under the symbol
"CHCS". The high and low prices per share, as adjusted for the stock split
payable on January 14, 2000, of the Company's Common Stock for each quarterly
period for the last two years are set forth in the Company's 2000/2001 Annual
Report to Stockholders and are incorporated herein by reference. The prices are
not further adjusted for the additional stock split announced by the Company on
April 19, 2001 and expected to be distributed on May 16, 2001.
On April 16, 2001 the last reported sale price of the Common Stock on the
NYSE was $38.30 per share.
The Company does not intend to pay any cash dividends for the foreseeable
future and intends to retain earnings, if any, for the future operation and
expansion of the Company's business. Any determination to pay dividends in the
future will be at the discretion of the Company's Board of Directors and will be
dependent upon the Company's results of operations, financial condition,
contractual restrictions and other factors deemed relevant by the Board of
Directors. The Company's existing credit facilities contain restrictions on the
payment of cash dividends on the Common Stock. Under the provisions of the
credit facilities, dividends will be prohibited to the extent such aggregate
dividends would cause the Company's tangible net worth to fall below
$65 million.
The approximate number of equity security holders of the Company is as
follows:
NUMBER OF RECORD HOLDERS
TITLE OF CLASS AS OF APRIL 16, 2001
- -------------- ------------------------
Common Stock, par value $.01 per share................ 407
23
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
financial statements and the notes thereto referenced elsewhere and incorporated
in this Annual Report on Form 10-K.
FISCAL YEAR ENDED
-----------------------------------------------------------------------------
FEBRUARY 3, JANUARY 29, JANUARY 30, JANUARY 31, FEBRUARY 1,
2001 2000 1999 1998 1997
(53 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS) (53 WEEKS)
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AND SELECTED OPERATING)
OPERATING STATEMENT DATA:
Net sales by company stores.......... $254,824 $152,474 $104,981 $73,597 $62,318
Net sales to franchisees (1)......... 4,622 2,528 1,761 1,742 1,755
-------- -------- -------- ------- -------
Net sales.......................... 259,446 155,002 106,742 75,339 64,073
Cost of goods sold (2)............... 108,671 64,950 44,197 33,240 26,713
-------- -------- -------- ------- -------
Gross profit....................... 150,775 90,052 62,545 42,099 37,360
General, administrative and store
operating expenses................. 105,412 65,246 47,411 37,185 33,738
-------- -------- -------- ------- -------
Income from operations............... 45,363 24,806 15,134 4,914 3,622
Interest income (expense), net....... 409 177 (151) (372) (404)
-------- -------- -------- ------- -------
Income before taxes................ 45,772 24,983 14,983 4,542 3,218
Provision for income taxes........... 17,393 9,494 5,844 1,772 1,287
Net income......................... $ 28,379 $ 15,489 $ 9,139 $ 2,770 $ 1,931
======== ======== ======== ======= =======
Basic net income per share (3)....... $ 1.64 $ .91 $ .56 $ .18 $ .12
======== ======== ======== ======= =======
Diluted net income per share (3)..... $ 1.56 $ .88 $ .54 $ .17 $ .12
======== ======== ======== ======= =======
Weighted average shares outstanding-
diluted (3)........................ 18,148 17,681 17,060 16,066 15,952
======== ======== ======== ======= =======
SELECTED OPERATING DATA:
Company stores at period end (4)..... 239 191 154 132 123
Franchise stores at period end (4)... 11 9 8 9 10
-------- -------- -------- ------- -------
Total stores at period end (5)....... 250 200 162 141 133
======== ======== ======== ======= =======
Average net sales per net selling
store (in thousands) (5)........... $ 1,200 $ 904 $ 745 $ 578 $ 523
Average net sales per net selling
square foot at company stores
(5)................................ $ 809 $ 675 $ 574 $ 449 $ 396
Percentage increase (decrease) in
comparable company store net
sales.............................. 34.3% 23.3% 30.3% 10.7% (1.3)%
Balance Sheet Data (at year end):
Total assets......................... $117,807 $ 70,316 $ 49,000 $34,472 $31,248
Stockholders' equity................. 85,321 52,641 34,303 21,456 18,021
Debt and lease obligations, less
current maturities................. 7,158 6,839 6,713 6,703 7,008
Working capital...................... $ 25,459 $ 26,389 $ 19,852 $ 8,970 $ 6,585
- ------------------------------
(1) Includes franchisee fees of under $10,000 in certain fiscal years.
(2) Cost of goods sold includes distribution and design costs, but does not
include occupancy cost.
(3) Restated to give retroactive effect for the 2 for 1 stock split payable in
January 2000 but not restated to reflect the 3 for 2 stock split announced
by the Company on April 19, 2001 and expected to by distributed on May 16,
2001.
(4) For information concerning stores opened, acquired, sold and closed, see
"Business--Store Locations."
(5) Average net sales per company store and average net sales per net selling
square foot of company stores are based on net sales of stores that have
been operated by the Company for the full year. For the years ended 2/1/97
and 2/3/01, average net sales per Company store and average net sales per
selling square foot of Company stores have been adjusted to exclude the
effect of the fifty-third week.
24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
A discussion and analysis of the financial condition and results of
operations for the specified fiscal periods through February 3, 2001 is set
forth under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's 2000/2001 Annual Report to
Stockholders and is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this Item is set forth under the heading
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" in the Company's 2000/2001 Annual Report to Stockholders and is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary financial information is set forth
under the heading "Financial Statements" in the financial information portion of
the Company's 2000/2001 Annual Report to Stockholders and is incorporated herein
by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information about directors and nominees for director of the Company in the
Company's 2000/2001 Annual Meeting proxy statement is incorporated herein by
reference. Information about executive officers of the Company is included in
Item A. of Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information about executive compensation in the Company's 2000/2001 Annual
Meeting proxy statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT
The information required by this Item is included in the Company's 2000/2001
Annual Meeting proxy statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is included in the Company's 2000/2001
Annual Meeting proxy statement and is incorporated herein by reference.
25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following financial statements of Chico's FAS, Inc. and the
report thereon of Arthur Andersen LLP dated March 5, 2001, which is
included in the Company's Annual Report to Stockholders for the
fiscal year ended February 3, 2001, are incorporated herein by
reference.
- Report of Independent Certified Public Accountants.
- Consolidated Statements of Income for the fiscal years ended
February 3, 2001, January 29, 2000, and January 30, 1999.
- Consolidated Balance Sheets as of February 3, 2001 and January 29,
2000.
- Consolidated Statements of Stockholders' Equity for the fiscal
years ended February 3, 2001, January 29, 2000, and January 30,
1999.
- Consolidated Statements of Cash Flows for the fiscal years ended
February 3, 2001, January 29, 2000, and January 30, 1999.
- Notes to Consolidated Financial Statements.
(2) The following Financial Statement Schedules are included herein:
Schedules are not submitted because they are not applicable or 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 (exhibits
marked with an asterisk have been previously filed with the
Commission as indicated and are incorporated herein by this
reference):
2* Agreement and Plan of Merger Dated December 19, 1992,
between the Company and Chico's International, Inc. (Filed
as Exhibit 2 to the Company's Registration Statement on
Form S-1 (File No. 33-58134), as filed with the Commission
on February 10, 1993, as amended)
3.1* Amended and Restated Articles of Incorporation, as amended
(Filed as Exhibit 4.1 to the Company's Registration
Statement on Form S-8 (Commission File No. 333-44678), as
filed with the Commission on August 28, 2000)
3.2* Agreement and Plan of Recapitalization dated February 3,
1993, by and among Marvin J. Gralnick, Helene B. Gralnick,
Barry E. Szumlanski, Lynn Mann and Jeffrey Jack Zwick and
Chico's FAS, Inc. (Filed as Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (File No. 33-70620), as
filed with the Commission on October 21, 1993, as amended)
3.3* Amended and Restated By-laws (Filed as Exhibit 3.5 to the
Company's Form 10-Q for the quarter ended April 4, 1993, as
filed with the Commission on May 18, 1993)
4.1* Amended and Restated Articles of Incorporation, as amended
(Filed as Exhibit 4.1 to the Company's Registration
Statement on Form S-8 (Commission File No. 333-44678), as
filed with the Commission on August 28, 2000)
4.2* Amended and Restated Bylaws (Filed as Exhibit 3.5 to the
Company's Form 10-Q for the quarter ended April 4, 1993, as
filed with the Commission on May 18, 1993)
4.3* Form of Common Stock Certificate (Filed as Exhibit 4.5 to
the Company's Registration Statement on Form S-1 (File
No. 33-58134), as filed with the Commission on February 10,
1993, as amended)
10.1* Employment Agreement between the Company and Marvin J.
Gralnick, effective as of February 7, 2000 (Filed as
Exhibit 10.1 to the Company's Form 10-Q for the quarter
ended July 29, 2000, as filed with the Commission on
September 5, 2000)
26
10.2* Employment Agreement for Helene B. Gralnick, effective as of
February 7, 2000 (Filed as Exhibit 10.2 to the Company's
Form 10-Q for the quarter ended July 29, 2000, as filed with
the Commission on September 5, 2000)
10.3* Employment Agreement for Charles J. Kleman (Filed as
Exhibit 10.6.5 to the Company's Form 10-Q for the quarter
ended April 4, 1993, as filed with the Commission on
May 18, 1993)
10.4* Amendment No. 1 to Employment Agreement between the Company
and Charles J. Kleman, effective as of August 21, 2000
(Filed as Exhibit 10.1 to the Company's Form 10-Q for the
quarter ended October 28, 2000, as filed with the Commission
on December 8, 2000)
10.5* Employment Agreement for Scott A. Edmonds (Filed as
Exhibit 10.1 to the Company's Form 10-Q for the quarter
ended July 2, 1995, as filed with the Commission on
August 14, 1995)
10.6* Amendment No. 1 to Employment Agreement between the Company
and Scott A. Edmonds, effective as of August 21, 2000 (Filed
as Exhibit 10.2 to the Company's Form 10-Q for the quarter
ended October 28, 2000, as filed with the Commission on
December 8, 2000)
10.7* Employment Agreement for Mori C. MacKenzie (Filed as
Exhibit 10.4 to the Company's Form 10-Q for the quarter
ended October 1, 1995, as filed with the Commission on
November 13, 1995)
10.8* Amendment No. 1 to Employment Agreement between the Company
and Mori C. MacKenzie, effective as of August 21, 2000
(Filed as Exhibit 10.3 to the Company's Form 10-Q for the
quarter ended October 28, 2000, as filed with the Commission
on December 8, 2000)
10.9* Employment Agreement between the Company and Tedford G.
Marlow, dated August 28, 2000 (Filed as Exhibit 10.3 to the
Company's Form 10-Q for the quarter ended July 29, 2000, as
filed with the Commission on September 5, 2000)
10.10* Employment Agreement between the Company and Patricia A.
Murphy, effective as of August 21, 2000 (Filed as
Exhibit 10.4 to the Company's Form 10-Q for the quarter
ended October 28, 2000, as filed with the Commission on
December 8, 2000)
10.11 Amendment No. 1 to Employment Agreement between the Company
and Patricia A. Murphy, effective as of August 21, 2000
10.12* 1992 Stock Option Plan (Filed as Exhibit 10.7 to the
Company's Registration Statement on Form S-1 (File
No. 33-58134), as filed with the Commission on February 10,
1993, as amended)
10.13* First Amendment to 1992 Stock Option Plan (Filed as
Exhibit 10.13 to the Company's Form 10-K for the year ended
January 2, 1994, as filed with the Commission on April 1,
1994)
10.14* 1993 Stock Option Plan (Filed as Exhibit 10.14 to the
Company's Form 10-K for the year ended January 2, 1994, as
filed with the Commission on April 1, 1994)
10.15* First Amendment to 1993 Stock Option Plan (Filed as
Exhibit 10.9 to the Company's Form 10-K for the year ended
January 30, 1999, as filed with the Commission on April 28,
1999)
10.16* 1993 Employee Stock Purchase Plan (Filed as Exhibit 10.8 to
the Company's Form 10-Q for the quarter ended April 4, 1993,
as filed with the Commission on May 18, 1993)
10.17* 1993 Employee Stock Purchase Plan, as amended and restated
October 9, 1998 (Filed as Exhibit 10.11 to the Company's
Form 10-K for the year ended January 30, 1999, as filed with
the Commission on April 28, 1999)
10.18* Third Amendment to Chico's FAS, Inc. 1993 Employee Stock
Purchase Plan (Filed as Exhibit 10.12 to the Company's
Form 10-K for the year ended January 29, 2000, as filed with
the Commission on April 25, 2000)
27
10.19* Fourth Amendment to Chico's FAS, Inc. 1993 Employee Stock
Purchase Plan (Filed as Exhibit 10.13 to the Company's
Form 10K for the year ended January 29, 2000, as filed with
the Commission on April 25, 2000)
10.20* Nonemployee Director's Stock Option Agreement by and between
Chico's FAS, Inc., and Verna K. Gibson (Filed as
Exhibit 10.14 to the Company's Registration Statement on
Form S-1 (File No. 33-70620), as filed with the Commission
on October 21, 1993, as amended)
10.21* Form of Nonemployee Director's Stock Option Agreement by and
between Chico's FAS, Inc. and Verna K. Gibson (Filed as
Exhibit 10.51 to the Company's Form 10-K for the year ended
January 1, 1995, as filed with the Commission on April 1,
1995)
10.22* Indemnification Agreement with Marvin J. Gralnick (Filed as
Exhibit 10.9.1 to the Company's Form 10-Q for the quarter
ended July 4, 1993, as filed with the Commission on
August 13, 1993)
10.23* Indemnification Agreement with Helene B. Gralnick (Filed as
Exhibit 10.9.2 to the Company's Form 10-Q for the quarter
ended July 4, 1993, as filed with the Commission on
August 13, 1993)
10.24* Indemnification Agreement with Charles J. Kleman (Filed as
Exhibit 10.9.5 to the Company's Form 10-Q for the quarter
ended July 4, 1993, as filed with the Commission on
August 13, 1993)
10.25* Indemnification Agreement with Verna K. Gibson (Filed as
Exhibit 10.9.6 to the Company's Form 10-Q for the quarter
ended July 4, 1993, as filed with the Commission on
August 13, 1993)
10.26* Indemnification Agreement with Scott A. Edmonds (Filed as
Exhibit 10.2 to the Company's Form 10-Q for the quarter
ended July 2, 1995, as filed with the Commission on
August 14, 1995)
10.27* Sample Form of Franchise Agreement (Filed as Exhibit 10.13
to the Company's Registration Statement on Form S-1 (File
No. 33-58134) as filed with the Commission on February 10,
1993, as amended)
10.28* Sample Form of Territory Development Agreement (Filed as
Exhibit 10.14 to the Company's Registration Statement on
Form S-1 (File No. 33-58134) as filed with the Commission on
February 10, 1993, as amended)
10.29* Sample Form of Purchase Agreement (Filed as Exhibit 10.15 to
the Company's Registration Statement on Form S-I (File
No. 33-58134) as filed with the Commission on February 10,
1993, as amended)
10.30* Revolving Credit and Term Loan Agreement by and among Bank
of America, N.A., the Company and the subsidiaries of the
Company dated as of May 12, 2000 (Filed as Exhibit 10.4 to
the Company's Form 10-Q for the quarter ended July 29, 2000,
as filed with the Commission on September 5, 2000)
10.31* Loan Agreement dated January 4, 1996 by and between Chico's
FAS, Inc. and Founders National Trust Bank (Filed as
Exhibit 10.58 to the Company's Form 10-K for the year ended
December 31, 1995, as filed with the Commission on April 1,
1996)
10.32* Amendment to Loan Agreement dated December 8, 1998 by and
between Chico's FAS, Inc. and NationsBank (South), N.A.
(Filed as Exhibit 10.37 to the Company's Form 10-K for the
year ended January 30, 1999, as filed with the Commission on
April 28, 1999)
10.33* Amendment and Restatement of the Chico's FAS, Inc. Profit
Sharing Plan (Filed as Exhibit 10.47 to the Company's
Form 10-Q for the quarter ended April 3, 1994, as filed with
the Commission on May 9, 1994)
28
10.34* Nonemployee Stock Option Agreement by and between Chico's
FAS, Inc. and Ross E. Roeder dated June 9, 1998 (Filed as
Exhibit 10.2 to the Company's Form 10-Q for the quarter
ended August 1, 1998, as filed with the Commission on
September 2, 1998)
10.35* Nonemployee Stock Option Agreement by and between Chico's
FAS, Inc. and Verna K. Gibson dated June 9, 1998 (Filed as
Exhibit 10.1 to the Company's Form 10-Q for the quarter
ended August 1, 1998, as filed with the Commission on
September 2, 1998)
10.36* Non-Employee Directors Stock Option Plan (Filed as
Exhibit 10.49 to the Company's Form 10-K for the year ended
January 30, 1999, as filed with the Commission on April 28,
1999)
10.37* First Amendment to Chico's FAS, Inc. Non-Employee Directors
Stock Option Plan (Filed as Exhibit 10.51 to the Company's
Form 10-K for the year ended January 29, 2000, as filed with
the Commission on April 25, 2000)
10.38* Stock Option Agreement between the Company and Tedford G.
Marlow, effective as of September 6, 2000 (Filed as
Exhibit 10.5 to the Company's Form 10-Q for the quarter
ended October 28, 2000, as filed with the Commission on
December 8, 2000)
10.39* Stock Option Agreement between the Company and Tedford G.
Marlow, effective as of September 6, 2000 (Filed as
Exhibit 10.6 to the Company's Form 10-Q for the quarter
ended October 28, 2000, as filed with the Commission on
December 8, 2000)
13 Annual Report to Stockholders
21 Subsidiaries of Company
23 Consent to use of Report of Independent Certified Public
Accountants
(b) Reports on Form 8-K
The company did not file any reports on Form 8-K during the fifty-three weeks
ended February 3, 2001.
29
SIGNATURES
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.
CHICO'S FAS, INC.
By: /s/ MARVIN J. GRALNICK
-------------------------------------- April 30, 2001
MARVIN J. GRALNICK, -----------------
CHIEF EXECUTIVE OFFICER AND PRESIDENT Date
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.
/s/ MARVIN J. GRALNICK
-------------------------------------- April 30, 2001
MARVIN J. GRALNICK, -----------------
CHIEF EXECUTIVE OFFICER, PRESIDENT, DIRECTOR Date
(PRINCIPAL EXECUTIVE OFFICER)
/s/ CHARLES J. KLEMAN
-------------------------------------- April 30, 2001
CHARLES J. KLEMAN, -----------------
CHIEF FINANCIAL OFFICER, DIRECTOR (PRINCIPAL Date
FINANCIAL AND ACCOUNTING OFFICER)
/s/ HELENE B. GRALNICK
-------------------------------------- April 30, 2001
HELENE B. GRALNICK, -----------------
SENIOR VICE PRESIDENT--DESIGN AND CONCEPT AND Date
DIRECTOR
/s/ VERNA K. GIBSON
-------------------------------------- April 30, 2001
VERNA K. GIBSON, -----------------
DIRECTOR Date
/s/ JOHN W. BURDEN
-------------------------------------- April 30, 2001
JOHN W. BURDEN, -----------------
DIRECTOR Date
/s/ ROSS E. ROEDER
-------------------------------------- April 30, 2001
ROSS E. ROEDER, -----------------
DIRECTOR Date
30