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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED JANUARY 29, 2000
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission file number 0-21258
CHICO'S FAS, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA 59-2389435
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
11215 METRO PARKWAY, FORT MYERS, FLORIDA 33912
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(Address of principal executive offices) (Zip code)
(941) 277-6200
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(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
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Common Stock, Par Value $.01 Per Share
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 $290,388,993 as of March 31, 2000 (based upon the closing
sales price reported by NASDAQ/NMS and published in the Wall Street
Journal on April 3, 2000).
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 - 17,128,936 shares as of March
31, 2000.
Documents incorporated by reference:
Part II Annual Report to Stockholders for the Fiscal Year Ended January
29, 2000.
Part III Definitive Proxy Statement for the Company's Annual Meeting of
Stockholders presently scheduled for June 13, 2000.
CHICO'S FAS, INC.
ANNUAL REPORT ON FORM 10-K
for the
YEAR ENDED January 29, 2000
TABLE OF CONTENTS
PART I...................................................................................................... 1
Item 1. Business.............................................................................. 1
Item 2. Properties............................................................................ 16
Item 3. Legal Proceedings..................................................................... 17
Item 4. Submission of Matters to a Vote of Security-Holders................................... 17
PART II..................................................................................................... 19
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................. 19
Item 6. Selected Financial Data............................................................... 20
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................. 22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk............................ 22
Item 8. Financial Statements and Supplementary Data........................................... 22
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.. 22
PART III.................................................................................................... 22
Item 10. Directors and Executive Officers of the Registrant.................................... 22
Item 11. Executive Compensation................................................................ 22
Item 12. Security Ownership of Certain Beneficial Owners and Management........................ 22
Item 13. Certain Relationships and Related Transactions........................................ 22
PART IV..................................................................................................... 23
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................... 23
PART I
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ITEM 1. BUSINESS
GENERAL
Chico's FAS, Inc., (Chico's or the Company), directly and through its
wholly owned subsidiaries (which became operational in February 1999), Chico's
Distribution, Inc., Chico's Concept, Inc., and Chico's Media, Inc., is a
specialty retailer of exclusively designed, private label casual to dressy
clothing, complementary accessories and other non-clothing gift items. Virtually
all of the clothing 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, jumpers, 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 versatile
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
35 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. During the past few years the Company has developed
a markdown strategy which is more in line with traditional retail clearance
methods and timing. Rather than focusing on taking most markdowns in outlets or
through warehouse sales, the Company has been taking its first, second, and in
some cases, later markdowns in front-line stores.
Also during the past few fiscal years, the Company has been testing the
sale of non-clothing products, such as footwear, which complements the clothing
products and such as aroma-therapy candles, body care products, 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 its current markdown strategy, the Company is actively pursuing larger
spaces for its new stores. Rather than targeting a 1,400 net selling square foot
store, the Company now believes the ideal store size is nearer 1,800-2,200 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 1,800-2,200
net selling square foot stores.
As of March 31, 2000, the Company's retail store system consisted of
204 stores (averaging approximately 1,458 net selling square feet), of which 187
are Company-owned front-line "Chico's" stores, 10 are franchised front-line
"Chico's" stores and 7 are "Chico's Outlet" stores. Of this total, 34 stores are
located in Florida, 29 stores are located in California, 16 stores are located
in Texas and the remaining 125 stores are located in 34 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. The Company opened 40 new Company-owned
front-line and no new outlet stores in the fiscal year ended January 29, 2000
(fiscal 2000), while during the same period it closed three Company-owned
front-line stores. In addition, a franchisee opened one new front-line franchise
store in fiscal 2000. The Company plans to open a minimum of 45 new
Company-owned stores in the fiscal year ended February 3, 2001 (fiscal 2001),
but also expects to close between one and three existing stores in fiscal 2001.
The Company is in the process of developing and exploring additional
opportunities for offering clothing and accessories to its customers and for
enhancing its revenues and income utilizing approaches to retailing which are
complementary to its core business. During fiscal 2001, the Company intends to
add ordering capability to its
1
existing mailers program and also to make Chico's products available for
purchase over the Internet. Each of these opportunities will require the
additional expenditure of capital and will involve additional risks and
uncertainties. There can be no assurance that any such opportunity will be
implemented on the planned timetable or will prove to be successful.
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 planning 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 design team develops these in-house designs and design
modifications. By 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 (extra
small), 1 (small), 2 (medium), and 3 (large). During fiscal 2000 the Company
tested a size 4 (extra large) with little success and it does not plan to offer
sizes above a size 3 at this time. As in the past, the Company frequently offers
one-size-fits-all sizing for some items. Because of the stylish, yet relaxed
nature of Chico's clothing, this sizing also 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.
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 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 informally gathered
information from customers, sales associates and store managers, as well
as studies done internally through its customer databases, 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 35 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 historical target customer. As part of this focus, the Company
reestablished its frequent shopper club ("Passport Club") in early 1999
so that it could monitor spending habits based on known
2
demographics. The Company is still gathering data and using this data to
direct its marketing efforts. See the "Customer Loyalty" section on page
4 for more details on the "Passport Club".
CONTINUAL INTRODUCTION OF NEW MERCHANDISE. The Company seeks
to keep its stores fresh by continually introducing new merchandise and
designs to its stores. The Company is continuing its efforts to
reactivate the 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 to frequent changes in style and design.
As part of the Company's strategy to continually introduce new
merchandise, Chico's seeks to provide only a limited supply of each 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 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 $20 to $130 per item and accessories are offered
at retail price points generally ranging from $10 to $50 per item.
Historically, the Company's philosophy was generally to avoid
store-wide price markdowns at its front-line stores and the Company
believes that in the past it utilized price markdowns and special
promotions to a lesser degree than have its principal competitors.
Since fiscal 1998, the Company has 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 is 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 believes this strategy
reduces the need to rely on its outlet stores as a principal means of
clearing slower selling merchandise. 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 its 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 lots of
woodwork including hardwood or natural concrete floors, antiques and
brushed aluminum or wood fixtures. However, each store is somewhat
different as the interior decor 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 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
3
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 13% of the Company's net
sales in fiscal 2000, compared to a range of 11% 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 2001 through better coordination of accessories with clothing and
continual testing of non-apparel branded items.
QUALITY ASSURANCE. Currently, most 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 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 that the vendor has the most
experience making. The Company has in more recent years been expanding
its use of domestic vendors, where possible, and it intends on
continually exploring opportunities with vendors closer to its
headquarters.
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 creative ways
to wear Chico's clothing. Dressing rooms are 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 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 frequent buyer program, 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 fiscal 1998 and
fiscal 1999, the Company established a new database of customers that shop at
Chico's using credit cards (approximately 77% of sales in fiscal 2000). In
fiscal 1999, the Company performed an independent study of its existing Passport
members (approximately 20,000 members were still active from this club
4
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 March 31, 2000, the Company had over 110,000 permanent Passport members and
over 350,000 "temporary" members which now account for approximately 45-49% and
25-31% of overall sales, respectively. 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" members sales.
The Company believes that permanent Passport members shop more
frequently and spend more on the average transaction than non-permanent Passport
members.
With the more sophisticated database hardware and software the Company
has acquired to manage the SKU-level data being recorded for the temporary
(until she spends $500) 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. After slowing the opening pace of new company stores in
fiscal 1997, the Company opened a total of 14 new Company-owned stores, acquired
one store from a franchise and closed six Company-owned stores in fiscal 1998.
During fiscal 1999, the Company opened 22
5
new company stores and one new franchised store while closing two outlet stores.
During fiscal 2000, the Company opened 40 new company stores and one new
franchised store while closing three front-line stores. As of March 31, 2000,
the Company has opened three of the 45 new Company-owned stores planned to be
opened in fiscal 2001, a franchisee has opened one new franchised store, 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 additional sites.
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 nine month to eighteen month payback of all initial capital
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 1999, one in fiscal
2000 and one in fiscal 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 located in outlet
centers.
Chico's Company-owned, front-line stores average approximately 1,426
net selling square feet, while the Company-owned outlet stores average
approximately 2,287 net selling square feet. In fiscal 1999 and fiscal 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 1,800-2,200 net selling square feet to accommodate its new
markdown strategy 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 3,000 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
may choose to open additional stores nearby, operating two or three Chico's
stores in the same general shopping area.
At March 31, 2000, there were 204 Chico's stores, of which 187 were
Company-owned front-line Chico's stores, ten were franchised Chico's stores and
seven were Chico's Outlet stores. Chico's stores are located in the following
jurisdictions:
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COMPANY-
COMPANY OWNED FRANCHISED
OWNED OUTLET STORES STORES TOTAL STORES
-------------------- -------------------- -------------------- ---------------------
Florida 31 2 1 34
California 28 1 -- 29
Texas 16 -- -- 16
New Jersey 10 -- -- 10
Illinois 8 1 -- 9
Ohio 8 -- -- 8
Connecticut 7 -- -- 7
Minnesota -- -- 7 7
Virginia 7 -- -- 7
New York 6 -- -- 6
Michigan 4 -- 1 5
Pennsylvania 5 -- -- 5
South Carolina 5 -- -- 5
Georgia 4 -- -- 4
Maryland 4 -- -- 4
Massachusetts 4 -- -- 4
North Carolina 4 -- -- 4
Tennessee 3 1 -- 4
Washington 4 -- -- 4
Colorado 2 1 -- 3
Louisiana 3 -- -- 3
New Mexico 3 -- -- 3
Alabama 1 1 -- 2
Arizona 2 -- -- 2
District of Columbia 2 -- -- 2
Indiana 1 -- 1 2
Missouri 2 -- -- 2
Rhode Island 2 -- -- 2
Utah 2 -- -- 2
Kansas 1 -- -- 1
Kentucky 1 -- -- 1
Nebraska 1 -- -- 1
Nevada 1 -- -- 1
Oklahoma 1 -- -- 1
Oregon 1 -- -- 1
Vermont 1 -- -- 1
Wisconsin 1 -- -- 1
Wyoming 1 -- -- 1
==========================================================================================================
TOTAL 187 7 10 204
==========================================================================================================
In a typical new front-line Chico's store, the Company's cost of
leasehold improvements, fixtures, store equipment and beginning inventory ranges
from $150,000 to $425,000 (after taking into account landlord construction
allowances and other concessions).
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
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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:
FEB.1
NUMBER OF COMPANY-OWNED STORES 1995 1997** FY 1998 FY 1999 FY 2000
------------------------------ ---- ------ ------- ------- -------
Stores at beginning of year 104 111 123 132 154
Opened* 8 13 14 22 40
Acquired from franchisees 5 1 1 2 --
Closed (6) (2) (6) (2) (3)
------------ ----------- ----------- ----------- ---------
Stores at end of period 111 123 132 154 191
------------ ----------- ----------- ----------- ---------
NUMBER OF FRANCHISE STORES:
Stores at beginning of year 17 12 10 9 8
Opened* -- -- -- 1 1
Sold to Company (5) (1) (1) (2) --
Closed -- (1) -- -- --
------------ ----------- ----------- ----------- ---------
Stores at end of period 12 10 9 8 9
------------ ----------- ----------- ----------- ---------
NUMBER OF TOTAL STORES: 123 133 141 162 200
============ =========== =========== =========== =========
* Does not include stores that opened as relocations of previously existing
stores within the same general market area (approximately five miles) or
substantial renovations of stores.
** Numbers of stores relate to a 13 month period which runs from January 1,
1996 through February 1, 1997.
OUTLET STORES
As of April 3, 2000, 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 4.1%
of the Company's net sales by Company-owned stores during fiscal 2000. Chico's
Outlet stores have not been intended to be profit centers.
Chico's Outlet stores are generally larger than front-line stores,
averaging approximately 2,287 net selling square feet. The Company opened no new
outlet stores in fiscal 2000 and only one outlet store in fiscal 1999, closed
two outlet stores in fiscal 1999 and does not anticipate opening more than one
or two outlet stores during fiscal 2001. The Company is reevaluating the extent
to which it should continue to rely on an increase in the number of outlet
stores as the basis for clearing out excess merchandise. In fiscal 1999 and
fiscal 1998, the Company sold inventory with a cost of $500,000 to liquidators
and during fiscal 1998 and fiscal 1997, the Company also conducted clearance
sales near the Company's warehouse in Ft. Myers. These clearance sales generated
approximately $690,000 and $1.4 million total sales in fiscal 1998 and fiscal
1997, respectively. The
8
Company did not operate a separate clearance sale in fiscal 2000 or fiscal 1999,
but rather is clearing such goods through an expanded outlet store in Miromar,
Florida. The Company is exploring various other options for clearing such
merchandise in the future, including selling such items through its Internet
site.
FRANCHISE STORES
Currently, there are ten 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 from Chico's 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%-50% of suggested retail prices. 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 fiscal 2000, the Company's net sales to franchisees
was approximately $2.5 million, or 1.6 % 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 March 31,
2000, 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 fiscal 2000, 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 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 is effectively offering
franchisees an additional 2%-6% increase in their discount rate if they agree to
modify their purchase agreements and reduce returns of merchandise to the
Company. The Company believes this may reduce franchise sales and the gross
margins related to these sales, but it should also reduce returns of older
merchandise which the Company must liquidate at lower margins. The Company does
not believe the change will have a material impact on its net income.
9
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.
During fiscal 1999, the Company established a formalized training
program that was 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 has already begun to help assure sales associates
better understand the Chico's product and improve the level of service provided
to our customers.
The Company currently supervises store operations through its Vice
President-Director of Stores, a National Sales Manager, three Regional Sales
Managers, seventeen District Sales Managers and six Area Sales Managers. The
National Sales Manager provides 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.
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, financial and merchandising
information systems, including purchasing, inventory distribution and control,
sales reporting, accounting, warehousing and merchandise management using Island
Pacific, STS Marketworks and JDA's Arthur software products.
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 fiscal 2001, the Company intends to replace its in-house
developed cash register systems with a cash register using the CRS Retail
Systems software which is also used by many other retailers. It is anticipated
this new register will improve customer service, reporting and overall
functionality. The Company anticipates it will have several stores testing the
new cash register systems in the second quarter of fiscal 2001, with a roll out
to the rest of the Company-owned stores over the next twelve months.
10
In fiscal 2001, the Company will be installing JDA's Arthur software
system to help merchandise allocation and it will also be installing the Mozart
system from Commercial Ware for Internet and mail order fulfillment systems.
In fiscal 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 2000.
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. Most of the merchandise
arrives in this country via air or 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. In fiscal
2000 and 1999, 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. As the Company
addresses its merchandising challenges and works towards implementing stronger
lines of communication and controls, it is likely that air shipments may still
need to be relied upon. However, the plan is to improve the Company's scheduling
and distribution systems so as to reduce the need to rely 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 available and has allocated sufficient space in its
headquarters facility and is acquiring the necessary systems to permit
fulfillment of mail order and Internet sales directly from its distribution
center.
The capacity of the Company's distribution center 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 currently in its initial review stage of
facilities planning to properly address distribution needs after two years.
MERCHANDISE DESIGN AND PRODUCT DEVELOPMENT
The Company's private label clothing is developed through the
coordinated efforts of the Company's planning, 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 Marvin and Helene Gralnick, the Company's
founders, and are headed up by Karen M. Glass, Vice President-Product
Development and Design and Janet C. Ydavoy, Director of Production, Sourcing and
Quality Control. Patricia A. Murphy, the Company's Vice President-General
Merchandise Manager, has the responsibility of overseeing and coordinating the
buying, planning, quality control and distribution of merchandise.
11
The creative and product development teams create 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 below. The Company
does business with all of its foreign vendors and importers in United States
currency, often supported through letters of credit, particularly for newer
vendors. Clothing manufacturers utilize the designs and specifications provided
by the Company through its CAD programs. The Company generally does not purchase
and supply the raw materials for it's clothing, leaving the responsibility for
purchasing raw materials with the manufacturers. However, beginning in fiscal
1998, 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, 20 to 40 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 Hong Kong, China and
Peru. However, because of certain perceived higher sourcing costs that can be
associated with the Company's vendors in the Far East 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 the United States, Mexico and possibly other areas.
In fiscal 2000, United States sources (including the cost of fabric and
"cut and sew" vendors) accounted for approximately 44% of the Company's
purchases, Hong Kong/China sources accounted for approximately 26% of the
Company's purchases, Turkey sources accounted for approximately 11% of overall
purchases, and India accounted for approximately 8% of overall purchases, while
Indonesia, Japan, Mexico and Peru sources, in the aggregate, amounted to under
9% of overall purchases. In fiscal 2001, the Company expects sourcing from Hong
Kong/China to remain at a similar percentage. Purchases from vendors in Mexico
and other countries in Central America are expected to increase to 10-12% of
total purchases, while vendors in Turkey can be expected to continue to provide
approximately 10-15% of total purchases. Purchases from vendors in India are
likely to grow above their current amounts. United States vendors were utilized
more heavily in fiscal 2000 and it is expected this may grow again in fiscal
2001.
From time to time, the Company has 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.
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
12
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 still 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 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 US Government will act to remove NTR status for any
of the countries or impose an overall increase in duties on foreign made goods.
In particular, the NTR status for China is currently subject to a yearly review
and its status as such has been the subject of some debate. Although the
President supports renewal of China's NTR status (and has even supported
legislation that would make it permanent rather than subject to yearly renewal),
recent questions concerning China's misappropriation of military proprietary
information could very well result in an increased pressure to not renew China's
NTR status. Also, in July 1997, Hong Kong changed from its former status as a
British colony to become the subject of Chinese sovereignty. Although for trade
purposes the United States has continued to treat Hong Kong as a separate
territory, and it has continued to negotiate directly with Hong Kong while at
the same time it has continued its NTR trade status, there can be no assurance
that Hong Kong's shift to Chinese sovereignty will not have an impact on the
Company's sourcing activities, particularly if the Company continues significant
sourcing from Hong Kong.
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 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.
13
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 3, 2000, 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, Peru and Indonesia were on the priority
watch list and Mexico was on the secondary watch list.
In addition, the Clinton Administration has revived Super 301 (an even
more powerful portion of Special 301). 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. As of April 3, 2000, none of
the 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 expired by its terms on June 30, 1999. Although the USTR has
expressed support for extension of the GSP program and a bill extending the GSP
program through 2004 has been introduced in Congress, the likelihood of this
extension is uncertain. As introduced, the bill extending the GSP would make the
extension retroactive to June 30, 1999.
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
14
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
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 fiscal 1998),
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 merchandise. Over the past
several years and particularly in fiscal 1999 and 2000, the Company increased
its use of brochures and other merchandise image pieces mailed to customers and
made available at Chico's stores. In addition, in the fourth quarter of fiscal
2000, the Company began a national magazine advertising campaign in
approximately eight magazines. The Company intends on continuing to use and
expand its national magazine advertising and its use of direct mail through its
Passport customers, as well as, identifying "prospect" customers. During fiscal
2000, the Company expanded its efforts in this area and the cost associated with
this marketing increased to $3.5 million dollars from $1.7 million in fiscal
1999.
As an important part of its promotional program, Chico's 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, 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 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
15
upscale shopping districts and high-end malls, and women's apparel stores have
tended to over saturate these prime locations.
EMPLOYEES
As of January 29, 2000, the Company employed approximately 1,835
persons, approximately 48% of whom were full-time employees and approximately
52% of whom were part-time employees. The number of part-time employees
fluctuates during peak selling periods. As of the above date, 90% of the
Company's employees worked in Chico's stores, Chico's Outlet stores and in
direct field supervision, 3% worked in the distribution center and 7% 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 401K, 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 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
40% 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 194 Company-owned stores
existing as of March 31, 2000, sets forth (i) the number of leases that will
expire each year if the Company does not exercise 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):
16
LEASES EXPIRING EACH YEAR LEASES EXPIRING EACH YEAR
FISCAL YEAR IF NO RENEWALS EXERCISED IF ALL RENEWALS EXERCISED
------------------------------------- -------------------------------------- -------------------------------------
2001................ 11 8
2002................ 24 10
2003................ 22 13
2004 AND AFTER...... 137 163
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. The combined facilities comprise approximately 115,000 square
feet, consisting of approximately 85,000 square feet for distribution and
approximately 35,000 square feet for administrative and design offices. In
December 1999 the Company closed its woodshop, outsourced the fixture production
and reallocated the space for distribution activities.
The construction cost of the combined corporate headquarters,
distribution center and woodshop facility 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. Currently, the Company's World Headquarters secures a $5.2 million
mortgage loan which matures in 2003.
In the opinion of management, the existing headquarters facility should
provide sufficient warehouse capacity to service the Company's needs for its
basic retail operations for at least two years of future growth. Regarding the
corporate and administrative offices, the Company has engaged a general
contractor and has begun construction on a 32,000 square foot addition to its
existing corporate and administrative offices. It is anticipated that the
additional office facilities will be completed in early 2001 at a cost of
approximately $5 million.
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.
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 65 16 Chief Executive Officer, President, Chairman of the
Board and Director
Helene B. Gralnick 52 16 Senior Vice President-Design and Concept and Director
17
Charles J. Kleman 49 11 Executive Vice President-Finance, Chief Financial
Officer, Secretary/Treasurer and Director
Scott A. Edmonds 42 6 Chief Operating Officer and Assistant Secretary
Mori C. MacKenzie 49 4 Vice President-Director of Stores
Patricia A. Murphy 56 2 Vice President-General Merchandise Manager
Karen M. Glass 44 7 Vice President-Product Development and Design
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 1, 1993, at which time Jeffrey J. Zwick succeeded Mr. Gralnick
in this position. In connection with the November 7, 1994 resignation of Jeffrey
J. Zwick as Chief Executive Officer, President and a director of the Company,
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 been leading 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. On September 1, 1993, he was elected to the
additional position of Secretary/Treasurer, served as Senior Vice
President-Finance from January 1, 1996 through November 1996 and effective
December 3, 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 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 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.
18
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 August 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, and in June 1999, she was elected 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.
Karen M. Glass has been with the Company since January 1993 when she
was hired as the Manager of Quality Control in the Company's Istanbul, Turkey
office which was closed in 1995. In 1995, she moved to the United States and was
promoted to Director of Production. In June 1999, she was elected Vice
President-Product Development and Design. From 1979-1991, she was involved in
design and production of sportswear lines for several New York and Ohio-based
companies in the sportswear industry.
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.
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded on the Nasdaq National Market
System. 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 since the Company's initial public offering are set forth in the
Company's 2000 Annual Report to Stockholders and are incorporated herein by
reference.
On March 31, 2000, the last reported sale price of the Common Stock on
the Nasdaq National Market System was $16 61/64 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 the sum of $16 million plus 50% of aggregate net income after fiscal 1999.
19
The approximate number of equity security holders of the Company is as
follows:
Number of Record Holders
Title of Class as of March 31, 2000
-------------- --------------------
Common Stock, par value $.01 per share 417
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.
PRO FORMA
ONE MONTH FISCAL YEAR
FISCAL YEAR PERIOD ENDED
ENDED ENDED (UNAUDITED)
-------------- -------------- ---------------- -------------
DECEMBER 31, JANUARY 28, JANUARY 28, FEBRUARY 1,
1995 1996 (1) 1996 (1) 1997 (1)
(52 WEEKS) (4 WEEKS) (52 WEEKS) (53 WEEKS)
-------------------------------------------------------------
(In thousands, except per share and selected operating)
OPERATING STATEMENT DATA:
Net sales by company stores $ 57,636 $ 3,619 $ 58,091 $ 62,318
Net sales to franchisees (2) 2,707 128 2,672 1,755
--------- --------- --------- ---------
Net sales 60,343 3,747 60,763 64,073
Cost of goods sold (3) 26,115 1,913 26,484 26,713
--------- --------- --------- ---------
Gross profit 34,228 1,834 34,279 37,360
General, administrative and
store operating expenses 30,743 2,358 30,842 33,738
--------- --------- --------- ---------
Income (loss) from operations 3,485 (524) 3,437 3,622
Interest income (expense), net (621) (39) (620) (404)
--------- --------- --------- ---------
Income (loss) before taxes 2,864 (563) 2,817 3,218
Provision for income taxes 1,160 (225) 1,141 1,287
--------- --------- --------- ---------
Net income (loss) $ 1,704 $ (338) $ 1,676 $ 1,931
========= ========= ========= =========
Basic net income (loss) per share (4) $ .11 $ (.02) $ .11 $ .12
========= ========= ========= =========
Diluted net income (loss) per share (4) $ .11 $ (.02) $ .10 $ .12
========= ========= ========= =========
Weighted average shares
outstanding-diluted (4) 15,676 15,554 15,672 15,952
========= ========= ========= =========
FISCAL YEAR ENDED
-------------- --------------- ------------
JANUARY 31, JANUARY 30, JANUARY 29,
1998 1999 2000
(52 WEEKS) (52 WEEKS) (52 WEEKS)
-------------------------------------------
(In thousands, except per share and selected operating)
OPERATING STATEMENT DATA:
Net sales by company stores $ 73,597 $104,981 $152,473
Net sales to franchisees (2) 1,742 1,761 2,529
--------- --------- ---------
Net sales 75,339 106,742 155,002
Cost of goods sold (3) 33,240 44,197 64,950
--------- --------- ---------
Gross profit 42,099 62,545 90,052
General, administrative and
store operating expenses 37,185 47,411 65,246
--------- --------- ---------
Income (loss) from operations 4,914 15,134 24,806
Interest income (expense), net
(372) (151) 177
-------- -------- ---------
Income (loss) before taxes 4,542 14,983 24,983
Provision for income taxes 1,772 5,844 9,494
--------- --------- ---------
Net income (loss) $ 2,770 $ 9,139 $ 15,489
========= ========= =========
Basic net income (loss) per share (4) $ .18 $ .56 $ .91
========== ========== =========
Diluted net income (loss) per share (4) $ .17 $ .54 $ .88
========= ========== =========
Weighted average shares 16,066 17,060 17,681
outstanding-diluted (4) ========= ========= =========
20
PRO FORMA
ONE MONTH FISCAL YEAR
FISCAL YEAR PERIOD ENDED
ENDED ENDED (UNAUDITED)
------------- -------------- ------------- -------------
DECEMBER 31, JANUARY 28, JANUARY 28, FEBRUARY 1,
1995 1996 (1) 1996 (1) 1997 (1)
(52 WEEKS) (4 WEEKS) (52 WEEKS) (53 WEEKS)
------------- -------------- ------------- -------------
SELECTED OPERATING DATA:
Company stores at period end (5) 111 111 111 123
Franchise stores at period end (5) 12 12 12 10
--------- --------- --------- ---------
Total stores at period end (5) 123 123 123 133
======== ======== ======== ========
Average net sales per net selling
store (in thousands) (6) $ 527 N/A $ 537 $ 523
Average net sales per net selling
square foot at company
stores (6) $ 413 N/A $ 405 $ 396
Percentage increase (decrease) in
comparable company store
net sales (10.4)% 1.4% (10.1)% (1.3)%
BALANCE SHEET DATA (at year end):
Total assets $ 27,009 N/A $ 27,681 $31,248
Stockholders' Equity 15,959 N/A 15,621 18,021
Debt and lease obligations, less
current maturities 5,896 N/A 7,131 7,008
Working capital $4,536 N/A $5,419 $6,585
FISCAL YEAR ENDED
-------------- ------------- ------------
JANUARY 31, JANUARY 30, JANUARY 29,
1998 1999 2000
(52 WEEKS) (52 WEEKS) (52 WEEKS)
-------------- ------------- ------------
SELECTED OPERATING DATA:
Company stores at period end (5) 132 154 191
Franchise stores at period end (5) 9 8 9
---------- ---------- ----------
Total stores at period end (5) 141 162 200
======== ======== ========
Average net sales per net selling
store (in thousands) (6) $ 578 $ 745 $ 904
Average net sales per net selling
square foot at company
stores (6) $ 449 $ 574 $ 675
Percentage increase (decrease) in
comparable company store
net sales 10.7% 30.3% 23.3%
BALANCE SHEET DATA (at year end):
Total assets $34,472 $49,000 $70,316
Stockholders' Equity 21,456 34,303 52,641
Debt and lease obligations, less
current maturities 6,703 6,713 6,839
Working capital $ 8,970 $19,852 $26,389
(1) In December 1996, the Company elected to change its fiscal year end,
effective January 29, 1996, from a 52/53 week fiscal year, ending on
the Sunday closest to December 31st to a 52/53 week fiscal year ending
on the Saturday closest to January 31st. The selected financial data
presents financial results for, among other periods, the short one
month transition period in January 1996, and for a pro forma fiscal
year ending January 28, 1996.
(2) Includes franchisee fees of under $10,000 in certain fiscal years.
(3) Cost of goods sold includes distribution and design costs, but does not
include occupancy cost.
(4) Restated to give retroactive effect for the 2 for 1 stock split payable
in January 2000.
(5) For information concerning stores opened, acquired, sold and closed,
see "Business - Store Locations."
(6) 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 fiscal
1997, 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.
21
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 January 29, 2000 is set
forth under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's 2000 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 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 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 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 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
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
Annual Meeting proxy statement and is incorporated herein by reference.
22
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 February 25,
2000, which is included in the Company's Annual Report to
Stockholders for the fiscal year ended January 29, 2000, are
incorporated herein by reference.
- Report of Independent Certified Public Accountants.
- Statements of Income for the fiscal years ended January 29,
2000, January 30, 1999 and January 31, 1998.
- Balance Sheets, January 29, 2000 and January 30, 1999.
- Statements of Stockholder's Equity for the fiscal years
ended January 29, 2000, January 30, 1999, and January 31,
1998.
- Statements of Cash Flows for the fiscal years ended January
29, 2000, January 30, 1999, and January 31, 1998.
- Notes to 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) filed
with the Commission on February 10, 1993, as amended)
3.1* Amended and Restated Articles of Incorporation (Filed as Exhibit 3.3
to the Company's Form 10-Q for the quarter ended April 4, 1993, as
filed the Commission on May 18, 1993)
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) 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 (Filed as Exhibit 3.3
to the Company's Form 10-Q for the quarter ended April 4, 1993, as
filed with the Commission on May 18, 1993)
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) filed
with the Commission on February 10, 1993, as amended)
23
10.1* Employment Agreement for Marvin J. Gralnick (Filed as Exhibit 10.1
to the Company's Form 10-K for the year ended January 1, 1995, as
filed with the Commission on April 1, 1995)
10.2* Employment Agreement for Helene B. Gralnick (Filed as Exhibit 10.1
to the Company's Form 10-K for the year ended January 1, 1995, as
filed with the Commission on April 1, 1995)
10.3* Employment Agreement for Charles J. Kleman (Filed as Exhibit 10.6.5
to the Company's Form10-Q for the quarter ended April 4, 1993, as
filed with the Commission on May 18, 1993)
10.4* 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)
10.5* 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)
10.6* 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)
10.7* 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)
10.8* 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)
10.9* 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)
10.10* 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)
10.11* 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)
10.12 Third Amendment to Chico's FAS, Inc. 1993 Employee Stock Purchase
Plan
10.13 Fourth Amendment to Chico's FAS, Inc. 1993 Employee Stock Purchase
Plan
10.14* 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)
10.15* 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)
10.16* Nonemployee Director's Stock Option Agreement by and between Chico's
FAS, Inc., and Verna K. Gibson (Filed as Exhibit 10.6 to the
Company's Form 10-Q for the quarter ended July 2, 1995, as filed
with the Commission on August 14, 1995)
10.17* Nonemployee Director's Stock Option Agreement by and between Chico's
FAS, Inc., and Verna K. Gibson (Filed as Exhibit 10.3 to the
Company's Form 10-Q for the quarter ended June 30, 1996, as filed
with the Commission on August 13, 1996)
24
10.18* 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)
10.19* 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)
10.20* 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)
10.21* 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)
10.22* 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)
10.23* 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)
10.24* 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)
10.25* 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)
10.26* Amended and Restated Revolving Line of Credit and Reimbursement
Agreement dated October 13, 1993 by and between Chico's FAS, Inc,
and NationsBank of Florida, National Association (Filed as Exhibit
10.38 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)
10.27* Consolidated Amendment to Loan Documents dated as of October 13,
1993, by and between Chico's FAS, Inc., and NationsBank of Florida,
National Association (Filed as Exhibit 10.39 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)
10.28* First Amendment to Amended and Restated Revolving Line of Credit and
Reimbursement Agreement dated December 20, 1993 by and between
Chico's FAS, Inc. and NationsBank of Florida, National Association
(Filed as Exhibit 10.43 to the Company's Form 10-K for the year
ended January 2, 1994, as filed with the Commission on April 1,
1994)
10.29* Second Amendment to Amended and Restated Revolving Line of Credit
and Reimbursement Agreement dated June 14, 1994 by and between
Chico's FAS, Inc., and NationsBank of Florida, National Association
(Filed as Exhibit 10.48 to the Company's Form 10-Q for the quarter
ended October 2, 1994, as filed with the Commission on November 15,
1994)
10.30* Third Amendment to Amended and Restated Revolving Line of Credit and
Reimbursement Agreement dated December 9, 1994 by and between
Chico's FAS, Inc., and NationsBank of Florida, National Association
(Filed as Exhibit 10.49 to the Company's Form 10-K for the year
ended January 1, 1995, as filed with the Commission on April 1,
1995)
10.31* Fourth Amendment to Amended and Restated Revolving Line of Credit
and Reimbursement Agreement dated February 14, 1995 by and between
Chico's FAS, Inc., and NationsBank of Florida,
25
National Association (Filed as Exhibit 10.50 to the Company's Form
10-K for the year ended January 1, 1995, as filed with the
Commission on April 1, 1995)
10.32* Second Amended and Restated Credit Agreement dated September 28,
1995 by and between Chico's FAS, Inc. and NationsBank of Florida,
National Association (Filed as Exhibit 10.1 to the Company's Form
10-Q for the quarter ended October 1, 1995, as filed with the
Commission on November 13, 1995)
10.33* Third Amended and Restated Credit Agreement by and between Chico's
FAS, Inc. and NationsBank (South), N. A. (Filed as Exhibit 10.57 to
the Company's Form 10-K for the year ended December 31, 1995, as
filed with the Commission on April 1, 1996)
10.34* First Amendment to Third Amended and Restated Credit Agreement by
and between Chico's FAS, Inc. and NationsBank (South), N. A. (Filed
as Exhibit 10.7 to the Company's Form 10-Q for the quarter ended
September 29, 1996, as filed with the Commission on November 12,
1996)
10.35* Second Amendment to Third Amended and Restated Credit Agreement by
and between Chico's FAS, Inc. and NationsBank (South), N. A. (Filed
as Exhibit 10.49 to the Company's Form 10-K for the year ended
January 31, 1998, as filed with the Commission on April 27, 1998)
10.36* Third Amendment to Third Amended and Restated Credit Agreement dated
December 8, 1998 by and between Chico's FAS, Inc. and NationsBank
(South), N.A. (Filed as Exhibit 10.35 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* 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)
10.38* 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)
10.39* 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)
10.40* Nonemployee Stock Option Agreement by and between Chico's FAS, Inc.
and Verna K. Gibson dated May 13, 1997 (Filed as Exhibit 10.1 to the
Company's Form 10-Q for the quarter ended August 2, 1997, as filed
with the Commission on September 5, 1997)
10.41* Nonemployee Stock Option Agreement by and between Chico's FAS, Inc.
and Ross E. Roeder dated June 17, 1997 (Filed as Exhibit 10.2 to the
Company's Form 10-Q for the quarter ended August 2, 1997, as filed
with the Commission on September 5, 1997)
10.42* Nonemployee Stock Option Agreement by and between Chico's FAS, Inc.
and John W. Burden dated June 17, 1997 (Filed as Exhibit 10.3 to the
Company's Form 10-Q for the quarter ended August 2, 1997, as filed
with the Commission on September 5, 1997)
10.43* Nonemployee Stock Option Agreement by and between Chico's FAS, Inc.
and Verna K. Gibson dated June 17. 1997 (Filed as Exhibit 10.4 to
the Company's Form 10-Q for the quarter ended August 2, 1997, as
filed with the Commission on September 5, 1997)
26
10.44* Nonemployee Stock Option Agreement by and between Chico's FAS, Inc.
and Ross E. Roeder dated February 10, 1998 (Filed as Exhibit 10.60
to the Company's Form 10-K for the year ended January 31, 1998, as
filed with the Commission on April 27, 1998)
10.45* Nonemployee Stock Option Agreement by and between Chico's FAS, Inc.
and John W. Burden dated February 10, 1998 (Filed as Exhibit 10.61
to the Company's Form 10-K for the year ended January 31, 1998, as
filed with the Commission on April 27, 1998)
10.46* Nonemployee Stock Option Agreement by and between Chico's FAS, Inc.
and Verna K. Gibson dated February 10, 1998 (Filed as Exhibit 10.62
to the Company's Form 10-K for the year ended January 31, 1998, as
filed with the Commission on April 27, 1998)
10.47* 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)
10.48* Nonemployee Stock Option Agreement by and between Chico's FAS, Inc.
and John W. Burden dated June 9, 1998 (Filed as Exhibit 10.3 to the
Company's Form 10-Q for the quarter ended August 1, 1998, as filed
with the Commission on September 2, 1998)
10.49* 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)
10.50* 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)
10.51 First Amendment to Chico's FAS, Inc. Non-Employee Directors Stock
Option Plan
13 Annual Report to Stockholders
22 Subsidiaries of Company
23 Consent to use of Report of Independent Certified Public Accountants
27 Financial Data Schedule
(b) Reports on Form 8-K
The company did not file any reports on Form 8-K during the fifty-two
weeks ended January 29, 2000.
27
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 25, 2000
---------------------- -----------------
MARVIN J. GRALNICK, Chief Executive Officer Date
and President
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 25, 2000
----------------------
-----------------
MARVIN J. GRALNICK, Chief Executive Officer, Date
President, Director
(principal executive officer)
/s/ Charles J. Kleman April 25, 2000
------------------------------------------------------------------ -----------------
CHARLES J. KLEMAN, Chief Financial Officer, Date
Director
(principal financial and accounting officer)
/s/ Helene B. Gralnick April 25, 2000
------------------------------------------------------------------ -----------------
HELENE B. GRALNICK, Senior Vice President - Date
Design and Concept and Director
/s/ Verna K. Gibson April 25, 2000
------------------------------------------------------------------ -----------------
VERNA K. GIBSON, Director Date
/s/ John W. Burden April 25, 2000
------------------------------------------------------------------ -----------------
JOHN W. BURDEN, Director Date
/s/ Ross E. Roeder April 25, 2000
------------------------------------------------------------------ -----------------
ROSS E. ROEDER, Director Date
28