Chico's Fas Investor Presentation Q1 2017

Chico's Fas Investor Presentation Q1 2017

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  1 Investor Presentation
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  2 Forward-Looking Language SAFE HARBORSTATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Certain statements contained herein may contain certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect our current views with respect to certain events that could have an effect on our future financial performance, including but without limitation, statements regarding our plans, objectives, and future success of our store concepts, the implementation of our previously announced restructuring program, and implementation of our program to increase the sales volume and profitability of our existing brands through four previously announced focus areas. These statements may address items such as future sales, gross margin expectations, SG&A expectations, operating margin expectations, planned store openings, closings and expansions, future comparable sales, inventory levels, and future cash needs. These statements relate to expectations concerning matters that are not historical fact and may include the words or phrases such as "expects," "believes," "anticipates," "plans," "estimates," "approximately," "our planning assumptions," "future outlook," and similar expressions. Except for historical information, matters discussed in such oral and written statements are forward-looking statements. These forward-looking statements are based largely on information currently available to our management and on our current expectations, assumptions, plans, estimates, judgments and projections about our business and our industry, and are subject to various risks and uncertainties that could cause actual results to differ materially from historical results or those currently anticipated. Although we believe our expectations are based on reasonable estimates and assumptions, they are not guarantees of performance and there are a number of known and unknown risks, uncertainties, contingencies, and other factors (many of which are outside our control) that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Accordingly, there is no assurance that our expectations will, in fact, occur or that our estimates or assumptions will be correct, and we caution investors and all others not to place undue reliance on such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, general economic and business conditions, conditions in the specialty retail industry, the availability of quality store sites, the ability to successfully execute our business strategies, the ability to achieve the results of our restructuring program, the ability to achieve the results of our four focus areas, the integration of our new management team, and those described in Item 1A, “Risk Factors” and in the “Forward-Looking Statements” disclosure in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K. There can be no assurance that the actual future results, performance, or achievements expressed or implied by such forward-looking statements will occur. Investors using forward-looking statements are encouraged to review the Company's latest annual report on Form 10-K, its filings on Form 10-Q, management's discussion and analysis in the Company's latest annual report to stockholders, the Company's filings on Form 8-K, and other federal securities law filings for a description of other important factors that may affect the Company's business, results of operations and financial condition. All written or oral forward-looking statements that are made or attributable to us are expressly qualified in their entirety by this cautionary notice. The Company does not undertake to publicly update or revise its forward looking statements even if experience or future changes make it clear that projected results expressed or implied in such statements will not be realized.
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  3  591 boutiquesacross the U.S., Canada and Puerto Rico  116 outlets  61 Chico’s franchise locations in Mexico  423 boutiques across the U.S., Canada and Puerto Rico  71 outlets  275 boutiques across the U.S. and Puerto Rico  19 outlets  30 franchise locations in Mexico Intimate apparel brand that caters to a vastly underserved intimates market focusing on women 35+ years Aspirational and sophisticated styles fill a niche for fashionable women 35+ years Chico’s FAS Operates a Portfolio of Women’s Fashion Apparel Brands Iconic brand with a cult-like following of loyal customers of women 45+ years 1 All store count as of Q4 2016 1 1 1 FY16 Total Revenue $2.5 billion 1501 boutiques across the U.S. and Puerto Rico2 91 franchise locations in Mexico1 1286 52%846 34% 344 14% In Millions ® ® ®
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  4 Our Shareholder ValueProposition Is Based Upon Key Elements Which Bode Well For Sustainable Long-term Growth And Value Creation We are confident in our future and pleased with our progress Commitment to long-term Shareholder value creation Intensified financial discipline Leading omni-channel capabilities Three powerful, differentiated brands that serve attractive consumer segments with moderate to high income levels Loyal customer base we know well through capturing customer information on over 90% of our transactions Commitment to service that we believe is unique
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  5 Phase I Development offour focus areas to drive profitable growth and value creation Phase II Executing on cost savings and operational efficiency initiatives to prepare Chico’s FAS for the third phase Phase III Defining and igniting new sources of revenue for our iconic brands The Retail Industry is Changing at a Rapid Pace …We are Transforming Our Company for Long-Term Success in Three Phases We completed Phase I and are now actively executing on Phases II and III
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  6 One Year AgoWe Prioritized Four Clear Focus Areas to Improve Performance and Increase Shareholder Value Evolve the Customer Experience Integrate our digital and physical retail environments to have the agility to meet our customers’ expectations as their relationship with digital platforms evolves Strengthen our Brands’ Positioning Leverage the connection we have with our loyal customers and attract new customers through marketing, brand-representative merchandise, and unparalleled service Leverage Actionable Retail Science Develop algorithms and models to drive and enable real-time decision-making to improve how we go to market, stock our product, interact with our customers and how they interact with us Sharpen our Financial Principles Drive further savings through leveraging our shared services model, optimizing our expenses, driving a high ROI on marketing spend and facilitating value creation Phase I
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  7 We are Executingon our Four Focus Areas Across our Brands  OptimizeWebsite with Flexible Framework  Replacement of “Locate” System to Enhance Ship from Store  Enhance Customer Book  New Brand and Marketing Leadership  Refining Brand positioning at Chico’s and Soma  Brand-right Core Offerings – Petites, Zenergy, Travelers, Swim, Sport, Dresses, Denim, Wovens, Accessories  Customer Data Used to Optimize Merchandise Cadence andChoice Counts  Psychographic Analysis to Refine Chico’s Brand Positioning  Behavioral Segmentation for Personalized Marketing Evolve the Customer Experience Phase II Strengthen Brand Positioning Leverage Actionable Retail Science Sharpen Financial Principles  Strategic Promotional ActivityAcross Brands to Drive Merchandise Margin Expansion  Conservative Inventory Management with Ability to Chase  DisciplinedCapital and ExpenseAllocation  Active and Meaningful Shareholder Distribution
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  8 Last Year, WeAnnounced Cost Savings and Operational Efficiency Initiatives with Expected Annual Savings of $100-$110 Million Within the First Year of our Announced Goal, We Realized Savings of $30 Million And We Expect to Save $50 million this Year 1 2 3 4 120 - 155 bps Supply Chain Efficiency $30 - $40 million 100 bps 40 - 80 bps 100 bps Marketing Realignment & Spend Optimization Non-Merch. Procurement Organizational Redesign $30 million $15 million $25 million Supply Chain Efficiency Marketing Realignment & Spend Optimization Non-Merchandise Procurement Organizational Redesign Announced Cost Savings $100-$110 mm of Total Savings Phase II
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  9 We are onTrack to Achieving Double Digit Operating Margin Operating Margin Bridge 5.2% 2.0-2.5% 2.0-2.5% 0.5 -1.0% 10% + LTM Jul-16 Gross Margin SG&A Growth Opportunities Double Digit Margin FY16 Operating Margin Rate Improved 130 bps to 7%, Driven by Improvement in Gross Margin (+60bps) and SG&A (+70bps) Phase II
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  10 G International Growth Remainsa Virtually Untapped Opportunity for Us After testing and learning with wholly-owned and franchised international operations, we are deepening our existing market penetration and focusing on entering select new markets Test & Learn Expand Sustain  Build foundational capabilities  Acquire in-market know-how  Begin building a global brand Phase 1 - Test & Learn Establish a presence in select lower risk markets  Enter Canada first due to its geographical and cultural proximity to the U.S.  Enter franchise market with geographic and cultural proximity – Mexico Phase 2 - Expand Deepen penetration in existing markets and selectively enter new markets  Continue to expand in markets with geographical and psychological proximity and advancing socio-economic development  Deploy business model in geographically distant markets with similar cultural proximity Phase 3 - Sustain Drive productivity and operational efficiency  Improve operational efficiency with current franchisees  Explore growth opportunities in culturally diverse markets Profit Investment  Increase penetration, customize capabilities  Capitalize and scale  Develop brand globally, locally Time  Expand to more diverse markets  Drive comps  Generate cashflow ComplexityofOperations International Development Model Phase III
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  11 53% 28% 22% 19% 18% 17%16% 7% 0% Guess Abercrombie Gap Lululemon American Eagle Children's Place Kors Lbrands Express Median : 18% There Are Significant Expansion Opportunities in Latin America and EMEA We Can Target International Opportunities as a Lever for Long-Term Growth Please click on the "Save Custom Layout" button after positioning this placeholder on the slide to preserve it. Select Peer International Sales as % of Revenue1 Source: Euromonitor 1 Percentage of CY2015 total sales outside of the United States Apparel Retail Market Growth by Region 2.1 % 2.5 % 2.2 % 10.0 % 8.5 % 7.4 % 7.6 % 1.4 % 0.1 % 3.4 % 3.7 % 3.4 % 22.5 % 11.9 % 7.1 % 7.0 % 3.0 % 2.4 % USA Canada North America Latin America Middle East and Africa Asia Pacific Eastern Europe Australia Western Europe 2010 - 2015 CAGR 2016E - 2020E CAGR Phase III
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  12 We Also HaveOpportunity For Partnerships, As We Follow Our Loyal Customers Where Life Takes Them Forming a new business development team as part of our organizational redesign Tasked with seeking new avenues of revenue growth for our brands Thoughtful and methodical approach to growth International Partnerships Licensing 1 2 3 Phase III
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  13 We Are Well-Positionedfor Profitable Growth and Value Creation Powerful, Iconic and Differentiated Brands Strong Customer Loyalty Leading Omni- Channel Capabilities Significant Operational Improvement Changes Underway Talented and Seasoned Management Team 1 2 3 4 5
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  14 Appendix
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  15 Over the Last10 Years, We Have Demonstrated Consistent and Robust Free Cash Flow Generation… Free Cash Flow Over Time Source: Company filings and Capital IQ. Note: Free cash flow is calculated as cash flow from operations, less capital expenditures. With our announced cost reduction and operating efficiency initiatives, free cash flow will only continue to improve Economic Recession Economic RecoveryEconomic Growth $70.7 $6.4 $(5.2) $147.5 $166.6 $123.4 $203.6 $98.2 $162.7 $112.2 $199.1 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013A 2014A 2015A 2016A
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  16 …Enabling Our CapitalAllocation Strategy Focused on Value Creation Chico’s FAS Capital Allocation Strategy Since 2010, Over $1.2 Billion has been Returned to Shareholders Source: Company filings and Capital IQ. Note: $ figures may not sum to total due to rounding. 1 Capital returned includes dividends and share repurchases, which are calculated gross of withholding tax for comparability with peers; free cash flow is calculated as cash flow from operations, less capital expenditures. Peers as defined in Chico’s FAS proxy statement. Since 2015, $491 million returned to shareholders through dividends and share repurchases, representing 1.6x free cash flow1 $28 $34 $35 $38 $46 $44 $42 $19 $183 $112 $252 $18 $303 $102 $48 $217 $146 $290 $64 $347 $144 2010A 2011A 2012A 2013A 2014A 2015A 2016A Dividends Share Repurchases  Strong balance sheet with minimal debt  Capital expenditures declining over time (3% of revenues in the medium term) as investments in existing stores and technology replace former store growth strategy  Active and meaningful share repurchase program, — returned 118% of free cash flow since 2010 vs. a median of 99% for peers  Meaningful dividend program, with a 2.7% dividend yield and moderate historical annual increases