Chico’s FAS, Inc. ( CHS) Analyst Day Call March 06, 2012 08:30 am ET Executives Todd Vogensen - VP, IR Dave Dyer - President, CEO & Director Cinny Murray - Brand President - Chico's Donna Colaco - Brand President - White House | Black Market Mary Lou Kelly - SVP, E-Commerce Kent Kleeberger - EVP, COO Laurie Van Brunt - Brand President - Soma Intimates Sheryl Clark - Brand President - Boston Proper Pam Knous - EVP, CFO Analysts Presentation Operator Todd Vogensen
Of course we hope you enjoy the great products, that is surrounding you this morning. And last, just a couple of administrative logistics. So first if you have breaking sounds on your cellphone, you will be (inaudible). Also, we did provide you Wi-Fi login and password as part of the agenda that is sitting in front of you. So feel free to connect and we do have a charging station over here off to your left that you can use in case your electronic needs a little bit of an energy boost. This meeting is being webcast, so the presentation will be available on chicosfas.com after the meeting. Also for those of you who are physically here, we will have copies of the presentation on flash drives that is at the back table after the meeting is completed.Last thing, the restrooms are up here right. We do not have a formal scheduled breaks during lunchtime. So feel free to use the facilities or get some coffee or snacks out as needed and at the end of the day we are gong to bring up all the presenters, so that you will have ample opportunity to ask questions. At that point we would like to keep the presentation going without questions and so we do get to the end of the day and with that I would like to introduce our President and CEO Dave Dyer. Dave Dyer Thank you Todd and welcome to Fort Myers. This is a great day in Fort Myers and we are delighted that you are joining us in person or via our webcast. As Todd just reviewed we -- wow that is loud, Troy. Thank you. And ever anything goes wrong I just say oh Troy and he fixes it. So again as he just reviewed, we have a great line up for you here today featuring I believe the best executive team in women specialty retail.
I am extremely proud to lead this team and appreciate the opportunity to showcase their talent and our business promise. Before I kickoff the meeting with the state of the union for Chico’s FAS once again highlighting our growth colors and setting our framework for today’s presentation, I do want to briefly recap the highlights of 2011.EPS of $0.84, a 31% increase for the year representing our third consecutive year of double-digit increases in earnings per share, comparable store sales of 8.2% capping off a three-year stack of 24%. On the cash flow, positive for the first time, a $132 million of capital investments in our businesses, primarily store; $213 million acquisition of Boston Proper generating a positive contribution in its first full quarter and a significant return of excess cash to shareholders totaling $217 million and we still ended the year with $248 million in liquidity and no debt. And importantly the right leadership team is in place. Since becoming CEO, I basically have rebuilt my team with the exception of Donna who is the President of White House | Black Market who had joined us in 2007, all cheers of change. By the end of the session today I hope you will agree with me that we are well poised for the next phase of our exciting growth trajectory. So let’s begin the Chico’s FAS state of the union. Chico’s FAS is a cultivator of brands, serving the lifestyle needs of fashion savvy women. We put customers first in everything that we do. Our objective is to be the most customer-centered company in women’s specialty apparel, offering compelling fashion-right merchandise, providing the most amazing personal service, forging deep relations through all of our interactions with our customers, no matter what channel. Our commitment is to optimize each of our brand’s considerable potential, positioning ourselves for sustained, double-digit growth through relevance to our customers’ lifestyle in their shopping channel of choice.
We will execute our plans, driving for excellence across all function, setting priorities to ensure we meet our objectives and at the same time we will create the most amazing place to work, learn and grow by attracting and developing and retaining talent and aligning our corporate culture around the following values, you see some of them over there on the wall.Customers are our top priority. Customers first, we expect honestly and trustworthiness 100% of the time. We have a passion for fashion and we love what we do. We have respect for our associates, our customers and our business partners. Our entrepreneurial spirit makes getting things done productive and we like to have fun. Finally we are committed to fostering a high performance culture across the entire company. Now a recap of pillars of our strategic growth plan; first, organic growth that delivers the trademark’s most amazing personal service. Second, innovative and highly creative marketing plans, built around definable and desirable product target audiences. Third, expense leverage, through best-in-class cared services and four, optimizing the potential of all four brands. I covered our domestic organic growth opportunities with you in detail in the February 22nd call and today each of our brand Presidents will further highlight their specifics with you in their presentation. Just let me say that we are confident in our ability to open 120 stores domestically per year through the next several years, continuing to be one of the few specialty retailers that can dramatically and profitably grow square footage in the United States. This brings us up to the question of whether or not there's an international opportunity for any of our brands. And if so, which country? Which brand? What's the timing? What's the size of the price? What are the risks, etcetera? We do have some promising indications from the read of our international online sales. I am pleased to share with you that we have added [Rossman Kurt] to our team as Vice President of International Operations. Ross joins us from the Gap, where he had the oversight responsibilities for the Middle East, Eastern Europe and Africa. He is our international department of one, moving here from Dubai, reporting to me and since June he has jumpstarted our efforts to define the path forward.
We are in the first stages of the assessment but early indications point to the strength of our brands’ possessions in the international arena, whether through our own organic development, strategic partnerships or franchising or e-commerce. We look forward to updating you in the future on this exciting initiative as it unfolds.The second pillar, innovative marketing; will be discussed by each of the four brand presidents, including a sampling of the few of the TV spots and some behind the scenes footage of some of our recent shoots. Also, Mary Lou Kelly, our Senior VP of E-commerce will update you on the many activities that she oversee, whether it be digital acceleration, or garnering deeper customer insight by identifying individual customer behaviors or more targeted communications or ramping up our loyalty program. Our direct-to-consumer effort is the priority objective, common across all brands to create top-of-mind awareness and to maximize our opportunity to grow multi-channel customer. Multi-channel customers, as we discussed last year and you know our most important customers, as they spend two to three times that of anybody, and who only shop in one individual channel. We’re organizing ourselves around this new reality to better serve our customers in their medium of choice. When we announced the Boston Proper transaction back in August, I upped the company goals of online sales to 20% from 15%, as that acquisition had us bumping at the lower target. The role of E-commerce is different for each of our brands. Today, Boston Proper is available only online. Soma with its small fleet of stores needs a robust online offering to attain a national customer and certainly our national TV has supported that effort. White House | Black Market customers are prolific users of all digital medium. It is interesting to see what happens online when we do something like our recent TV commercials. Even the Chico’s customers use these online tools and their usage is growing at a double-digit phase.
We are well on track for our goal of 20% of our total sales through our website in the next several years with each brand having its own unique target and its own unique digital initiative within the brand. We will continue to commit resources to this important traffic building initiative and we will be an innovator across all medium to further distinguish and distance ourselves from our competition.Our third pillar, expense leverage, is the foundational underpinning of our ability to maximize the potential of each brand. We have aspirations to deliver the best-in-class shared services, be it in infrastructure investment and distributions in technology to leverage our sourcing department or to leverage our human resource leadership with the development of our people across all brands. We will be implementing state of the art tool and functionality for each of our brands at a level no brand can afford individually. All this, to achieve the sales and profit targets that we had set. Kent will share with you two of our more significant initiatives that are well underway this morning. And last but not least, the fourth pillar of optimizing the potential of each of our four brands. Our strategic vision is for this to be a company of high performing brand. What does that require? In addition, to providing customer right and compelling fashion which really is job number one. We need to provide it when and where she wants to buy it. It requires savvy leadership, stellar operational execution and sufficient capital resources to fund our strategic initiatives. These four elements, fashion, savvy leadership, stellar operational execution and capital, this company has in abundance. To ensure our success we’ve also created a structure that allows each brand team to focus on the true differentiator. And that is design, merchandizing, marketing and all aspects of customer relations. The brand presidents have full autonomy over these areas and can focus all of their energy here with a confidence that the Shared Service teams I just mentioned will provide the necessary services in a cost-effective and efficient and expert way.
Another key ingredient in our ability to focus and align resources is that we are exclusively focused on women’s apparel for which Chico's FAS, has defined as women aged 30 plus. Women’s apparel market totals $108 billion in the US with specialty marketing or specialty apparel approximating $40 billion. This is a space we know well and intend to continue to know it better than anyone else.Over the last three years, the women’s specialty apparel segment has grown by 5% which contrast to our three year CAGR of 11.5%. To not only win, we are clearly demonstrating our ability to not only win, but to truly outperform and grow market care in this space even in difficult times. In fact, this exclusive focus on women’s apparel is an overarching principle that guides our strategic path as exhibited in the recent acquisition of a very complimentary brand, Boston Proper, as well as it serves as a unifying element for our brands, all playing in the same field, but remaining uniquely differentiated from each other. Our compensation philosophy is also a critical element to our success. Our compensation program is designed to attract and retain talented leaders with an emphasis on pay per performance. Our business imperatives must be aligned across the organization to drive increasing shareholder value through both earnings and return on net assets over both the long and the short-term. In 2012, we further enhanced our program by eliminating options for the top executives and increasing performance based shares based on RONA, [return on net assets], appropriate targets are set by brand and sufficient compensation is at risk to align the interest of management and shareholder. My role in all of this is to set the overall vision for Chico's FAS, to establish goals and priorities for each brand, to allocate capital to the highest priority initiatives and to ensure the non-strategic activities are managed well by our Shared Services organization.
Ultimately, over the coming years, our expectation is that our actions will culminate in achieving mid-teen operating margin by leveraging the corporate and store growth occupancy expenses through sales growth, growing each of our brand’s online sales, maximizing profitable and increase investments such as the recent Boston Proper and continued gross margin improvement through sourcing and reduced promotional markdown.Our objective today is to share with you the considerable Promus of Chico's FAS. Our portfolio of high-performing brands with compelling products, a seasoned, savvy leadership team with huge growth for our company and a great profit upside. I am sure you will find the presentation that follows insightful. Now without further ado, first up, our Brand President for Chico’s and our Brand President for Chico’s and White House | Black Market, Cinny Murray and Donna Noce. Cinny? Cinny Murray Good morning. I am Cinny Murray, Chico’s Brand President. I am the Chico’s woman. I was born in 1957. Every year, more than 4 million women join my generation. That’s 6,000 a day, more than 200 per hour, about four per minute. That’s a lot of new friends, that’s a lot of customers to love. But there is more, more beyond the obvious. Read the rest of this transcript for free on seekingalpha.com