Chico's FAS Inc.’s (CHS - Snapshot Report) first-quarter fiscal 2015 adjusted earnings of 28 cents per share came in line with the Zacks Consensus Estimate, rising 7.7% year over year.

Including one-time items, the company reported earnings of 22 cents, down 15.4% year over year.

Chico's Fas Inc. - Earnings Surprise | FindTheCompany

Quarter in Detail

Net sales climbed 1.7% year over year to $693.3 million in the quarter. The year-over-year improvement in the top line was mainly driven by the opening of 56 new stores in the quarter, partly offset by negative comparable-store sales (comps). However, sales of this Zacks Rank #4 (Sell) company missed the Zacks Consensus Estimate of $718 million.

Comps in the quarter inched down 0.1% due to flat transaction count and average dollar sale. Store additions led to a 3.3% increase in total square footage. While comps at Soma Intimates and White House Black Market brands rose 6.5% and 1.7%, respectively, Chico's brand comps declined 2.3%.

Gross profit advanced 3.4% to $395.8 million, while the gross margin improved 90 basis points (bps) from the year-ago quarter to 57.1%. The expansion in gross margin was primarily due to reduced promotions as a result of efficient inventory management, partially offset by product delays on account of port issues.

Selling, general and administrative (SG&A) expenses rose 60 bps from the prior-year quarter to 47.4% of sales, owing to occupancy expense deleverage and higher accrued incentive compensation, partially compensated by benefits from the previously announced cost-containment efforts.

Financial Update

Chico’s ended the first quarter of fiscal 2015 with cash and cash equivalents of $97.7 million. Total inventories per selling square foot descended 2.8%, benefitting from better inventory management along with lower average cost per unit. Shareholders’ equity stood at $712.4 million as of May 2, 2015.

On May 4, management authorized a new 5-year credit agreement worth $200 million, out of which $124 million was withdrawn to repay the outstanding amount under the previous credit facility.

During the quarter, the company generated $41.7 million of cash from operational activities and incurred $20 million as capital expenditure. In Mar 2015, Chico’s penned an Accelerated Stock Repurchase agreement to buy back shares worth $250 million, by Oct 2015.

Store Update

During the quarter, this retailer of women’s clothing and accessories opened 13 new stores, while shutting down 8 stores, taking the total store count to 1,552 as of May 2, 2015.

Chico’s plans to shut down 135–140 underperforming stores over the next three years as part of which it intends to close about 45–50 stores in fiscal 2015.

Guidance

For fiscal 2015, Chico's anticipates moderate positive comps. Moreover, the company expects the spread between overall sales and comparable-sales growth to be between 1% and 2%. Further, gross margin is expected to improve year over year, with slight SG&A expenses deleverage.

The company continues to expect capital expenditure of nearly $100 million for fiscal 2015.

Stocks to Consider

Better-ranked stocks in the same industry include American Eagle Outfitters Inc. (AEO - Analyst Report), with a Zacks Rank #1 (Strong Buy), Bebe Stores, Inc. (BEBE- Snapshot Report) and Citi Trends Inc. (CTRN - Analyst Report), each carrying a Zacks Rank #2 (Buy).