Chico's FAS Inc (CHS) 2002 Q1 法說會逐字稿

Other behind the scene operations will take advantage of Chico's experience already in place. Scott?

Thank you, Bob. Indeed we are all extremely proud of our first quarter results. These types of results can only be achieved through outstanding team work. It begins with great product. Pat Murphy an the entire product development planning and allocations team continue to provide exciting new merchandise to our customer. The stellar first quarter performance was driven by great colors, cropped pants and solids and prints, denim, anything denim. Regular wash, bleach and novelty denim were all a hit. Novelty jackets, tank tops, travelers continue to perform. Jim Frain and his marketing team have the customer dead in our sights. No matter what magazine she reads, what TV show she watches, they know her tastes and consequently they know where she shops. The operations team continues to provide our customer with the perfect mix of customer service, product knowledge and friendly personal communication ensuring that our store visit is an enjoyable visit she will not soon forget. Now I would like to review the progress that Barry Shapiro and our team made on the outlet business. February 1 of 2001 we had seven outlet stores. As of April 30, 2002, we had 14 outlet stores. Square footage grew from 26,000 square feet as of February 1 last year, to 58,000 square feet as of April 30 this year.

This has allowed us to increase the 94,000 units of apparel taken from first line stores in the first quarter of '01 to 253,000 units of practically taken from '02. Charlie will share with you the positive impact this had on our gross margin. We will continue to add square footage as an as needed basis.

The work on the distribution center is in high gear. We closed on our new Georgia facility. We transformed 232,000 square feet into a state-of-the-art distribution facility designed specifically for the way we do business. We are confident that the end result will be a more cost effective and efficient way to receive and distribute our product. We currently anticipate distributing front line merchandise from the Georgia facility in the first quarter of 2003.

We have also opened an office in Manhattan which will provide support services for our product development, production, marketing, and investor relations departments. This office is located at 450 7th avenue. Now for a fiscal 2002 real estate update.

As previously committed, we will open 65 net new stores. Year to date we have opened 15 of the 65 new stores. The second half of the year will see more store openingings than the first half of the year. Of the 40 years we planned on remodelling or expanding, 17 have been completed to date. I cannot say enough about the quality of the real estate we are assigning. James West and his team have done an excellent job of matching the excellence of the real estate with the excellence of the Chico's brand. The landlords are more flexible than ever on terms needed by Chico's. The shopping center convention was held last week in Las Vegas. I had the opportunity to meet with representatives of general growth properties and several other major landlords. Their enthusiasm about the Chico's brand has never been stronger. Additionally their willingness to partner with us on testing the new concept in early 2003 was clear. As landlords, they believe the focus of our concepts on target as there is no one specialty store that this customer currently calls her own. As we continue to push towards the billion dollar sales mark we will be good stewards of our share holders' money. We will add strength to the management team and continue to build the infrastructure to support growth. We do not and will not take the success we enjoyed to this point for granted. The Chico's brand is in the early stages of growth appeared the management team is capable and totally committed to delivering on the earnings per share.

Charlie will review the numbers.

Thanks, Scott. Start off with the first quarter. The first quarter saw same store sales increase. That was above the five to 9 percent guidance. It was at 13.2 actually. It saw vastly improved margins that resulted in our 17th consecutive quarter with a 50 percent or more increase in net income, of course excluding the third quarter of last year

before we get into the numbers, let's review the operations. As Scott indicated, start with the D.C. move by acquiring and beginning to equip the D.C. outside Atlanta. We are on our way to a new concept store. Beyond this we completed functional analysis requirements for software conversions. This is basically a very thorough review of our needs versus the capabilities of each software package. Next step is to finalize our approach to the conversions and the modifications, interfaces and set ups. After that comes testing and training. After as we have dated previously we will spends six to $8 million to convert the existing software to new merchandising, human resources, warehousing, and financial packages with a goal to go live somewhere in the first or second quarter of next year. This combined with the D.C. move and new concept we call our bridge to a billion for Chico's.

Although we believe the new software packages enhance our abilities in all areas we are, as with the D.C. move, under no pressure to do this in a rush. Thus we will mitigate our risk by assuring we are ready for these changes, similar to our cash register conversion last year which went with few hitches. If we are not ready to quote flip the switch, we won't do it until we are ready. There will be minimal or no disruptions and no P and L charges associated with these improvements, I'm confident.

Let's move to financial analysis on the great first quarter numbers. As indicated in Marvin's quote, the 62.4 percent gross margin was the highest since the third quarter of 1994. This gross margin resulted from lower year over year, combined with initial mark ups continue mark ups. That is attribute to many things, the newest is the new out look strategy which resulted in an improvement to the gross margin in our higher sales per square foot front line stores, by removing mark downs earlier than previous. It also resulted in the improvement in the gross margin in the outlet stores by getting goods to them earlier in the mark down cycle.

The lower mark down rate is attributable to the merchandising teams to provide the Maryland at the right price level, at the right time and the right quantities. This is important when you realize 95 of our stores are running over, over $1,000 per selling square foot. And the entire chain is now over $825 per selling square foot.

Going forward, we do not expect to see such large increases in the year over year margin percent. We are optimistic we can improve on last year on a quarter over quarter basis for the remainder of the year. The first quarter always has been our highest quarter of the year in terms of the gross margin.

The SG and A came in essentially with our guidance. That is we indicated several times previously we should leverage above a 7 percent same store sales increase and we did just that this quarter. The cost reductions that we implemented last year, and we discussed on the last quarter's conference call have successfully reduced our cost base with little impact on operations and we believe no disruptions in our customer service. We are carefully monitoring these costs. These costs that add benefits and those that require further analysis. During the first quarter, the 1 percent improvement in SG and A from 39.1 percent down to 38.1 percent, was net of eight tenths of a percent planned increase in marketing for the first quarter to three and a half to 4.3 percent. This plan was instituted because we believe it is wise to get the customer aware of Chico's early in the year as this will pay dividends all year long

With the first quarter planned increase taken into account we still will end the year with a full marketing budget in the three and a half percent range of net sales. Remember, that includes all national television and magazine ads, all passport and catalog costs. Thus it is a conservative marketing plan when one considers the frequency and number of our catalog drops

Further in the SG and A area it remains the seven. Above 7 percent percent. That will leverage the cost and we do not anticipate unusual charges related to project, although we continue to invest in expenses that will build the bridge to billions we talked about.

All of this resulted in the best gross margin ever as we topped last year's 28.3 to 24.3 percent margin this year. The price in units per transaction were much like the fourth quarter with price points down one to two percent principally due to the mix of goods. UPTs were up to two and a half units. This resulted in an average transaction gain in the six to 8 percent range even with slightly lower unit price. We are pleased with this as increasing here is an indication of strong merchandise acceptance and improved selling effectiveness.

The biggest leverage our same store sales is increased traffic which resulted in the increased transactions. And we still believe that the bulk of women ages 35 to 55 are still not shopping our store yet. Thus we continue our timely marketing and we anticipate strong traffic in the future. Our call center which handles web and catalog orders has approached one and a half million sales in prim and exceeded three and a half million for the quarter

That runs at profit levels equal to an average store or approximately 30 percent net. Thus it generates profits that are similar to an entire district of stores after it pace for updates and web maintenance at the same time.

Left's look at the inventory levels. We are pleased with the over 36 million which increased year over year just over 30 percent while sales and square footage increased approximately 40 percent year over year. We are turning inventory fast but we do not believe we are missing sales due to the fast turn. The outlet strategy is producing cleaner fresher inventory mix that requires a smaller investment and a fast turn on the mark down goods and bringing up the front line space for goods.

Accrued income taxes are up due to the increased net income year over year combined with more aggressive to cuss for our quarterly tax estimates. The only other significant change in the balance sheet is the $60 million cash and marketable securities on top of last quarter's $19 million increase. This in spite of $8.8 million investment in new D.C. and almost 2 million on the new software initiatives

CapEx totalled out to 19 and a half million out of the 60 to 65 million that we anticipate for the full fiscal year.

By the way, we filed our 10-Q last night. That detail is either now available or should be available shortly.

One topic I get questioned a lot on now, the Arthur Anderson situation. Yes, we are fully aware of the situation with our auditor, Arthur Anderson. We interviewed all the other firms. I expect the audit committee will make a selection in June with a smooth transition for the second quarter

As far as same store sales expectations, so far in May we are ahead of the same store sales estimates of five to 9 percent. We are in the 12 percent range with a weekend yet to go. Contrary to what I heard from the short sellers, the June catalog will drop next week, one week a head of last year, not one week behind last year.

We still expect that the future same store sales will at sometime in the future get to the five to 9 percent range with occasional blips into the low double digit range. We believe we have an emerging brand in a growing niche. We remain focused on this niche of customers and the sophisticated apparel marketplace in boutique atmosphere. We are committed to stores that produce larger sales volumes and profits. These stores produce roughly $700 sales per square foot in the first year. They then can be nurtured to higher productivity levels over the next few years. We continue to expand and relocate as many small stores as we generate the opportunities with an aggressive real estate team. These new and expanded larger stores will result in roughly 25 to 28 percent increase in square footage this year and this with a modest count should result in 28 to 30 percent top line increase this fiscal year which with even flat operating margins should get sizable margins all year. We tend to roll off on a new concept store, next year, when we can sustain Chico's's growth rate. Thep if the concept is successful, we will continue this growth rate for the foreseeable future.

The entire team feels confident in each other and our potential for future strong growth that will enhance profitability and stock price. We are looking for half a billion in sales this year with operating margins likely to be ahead of next year. Now for questions?

Ladies and gentlemen at this time if you have a question, you need to press the one on your touch tone telephone. You will hear a tone acknowledging your request. If your question has been answered you may remove yourself from queue by pressing the pounds key. Pick up the hand set before pushing the button if you have a hand set. One moment for the first question.

Tyler, are you there?

Yes. The question comes from Richard Baum. State the company name.

Credit Suisse First Boston. First congratulations on the stupendous quarter and what for most people has been a tough environment. A question about your sales productivity. Two questions. One is you already are at 825 a foot. You have a number of stores that are at a thousand. There's probably some limit as to how much you can push through these stores, just by virtue of registers.

And how concerned are you, it's a high quality problem. If you did 10 percent a year, you would be at a thousand for the whole chain in another couple of years.

Are there any thoughts in terms of having a significant remodel, relocation and enlargement program? What do you think that level is in terms of how high you can go.

To answer that question, we don't know what the level is, but we see a lot of opportunity. As Charlie mentioned, wherever the opportunity presents itself we can enlarge a store and reduce that productivity to approximately $700 a foot for the first year and build it after that.

Also we have taken several stores and added as many as four total registers to the store. We seem to have no problem taking care of the sales in those stores.

We also are projecting the sales per square foot for next fiscal year will be down because of the larger stores we are opening this year. We are expanding as many as we can right now. I think we will hit about 25 this year, Scott?

Yes, we had an aggressive remodel expansion relocation plan in place for the last several years. We commit to the street between relocations, expansions and remodels, about 40 deals for the year. But we may have as many as 60 or 70 out there working. But you can't always, you know, expand or relocate a store when you want to due to the lease commitment.

Okay. Secondly on the new concept, two questions. One is in terms of the organization, Marvin indicated there will be off site separate teams and everything. What sort of infrastructure do you have in place at the moment in terms of, you know, key executives in that business? And then secondly, if you can just comment on the choice of that segment to go into, which has demographics that are not nearly as attractive as the existing segment. That is 22 to 40-year old customer. It's not as much growth in the demographic growth and a lot more competition.

So I'm interested in why you are focused on that segment and also on the organization.

We evaluated the market. We feel there is a need for someone to focus on this particular niche in the market. Although it is filled, it is not filled by one supplier. In the test surveys we have done, it seems that the women who shop in this market tend to shop in six or eight different stores and have no store that they really feel is theirs. And want to associate with a store that can give them what they want.

We feel there's a tremendous opportunity.

Also there is a tremendous amount of shoppers in this particular market, even more shoppers than are available in the Chico's market. Because of the price points we feel we will attract from a lower income on up, probably 40,000 on up, maybe 30, which gives us a broader market.

Jim gave me a note saying there is approximately 12 million households in this market. And that should give us an interesting market to go after.

As far as the organization and team is concerned, we have our merchant on board, we have the allocation team on board and the sourcing team on board. Barry Shapiro who works with our outlets and has had a lot of experience building divisions in his past will probably be the head of this new division.

Okay. Have you indicated who the top merchant will be, Scott?

Barry Shapiro is in charge of the project.

The chief merchant will be [Jamie Aleko]. She has significant experience in the retail market, most recently with Ashley Stewart; with [Petri] before that. Approximately just short of 20 years of retail experience.

Good luck, guys.

Thank you, Richard.

Next question comes from Margaret Whitfield.

Congratulations. In terms of the comps for the month to date, you said you were running 12 percent rate which is relatively speaking superb. Have you seen any changes during the month, the first part being damp and cool and the second part with the terrorist threats not conducive to consumers shopping.

It has been steady. It's nothing to do with weather, anything with the terrorist thing. I think that's a Wall Street made up thing.

In terms of the new concept, could you quantify the store size that you are considering, the sizing and if you have any location pinned down for Q1 of next year. Where would you be opening?

Margaret, I'll turn that question to Barry.

The average store size will be approximately 3,000 square feet net, probably 2500 selling, 500 back. Right now real estate strategy we are focusing in on, if you think of wash done D.C. down to Dallas, across to San Diego, all the stores we are contemplating are south of that line at this point. We are working on refining that strategy as we speak.

Okay. The sizing, would you go with the European sizing that you are using in the current concept?

we will will have six sizes ranging from true 66 to a approximately misssy size 18-20. You mentioned the current target customer shops at six or eight locations. Can you name the top three chosen by the target lady?

Some of the stores, Banana, White House, Arden B., Loft, Limited, E B.

Charlie, you mentioned gross margins were strong in part because of reduced mark downs. COuld you comment on the percnt of full priced selling relative to a year ago?

That was higher. I don't know the actual percent.

Cna you quantify the initial mark up you commented on?

Right under a point.

Finally on the fall, you tested the merchandise. Can you discuss what you are planning for the fall in terms of new merchandising?

This is Pat Murphy. Actually, we had very successful fall test, gave it some very good direction on sweater business. The key item business got confirmation on some of the silhouettes that we were testing there and actually, the results of the fall testing were positive overall and I believe they support our, some of our on order business going forward and also we can adjust some of our plans to react to the test.

We are still planning the bottom business to be very strong. We still have special buys in place for our northern climate stores and you know, overall we feel very, very encouraged by the test

Thank you.

The next question comes from Simon [Woolvert]. Please go ahead.

Yes, from Sampson Partners. I wanted to congratulate you on a great quarter. Any talk on guidance for the coming, up coming quarter, to for the year? Thank you.

We don't give guidance on EPS. We allow the analysts that follow us do all that.

Thank you.

Next question comes from Liz Pierce. Please say the company name followed by the question

Wedbush Morgan. I add my congratulations, too. If we can back up to Margaret's question, Barry, you mentioned a variety of retailers that she shops at. Seems to me they are from one extreme to another. From limited to lofta, B V, arrest deny B to banana. I'm trying to visualize exactly where you are going. Obviously I know you are not going to give us the specifics on, she shops all these stores?

We feel she does. We feel she shops at stores like target and other stores and she really needs a home or a store to identify with. We female as we have done in Chico's, we can give that to this customer.

We feel confident because of the experience and success we had in the past. We spent a lot of time, a lot of energy researching this market. I feel we are very much on top of what we are doing and will execute it extremely well.

Okay. So I guess my better question is, is it going to have more of a fashion forward focus on it?

the answer is yes, it will be very fashion forward, quick turn, very impulse price, as I said.

There should be no price resistance at all. If we look at Europe and we look at some of the things we like, we very much like [Xarah], and that might be a good feel to give you

At price points, you mentioned there will be no resistance on price points. So versus a Chico's price point, what are you looking at?

Don't want to compare to Chico's in any way, but if I were to compare, I would say it's approximately 30 percent on average lower than the Chico's price.

One last question about that. European boutique, could you perhaps share what you mean by that?

that has to do with the atmosphere of the store, the way the store looks. When people are in this price range, they tend to get sloppy with their presentations, rounders, crowded product, uninspirational type of display. Chico's doesn't could that. We are being creative. We are being almost a minimal is particular feel in front of the store, but good density and retail space usage.

Okay. [Ajit}, could you update us on the number of passport holders, the number of temporary?

I don't have the numbers right now. That has been ranging in the same range, signing up, converting about 15,000 adding 45,000 a month. I'll get back to you with the numbers. The one who has them is on vacation right now.. It has been moving the same paste it always has.

If Jim could address on the response to the new catalog or version of the catalog?

Just another note on sign ups, we are on a new plateau now. We are averaging almost 60,000 a month sign ups.

Did you say 60??

60,000, yes. Our plateau probably, it was only the last quarter of last year. The plateau was probably around 45,000. So it's gone up dramatically again. There are also, they are doing a better job? The stores in signing them up. We are doing a better job of bringing them in.

Converting then 15,000 a month?

More.

More. Are they spending the same amount? Are they spending more?

They are spending about the same amount. Average, we see a variation between catalog to catalog with the sales attached and coupons. But we are well above the forecast for average sale.

Then if you could address, Jim, the more lifestyle catalog and how that is done and what your plans are for the next one?

For the - for February, March, April, we are about 28 percent ahead of our pretty aggressive forecast for returns from our catalogs. That is sales attached to coupons that were in those catalogs.

And May is doing even better. So we are more than encouraged by May. Sit is for sure that that will be our most successful catalog in terms of dollars per copy. And that means we will be doing another designation wherever. I'm not going to tell you that yet. But we will do another designation catalog in the fall.

In the fall?

Yes

T.V. advertising, there still are no plans for the summer? It's suspended basically until August?

That's correct.

Great. Congratulations and thanks.

Thanks.

Next question is Chris Olson. State the company name followed by your question.

Yes, private investor. My question is I want to know what your weakest area is regional and is there any change or complaints are varied?

Probably you should dial into the sales information call. It's an 877 number on the press release. You can get that information off the call. We do it every month. I don't recall exactly what was out last month. We are not going to comment yet on May. No, we have not done any additional marketing there. It is generally due to some reasons other than that.

Okay. Thank you.

Our next question comes from Peter [Gively]. State the company's name followed by your company.

Great quarter, guys. Why do you get involved with outlet stores in terms of your image which is a high class image? How important are the outlets in terms of their volume and profitability? And second, what do you envision might be something that would go awry in terms of your present clientele in terms of their ability to spend the average ticket that they have been over the last two or three years?

regarding the outlet business, in terms of the actual setup of the store, we do go about a store design and a service level that is not true outlet. We are very concerned with the upkeep of the brand image

But the focus of the outlet business is to help clean out the front line stores, reduce over $800 a foot so we can return the selling space to full priced merchandise and the true benefit of the outlet stores regarding profitability happens at the front line store by allowing that space to be freed up again.

I see.

Jim, do you want to take the second half of that?

The second half of your question is in regard to -

The second half of the equity is with regard to spending ability of your clientele. In other words, let's say gas prices, energy prices go up. The stock market continues to decline. What are the major factors that affect the spending pattern of your clientele?

Our clientele, and the more we analyze the data base, and we have a data base of 2 million in round numbers to analyze. It gives us a good picture. We do analysis versus national samples just about every month.

What it tells us is we have a very high quality customer. That means in income as well as education and so forth. Our customers are four times the national average in the incidence of 100,000 plus income for the households. In other words, they are the least affected, least affected by short-term economic problems.

I see.

And then when we do analysis of what our customer is spending with us, it is interesting that still it holds true that the more frequent shopper and the more recent shopper and as recent as two weeks, shops the best with us. They are the most likely to return and shop again. We haven't filled our appetite yet.

Good.

Thank you very much

Thank you.

Next question comes from Mary McGrath. State the company name followed by your question.

[Bergman] Capital. Could you talk a little bit more about the marketing expense through the rest of the year? It sounds like at some point it will dip below the three and a half percent. You know, any potential implication for comps? Or is most of that coming from no TV spending in these summer months? Thank you?

We don't anticipate dropping below the 3.5. As Marvin always emphasizes, we are a very flexible company. That goes with the marketing budget, too. We follow, forecast all the time and we are going to be pretty steady with that three and a half percent, even with the improved sales over our budget.

On the other hand, it doesn't mean because we are not running very heavy in the summer that we are going to drop below three and a half percent for the year. We will be spending again in the fall.

Yes, in the second quarter we are always -

That's year over year.

Even with front loading a bit in the first quarter, we are only what, Charlie, 3.6 percent?

We are on track for 3.5

Great. Thank you very much.

Next question comes from John [Curty]. State the company name followed by your question.

Vista Capital Management. Couple of questions. How many stock options were exercised during the course of the quarter. How much money did the company take in from that?

Got that right here on the queue. If I can find my queue. There it is. During the first quarter we did about 200, roughly 250,000 options were exercised for $2.3 million.

Okay. What kind of tax benefit was that?

The tax benefit was - let me look that up, too. 2.3 million.

Then you mentioned on the increase in the deferred taxes, part of it was due to -

Taxes, not deferred.

Sorry, accrued, was due to higher income levels. And something about aggressive tax strategies. Could you add to that?

That's how you analyze the tax versus book taxes. When you take them. If you have a more aggressive tax person, they are allowing us to pay less in the first quarter than last year.

Is part of that related to the exercise of the stock options?

Some, but that's not the bulk of the reason. The options that were done in the first quarter last year, about the same.

Thank you very much.

Next question comes from Lauri Brunner. State the company name followed by your question.

R.B.C. Capital Markets. Jim Frain, could you give a utility sales rain for the coupon in the first quarter versus last year?

We are about 32 percent for the first quarter. I can't recall what - of this year, which is very good. And it is ahead of our estimates and forecast.

I can't remember what it was for last year, but it was probably about 30 percent.

Great. And then I think this is going to be a question for Barry, but you guys mentioned that the allocations to the outlets have gone up quite dramatically. I thought it was 250,000. So obviously you are filling more outlet stores. Are you giving more product to each store and then I would assume that means you are giving more in season product to each store. That's really the key.

Can you comment on that?

it's that as well as at this time last year when there was a limited amount of doors, you had an enormous amount of the same thing going into every store. As a result, those drove mark downs. Instead of having 15 of something in a store, there would be 75 of something in a store. So the combination of it being more in season and more spread out to the 14 doors is helping both move the product and improve the margin.

Good, thank you.

Next question comes from George [Bultrees.] State the company name followed by your question.

[Teedham and Bulltrees.] My questions were answered on passport. When are you opening in Manhattan? Do you promise to not tell my wife the location? (Laughter)

Great, George.

We have a couple properties right now we are negotiating on the upper east side.

Thanks.

Next question comes from Kimberly Greenberger. State the company name followed by the question.

Lehmann Brothers. Congratulations on a very nice quarter. Charlie, I had a question for you on the comp statistics you threw out, six to 8 percent average transaction gains. Does that mean the average transaction size?

Na's the size of the transaction. It went up two-tenths of a unit

Great. What was the increase in the number of transactions per comp store?

I don't know that off the top of my head. I have to get back to you on that. You got me with that one.

Okay. And I'm assuming since the price points were just down a hair, that the increase in I M U is not due to increasing prices but rather as a result of better sourcing?

That's true.

Can you talk a little bit about the sourcing? Is that you are moving your factory base, are you changing countries? Are you changing factories within countries? Or resources fabric, et cetera?

We are doing some of each of those things. Obviously because of the increased size and the additional quantity that we need for our stores, that allows us some leverage.

Also we are being more competitive and selective with vendors. So the same item could be sourced with three different people and you know, we have the advantage of going with the best price without sacrificing any quality and being able to, you know, keep the same product.

Okay?

Next question comes from Margaret Whitfield. State the company name.

Charlie, you mentioned part of the New York office would handle I.R. functions. Could you elaborate?

When Charlie and I come up to investor conferences, quite often we have one-on-ones. We will invite these people to come in to our office there at 457.

Thanks.

Next question comes from Christina DeMarval. State the company name followed by the question.

Good afternoon. I would like to add my congratulations on an excellent quarter. A lot of my questions have been answered. I guess I got stock, lost in the queue. But I wanted to ask a little bit more about the new concept and thank you for sharing a lot of information there. I wanted to clarify first with respect to the store opening guidance that you put in the queue for this year and next year. Does that include the six to eight stores that you planned for this year? And what might the number look like for 2003 if you are prepared to share that?

The new concept stores will be rolled out in the first quarter of next year. So next year will include the new concept stores.

65 to 70 includes the six to eight?

Correct.

In terms of initial feedback from the site selections, what type of locations are you contemplating? Co-tenants that you expect alongside you.

It's a little early in that discussion to be openly having that conversation right now, to tell you the truth. We are working through that with all the landlords and with the product people.

Okay. And in terms of the 12 million household number, I think you threw out before, I wanted to clarify that's the target, 22 to 40-year olds?

We are doing more work on it, but it is not a strict addition of the females that are that age. We are also factoring in income and some other characteristics that I don't really want to talk about.

Okay. In terms of the merchandise mix, will it be similar in some respects to Chico's really emphasizing apparel? What else might be supplementing that if you can say?

We are planning on apparel and accessories.

All right. Just in terms of, given the tremendous success of the passport club and the intensified marketing efforts at Chico's, I'm wondering if you can share what kind of marketing strategies you might be contemplating to support the new concept.

We are going to take what we learned at Chico's and not duplicate it, but use the figures and come up with a new and innovative marketing plan and frequent customer loyalty plan

Great. And then finally, I guess, trying to work out numbers here. With similar store size and somewhat lower price points, I'm wondering if you can comment about the sales productivity out look for the new concept. And overall margin implications of that.

Obviously it has to be tested, but we are expecting to have tremendous volume in these stores. We are looking forward to testing the concept as soon as possible. As we said in February. The price points will be very, very attractive, as you know. And the landlords who have looked at the package are enthusiastic. We feel we will have outstanding locations for the concepts

Okay. Great. Thanks very much. Congratulations.

Our next question comes from Steve [Kercraft]. State the company name followed by the question.

It's Steve [Kercraft] from Berman Capital. All the questions really have been asked. But I wanted to ask one question. If you could just talk about what your game plan is on the new business you are launching in terms of the economics. Do you envision this being profitable on a going forward business on the first year, is is it going to be profitable in year two or three? Can you give us a sense of what to expect on launching the new business?

We expect the business will be profitable out of the chute, like a Chico's store. Not at the level of Chico's. We will know by Memorial Day whether it is or not.

You will know by Memorial Day next year?

Yes.

So what kind of, based upon if you, that will dictate how many stores you open at the end of the year?

That's correct, Steve. We will absolutely have additional deals queued up if the test is successful.

Okay. And so in terms of the infrastructure, how many people are going to be involved in this business over the next, from a central office basis over the next, for the remainder of '02?

The remainder of this year it will be very slim. There shouldn't be any drag on the Chico's expense structure. Barry is saying around seven or eight people. And obviously the amount of people we have and how quickly this division grows will determine what we need. We will have to test it and see where we go.

We are going to get a lot of leverage on the real state distribution into the business.

Good luck. I hope it's as successful as Chico's.

Thank you.

We have a follow-up question with Kimberly Greenberger. Please state the company name followed by the question.

Great. Can you hear me?

Just barely.

I'm sorry about that, Charlie. Lehmann Brothers, with a follow-up question. The store option for next year, including -

Kimberly, we can't hear you.

I'm sorry, is that better?

Yes.

Sorry about that. The 65 stores for next year with the six to eight included in the new concept, is it possible that if the concept is very successful you might think about increasing that number for next year?

Absolutely.

The total -

If you look back, Kimberly, we always promised and over delivered on our stores

Great.

Next question comes from Ozarslan Tangun. State the company name.

Southwesst Securities. Great quarter, guys. I must have been angered the operator. They took me out of the queue a couple times. Very quickly, I wanted to ask you a little bit about the advertising for the new concept. I wanted to get essential whether, when you are testing the concept you will start the advertising or I am assuming that the first stores will be mostly in the malls. Can you give us a little bit of flavor there?

We can give you very little flavor at this time. I can tell you the new stores will be in either malls or special centers, specialty centers as opposed to street front. We will probably market the stores locally in the areas they open in, as opposed to nationally. It wouldn't make sense until it is a larger division.

Sure. All right. In terms of advertising, Jim, we talked to quite a few of your customers. They loved the May catalog. Is there any reason why you wouldn't have more than couple of these a year?

One is expense. We only have three and a half percent to spends.

You are having good response rates. I was saying that should help leverage the expenses.

If I can make a comment, it is our intent to be creative and innovative with the marketing. What we did with the last book is an example of some of the innovative things you'll see as we move forward.

One final question. Charlie, you mentioned that initial mark up was about 1 percent or less than 1 percent. Would it be safe to assume that the remaining 1 percent was fewer mark downs? Were there any other

That's the bulk of it. You can read about it in the 10-Q. The bulk was lower mark downs. The two or three reasons we put in the press release.

Are you guys going to be affected by the longshoremen's strike at all?

No, we don't ship anything into the west coast at all.

Okay, great quarter.

Next question comes from Peter [Gively]. State the company name followed by the question.

Wanted to ask you in terms of nations that you source from, which nations, the top three are the ones you have the most satisfactory experience from and secondly, are you doing anything with the Chinese source?

We are doing a lot with China. We are doing a lot with India and the United States. Those are probably our top three.

They are.

Okay. Thank you.

Next question comes from Liz Pierce. State the company name followed by your question.

Good afternoon again. Wedbusg Morgan. I don't know if it was Charlie or whether it was Scott or Marvin said on the store location for the new concept, was it strip? Or maybe I didn't get that.

We said it would be major shopping centers and specialty centers, not street front for the first test of the concept

Backing into what Scott said, you would have additional deals queueing up. I was trying to figure out, was there an opportunity to push potential Chico's stores becoming the new concepts or not?

I don't think so. I think it's two different divisions with different thought patterns and locations, a whole different focus basically. We will definitely back up the new division with all the backup expertise we have. As far as the public is concerned, it's a different business with a different focus

Great. Thank you.

Our next question comes from Chris online son. State the company name followed by your question.

Yes. Congratulations again. I have a follow-up question. On your outlet centers, what kind of sign ups do you have as far as passport members?

There are only 14 outlets. I don't know that we've looked at that. Jim, do you know?

I know that answer. Actually, it was more significant than we thought. I remember when Barry and I were talking about it, Barry has made, I would say a fairly intensive effort to capture names for passport. We were surprised. They were quite a bit above our forecast.

I don't really want to give you the number, actually, but it is fairly significant. I was surprised.

Good, Jim. I thought there might be a tremendous opportunity with people who travel across the could you be tri appear don't run into a Chico's.

Take a couple more Tyler and then we have to go.

At this time there are no further questions. Please continue with closing comments.

We will thank everybody for the calls. Keep your eye on Chico's. Thank you very much.

That does conclude the conference call for today. Thank you for participating. You may now disconnect.