Chico's FAS Inc (CHS) 2003 Q4 法說會逐字稿

Good afternoon ladies and gentlemen. Welcome to the Chico's fourth quarter and fiscal 2003 year-end earnings conference call. (OPERATOR INSTRUCTIONS). I would now like to turn the conference over to Mr. James Palczynski, with Integrated Corporate Relations. Please go ahead, sir.

Good afternoon everybody and thanks for joining us. Before we get started, I would just like to read the Company's Safe Harbor language. Certain statements contained in today's call, including, without limitation, statements addressing the beliefs, plans, objectives, estimates or expectations of the company or future results or events constitute forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Such forward-looking statements involve known or unknown risks, including, but not limited to, general economic and business conditions and conditions in the specialty retail industry. There can be no assurance that the actual future results, performance or achievements expressed or implied by such forward-looking statements will occur. Users of forward-looking statements are encouraged to review the Company's latest annual report on Form 10-K its filings with 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. 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 such statements will not be realized.

With that out of the way, I would like to turn the call over to Scott Edmonds, Chief Executive Officer of Chico's FAS Inc.

Thanks, James. And thanks to everyone for attending our fourth quarter fiscal 2003 conference call. With me on the call today are Charlie Kleman, our CFO and COO; Pat Murphy-Persting (ph) our Executive Vice President and Chief Merchandising Officer; Jim Frain, our Senior Vice President of Marketing, who's calling in from a photo shoot in an undisclosed location, and Mike Kincaid, our Chief Accounting Officer.

Fiscal year 2003 was a year of tremendous accomplishment for Chico's. To start with, this was our seventh consecutive year of double-digit comp store sales increases. Seventh consecutive year! And, as you just on the press release, the first month of this fiscal year came in strong, with a double-digit comp increase of 28 percent. Indeed, a good start to our first quarter.

Charlie will delve into the numbers in greater detail a little later, but here are a few of the high points. For the fiscal year that ended January 31st, 2004, net income rose to 50.1 percent, to a record $100 million, or $1.4 per diluted share. Net sales for the fiscal year increased 44.7 percent to a record $768 million. And comparable store sales for the company-owned stores increased 16.1 percent for the fiscal year.

And, to top it all off, we improved both gross and operating margins by almost a full percentage point. Our fourth-quarter numbers are equally as impressive. For the 13th -- excuse me, for the 13-week fourth quarter that ended January 31st, 2004, net income rose 70.3 percent to $26 million, or 29 cents per diluted share and, I might add, approximately 3 cents of that 29 cents came from White House/Black Market.

Our net sales climbed almost 56 percent to $216 million, in comparable store sales for the company-owned stores increased 20.5 percent.

Now, it's important to note that these impressive results of fiscal year 2003 were accomplished during a year when we, number one, acquired the White House/Black Market Company, which closed on September 5, 2003; implemented new software in many divisions of the Company; launched and concluded the 10-store Pazo test; opened 72 net new stores, and expanded, relocated or remodeled another 21 stores. We prepared for the test launch of our new intimate apparel line, Soma by Chico's. And, we completed a CEO transition.

Regarding the transition, I believe it is important that the shareholders know, that the CEO transition from Marvin Graunig (ph) to me was very smooth. I continue to have a wonderful personal relationship with both Marvin and Elaine (ph), and they continue to serve the Company as directors. And, as I have said many times, their input will always be looked forward to and welcome at Chico's.

So, what is the driving force behind these stellar results? You have heard me say before, product. It begins with the product. The single biggest driver of the Chico's success has been, and always will be, unique, creative, exciting merchandise. We know our customer and we give her what she wants.

This exciting product is then presented to an outstanding marketing effort. The heartbeat of the marketing effort is our Passport Club. We currently have over 900,000 permanent passport members, and these members drive approximately 74 percent of our business. In fact, during fiscal year 2003, we enrolled 300,000 new permanent passport members, and enrolled an additional 800,000 new temporary members.

Since our third quarter conference call in December 2nd, we have completed a good portion of the White House/Black Market integration, and I'm pleased to report that the new White House/Black Market headquarters is now located right next door to Chico's headquarters on our campus here in Fort Myers.

I would like to share with you just a few of the positive enhancements that have been made to the White House Stores organization, since we acquired them a short six months ago. We promoted three district managers to regional sales managers, a new position. We added nine new districts in preparation for their oncoming growth. We implemented an entire new store opening process for our new and remodeled stores.

We added additional payroll hours to 95 percent of the stores and are in the process of positioning two assistant managers for every store. Again, a new step.

We instituted a new sales bonus plan to include the store managers and assistant managers in the sales-driven.

We produced two fabulous White House/Black Market catalogs, with the latest one hitting homes just last week. Both these catalogs have been well-received. We have begun a national and campaign, and White House will be advertised in magazines such as In Style; Lucky; Marie Claire; Martha Stuart Wedding and Elle, just to name a few.

We hired a Public Relations Manager to promote the brand. We will be developing a customer loyalty program, exclusive for the White House/Black Market customer. And, we are implementing a new return policy that will be much more customer-friendly. These are just a few of the enhancements, just to store operations, that are in the works for the White House/Black Market. Charlie will be speak more specifically about the relocations of their distribution center and continued conversion of their back office systems. But, we are very pleased the progress we've made so far and continue to be very excited about the potential for White House/Black Market.

Now, I want to talk about some exciting things -- how exciting things continue to be at Chico's. There is tremendous momentum behind the Chico's brand. Brand awareness increases every day. Brand strength will allow us to introduce product categories that are not currently offered, like our new intimate apparel lines, Soma by Chico's. Soma, which is the Greek word for body, will launch 10 new test stores in the second half of this year. We listened when our customer said she was tired of buying intimate apparel in specialty stores and big department stores that do not know her.

We are very excited about this brand, and believe that our customer, whom we now refer to as the Victoria's Secret graduate, will be very excited, too. These 10 stores will be a unique, exciting intimate apparel shopping experience with the Chico's level of service our customer has become accustomed to. We continue to receive positive feedback from both customers and vendors.

Yes, fiscal year 2003 was a year of tremendous accomplishment for Chico's. Fiscal year 2004 is shaping up to be another very exciting year. Now, I'd like to turn it over to Mrs. Pat Murphy: Persting, our Executive Vice President and Chief Merchandising Officer. Pat?

Thank you, Scott. Good afternoon, everyone. Our fourth quarter results came from strong sell-throughs at regular price on both novelty velvet and novelty jackets, excellent selling on our cold weather products such as sweaters, scarves, and our key item program, including turtlenecks and denim jeans. Key classifications of basic stretch velvet and travellers, also perform at a better-than-expected rate, producing strong margins for the quarter.

Related seperates with menswear detailing had a decided impact on the quarter's business, over last year's business. Accessory business was exceptionally strong, across all categories, and in particular, handbags, scarves and jewelry. Markdowns were well-managed, and turned quickly throughout the quarter. Our average unit retail improved over last year, in several classifications in apparel, and in scarves and accessories.

Our focus on average unit retail proved to have good results to the bottom line, without any perceptive change in value to the customer. The first quarter in '04 is off to a great start with February's results. We are very clean with markdown levels in are front-line stores at an all-time low. New spring product has been very well-received. Our key item business is exceptional, and novelty continues to be very strong across all categories.

Our Soma initiative continues on-track, and we anticipate opening in the third quarter of this year. Soma, as Scott said, in Greek, means body. We hope to celebrate the goddess in every woman.

I am sure many of you are thinking -- how long can Chico's keeps this up? As good as business has been, we continue to see lots of opportunity for the future. We are focused, not on defying the odds, but on pleasing our customer. We have just returned from Europe, and some of our ideas are already in development.

Our vendors are also very proactive about coming up with new ideas. We know that newness is key, and that we need to be on top of the trends, the same as any other fashion retailer. Our pursuit of new fabrics, new blends, new finishes and new techniques is constant. Right now, feminine is in and we see our customers' positive reaction to flirt skirts and sheer fabrics.

Our accessory business has kept pace with the overall growth of Chico's. No accessory trend is left untested. Every style is an original Chico's design, and copyrighted by us. This is a brand within a brand, and has a potential all of its own.

All of our decisions are based on the question as to whether or not our customer will respond. If she won't like it, we won't buy it. We have a team that is second to none in the industry. Everyone on the Chico's team is passionate about our customers. We are, in a word, obsessed with her. We love her and we listen to her concerns. When she is delighted, we are thrilled. We take our job seriously of anticipating her needs and meeting her expectations in every way.

When all is said and done, it is the spirit and the can-do attitude of this great team that is the defining difference in our success. We continue to feel very strongly about the Chico's brand, and we feel very positive about first quarter results for '04. And now to Charlie, for more details.

Thanks, Pat. Now, today we've got a great quarter to talk about, as well as we've got some interesting year-end numbers that we'll look at. But first, let's look at the fourth quarter, which produced our first-ever fourth quarter gross margin that broke the 60 percent barrier at 60.2 percent. The fourth quarter also produced our best-ever fourth quarter operating margin at 19.1 percent, versus last year's 16.6 percent. All this, while it was also the first full quarter of absorbing the White House/Black Market operations and the first full quarter absorbing the new software amortization for our monster software project that went live Labor Day weekend last year.

The 56 percent increase in sales for the quarter produced a 67 percent increase in earnings per share, and represents our 24th quarter out of the last 26 quarters that have shown an increase of 40 percent or more in our earnings. To put it differently we've only had two quarters in the last 6.5 years that have grown earnings less than 40 percent and those two quarters still had double-digit percent increases as well.

During this timeframe, we completed our bridge to a billion infrastructure project, just in time for fiscal 2004, where we would like to believe we're going to see $1 billion in overall sales this year. Next, let's look a little deeper into the fourth quarter. And we will start with sales. The fourth quarter, which was our second consecutive quarter of 20 plus comps, certainly was a major contributor to the operating margin increase I just mentioned. As always, the comp increase was principally driven by traffic, although our average unit retail increased almost 6 percent, representing our biggest increases since the second quarter of fiscal 2001. Year-to-date, we finally saw an increase in our average unit price as well, at just over a 3 percent increase for the year.

Staying on this topic, we do not see significant deflationary pressure on our price points due to the upcoming quarter changes at the ended the year in China. We believe this will affect commodity sales more than sales of private-label goods that essentially cannot be found elsewhere. In fact, our tests of higher price points in the Chico's brand show little resistance by our customer to price point increases. And we intend to continue pursuing increases in the price points as long as the product continues to offer value in the eyes of our passport customer.

On the White House/Black Market front, we saw solid year-over-year sales increases in every month of the quarter, despite being very light on inventory throughout the entire fourth quarter.

We anticipate that White House/Black Market should have more adequate inventory levels by late March, or April, this year, and we believe this could accelerate the already nice monthly sales increases. The 28 percent February cap for Chico's, and the solid results of White House/Black Market for February, certainly bode well for our first quarter results of fiscal 2004.

Next, let's look at gross margin where we saw improvement of almost a full percentage point in this year's fourth quarter versus last year. This increase was primarily due to our new distribution center, where we saw a one-plus percent increase in margins due to lower costs this year versus the dual distribution centers we ran for the third and fourth quarters of last year. Without this essentially onetime DC savings that we experienced in the fourth quarter, we would have seen a small decrease in gross margins, as we indicated last quarter, was possible due to the White House/Black Market acquisition and the positive Pazo ramp-down we continue to guide to a decrease in gross margins as a percent of sales, for the next two quarters in the range of a half-point or so, due to the impact on the gross margin percent from this acquisition. Beyond the lower operating costs of the distribution center, we also enjoyed a hlaf-point savings at the gross margin level and a reduction of our freight costs to ship to our stores. Again, due to the new distribution center, which is more central to our stores and thus produces a lower freight cost, as we had projected when we first acquired this distribution center.

We also saw more than a half-point increase in our Chico's front-line margins due do better IMUs, or initial markups. While the markdown rate at Chico's offset this somewhat, as it was slightly ahead of last year. These margin gains were partially offset by the lower White House/Black Market and Pazo margins included this year. And finally, we expressed a small decrease in our outlet margins for the fourth quarter.

All of this produced a nice increase in our gross margins as a percent of sales, for the quarter, although it admittedly was somewhat onetime-ish due to the large distribution center gain that will not be available in the future.

On the SG&A front, the eight-tenths decrease in these cost as a percent of sales, was due to very nice leverage of over 2 points in the Chico's brand, due to the 20-plus comps, that was partially offset by higher costs as a percent of sales, at the White House/Black Market and Pazo operations.

Now, marketing-wise, we spent 3.6 percent this year versus 3.5 percent last year, and 3.4 percent the year before. For fiscal '04, we are planning marketing to be between 3.5 and 4 percent. Overall, we are still guiding to deleverage in the SG&A in the first two quarters of fiscal '04, unless we continue the strong comps we have experienced thus far, in the first quarter. Certainly, the February comps and our guidance for March comps, which is in the high single to low double-digit range, indicates we should express less deleverage in the first quarter than we originally indicated at the last conference call. All this adds up to an improvement in the operating margins from 16.6 last year to 19.1 percent this year. As I said earlier, we saw a 67 percent increase in earnings for the quarter, as we moved from 17 cents last year to 29 cents this year. During the quarter, we estimate, as Scott said, that the White House/Black Market operations provided a lift to earnings of about 3 cents per share. This was at the high-end of our expectations.

Next, let's take a closer look at our year-end numbers. First, we ended the year at just over $.75 billion in sales at 768 million, a 45 percent increase over the prior year. This was our sixth year in a row of sales increases in excess of 40 percent, and in fact, you can take any year since fiscal '97, and look forward two years, and you will find that our company would have doubled in size in that timeframe.

Looking forward, we have previously indicated we plan to grow our real estate by a minimum of 20 percent square footage in fiscal 2004, and this, combined with a mid-single digit comps a year, and the 45 percent real estate growth from last year, should result in a topline improvement in the 35 to 40 percent range for the first two quarters, and an increase that will more closely tie to our comps plus our score square footage growth in the last two quarters.

February's nice comp of 20 percent, which gives us a solid read on our spring goods, is unlikely to continue at that pace through the whole quarter, as it was largely driven by extreme weather for a large part of the month last year. As I indicated earlier, we're guiding our same-store sales for March in the high-single to low double-digit range.

Now a couple of year-end numbers that may interest you in the sales arena are, we ended this year with the average Chico's online store producing annual net sales of just short of 1.8 million, while the Chico's front-line stores also averaged $924 per square foot for the year, versus $849 last year. We had 103 Chico's stores that exceeded $2 million in sales, and 145 Chico's stores that exceeded $1000 in sales per square foot. White House/Black Market on the other hand, had 25 stores that exceeded $1 million in annual sales, and 24 stores that also exceeded $1000 per square foot. A lot like Chico's in fiscal 1998.

Gross margins improved for the third consecutive year as we moved from last year's 60.5 percent to this year's 61.3 percent. This improvement was largely attributable to a better initial markup tied to better sourcing opportunities during the year, and a more efficient warehouse with our new facilities just North of Atlanta, offset by reductions in the gross margin percentage due to the Pazo test, and the White House/Black Market acquisition.

As we indicated earlier, and on the last conference call, we expect to see flat to small improvements in Chico's gross margins in fiscal '04, but we look for an overall decrease of .5 point or so in the first two quarters of fiscal '04, due to the consolidation of White House/Black Market. After that, we began to anniversary this acquisition and we should not see this reduction in gross margins due to the consolidation. We do not expect to see significant sourcing changes at White House/Black Market in fiscal '04, as we work with their management teams to identify what opportunities may exist in this area. The White House/Black Market merchandising teams are putting great product in front of their customers, and their operations have added significant earnings per share the overall consolidation entity. We do not intend on upsetting these merchandising philosophies and strategies.

Or SG&A expenses, as a percent of sales for the year, remained exactly the same at 40.4 percent, including depreciation cost. Included in this amount, is significant leveraging by the Chico's operations, offset by deleverage caused by the Pazo test, the White House/Black Market consolidation, and the one-tenth of a percent increase in marketing expenses. Going forward, we expect essentially the same effect here as I have indicated, we expect in the gross margin arena. At a mid-single digit comp in the second quarter, we expect at least a half-point of deleverage with our comp leverage point dropping to 5 percent or lower thereafter.

Essentially, this is the same guidance as we gave last quarter, other than the solid February and the improved comp guidance in the first quarter. We expect our fiscal '04 marketing costs to come in somewhere between 3.5 and 4 for the year, with approximately 12 Chico catalog drops and 5 to 9 White House/Black Market catalog drops.

Our tax rate remained at 38 percent this year, and we expect that to be the same in fiscal '04. Fiscal '03 ended up with a 47 percent increase in earnings per share as we moved from 78 percent per share in fiscal '03 to $1.14 in fiscal '04.

Next, we'll turn to some operational areas, but first I would like to give you some store probability numbers for fiscal '03. Our average Chico's front-line store averaged a net profit margin of almost 34 percent this year, versus almost 33 percent last year. And we had 34 stores that actually netted over $1 million in profit at the store level this year. It seems like only yesterday that we are talking about how many stores we had that were going to produce $1 million in revenue, similar to what the White House/Black Market is doing now -- yet today, we're looking for $1 million stores at the net profit line. What goals we've got for White House/Black Market over the next several years!

Next, let's look at our store openings. For fiscal 2003, we ended up opening 72 net new stores and expanding or relocating 21 stores for a 26 percent increase in net square footage, to go with the 107 stores we acquired from White House/Black Market. Overall, with this acquisition, we expanded our square footage by 45 percent, as I had indicated earlier. For fiscal 2004, we've already announced that we will open between 85 and 90 net new stores and expand as many as we can, which usually comes in somewhere between 20 and 30 stores. Of the 85 to 90 new stores, it looks like we'll open at the high end of the White House/Black Market range of 25 to 35 stores, and we are likely to open, as Scott said, 10 Soma by Chico's test stores in the third quarter or so and they're likely to be in Fort Myers, Sarasota, Atlanta, Memphis, Birmingham, Houston, Dallas, and Scottsdale. The rest of the new stores to be opened in fiscal '04 will be under the Chico's brand name.

In terms of stores by quarter, we are currently projecting 18 to 22 in the first quarter, 20 to 24 in the second quarter, 32 to 40 in the third quarter, and the balance in the fourth quarter. We also expected 20 to 30 expansions and relocations that will be scattered throughout the year.

Regarding the Pazo stores -- we have to left, that are clearing the last of the Pazo merchandise and will likely do so through March. This week, we will be opening five of the former Pazo stores as White House/Black Market stores, and later this year we will convert three more former Pazo stores to Soma by Chico's stores. One former Pazo store has already been converted to a Chico's store and the last Pazo store will be closed in late March or in early April.

Next a reminder of key White House/Black Market integration dates for those that couldn't attend our analyst day last month. The White House/Black Market personnel all moved from the headquarters in Glen Bernie, Maryland in late January, and they're now settled into their beautiful headquarters at the front of our Chico's property. We've already taken over all of their operations, except merchandising, which will remain independent and their distribution center, that will close, once the chain is up and running on our software platforms.

Speaking to that, we will convert all of their back office systems and move their distribution center at the start of the second quarter. Lastly, we will convert their cash registers to our system in July, we'll get their Web site up at as a selling Web site in the fourth quarter of this year, or the first quarter of next year and followed that up with a loyalty program once we have properly evaluated the needs in this area.

Next, a note on the balance sheet and cash flow and then I will wrap up. Our balance sheet remains very strong as we ended the year with more cash at $120 million, than we started the year with, even though we used $88 million during the year, to acquire the White House/Black Market chain, and we used an additional $52 million toward capital expenditures, or CapEx.

For cash flow planning, our yearly depreciation expense ended up at 23.1 million, and the fourth quarter ended up at 6.7 million. Our inventories at $55 per square foot, were certainly at the low end of where we like them, but a lot of that was purely timing due to in-transit inventories, the positioning of the Chinese new year, and stronger sales than we anticipated at both the Chico's and White House brands. As you can see by our same-store and overall sales results for February, our sales levels have not been held back by these slightly lower than expected inventory levels. In fact, it has allowed us to keep our markdowns to a much lower-than-expected level for February, as you heard from Pat.

Fiscal 2003 was a year of accomplishment for the entire management team, as you heard in Scott's words, but just as important was our ability to continue posting solid opening margins, while at the same time concentrating on positioning the Company for solid future growth through an acquisition and through the testing of new concepts. We look forward to fiscal 2004 as we complete the White House/Black Market integration, we launch our new Soma by Chico's test concept, we learn to use our brand-new scalable software, we rollout a new and significantly improved cash register to both chains in the third and fourth quarters, we open 85 to 90 new stores and we welcome our new Board Members Scott Edmonds and Betsy Adkins (ph). As Marvin would always say to end this call, keep your eye on Chico's, and now we will take some questions.

(OPERATOR INSTRUCTIONS). Kimberly Greenberger, Lehman Brothers.

Good afternoon and congratulations on a fantastic to '03. Charlie, if you could, give us maybe an update on were inventory stands at the end of February? It is obvious that you've got enough inventory to do the business, given the February comps, but just if you could give us an idea of were inventory stands now and how you expect it to trend throughout the quarter -- that would be great.

We gradually expect it will get up near -- let's say $60 a square foot. Right now it' at 55 a foot and the White House is substantially below that. They will probably take until the end of March, early April to get their inventory up to that type of level. But, the Chico's is already at that type of level already.

Okay. Great. And then, Pat, if you could just comment on the trends in average unit retail price, you know, clearly the Chico's customer is responding to some of those higher-priced items. If you could look out into 2004, would you expect this sort of mid-single-digit increase in the average unit retail price that you saw in the fourth quarter? Can that continue? Or, do you think maybe it would moderate to a low single-digit kind of number?

No, it is hard to know on products that we have not purchased yet, as to what we could achieve, as far as average unit retail. But, we really look at it, as Charlie said, from a value standpoint. And, every classification we look at -- so I really could not give you a prediction on where I think it would be. We are very optimistic about the fact that we have opportunity in our average unit retail. And, we certainly know we have -- at higher price-points, we have no resistance at all. So, I think just in terms of going off the success of the past and looking at the product in the future, we can, you know, expect some good results there, but I could not give you a definite number.

We saw about a 5 percent increase during the month of February, as well. So, it has not tailed back yet.

So, a 5 percent increase in (indiscernible) February, so the rest of the comp really due to traffic as well?

Yes.

Yes, definitely.

Richard Baum, Credit Suisse First Boston.

Could you comment -- you mentioned with White House/Black Market that you are going to undertake a loyalty program. And, I am sure it is a little premature to talk about the content of it. But, could you give us a sense of the timing of that? And how it might be similar or different to what you have with the Passport Club right now?

Jim, can you answer that from wherever you are?

(laughter). As I indicated in our analyst presentation, we don't want to establish any concrete long-term benefits until we do a thorough analysis of the database that we have for White House/Black Market. We have already started to do that analysis, but, I want to have a few more catalogs out there and some more response and see what the frequency is of the average purchase. The different segments and how they purchase and so forth. I mean, there would be no sense in putting in a concrete benefit that we may want to change later.

So, I would assume that we would be doing that analysis -- probably through -- until early summer. And so, we might have some more clearcut benefit programs sometime in the fall.

Just a question on personnel. We have been, obviously, moved a lot of folks down from White House/Black Market. Are there any significant management positions that you still need to fill there? Or, anything at Chico's?

Richard, we never lost any of the senior management from White House. There were some buyers that were on the fence and, just this week, the last two buyers committed -- it is amazing when it's snowing in Glen Bernie and it is beautiful in Florida what type of an influence that will have. And they committed. So, we have no voids in executive management at White House and we have no voids in executive management at Chico's, currently.

It sounds like you have an all-star team.

Well, thank you. We keep swinging every day.

Neely Tamminga, Piper Jaffray.

So, a question here for Pat, and by the way, best wishes and congratulations.

Thank you very much.

You picked that up, didn't you?

yes, I did. You could not pull that over on me. But, the first question here would be on weakness in spring last year. Pat, can you remember maybe, were there some particular product categories that create opportunities this year that might not have worked so well in spring last year?

I think, you know, if I had to make a comparison, I cannot say category to category. For example, we updated our T-shirts this year to have a slightly different attitude -- a little more of a cap sleeve. And, you know, that reality did the trick. So, part of it is styling. And some of it this year is we're seeing a great reaction -- let's say to, uneven hem-lines and flirty skirts and some of the more feminine things that we just took opportunities this year that I don't think there was a response level there last year. But, I think, overall, it is just a tweaking of what we know works for us. And, just continuing to update it. Yeah, I think for sure, part of the month of February is the fact that we had a lot more traffic in our stores and, you know, last year at this time we just didn't have the people out shopping. So, we are delighted that she's out. But, well when she's in the store, she is buying what she sees.

Great. And, with respect to the suiting -- I think you were talking about at the analyst day -- a Chico's suit? What is the status of that? And when will that be in stores or --?

I mentioned fourth quarter results. We had terrific success with our essentials program. And that was a little bit more -- it's still a knitted fabric. But it's a little bit more structured -- somewhat somewhat menswear detailed type of clothing that the woman could wear to the office or, maybe for a more urban look. And we wanted to carry that through for spring. So you will see some of that sort of, you know, very lightweight menswear details and menswear stripes -- that kind of thing in easy fabric. Still a relaxed shape, but we are looking to -- for instance, one of our jackets out there has just a slight shoulder padding detail. These are little things that we are experimenting with and we're having great response.

Great. And just one last question for Scott or Mori or Breck (ph) whoever might be out there to answer this from White House. Are some of the changes that you guys want to implement, with respect to new commissions and talking more with the stores at White House/Black Market -- is that -- are those kind of on-hold until the POS system is in-place in July? Or, what is the timing of that?

Well, a lot of them are all already being implemented. Anything that's tied to transactional data information is going to have to wait until the new POS systems are in. Some of that is bonus -- some of the bonus will have to wait.

Okay. Great. Thanks and good luck.

Dorothy Lakner, CIBC World Markets.

I wanted to go back just a second to something Pat said about accessories -- and you have had clearly great success there with a very distinctive product. But, I think you said that accessories, in fact, can stand on their own. And I wondered if that meant, at some point, is it just more space in the store? A separate store? A book that focuses on accessories? I just wondered what you meant by that comment. And, then a question for Charlie, just -- I think you talked about what comp level you need to leverage expenses. And if you could just go over that -- I think you went a little fast. Thanks.

As far as accessories are concerned, we continue to be delighted with the reaction to all of the products and accessories. And when I said that it really works as a brand within a brand -- we have customers that come to our stores -- the type that say they just come and shop with us just for our accessories. So, in terms of always thinking about opportunities to the brand, it is certainly something that we would consider as an opportunity. There is certainly no concrete plan to do anything specific, yet. But just to mention it as a potential extension to the brand.

As far as -- we did end the year, though -- just for your informational purposes, at 13.7 percent of our sales were in accessories. That's an increase, year-over-year. So we saw a nice increase even with our comps. So the accessories grew faster than the apparel did. So, that was nice. But, to answer your question -- after we get by the White House/Black Market consolidation, which runs the first two quarters, we should the less than -- at a five or less breakpoint.

And last year, you were running at about a 7 percent level?

Seven or more. We were seven or more last year, yes.

Great.

I've often used seven. But is in that range somewhere.

Okay. Great. Thank you.

Robin Murchinson, Jefferies & Company.

A couple of questions. One, and this is going to be for Jim Frain -- on CNBC in the morning, I am noticing -- and this is like before I leave the house, I am noticing Chico's commercials. So, I know that you were going to do -- intensify efforts with the TV. Can you just sort of explain to me what you're thinking in terms of positioning it on CNBC?

Well, it's not just specifically CNBC. I would say the biggest shift is more dollars in national. And, that has a consequence of two things. One that we saw that -- we did a test and did an analysis of national programming versus local and regional and we found in national was more efficient for us.

The other thing is just a practical thing -- a pragmatic thing that, with our volumes now and our budget, we are able to afford more national buys as a percentage of our buying.

And, when we do that, you get all kinds of bonuses. And so we make a commitment to a couple of the networks and then they give us bonus spots -- better prices in other areas. So, hence the reach into CNBC.

I mean, is it just sort of coincidentally falling to that timeframe? We're talking like maybe about 5:30 in the morning, Central time.

No, that's not an accident. We found, right from the beginning, that we did quite well in the early morning hours. And, as you know, we track all the way through from inquiries and then the inquiries right through to when they purchase. And we found, particularly, that the morning inquiry is a very good follow-through shopper. That is, she ends up being a good shopper -- spends a lot. I think it is because she's a working woman and has the money to buy Chico's products.

It's a pleasant diversion, I have to say from the AFLAC commercials. The second thing I wanted to ask -- and Pat this is for you. And this is more a process than specific product question. But because I have a comparison with a specific product, I will ask it in that way. On the cover of your March catalog there is a, you know, you've got the Myth Sea Jacket, which I'm told from two stores was previously in the stores. They had it before, and then -- they were -- whatever -- it came in and the demand has obviously been high for this jacket -- real high. And, so, I'm wondering what the thought processes is involved, in terms of this jacket having been in the stores before, and then -- did you, in fact go back into it? Or are the stores confused?

No, they are not confused. (laughter) A lot of what we do is test. And, as I mentioned, we're always on the look for new blends, new fabrications, new processes to see how they work. And, you know, we were just intrigued with how this jacket came out. So we tested it in a small way -- we had great results. And we said -- oh my God -- let's put in a mailer. So we did go back into it. So the store you were in probably had the original shipment. But it was not a big quantity -- initially.

Stores -- that would be three. It took me three to find a size zero.

(laughter).

When did it first appear in your stores?

I'm trying to think -- I would say sometime in the fourth quarter. So, it would have been the early fourth quarter. I want to say October. But I would be guessing. It would be, you know, several months ago.

Okay. Okay. Good enough. Thank you.

You're welcome.

Lauri Brunner, Craig-Hallum.

You know, kind of a hypothetical here guys. But, if you were to look back on your business a year from now -- and say, a year from now we are talking about advertising expense being 4 percent of sales, where would that incremental spending come from?

If I'm looking back a year from now, where will my incremental (laughter) spend come from? You mean, where am I going to spend my extra money?

That's right.

(laughter) -- another way of asking. We have two areas -- and I will just be rather generalized -- because I don't want to give away too much. But, as I indicated to you, the last quarter of last year, we did exceptionally well with our prospecting. And, we have made a good investment in evening -- increased prospecting in the first quarter of this year. I would not be surprised that we are already getting great results from those. So, I wouldn't be surprised if we'll spend a bit more there.

And, there are particular areas in TV that we are already getting a good response in, and I would not be surprised -- and that is a very specific certain programs that are working really. I would not be surprised if increase that.

And Jim, have you talked about what percentage of your catalog circulation is dedicated to prospects?

Yeah, right through the 4.5 years or 5 years that we've been doing heavy mail outs, we have not seen a diminishment of our response to our database customers and our Pasport customers. So, all of those will continue to get the catalogs. And it is just that we are seeing that we've been doing quite a bit better, particularly in the past year and a half in our prospecting. So --

Right. Have you guys talked about what month this magazine advertising will launch for White House?

Jim, that's you again.

Which month?

Right.

I have already indicated that we will be in -- we have plans to be in almost every month of the year. So, it is a pretty ambitious program.

Very good. Thanks. Good luck.

Christina deMarval, Sidoti.

Not a lot more to ask here. Charlie, I guess, for you first, I'm just wondering if you have any plans for all that cash you guys seem to be -- seem that you can't get away from?

We just rebuilt it back up, so we don't have any plans right now. We just built it up to just over what it was last year -- so we'll worry about that later on.

Okay. Fair enough. I guess, back to Jim -- I just wanted to check some numbers here. I think you said the permanent Passport customer -- I guess -- around the end of last year, spent about 112 versus about 75 for the temporary members?

Yes, that is right.

Okay. Does that compare to about 130, at about the same time in the prior year?

No, not the prior -- that was about four years ago -- it was 130 (multiple speakers)

You've got to remember that it's many, many more times the size. So, you would expect it to decline somewhat. But, actually, fourth quarter to fourth quarter, it increased slightly -- the average transaction, even though we have 300,000 more Passport Program members.

And what about, I guess, year-to-year?

Year-to-year -- let me see, the averages year-to-year are -- (multiple speakers)

Jim, if you do not have your numbers out there with you -- (multiple speakers)

Yep.

I think it was 116 to 119 somewhere, versus 78. I think it was 116 to 117 versus 78 last year for the whole year.

That's about right, Charlie.

Yeah, I'm pretty sure it's in that neighborhood.

So, you are effectively still seeing a higher -- I mean, even with more prospecting, you're still seeing a higher average transaction?

Correct.

Is that partially a function of the higher AUR, do you think?

It is a partially a function of the higher AUR and it is also -- there has been a slight -- well, it depends on how you figure 10 percent -- slightly more frequency of buying throughout the calendar year.

Okay. Understood. Well, that is impressive. That is all I have.

Bob Jerkin with Round Tower Capital. Mr. Jerkin, your line is live. Do you have a question? I will check his line. Our next question is coming from Karen Freinberg from LGB.

I think it's very exciting and I think most of what I want to know has been covered. I am especially curious about the suits. I think more tailored, you know, clothes, at least for myself, would be just wonderful. I think the sooner the better. Then, I guess the other comment I have, it seemed like for a long time, so many of the stores were just filled with a lot of horizontal striped shirts and things, as opposed to vertical stripes --?

Karen, you wanted to know about why we would do horizontal, rather than vertical?

Yes. Yes -- I know that's a crazy question, but it just seemed like so much of it.

(laughter) You know, there are certain things that are what we would call really a Chico's look. And, so that would be one of them. It is kind of something that, you know, from the very beginning we have certain garments that -- they just have a certain look about them. And then, your comment about tailored suits. I do what to say that, yes, we do see opportunity there, as far as more urban dressing. But not a lot of it. And we do want to stay true to our relaxed fit. It's not going to be an uptight fit. It will still be in a sort of a Chico's flavor, if you will. So I wanted to make that -- be sure to make that point -- that we're not going to go into a really tailored suiting look.

Okay, and then I guess the final question I have -- my mother is a petite and she is always saying, I wish Chico's made petite -- of course I know the shorts sometimes fits. But I did not know if you had looked at the petite market, because it is so vast --?

I think there's, obviously, a terrific opportunity for us to be in petite. But it's not something that is on the horizon right now. But, I will tell you that in our pants, we run a lot of our pants in both short and regular length. And we have terrific success in the short length. So, you might want to check into that.

Great. And can you talk on anything about a stock split?

No, we do not have a comment on that. That's up to the Board of Directors.

Okay so there's nothing at this time.

We don't have any comment on it.

Okay. Great. Thank you very much.

We will take one more question.

Joel Locker, Benchmark.

Congratulations, guys, on the quarter. Just kind of a quick question about the women demographic -- it being so hot right now -- the 35 to 55-year-old -- and you and Anthropology, Anne Taylor have all been doing pretty well -- and just wondering if you saw any kind of competition coming in, because of how hot this certain demographic is?

Do you want me to jump on that one, Jim, or do you want it?

I will make a comment and I will switch over to you, Scott on the more general comment about competition. It is obvious that the reason that the 35 to 55 is a good target, is that they spend the most -- it's as simple as that. And, of course, we have been locked in on that target now for at least five years. In a marketing sense -- in a demographics sense. And, by the way, I would stress, again, that our actual customer base is much wider than that. That is the target we focus in on, because they are the big expanders. But we have customers that are younger and older than that 35 to 55 target.

That's why that competition is -- people keep talking about giving us a run for our money. But Scott, maybe you want to comment on the competition that is out there?

Well, first off, I mean, when you say Anne Taylor and Anthropology and Chico's are all doing well, I think you have got to put us on a totally different class. We're just in seven years of double-digit comp store sales. And neither one of the others brands are anywhere near that. And we are very proud of that.

As far as people gunning for us, they should be, because of our success over the last seven years. But, that is nothing new -- they have been -- we have had a lot of people talking about introducing Chico-esque type of merchandise. The most recent is, I think Gymboree is launching a 10-store test, called Janeville. You know, we know that Jones Apparel is launching some Chico-esque and the list goes on and on -- August Max Co. (ph) I can go on and on and on. If anything, that motivates us. It motivates us to be more creative -- more aggressive. We have a very aggressive intellectual property program. We protect everything we design through copyrights. And, we don't take our success to-date for granted for one moment. We know everybody is gunning for us. But we don't -- you know, we worry about Chico's and our customer and communicating with our customer and drive in our business. And if we stay focused on that and not worried about the competition, we will be fine.

Right. I mean, I understand that you guys have been doing well for so long -- seven years. But, like at Anthropology and Anne Taylor, just this year have been doing real well. I been hearing a lot of talk about, you know, so and so is going to jump into that demographic, because it's all over the papers and press. And I was just wanting to clarify that.

Well, I appreciate your comment and I would like to thank everybody for joining us on the fourth quarter conference call. And, we look forward to catching up with you, Charlie -- what? When is the next call? Late May. Thank you, guys. Take care. See you, Monday.

Goodbye.

Thank you all for your participation. That does conclude your teleconference. You may disconnect your lines at this time. Have a great day.