Chico's FAS Inc (CHS) 2005 Q3 法說會逐字稿

Welcome to the Chico's teleconference. [OPERATOR INSTRUCTIONS]. I will now turn the call over to Mr. Michael Smith, Vice President, Investor and Community Relations. Mr. Smith, you may begin.

Welcome to the Chico's's third-quarter earnings results conference call. Speaking today you will hear from Scott Edmonds, President, CEO and Charlie Kleman, CFO.

Before we start, I would like to read our Safe Harbor statement. Certain statements contained herein, including without limitation, statements addressing the beliefs, plans, objectives, estimates or expectations of the Company for future results or events constitute forward-looking statements within the meaning of the Private Securities and Litigation Reform Act of 1995 as amended. Such forward-looking statements involve known or unknown risks, including but not limited to general 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 and filings on forms 10-Q, Management's discussion and analysis of the Company's latest Annual Report to stockholders. The Company's filing on form 8-K and other federal securities laws filing for a description of other important factors that may affect the Company's business results of Operations and financial conditions.

The Company does not undertake to publicly update or revise the forward-looking statements, even if experience or future changes make it clear that projected results expressed or implied in such statements will not be realized. I would like to now pass the call over to Scott Edmonds, President and CEO.

Thanks, Michael, and thanks to everyone for attending our third-quarter fiscal 2005 conference call.

With me on the call today is Charlie Kleman, our Chief Financial Officer. Chuck Nesbit, Chief Operating Officer, Jim Frain, Chief Marketing Officer, and Patricia Darrow Smith, Chief Creative Officer for White House/Black Market are on the phone with us and available for questions during the Q & A period. Pat Murphy Kerstein, Chico's Chief Merchandising Officer normally joins us on our earnings calls; however, she is currently travelling to Europe to stay on top of holiday trends. In Pat's place on the call today is Lece Lohr, Senior Vice President, General Merchandising Manager, who will also be available for questions during the Q & A period.

The third quarter results came in quite strong as we generated a 22.9% operating margin, our best ever since going public in 1993. A sales increase of 33% and a net income increase of over 43%. Third-quarter gross margins for the core Chico's brand exceeded our expectations with a year-over-year improvement of 150 basis points. In the White House/Black Market brand achieved an increase in third-quarter gross margin of 220 basis points. We are pleased with our November same-store sales results and with our customers' initial reaction to our holiday product offerings.

Beginning with our core brand, Chico's. The Chico's team continues to focus first and foremost on product. In addition, the efforts of our merchandising group since the beginning of the year towards increasing the average unit retail in the initial markup paid off in the third quarter with a 5.6 increase in AUR and a 1.6 increase in IMU. As we move towards fiscal '06, we have been re-evaluating how we manage markdowns and we see opportunity for improvement in this area.

The Travelers Collection continues to be a steady performer in an important category to the overall business. We continue to focus on newness in the Travelers Collection through the introduction of new silhouettes and the injection of color to the basic black assortment. We have also shown the customer how to wear Travelers with other pieces of new wardrobe like our platinum denim for a more modern look. Spa wear continues to outperform plan and we are looking at ways to offer spa wear as a never-out collection, featuring core pieces for spring '06.

Reaction to velvet, both basic and novelty, has been outstanding. Our customer is very comfortable putting on novelty velvet pieces with their jeans for daytime wear, as well as for special occasions. In separates, we felt we had the right mix of basic key items and novelties. For example, our basic turtleneck performed very well in the quarter and continues to perform at regular price into the fourth quarter.

Basic Tees performed equally as well as our novelty tee. White and cotton and menswear striped shirts were outstanding and novelty sweaters continue to live up to our raised expectations. Novelty sweaters increased in sales by 31.5% in the quarter and by 35% in November over last year.

Denim continues at a strong pace with our Platinum band delivering over a 90% increase over last year. Platinum related merchandise, including accessories, white shirts and khaki pants also performed well in the quarter and we expect sales to continue to be strong toward the end of the year. Skirts were excellent, although we felt we never had enough in the way of inventory. For spring '06, we expect skirts to be a strong contribution to the bottoms business. In accessories, belts were the star category, with a 70% increase over last year in the same quarter. Bags, earrings and watches also performed very well.

Looking ahead to the fourth quarter, we anticipate our margins to be in line or slightly better than plan. We continue our focus on IMU and AUR. Our markdown POS inventories are at similar levels to last year at this time and inventories are turning well with no major slow selling categories.

We are bullish on spring '06 after our most successful ever spring fling test. The test was conducted in October, giving us particular confidence in linens, novelty bottoms, t-shirts, denim and skirts for the first half of '06. We continue to add bench strength to our executive team with the promotion of Linda Costello to Senior Vice President of Product Development. Linda joined Chico's in May of 2000 and has been instrumental in its success since then.

Turning now to Soma. Our fledging intimate apparel brand turned one year old in August. During this time, we have learned much about the intimates category and our core Chico's customer's product preferences and purchase habits. Intimate apparel, as we originally indicated, is a very difficult and complex product category, and we now have a clear understanding why there are very few strong resources in the category, and why there has only been one major specialty store success to date. Each dimension of the business from merchandising and product design to supply chain, to planning and replenishment to store operation to the knowledge and experience of experience levels of associates presents unique management challenges which affords the opportunity to create a business model with formidable areas to competitive interests.

Soma's gross margins are not yet up to Chico's's levels. Quite frankly, in the planning stage of the test market, we underestimated the volume levels required to realize product cost scale efficiencies in the foundations business. While our sleepwear and active businesses enjoy margins comparable to sportswear, foundations margins will improve over time as we increase unit volume through store openings and development of a broader customer base.

To that end, we opened four new stores in the third quarter of '05 and a fifth store in November. These new stores are all delivering solid performances meeting and beating our expectations. Looking forward, we have already announced plans to open at least 20 new stores in 2006 and 14 of these sites have already been selected. With respect to product, Travelers Collection bras, shapewear and new full-figure bra introductions were strong performers in the foundations categories during the quarter, and sleepwear and activewear over 50% of sales came from key item intensification in cotton knit lounge wear.

Our basic panty business is underdeveloped and we will be reworking the panty program in 2006 to make it stronger. Bras are also a focus for product development. We are currently overassorted in bras as we purposely introduced a broad assortment of styles at the beginning of the test market to fully understand our customers' needs and preferences. During 2006, we plan to reduce the total number of bra styles by bringing focus to those products with the potential of becoming annuity styles. It is noteworthy that the average price paid by the customer for a Soma bra is nearly double the average price paid in department stores.

Our Soma marketing efforts are paying off in increased store traffic and sales. Our October mailer results were very positive, with 50% of store sales tied to the mailer, a significantly higher response than the prior year's introductory mailer. Each month we are seeing a stronger response rate to our marketing program and we are particularly intrigued by our response to the recent Soma television advertising tests. Sales through our direct channels, particularly the Internet, have exceeded expectations, and we see the web as a viable vehicle to build brand awareness and product trial ahead of store openings. Soma is also bringing new customers to the Chico's brand.

Overall, we are pleased with our performance after 14 months. Given that the size of the business is small and we are still refining the number of dimensions of the business model. I will not be providing specific sales information today; however, I will share with you that the average sales dollars per store in the first full year of a brand-new concept are very positive for a specialty apparel store but not yet at Chico's level. In summary, Soma is developing nicely and we are confident over the next year we will refine the product assortment and operating model to allow this intimate venture to reach its full potential over time. We continue to be very excited about the long-term prospects of the Soma brand.

Now to our White House/Black Market brand. We are very excited to report that our third-quarter business exceeded our projection for both sales and gross margin. Our continued focus on the customer, our merchandising teams, and providing fashion-right product is a winning formula. Additionally, we have been focused on improved quality and fit and the more balanced and accurate inventory and allocation process.

Third-quarter sales were driven by knits, sweaters, woven bottoms, denims and dresses with jewelry and accessories complementing the mix. The continuing trend of layering clothing has helped fuel the success of knits and sweaters. The customer is wearing cardigans, shrugs and cocoons with camisoles and turtlenecks. In woven bottoms, a wider selection of skirts and gauchos have provided newness and excitement.

In denim, our customer responded very well to the more sophisticated style, such as back pocket details, embellishment and embroideries. She showed no price resistance to our special and expensive styles. Dresses were extremely successful. In the non-apparel world, novelty bags and belts continue to break records as our customers responds to embellishment, leather and increased quality. Jewelry continued to have strong sales with chunky and layered necklaces, jet stones and longer earrings.

The challenge for this quarter, and next, has been our chunky sweaters, sweater coats, outerwear and cold weather accessories as the temperature has been unseasonably warm. Otherwise, we are excited about our performance and look forward to a strong fourth quarter with a great holiday selection.

Now a few comments on marketing. First, I would like to thank Jim Frain for his continued commitment to Chico's. Since announcing this past August his decision to retire from Chico's, Jim has continued to lead the marketing department just as he has -- just as he has been since joining Chico's in 1999. He is committed to Chico's on a full-time basis until February 28, 2006, and will be available on a consultant basis until August 2006. This transition period is allowing us to conduct a high-level search with Herbert Mines Associates for Jim's successor. The strength of the Chico's brand, including our unique culture, is attracting world-class talent and I am confident we will ultimately find an outstanding marketing executive for this position.

All of our key marketing data points show continuing high level of interest in the Chico's, White House/Black Market, and Soma brands both for the short and long term. Charlie will provide some additional information on our loyalty programs. We continue to be excited about the potential long-term growth of all of our brands.

Lastly, during the second-quarter conference call, I mentioned we had 105 acres of land under contract. We closed on this property during the third quarter and we have engaged the Portland-based architectural firm TVA to work with us on designing a world-class headquarters facility. TVA has been work on the Nike campus since its inception in 1987. The purpose of the facility, beyond short and long-term space needs, is to assist us in recruiting and attaining the highest level of talent available in retail today and in the future.

As we move into the fourth quarter of 2005 and focus on 2006, I would like to thank our 10,000-plus associates across the United States. It is through their dedication and hard work that we are -- we are able to provide these strong results to our shareholders. Now I will turn it over to Charlie for the financials.

Thanks, Scott. And good afternoon, everyone, and welcome to our third-quarter conference call for fiscal 2005.

We've got another solid quarter with earnings growth in excess of 30%. In fact, this is our fortieth quarter, of the 51 quarters since we went public, with earnings growth that has exceeded 30%. We are also now completing our ninth consecutive year of sales and earnings per share growth in excess of 30%, and today, we will review the quarter in some detail, look at some guidance for the future, and review our store opening and square footage growth strategies.

First let's look at an overview of the third quarter of fiscal 2005. Scott has already mentioned the overall increase in sales and earnings and the fact that we generated our best operating margin since going public in 1993, of just under 23% at 22.9% for the quarter. This is our second straight year where each of the first three quarters of the year resulted in operating margins north of 21.5%. And this year so far is the highest nine-month operating margin of 22.5%, a 30 basis point improvement over last year's nine-month operating margin of 22.2%.

During the quarter we experienced solid sales increases in every month, and we did this with the 20-basis-point decrease in marketing cost year-over-year for the quarter. On last year's -- on last quarter's conference call, we indicated confidence in the initial reads of the fall product for Chico's, but we issued consummative guidance that our gross margins would likely to again be down principally due to increased outlet margins and slower expansion of White House/Black Market gross margin along with a flattish Chico's gross margin.

During the quarter we saw continued improvements in the gross margin of each of our brands that far exceeded those expectations, including in the outlet divisions that actually recorded their best quarter of the year from a gross margin perspective, although well behind last year's third quarter. We will look into each of the brands in more detail in a few minutes, but we ended up up a half a point on an overall basis at the gross margin level, quarter over quarter. We also saw leverage in our combined SG&A and depreciation costs although not quite at the level we were anticipating, and we will spend some time on that as well.

Interest income was also quite strong for the quarter, as both interest rates and cash balances improved over last year's third quarter, and our interest income came in at a strong $2.2 million versus just over $600,000 last year. Our tax rate also improved to 37% this year from last year's 38%, resulting in a nice 42% earnings-per-share increase as we moved from $0.21 last year to $0.29 this year.

Looking more deeply into these earnings figures, let's start with the sales increase. During the quarter, both the Chico's and White House/Black Market brands experienced increases in their average unit retail and average transaction size. Chico's saw an average unit retail increase of just over 5.5% and just over a 3% increase in the average transaction size to about $113 average transaction for the quarter. White House/Black Market saw just over a 7% increase in the average unit retail and a 5% increase in the average transaction to about $88 for the quarter. Interestingly enough, this is only the second quarter since 2003 when we have seen a 3% or higher increase in the average transaction size at Chico's, and it is the best quarterly increase of the year for White House/Black Market.

As we indicated on last quarter's conference call, we had been focused on improving the Chico's average unit retail and it paid off this quarter. We continued to see average unit retail increases in November as Chico's average retail price point was up 4.8%, while White House/Black Market average retail was up about half a point. We expect the Chico's average unit retail increases to continue for the rest of this year while White House/Black Market's market average retail unit should remain relatively flattish.

Regarding comps, as previously announced, the Chico's same-store sales increase for the quarter were in the low double digits, while the White House/Black Market same-store increase was in the low 50% range. For the third quarter, White House/Black Market front line stores accounted for approximately 17% of the same-store sales base and 19% of the overall sales. Beyond the same-store sales increase, we saw a 36% increase in direct-to-consumer sales, which included a strong launch of the White House/Black Market web site and selling catalogs, as well as strong increases in the Chico's and Soma direct sales. As Scott indicated, this is an area we believe we are underpenetrated in and an area where we intend to study to look for further improvements in increased market penetration.

Turning to gross margin. The Chico's gross margin exceeded our expectations and improved by a huge 150-basis points that was mostly impact the by improved IMUs or initial markups on our new product offerings, offset by a slightly higher markdown rate. As I indicated on last quarter's conference call, we were planning somewhat higher IMUs for the quarter, but we were conservative on our guidance regarding this increase and markdowns until we had a better read on the fall product.

The fall merchandise offerings were able to benefit from the knowledge we obtained from the Chico's spring gross margin declines, and we adjusted our fall assortment to take advantage of that knowledge regarding basics, key items and novelty items, thus the nice improvement in Chico's gross margins for the third quarter. The outlet division, which is still dominated by the Chico's stores as we build a White House/Black Market outlet strategy with six planned new White House/Black Market outlets for next year and only two new Chico's outlets. They showed a decline in margins at the outlets quarter over quarter, although not as marked as we thought it would be.

Last year's third quarter was the highest outlet gross margin in our history and our planning for anniversarying this gross margin paid off with the best outlet gross margin quarter of the year. We had thought last quarter that the anticipated more normalized margins in the outlet division could potentially reduce the overall third-quarter gross margins by between 50 and 70 basis points; yet, these better-than-expected outlet margins for the quarter actually reduced the overall gross margin by about 30 basis points.

On the White House/Black Market front, we saw another quarter with steady improvement in the merchandise margins. As Scott indicated during the third quarter, we saw an increase of approximately 220 basis points in the merchandise margins for essentially the same reasons we indicated on the last conference call. Our investments in product development, technical designs, merchandise planning and allocation are paying off at the gross margin level as we continue to build the brand as well through marketing, store initiatives, and now through its new web site.

White House/Black Market's third-quarter merchandise offerings resulted in a higher initial mark-up, higher average unit retail prices, a stronger density of sizes in stores, and a lower markdown rate quarter over quarter. Again this quarter, the increase in gross margins at the White House/Black Market brand were so strong it offset the impact of the increasing size of the White House/Black Market sales as a percentage of the Chico's family of brands.

The Soma brand, which was only partially open in last year's third quarter, had a very small impact of maybe a 10 basis point reduction in the quarter over quarter overall gross margins. While we expect no year-over-year impact on the gross margins in the next few quarters, we may see a slight drag of 10 to 20 basis points late next year as we open the 20 additional stores planned for next year.

With that said, we regard Soma -- Soma as a solid and relatively low-cost investment in the future in an underserved market. We continue to improve the product offerings, we continue to better understand the nature of the intimate apparel industries, both as it relates to the merchandise and to the the customer needs and we continue to believe the Soma opportunity is as big and potentially as profitable as we originally assess.

Let's move now from gross margin to the combined SG&A and depreciation expenses for the third quarter. On an overall basis, these expenses came in lower than last year by about 50 basis points. Principally, related to leverage associated with the double-digit comps and to our decision to slightly reduce marketing cost as a percentage of sales. The reduction in these combined SG&A expenses came at a little less than what we planned, although we continue to guide to mid single-digit comp for an approximate break-even point in leverage.

During the third quarter, we experienced slight deleverage at our Company-owned Chico's stores for the first time in quite some time and this was likely tied to the hurricane day closures we experienced in September and October. From the headquarter expense standpoint, we saw sharply increased recruitment, relocation and incentive compensation costs due to our strong financial performance and the expansion of our management teams to accommodate our future growth. These types of SG&A expenses are expected to moderate somewhat next year as we have added significantly to our management bench strength this year.

With that said, we are committed to aggressively solidifying our management teams when necessary to allow us to continue growing the brands at a square footage growth rate of at least 20% with a 25% to 30% target for fiscal 2006. A note on the two SG&A individual line items on the P&L, when looking at what appears to be a large increase in depreciation year-over-year, be careful to understand that the change mandated by the SEC last year regarding tenant improvement amortization had the effect of increasing depreciation and at the same time decreasing rent by the same amount. This flip-flop in line items overall, though had no effect on the combined SG&A expense level.

We are very pleased with the third-quarter earnings and operating margin as it came in ahead of our expectations and we look forward to the fourth quarter of fiscal 2005 as we again ended the quarter with double-digit comps and with initial reads that our holiday product indicating strong sell-throughs and profitability. Regarding future guidance, we expect the fourth quarter's overall gross margins to be flat to down to up to half a point from last year's fourth quarter.

Looking at each the brands individually, we expect the Chico's brand will likely experience gross margins that should be slightly ahead of and very close to the record-setting fourth-quarter gross margins of last year. We do not expect quite a strong jump a in IMUs again this quarter, although they will certainly improve over last year, while we expect the markdowns will increase year-over-year and are likely to offset the IMU increase somewhat compared to last year's exceptionally low markdown rate for the fourth quarter.

At the White House/Black Market brand, we expect to see flattish growth margins as clearance activities could exceed last year's level due to anticipated markdowns on cold-weather products and we expect a modest gain in the IMUs due to the nature of the fourth-quarter holiday product which generally requires more novelty goods that frequently command a lower IMUs than some of the other merchandise offerings.

The outlet division, which we expect again to have a more normalized level of markdowns this year, is up against their highest-ever fourth-quarter gross margin. We anticipate this year's fourth-quarter outlet gross margins will be strong historically but will be down in the range of the third quarter and likely come in more like the gross margins at the outlets of two years ago. We expect that the impact of the outlet's lower gross margins could reduce the Company-wide gross margin by between 30 and 40 basis points.

Lastly, in the gross margin area, we continue to invest in the product development areas for all three brands, and we expect some possible small drag in the flat to 20 basis-point area on the margins in the fourth quarter as well, although we didn't see that in the third quarter due to the strong same-store sales increases which leveraged this area nicely. We anticipate an easing of this type of pressure on the gross margins as we entered fiscal 2006, and we look for flattish margins for fiscal 2006 as a whole with slight improvements possible in the first two quarters of the year.

On the marketing front, for the full-year fiscal 2005, we are still planning that our catalog, television and magazine marketing costs should range near 3.7% to 4% of sales. The fourth quarter is currently planned ahead of last year as we have held back marketing monies for the fourth quarter. Remember, we didn't have TV for White House/Black Market last year or -- or for Soma last year, and we have added a second holiday catalog for White House/Black Market this year. Regarding overall SG&A guidance, we reiterate that you should be seeing some small leverage at north of a mid single-digit comp in the future quarters.

Next let's step out the financial arena and look at our loyalty programs, the Passport and Black Book clubs. The third quarter again saw continued growth in each of the clubs as we had approximately 393,000 net new Passport at the Chico's brand and an even larger relative increase of 251,000 new Black Book members at the White House/Black Market brand.

Even better, 97,000 of those new members were permanent members for Chico's while 63,000, or 25% of the 251,000 new members were permanent Black Book members for White House/Black Market. I might remind that you to become a permanent member, the customer must spend $500 or $300 depending on the brand.

Year-to-date, the Chico's Passport Club has added over 1.2 million members while the new White House/Black Book club have added an amazing 865,000 new members in the first nine months of its first full year. The new member signups for the Black Book club I just mentioned are exceeding the numbers experienced during the 1999 launch of the Passport Club by Chico's, and this is very encouraging regarding future loyalty we will likely see in this relatively young brand. Lastly in this area remember that the average White House/Black Market permanent member spends about 84% more on each transaction than does a preliminary member, while the Chico's customer spends an average of about 70% more on each transaction.

Next, a note on the balance sheet and cash flow, and then we will look at the store openings strategies. We filed our 10-Q just before this call, so until you are able to access it, I will give you a few of the important cash flow numbers you may need for your models. First the balance sheet. Our balance sheet remains very strong as we ended the quarter with $400 million in cash and marketable securities and with solid and fresh inventories at all three brands.

Our inventories had $102 million and $71 per selling square feet were up on a quarter over quarter basis 28% versus our sales for the quarter were up 33%. The $3.30-per-square-foot increase over last year was very much in line with our plans as we opened 14 new stores since the end of the quarter, and expanded or relocated another 11 more stores this month, and we launched the very successful White House/Black Market web site and catalog this year.

We expect our fourth-quarter inventories to be in the mid $60-per-selling-square-foot range, slightly ahead of last year, as we close the year with an anticipated strong store opening program for the first quarter of fiscal 2006, and our direct business which now includes White House/Black Market, constantly requires more inventory support with no square footage to go with it. That is the principal reason that inventories can grow slower than sales yet go up on a per square footage basis.

On to cash flow, cash flow for operations for the nine months generated just over $215 million, of which only $13 million was related to tax savings associated with stock option exercises, and $202 million was related to ongoing operations. This $202 million of cash flow from ongoing operations compares to $132 million from ongoing operations last year, a solid 53% increase year-over-year. For cash flow planning purposes, the quarterly depreciation expense was $12.6 million and the nine months depreciation expense amounted to $34.6 million.

When looking at the depreciation on a year-over-year basis, don't forget the change in lease accounting I described to you earlier that has inflated depreciation expense and reduced rent expense. For the future, I would plan depreciation to be in the $14 million range in the fourth quarter and grow by about $1 million each quarter.

Our capital expenditures for the quarter were $41.7 million and $87.1 million for the nine -- for the quarter were $41.7 million and $87.1 million for the nine-month period. Again, remember that this figure is no longer net of tenant approval monies as these monies are included as a deferred rent liability in the cash flow statement. As a matter of comparability, our tenant improvement monies in the third quarter were $7.4 million and were $14 million for the nine-month period. For comparative purposes, our capital expenditures for nine-month period net of TI like we reported last year, would have been approximately $73 million compared to last year's $64 million. A large jump in tenant improvement monies in the third quarter to $7.4 million, which is a function of our store openings is also a reason that our accounts receivables are up about $4 million since year end.

Scott mentioned that we have closed on the 105 acres of land that will be used for our new Corporate headquarters. For those who haven't seen -- have not seen or been to our headquarters, we have simply run out of room to grow in our existing facilities. In fact, during this year, we have had to move our call center to an offsite location, we have had to move our entire finance and internal audit teams to an offsite location, and we open moving another division off-site sometime in 2006 to accommodate our growth until we can get into our larger headquarters in late 2007 or more likely early 2008.

The land we acquired was very reasonably priced, it's centrally located near the airport, near I-75, our major north-South route, near the newest University in the Florida school system, and is one the last remaining large parcels that could accommodate our needs for the long term. We will likely begin construction in 2006 with costs running through 2007 or 2008.

At this time, we are still finalizing our square footage needs, and we intend to build our headquarters in phases as the needs arise, and thus we do not have a cost estimate for you at this time. We will likely be able to provide cost estimates by the time we file the 10-K next year, and we intend to pay cash for these new facilities. Since quarter end, we have also acquired 16 acres of land adjacent to our distribution center in Georgia just north of Atlanta for $3.1 million. This site has a 50,000-square-foot building on it that we will utilize for our direct-to-consumer businesses.

As I indicated, we are reviewing for growth opportunities beyond the launch of the White House/Black Market. The acquisition of this property takes pressure off expanding our current distribution center until this facility exceeds the 1200 stores for which it was designed. I spent some time on infrastructure areas on this call as we are constantly monitoring infrastructure needs that will support our growth. This is the area that can sneak up and bite you in no time, and we have learned from our past how important this type of planning can be in a growth environment. As in the depth of management, this is another area where we intend to stay ahead of our growth curve.

Next, let's summarize the store openings and square footage growth for the first nine months of fiscal 2005 and review the change in store opening plans we announced today for our fiscal 2006 new stores. During the first nine months, we opened an additional 202,000 selling square feet to bring our total to 1,429,000 selling square feet overall. That is about a 17% increase towards our fiscal 2005 20% stated goal for selling square footage.

We believe with the number of new and expanded stores we have lined up in the fourth quarter, that we are likely to exceed this goal by at least a percent or so. Last quarter, I talked extensively on our philosophies regarding larger stores, our ideal average store sizes, and we can open less stores with more expansions and relocations became available. Today we announced that we are planning an additional 20 White House/Black Market stores beyond our original plans announced some time ago.

Although this sounds somewhat contradictory, it is not because we see the momentum in this brand, and we believe we should step up the White House/Black Market store openings in fiscal 2006 as there are many, many strong opportunities in the nation that may not be available later as we believe we have built the infrastructure to -- to accommodate this growth. With that said, we are still pursuing larger stores through both brands as well. So our projected overall square footage should grow between 25% and 30% in fiscal 2006, rather than our original stated goal of 20 to 22% for next year.

At this time, we are now planning to open next year approximately 20 new Soma stores, 60 net new Chico's stores, and 70 new White House/Black Market stores for a total of approximately 150 net new stores. On top of that, we think we may get 35 to 40 store expansions or relocations across the Chico's and White House/Black Market brands.

Regarding the number of new stores we have opened year to date, by the end of the new quarter, we have opened 45 net new Chico's stores, 37 new White House/Black Market stores and 4 new Soma by Chico's stores. These openings are met of three closures of Chico's front-line stores and one White House/Black Market outlet store closed so far this year, the 86 new openings I just mentioned include four new outlet stores for Chico's, three new outlet stores for White House/Black Market and one new outlet franchise store in Minnesota.

As you probably recall the Minnesota franchisee has the right to open stores in the state of Minnesota, and they intend on opening another store in the fourth quarter to bring their total franchise stores to 12. Lastly in this area, during the nine-month period, we expanded or relocated 20 Chico's stores and three White House/Black Market stores, adding a little over 22,000 square feet to stores that badly needing such square footage to continue their growth.

Although we would like to expand and relocate more stores, it is all about opportunity and availability and we are aggressively looking for such opportunities for fiscal 2006 and beyond. Since the quarter end and prior to Thanksgiving, we've -- we've opened eight new Chico's stores, five new White House/Black Market stores, and one new Soma by Chico's stores and we have expanded six more Chico's stores, and five more White House/Black Market stores, including more than doubling the space of the number one volume White House/Black Market store in Puerto Rico, which was doing over $3,000 per selling square foot prior to the expansion, and could possibly hit $4 million this year with most of the year with only 1159 square feet.

With all these openings we end the quarter with 490 Chico's front-line stores, 29 Chico's outlet stores, 13 franchise Chico's stores, 14 Soma by Chico's stores, 191 White House/Black Market front-line stores and six White House/Black Market outlet stores for a total of 743 stores at quarter end. To wrap up, we close the third quarter with our best operating margin in our history at 22.9% and we are still experiencing strong earnings and growth trends including 11.8% same-store sales increase in November.

We are pleased with both the Chico's high single-digit comps and White House/Black Market comps in the low 30s range for November and we ended the fourth quarter well positioned to close the year with another quarter and year of solid earnings gains for our shareholders. Our Passport and Black Book clubs are still going strong, our marketing efforts for White House/Black Market and Soma continue to be very powerful brand builders, our investments in the White House/Black Market brand are now showing leverage and strong top-line growth, and we've made significant strides in solidifying our management team as we approach the 1.5 billion dollar-mark in sales and look to $2 billion.

Fiscal 2006 is right around the corner, and we look forward to continuing our 105 consecutive months of positive comps, and our four consecutive years with an operating margin north of 20%, even as we continue solidifying our growth-oriented management team, as we continue focusing on providing our highest level of service to both our customers and our employees, and as we continue striving to provide unique and exciting merchandise to some the largest segments of the women's apparel market.

Thanks for taking the time to listen to our conference call, and now we'll take some questions, Operator.

[OPERATOR INSTRUCTIONS]. We will take our first question from Mark Friedman. Go ahead, please.

Thank you, good afternoon, guys. Great job on the quarter.

thank you, Mark.

Scott, Charlie, two things. One, you talked about marketing being down as a -- as a percent of sales. I -- I might have missed it, but did you mention exactly what drove that? Was that purely related to the better sales number? Was there anything else there?

Well, Jim Frain is on the phone. He can answer that one.

Okay, great.

Jim?

It was mostly related to the better sales in relation to the percentage of marketing costs. As you know, we are pretty much on -- on average of -- of 4% or less in sales. So we did a little bit better than we thought on the top line. We also had some savings. We were more efficient in our TV buy, for instance. So we were able to achieve 30% more inquiries on 13% less dollars spent. It's things like that that help us out.

Thanks, Jim. Scott, I was wondering if you could give us an update, certainly as the smaller stores continue to be challenged with some density issues. Until you decide those stores are appropriate for an expansion, what's going on in those stores to make sure they don't get overwhelmed with product?

Well, when you look at the productivity of the brands, they are overwhelmed with product. And that's -- that's a dilemma. We're focused, as you know, on expanding and relocating every one of these stores that really are producing in excess of 1200 to 1500 a foot. Until we accomplish that, the stores are going to be challenged operationally, and there is no way around that.

With that said, Mark, I just looked up to see what the stores are doing, and I looked at the ranges from -- from the smallest that is up to 1500 feet and then up to 2025. I looked at the ranges and the smallest stores, which are the oldest stores in the chain, are within two points of the chain so they are still producing numbers even though they are very small. Those are the stores under 1500 square feet on the Chico's side.

We are replenishing more often.

We have replenished daily.

We are working the back room space with a PIT system and small operational things like that that we are doing on a daily basis just to give them relief.

Thanks, guys.

Yes, thank you.

Thank you. We will take our next question from Dana Telsey. Go ahead, please.

Good afternoon, everyone, and congratulations.

thank you.

The combination of rising IMU and AUR has been very powerful. It seems like Lece Lohr and some of her financial skills in merchandising have helped. What do you see as going forward in terms of the ability to continue to grow that, and does it differ by division, White House and in the core Chico's business? And lastly require know you opened the new Sunflower store format in Chicago during the quarter. How is it doing? Will you do more Sunflowers during the balance of the year? Thank you.

Thank you, Dana. I will start with the Sunflower design. The Sunflower design is certainly exciting, the Management team, including the Board of Directors has all visited the Sunflower design stores. They are in markets where the stores were performing pretty strong to begin with, but it is the design we intend to go forward with currently. We are very pleased with the performance of the Sunflower design.

I can add one thing to that. I was in the South of France and I would like us to look like the sunflower fields that I saw in the South of France.

Then back to the question on the ongoing attention to IMU and AUR. It does differ by brand. Obviously Lece is charged with that at the Chico's brand and has done a stellar job as you noted Dana, and we will continue to monitor that and do everything we can understanding that there is a very fine line between the value proposition and the IMU -- and the AUR. And as far as the White House brand and the Soma brand, we have the same attention on these financial metrics of those brands as well.

Thank you.

Thank you. We will take our next question from Stacy Pak. Go ahead, please.

Thanks. Just two questions. Scott, first of all, I was hoping you could expand more on the difficulties that you are seeing now in the intimate apparel business, and sort of what surprised you and what is hardest. And secondly, if you can expand on the new mark-down strategy that you are potentially looking for '06?

I am going to defer the -- the Soma question to Chuck Nesbit who is sitting here with us. Chuck, you want to take that one?

Yeah, I -- I wouldn't say that -- first of all, let me say, I have launched four intimate apparel brands in my career, and this brand is tracking very, very nicely. In fact ahead of the four that I have had experience with on the wholesale business. So I wouldn't say that we're struggling or anything.

The brand is, whenever you launch a new business in intimate apparel, because the number of SKUs and so on, it takes a while to sort out the assortment. And what we've done in the first year is we've really seen what she's buying, and now we are really driving our product development efforts against where we are seeing her take us. So it's -- we're all very upbeat about this business.

The biggest challenge really has been on the foundation side of the business in terms of the economies of scale. If you look at this business, you've -- you have to get very, very high volume numbers to really realize the -- the product purchase efficiencies, and that will come with the -- as we open stores and as we drive more volume per door, all of that will come. So it is just a matter of time as we -- until we get there.

We clearly see this model delivering on the same order of the major competitor in the business as we get up to scale.

But none of that sounds terribly surprising though. I mean, was any of that -- Scott, the way you were talking it sounded like some of it was a surprise to you. Did I just totally misunderstand that?

I think you are right. You have to look at changes we made in the leadership over that. Pat is more of a sportswear merchant and did a fantastic job in launching the brand and proving to ourselves and to, I think, the investment community we could launch a brand organically.

Then we -- we went out and hired Terri Meichner, who really is a lot more senior than the merchant who was leading the launch, and then we placed Terri under Chuck's leadership. So I think the original management team of Pat Murphy Kerstein, [Terri Compana] and myself underestimated the difficulty of getting into the business, underestimated the required volume of units needed at the manufacturing level for the foundation product in order to achieve the margins that really make this an attractive business. And now with the new leadership, I don't think it is a surprise. I think it was a surprise to some of us that launched it.

Okay, fair enough.

And then with regarding intention to our markdowns methodology and strategy safety, and as we focused on the IMU and AUR earlier on in the year and feel it paid substantial dividends in the third quarter and probably going forward, we just think that we have identified some -- some areas in our markdown strategy that we can improve on that will provide some opportunity for us going forward. As far as getting into the details of that I truly feel is that is proprietary and I don't want to blast that across the call when the operator told us that we have over 200 people listening.

Okay, thanks.

Thank you, the next question comes from the line of Lauren Levitan. Please go ahead, please.

Thanks, good afternoon.

Hey Lauren. Are you there? Operator, I think we might have lost her.

Yes. Ms. Levitan's line has disconnected. We'll take our next question from the line of Tracy Kogan. Go ahead, please.

Good afternoon. Could you give us more detail about the performance whitehouseblackmarket.com thus far? What have your fulfillment rates been, and how does the average transaction size compare to that of the store, and also, can you talk about how you're managing the inventory at White House between the direct and retail channels please? Thank you.

Let me repeat the question, because we could barely hear you. What she wants to know is how we manage the inventory between the brick and mortar effort of White House and the direct business, and as well, a little more detail on the performance of the White House web. So, Patricia, if you want to talk about the inventory, and then Charlie, you could talk to the metrics of the web.

In terms of the web, we felt really confident about going into the web with the inventory levels that we had, but we have found that really chasing the business on the due to the demand that we've seen from our customer, and so we're really now just beginning to understand how high is high for her. And we continue to study the success of the web because of its strength in the sales of the web are different from front line. We've seen sweaters, dresses, knits, and shoes have excellent results, so we continue to push more inventory for the web.

Is it a separate inventory, or is it all seen as one inventory between the retail and direct channels?

It is a separate inventory.

Okay.

And by the way, just one note, this is Jim, we couldn't have anticipated just how well we would do on the web. It was about three times our original forecast that we had made so we're doing quite better than our original plan.

We're actually ahead on the Chico's launch, aren't we, Jim?

Yes. That was from day one, by the way, it was like with a bang.

This has been a very successful launch, although we're only two months into it, we're very pleased with the numbers initially.

And something else I wouldn't mind sharing with the investors, Jim and Charlie, is that we find the White House customer is more of a web shopper than a phone shopper. The ratio of the mix of phone versus internet is stronger internet on the White House brand than it is on the Chico's brand, which we found very interesting.

And then some of the metrics, the fulfillment rates thus far?

We don't put that on any of our brands.

Okay. Thank you. Good luck.

Thank you. We will take our next question from Kimberly Greenberger. Please go ahead.

Great, thank you, and I'll add my congratulations as well. I'm wondering if, Charlie, if you could just clarify for us, I think you said 10 basis-points of Soma drag -- Okay. That's in the third quarter?

Yes, that's a year-over-year, too.

Okay, and what do you anticipate the drag to be for the entire year of 2005?

Well, as I said, we expect that the drag will be flattish, there will be no drag year-over-year in the first few quarters, and there might a 10-20 basis points in the last two quarters, so it might be 5 - 10 basis points -- it will be very small.

Okay, so that's for 2006?

Six, yes.

Okay. And then, Chuck, I'm wondering if you could just talk about your experience in the intimate apparel industry and what sort of volume level or what sort of store count size you think Soma would need to achieve in order for you to start seeing some of those economies of scales that you are looking for in the foundations business?

I was -- my career was fairly before coming to Chico's, and I was both President of the Bali Company and CEO of their North American intimate apparel business, so I've worked on brands such as Bali, Playtex, WonderBra, Hanes, Just My Size, and Loveable Barely There, and a number of those brands we actually introduced during the time I worked on the intimate apparel business there.

With respect to scale, scale really begins to impact the business positively north of 100 stores. South of 100 stores, we run into minimum issues, and we run into the issue of amortizing design cost over a limited number of sales units. But once you get north of 100 stores, we will begin to enjoy some of the efficiencies that come from long-term sustained volume runs.

Great, thank you. That was very helpful. Charlie, I have a quick clarification. I think -- maybe I didn't hear you properly. You said depreciation in the quarter. I think you said 12.6 million, but just looking at the press release and it says 11.3.

Well, you have got to add the cost of sales part to it too. Two pieces of depreciation. There are two lines on the cash flow statement which you can't see until you get the cash flow. Because some in cost of sales.

Oh, okay. So some of the depreciation expense is not broken out in the depreciation line. It is in cost of sales and we will see that in the cash flow segment.

Yes. You'll be able to see the 10-Q tomorrow morning.

Thanks, Charlie.

Okay.

Thank you, our next question comes from Liz Pierce.

Good afternoon and I will add my congratulations as well.

Hi, Liz.

Charlie, can you just also clarify something that you said on the White House gross margin. Did I misunderstand the gross margin versus merchandise margin impact?

I don't know. What did you understand?

Well, I thought you said the White House was -- was the gross margin on the White House was up 220.

That was the merchandise margins.

Okay. Okay. Thanks.

Okay.

And then also on the inventory, I wanted to make sure that I understood for the fourth quarter, I guess more in terms of markdown for White House. Is it that White House is going to -- there is more novelty, more cold weather product. Is that why you are anticipating a higher markdown rate?

We are just keeping an eye on all of our cold weather products just because the weather has been warm, so we are staying very focused on our chunky sweaters, outerwear and faux fur to make sure we take timely markdown so we don't have carry over to spring.

Is it also because there is more versus last year or just strictly as you are watching the weather.

It is weather related. We -- we have more density than we had last year though.

In that particular category?

Across the board.

Okay. And then I guess the other question I had real quickly. If -- if Jim is still on. I think you guys were talking about postcards versus increasing circulation and I guess we are kind of doing a post mortem on that last quarter and I wonder if there was any kind of update on the strategy for postcards.

Is is that what we were talking about -- you are talking about the last conference call?

Yes.

You know, with our analysis, I will remind our team all the time there is never any final answer. It is like ongoing analysis of everything we do. And it -- it depends on the month.

It depends upon the product, it depends upon the promotional offer as to whether postcards sort of beat increased circulation of the Catalog, and what you'll see next spring -- I am not going to tell you what we are going to do next spring, whether it is postcards or mailers, but in some months, you will see increased circulation of the Catalogs and in other months you will see an additional mailing. And that will be based on what we've learned this year.

Okay. That's very helpful. That's all I have. Good luck, you guys.

Thanks.

Thank you.

Thank you, we will take our next question from Roxanne Meyer. Go ahead, please. Miss Meyer, your line is open.

Hi, great, thanks. Let me add my congratulations as well. Just first a few questions about stores. Can you discuss the new store openings by quarter next year?

No, I don't have those numbers right now. I think it is going to -- by brand, it will be very different so I will have to get back to you on that. I don't have -- I will have to call you back on that because by brand it is very different.

Okay. In terms of the new store size, I know you will continue to make stores larger, can you just update us on what you think at this point your average store size will be by brand next year?

Should be the exact same as we talked about on the second-quarter conference call, and that is in the neighborhood of 2800 net selling for the White House and up near 3,000 for Chico's.

Okay. And in terms of expansion, about how many square feet on average do you plan to add to each --

Well, it is all with opportunity. We don't ever really know. For the last five years in a row, it has been near 1,000 feet. It should be probably near 1,000 feet, although we would like to get more, but it is all about opportunity.

Okay. And then, can you just talk about for your November results for core Chico's, how your marketing and promotional cadence compared to last year?

Jim?

As far as the amount of mailings going out, it is about the same schedule. Of course, the circulations are proportionately bigger for the Chico's -- for Chico's, and actually they are much higher for White House.

We -- we jumped up the circulation rather dramatically through the end of the year. Also in the three months, November, December, January, we will have three Catalogs instead of two last year or major mailings for White House as opposed to last year.

Okay. Great. And then last, as you continue to open larger stores and expand existing stores, how, if any, does that change your outlet strategy?

That doesn't really change our outlet strategy. We told Barry Shapiro he will get an outlet for every 20 stores and he has to clear the goods and he does no matter how big they are.

Okay. Okay, great. Thank you very much and good luck in fourth quarter.

Thank you, it appears that Ms. Levitan's line has rejoined. We will take our next question from Ms. Levitan. Your line is open.

She is having a hard time getting in from San Francisco.

Charlie, can you hear me?

Now you are on.

Hi, sorry about that. They keep disconnecting us. I wanted to ask you a couple of things that hopefully weren't asked. First related to Soma, I noticed third-party brands in stores and if you are using those in a way to round out the products as you incorporate some of the learnings from your customers or if you view that as a part of the assortment going forward?

And then separately, Scott, I am wondering if you can talk about possibly uses of the cash. I know in the past you said you wanted to get a feel for what the headquarters move and expansion would demand financially. Now that you have a clear picture of that, can you give us some sense as to your priorities for cash going forward? Thanks.

I will answer the cash one first, Chuck. You just answered the question. You know, we're -- we're very comfortable with our cash position, Lauren, especially with the impending deployment of cash on the HQ, and right now that's our major focus on the cash flow balance sheet.

We are in a test mode on Soma. Obviously we are expanding the test but part of the test is to try different things. I spoke earlier to the issue of efficiencies in buying. One of the ways you can buy efficiently and test items is to buy out of people's lines, and sometimes it's -- it's more economical to do that. We are also testing with some of the branded merchandise in the stores, some higher price points.

Separately, can you talk about -- you mentioned on the White House side, outerwear and cold weather goods and things like that, you are being careful on. Are you seeing any different experience in terms of the sales performance of those categories in White House versus Chico's given the weather pattern is really the same for both chains?

We are not seeing any difference in -- in cross brand, Lauren.

Okay. And then lastly. I know you said you are going to do more White House stores next year, does that at all change your thoughts about the long-term target size of the chain? Are you identifying different types of markets or venues that the concept works in and if so, does that at all alter the longer-term target you have talked about in the past?

I was reading the article in Women's Wear Daily this week and it was not too far back that Target thought they would only have 1,000 stores. You know we -- we are looking at across the landscape -- we laid out a number I think at the last quarter of approximately 600 stores for the White House brand. Every -- every time we look at the -- at the customer interest in the brand, the performance of the brand, we get more excited. But our current position is exactly as we stated on the last quarterly call.

Great. Thanks and good luck for holiday.

Thank you, Lauren.

Thank you. We will take our next question from [Jeff Godfer]. Please go ahead, please.

Yes, I was wondering if you see a split coming up in the future?

That is up to our Board of Directors and they meet generally four or five times a year and they make the decision on that split based on -- based on our liquidity needs and based on all that, so I would -- I would have to -- I would have to defer that to the Board of Directors. I don't know what they are thinking right now.

Okay. And number two, tell us a little bit more about the Sunflower -- is that for young girls?

About the what?

The Sunflower.

That is a store design. That is a store design. It is just the look of the store. It is just aimed to be a new look for Chico's.

It is not designed at young girls or anything like that. Aimed at the Chico's customer . Just a new look to the store. Not a look of product, it is the store itself.

. Any other areas you are expanding out to in the near future?

Not that we can mention publicly.

Okay. Thanks.

Thank you, we will take our next question from Jennifer Black. Go ahead, please.

Good afternoon and let me add my congratulations.

Thank you.

Thank you, Jennifer.

I have a couple of questions. So I guess I will start off. I wanted to know if you could talk a little bit about stock options and how -- how you are allocating those as the Companies become bigger and bigger. Do you have plans to give store managers stock options, and that kind of goes with, I guess, my next question is, how you retain management in markets where you have a lot of stores, and there is a lot of new competition coming into the marketplace? I just wondered if you could comment.

Well, as far as our compensation philosophy with regard to issuing stock options, Jennifer, we defer that to our benefit and comp committee as warranted, but I will say that we go out and do a peer group study and we try to stay in a certain percentile. I won't throw that across the phone, but what we try to stay very competitive in the industry in our peer group against the companies -- companies that would recruit against us, the Coldwaters, the Ann Taylors, the Gaps, the Talbot's, the Jill's. The Limited brands. We try to stay competitive on senior management and middle management with the option grant.

We are looking at the new FASB rules and the mix of options and restricted shares and weighing that against the expense line. As far as, you know, how we "A," will we be offering stock options to store managers, I would -- I would decline to answer that on the phone, and "B," how do we keep these store managers and store talent at the store level in markets where Coldwater might be there and Jill might be there. It is really the environment that the individual wants to work in on a daily basis.

If you are a strong-selling manager or a strong-selling salesperson, full time or part-time, you will make a lot of money at Chico's. If you just want to stand by the register and thank them and stuff stuff in their bag we hope you go somewhere else and that's all about the service culture and service is the DNA of both brands for that matter, and we lose some people initially when these other brands come into the market, and t they will figure out we are paying a manager 35 or 40 and they will pay them 38 to 42 and we lose some of them, but more times than not they end up back in our franchise.

Well, the reason I am asking -- I mean obviously you have a lot of new stores come to my area, and -- and you have done a great job, and I was just kind -- so I wasn't so much alluding necessarily -- I was alluding to competition, but also to saturation of a market. And so I wanted to know if you could comment also on how you feel -- I think there are five stores in my market right now of each brand and how you feel about that?

And how you decide how many stores can be supported within an existing market, and service and going back to what you just said, you always prided yourself on having excellent service and you also given excellent service. So how do you keep that instilled when you are opening so many stores? I am not saying you are not, I want to know how do you that?

A good question because it is a challenge we wrestle with all the time. One thing to have great service when you have 200 stores but give great service when you have 600 stores and it is a challenge. As far as how many stores we open in a market, obviously we have a whole methodology we go through, based on profiling customers, you know, between 35 and 65 and 75,000 household income and higher, yada, yadda. We watch the performance of the stores. Right in your back yard in Lake Oswego, when that store is doing $3.5 or $4 million, we know we can open another store five miles away.

We may cannibalize that store a little bit. I think that's part of your question. When you cannibalize that store and the bonuses go down in that store, how do we keep those people there? I think that is what I am reading into your question. It is real upward mobility in their careers. It is the -- you take the strong performers that are -- that are managing a $2 million store and you move them to a $4 million store. You take an assistant manager who is managing a $1.5 million store and make them a manager of a $3 million store and promote up to the district level and staying in touch with people's careers and not pigeonholing them into a market and say, you are a store manager in a $2 million store we will see new five years.

So it is really -- it starts with Mori and Sher and their teams and they have to be in touch with their regionals and their districts and right on down to the store level and it is a challenge and a great question.

Okay, no -- just that there has been a lot of stores that have opened, and I can kind of see some of the kinks that you are battling and you have done a fabulous job, but it is some of the things I probably should talk to you offline versus on this conference call.

Yes. I think -- I think you have got -- you have your finger on the pulse of that Portland market and I would love to talk to you offline on it.

And then because -- because I can see some things where it is so busy that -- that people can't keep up when the store opens, et cetera, et cetera, and so that was -- I think that that -- oh, and then I wanted to congratulate you on the fit specs at White House/Black Market because I was the one who drove you crazy and they are very, very good especially in denim.

Yes, we made a lot of progress there especially in denim. We'll get together offline.

Okay, give me a call.

Thank you, Jennifer.

Thank you, we will take our next question from Robin Murchison. Please go ahead, please.

Thanks. Charlie, I, too, got cut off a little while ago. Can you just reiterate the net-net gross margin for Q. Did you say down 20 to 30 basis points?

What's that now?

Pardon me?

For what type of operation? For the overall, the consolidated?

Consolidated gross margin.

We said flat to -- flat to -- that it could be down -- up to a half a point.

It could be down up to a half a point.

Flat to down to up to a half a point.

Okay. You were done with store openings this year, correct?

No, we still have more store openings coming.

Okay. Lastly and this will be for Chuck Nesbit. Average Soma customer -- if average Chico's size is a size 2, does the average Soma customer -- is what you are seeing in terms of sell through and I know it is early correlate with a size 2 customer?

I'd say that our customer -- that our customer is very much the same.

Okay. Okay, great, thank you very much.

Operator, we will take one more question.

Thank you, we will take our last question from Meredith Kent. Please go ahead. I apologize, we will take our next question from Christine Chen. Go ahead, Ms. Chen.

Thank you. Right under the wire. Congratulations on a great quarter.

Thank you.

I wanted to see if you have given any numbers for long-term potential for Soma stores.

We have said it could be anywhere as strong Chico's stores once the brand starts rolling out.

And in terms of just number of stores, is it like a 600 potential number of stores.

We haven't given any specific numbers just as it it it can be wherever a strong Chico's store is and we would like to think in the long term anywhere in great malls, but not just with Chico's but short term near a Chico's.

Thank you. Good luck for the holidays.

Thank you very much, everyone. And thank you for listening to our third-quarter conference call and we will see you next March 1st for our fourth-quarter conference call. Thank you very much. And goodbye.