Chico's FAS Inc (CHS) 2005 Q4 法說會逐字稿

Good day. All sites are now on the conference line in a listen-only mode. Later, there will be an opportunity to ask questions during our Q&A segment. Please note this call may be recorded.

I'll now turn the call over to our moderator, Mr. Michael Smith. Go ahead, please.

Welcome to Chico's fourth-quarter 2005 earnings results conference call. Before we start, I'd 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 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 the 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 filing on Form 10-Q, Management's Discussion and Analysis in the Company's latest Annual Report to stockholders, the Company's filing on Form 8-K and other federal securities laws filings for a description of other important factors that may affect the Company's business, results of operation 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 in such statements will not be realized.

I would now like to introduce you to Scott Edmonds, our President and CEO.

Thanks, Michael, and thanks to everyone for attending our fourth-quarter fiscal 2005 conference call. With me on the call today is Charlie Kleman, our Chief Financial Officer. Chuck Nesbit, Chief Operating Officer; Pat Murphy Kerstein, Chief Merchandising Officer; Jim Frain, Chief Marketing Officer; and Patricia Darrow Smith, Chief Creative Officer for White House/Black Market are all on the phone with us and available for questions during the Q&A period.

By almost any measure, 2005 was a tremendous year for Chico's. We are very proud of our record revenues of 1.4 billion, as well as our net income increase of 37.4% to a record 194 million or $1.06 per diluted share compared to last year's net income of 141 million or $0.78 per diluted share.

Our operating margin of 21.2 is the highest ever, and we delivered our ninth consecutive year of double-digit comparable store sales increases, while at the same time executing on our strategic plan and investing in our future growth. These results are outstanding, and we are all very proud of what we have accomplished this year.

Fourth-quarter results were also solid. Revenue for the quarter climbed 31.6% to a record 376 million. Net income rose 34.9% to a record 44 million or $0.24 per diluted share, compared to last year's fourth-quarter net income of 33 million or $0.18 per diluted share. And comparable store sales increased 14.6% for the quarter.

The slight decline in operating margin from 18% last year to 17.7% this year was largely due to a planned 1.1% increase in marketing costs over last year.

Although fourth-quarter earnings of $0.24 may be slightly less than the Wall Street consensus was expecting, we will never force short-term earnings at the expense of longer-term strategic positions and performance to meet analyst expectations. On the contrary, we adhere to an emphasis on long-term value. We view this as a matter of our credo at Chico's to the same extent that our focus is on satisfying our customer. We are extremely proud of our consolidated profitability and with the merchandise margins that improved in each of our brands.

Beginning with our core brand, Chico's, Chico's third-quarter momentum continued as we delivered yet again record IMU, AUR and gross margin for the fourth quarter. We saw our IMU for the fourth quarter jump nearly 2 points over last year. The combined efforts of merchandising, planning, product development and production allowed for these outstanding results.

We had many product categories that delivered strong year-over-year performances. The Travelers collection continues to deliver strong sales. We have continuously updated our offering through color, novelty and silhouette direction.

During the month of January, we held our traveling trunk show, during which we introduced our new spring assortment. The stores held special events and conducted appointment sales. The trunk show created excitement for the stores and for our customers. The reaction to the product was very strong and gave us clear direction for the spring season.

Activewear continues to generate nice increases, and we have not yet maximized its performance. Long-sleeved Ts, basic, fashion, print and synthetic, produced great results, as did our long-sleeved woven category, menswear solids and stripes. Within sweaters, both our key turtleneck program, as well as novelty sweaters, delivered strong sales. Casual bottoms were strong, and our Platinum Denim was outstanding. Skirts continued their momentum from fall, and jackets, solid, novelty and denim, delivered strong results.

Within accessories, bags, belts, eyewear, intimate and gifts were drivers to the business. Earrings and bracelets drove business in the jewelry category.

Even with these positive fourth-quarter results in 2005, we see opportunity for sales growth in the fourth quarter next year. We believe we have an opportunity to focus on our cold-weather stores and increase sales through expanded assortment of sweaters, outerwear and cozy fabrics. We also intend to focus more on gift-giving, both in apparel and accessories so we can become a gift-giving destination for our customer.

We are optimistic about our spring 2006 season. We received many early indicators through our Spring Fling test in October, as well as initial spring deliveries in January and February to give us strong direction going forward.

Travelers continues its momentum and a new collection launched during the trunk show continues to perform. We have also introduced our new Sexy Travelers with a modern feminine twist.

Activewear sales remain strong. We launched our new Zenergy collection in the March mailer -- core active basics to take you from yoga to lunch -- and initial results are strong.

All of our short-sleeved categories are performing very well, particularly our basic fashion, print and synthetic Ts. Linen continues to exceed our expectations, with both basic and novelty working, all silhouettes. Skirts continue to drive strong comps with shorter, fuller cotton styled adding newness. Platinum Denim continues to be outstanding. We have updated silhouettes, washing treatment and added color to the mix. Novelty and denim jackets remain strong.

Categories that were soft during the month of February were all tank categories and casual bottoms, crops and lightweight fabrics. We believe this is due in part to extreme weather conditions throughout the country, as we saw strong sales in these same categories in January during the more temperate period.

We also underestimated the need for long-sleeved tops, sweaters and outerwear for our cold stores during the month of February, and we are missing sales in those categories. We feel strongly that we have proactively reacted to all of these early indicators and have positioned ourselves to have a strong spring season.

As always, the team continues to stay focused on the customer. We listen to her and watch her evolve to ensure that we deliver the product that suits her lifestyle. We intend to keep delighting her and surprising her. We continue to see strong growth ahead for the Chico's brand through product extensions such as Sexy Travelers and Zenergy and expanded Platinum presentation as we listen to our customer and anticipate her needs.

Now turning over to soma for a moment, we were extremely pleased with the development of this new intimate apparel brand during its first full year of operation. Through the year, the soma team made tremendous strides, improving the product assortment and improving the business model. We are well-positioned to accelerate store openings in 2006 and 2007.

Some specific 2005 accomplishments I'd like to share with you include -- sales for the average soma store totaled over 1 million during the first full year. Sales performance accelerated dramatically in the fourth quarter as refinements to the product assortment and business model were implemented.

February 2006 sales sustained the momentum. On a selling square foot basis, soma front-line stores achieved approximately 2/3 of Victoria's Secret's average annual sales per square foot in 2005. Gross margins improved due to product cost reductions, shorter promotional windows, improved inventory management and more sophisticated execution of markdowns. Better products also reduce the need for end-of-season markdowns.

Direct channel sales far exceeded our aggressive plan, primarily due to strong e-commerce activity. In 2005, the direct channel contributed over 10% of soma brand sales. Momentum continued in February with direct channel volume running nine times prior-year sales. The management team was strengthened in merchandising, planning and product sourcing.

From a product perspective, we are pleased foundation penetration continues to increase, even though we have reduced the number of bra styles to bring more focus to the assortment. Responding to customer demand, in 2006, we will continue to add larger cup and band sizes to new and larger-volume exceeding existing bra styles. Shapewear greatly exceeded expectations in 2005 and will benefit from new seamless styles and the addition of firm control styles in 2006.

To capture upside volume potential in basic panties, we are in the process of upgrading and refining our panty product mix. Additionally, we're testing larger panty sizes.

Turning to apparel, the initial response to our spring 2006 activewear is exceeding expectations, and we expect to build on this momentum throughout the year. In sleepwear, we have learned our consumer loves soft, cozy fabrics, and we will continue to supply comfortable, cozy sleepwear products in 2006 with a unique Chico's fashion flair.

Finally, although we continue to test high-end branded products such as Natori bras, our primary focus remains on the development of our own soma label in all product categories. Expansion of the brand will also be realized in 2006 by adding 20 new front-line stores, more than doubling our store count.

A soma boutique concept will also be tested in 10 to 20 expanded-size Chico's stores. These 1100 to 1200 square foot soma store-in-store installations will have dedicated sales associated and an edited assortment of the best-selling soma products, plus fashion items featured in the monthly mailer.

Some boutiques will provide future expansion -- excuse me -- soma boutiques will provide future expansion space for Chico's once soma sales in a boutique location are high enough to justify the opening of a stand-alone soma store in that market.

Over the past year, we have learned much about the supply chain and logistics complexity of the intimate apparel business. We have come to the conclusion our information systems require significant enhancements to fully realize the sales and profits potential of this new business.

To back up our strategic commitment to soma, as well as support continued growth of our other brands, we are making a major investment in a new ERP system. The initial implementation is planned for soma in 2006, followed by the other brands in 2007 and 2008. By the end of 2008, the entire Company should be operating on a scaleable, state-of-the-art ERP system capable of supporting growth of the existing businesses, and when necessary, the addition of new brands.

To summarize the key objectives for soma in 2006, 20 new front-line stores and 10-20 soma boutiques in Chico's stores; ERP systems implementation; enhanced e-commerce capabilities; ongoing product line refinement, including revamping the panty product line; continued focus on improving gross margins, setting the stage for accelerated growth in 2007.

And now, our White House/Black Market brand. The White House/Black Market business is extremely strong. We closed the fourth quarter and year exceeding our expectations in sales, gross margin and brand operating margin, and continue to be very pleased with the progress and consistency in the performance of the brand.

Fourth-quarter sales were consistently driven by knit tops, sweaters, woven bottoms, denim, dresses and jewelry. Knit tops have continued to lead the business, with camisoles being the largest departmental volume driver. Length and mesh were important characteristics in the fastest-selling items. Bottoms sustained steady sales throughout the quarter.

Sweaters experienced a combination of great success peppered with some disappointments. Warm weather caused mediocre results in both our chunky sweaters as well as outerwear. However, fitted turtlenecks exceeded projections for both third and fourth quarter, and they had above-average gross margin. Essentially, the fitted turtleneck became a wardrobe essential of the season. Early reads on spring merchandise are favorable and we're expecting a strong season.

We have extremely high expectations for the White House/Black Market brand and are more excited today than ever before about the long-term growth opportunities of this young, relatively unknown brand.

Fitigues -- since we acquire this business just a short 30 days ago, I have only a few brief comments. As expected, the integration plan has begun. We may open a few stores in 2006 on an opportunistic basis. However, our primary focus will be on infrastructure. Barry Shapiro, one of our seasoned Senior Vice Presidents, is working very closely on this project, and I'm confident we'll see improvements in the Fitigues business in the immediate future.

And now, a few comments on the marketing front. Jim Frain, Chief Marketing Officer, is here with us on the call today. This is probably the last call Jim will be on with us. Jim, once again, on behalf of our Board of Directors, the executive management team, and most of all, our shareholders, thank you for nearly seven years of service at Chico's.

We are pleased that our new Chief Marketing Officer is planning to begin on April 3. Jim will be working with this individual during a transitional period that should accommodate a smooth transitioning of responsibilities over the next few months.

All of our key marketing data points show a continuing high level of interest in the Chico's, White House/Black Market and soma brands for the short and long term. Charlie will provide some additional detail on our loyalty programs, and Jim is available for questions. With that being said, we consider our marketing programs to be proprietary and we reserve the right not to answer certain questions.

Before I turn it over to Charlie for the financials, I would like to comment on our plans to relocate our corporate headquarters here in Fort Myers. As I reported on the third-quarter conference call, we closed on 105 acres during that quarter. Over the last few months, we have been working with architects, engineers, contractors and public officials on the site plan, design and cost analysis of the project.

We have become acutely aware of the recent increases in the cost of constructing a new facility at this particular time. So I've asked our team of professionals to reevaluate the situation here at our current facility to ensure we have taken all appropriate measures to provide the necessary short- and long-term space needed to accommodate our future growth plans while at the same time continuing to be fiscally conservative with our shareholders' money. I will provide furthers updates on our next quarterly conference call on this subject.

Finally, as we move into 2006, our goal at Chico's remains unchanged -- to continue to create and grow strong branded concepts that target compelling niche markets and ultimately deliver predictable, sustainable growth to our shareholders.

I want to recognize the contributions of our associate base to our success. They continued to provide our customer with the merchandise she wants to purchase in an environment she likes from people with whom she feels comfortable. A retailer can ask for nothing else.

And now, I will turn it over to Charlie for the financials.

Thanks, Scott, and good afternoon, everyone. And now, I would like to welcome you to our fourth-quarter conference call for fiscal 2005. We've got another solid quarter with sales and earnings growth again north of 30%, and we've also completed our ninth consecutive year of sales and earnings growth in excess of 30%.

Today, we will review the quarter in some detail, look at some guidance for the future, review our store opening and square footage growth strategy, and look at some of those interesting year-end numbers.

First, let's look at the overview of the fourth quarter of last year, a quarter in which we saw a 32% increase in sales and a 33% increase in earnings, our 41st quarter since we went public that has been north of 30% earnings.

Over the last several years, we've successfully integrated the acquisition of the White House/Black Market brand into our portfolio of brands. And we've successfully launched soma organically. On this call, I will be spending a little more time looking at the impact of these new brands on our earnings, as well as some key metrics of three of our four brands in more detail.

I say three out of our four brands, as we had not acquired our fourth brand, Fitigues, until after fiscal 2005 had ended. Remember, as you hear these details, that we are now a multi-branded apparel growth company with brands at all of the various stages of the standard growth cycle.

On last quarter's conference call, we indicated that we expected the Chico's brand to be only slightly ahead of the record-setting fourth-quarter gross margin of fiscal 2004, that we expected flattish gross margins at the White House/Black Market and that the outlets would run at a lower gross margin and that the outlet division was likely to negatively impact the Company-wide gross margins by between 30 and 40 basis points.

That was last quarter. Now, during the quarter, each brand actually experienced slightly better gross margins than we had forecast, as Chico's was 0.5 ahead of last year's record fourth quarter, White House/Black Market was almost a whole point ahead of last year and the ultimate impact on the overall results was more like 20 basis points. soma, although still a very small part of our operation, saw a quite large increase in margins as well for the reasons that Scott stated.

We also saw leverage in our combined SG&A and depreciation costs of 1.2%, excluding the additional 1.1% planned spend on marketing that Scott discussed. We'll spend more time looking into this area in a few minutes.

The interest income was also quite strong for the quarter as both interest rates and cash balances improved over fiscal 2004's fourth quarter, and our interest income came in at a strong $2.6 million, which was just over $900,000 last year.

Regarding taxes, our year-end true-up to the final tax rate resulted in our fourth-quarter tax rate improving to 35.8% from last year's 36.8%.

All of the above items I just described resulted in the 33% earnings per share increase as we moved from $0.18 last year to a record $0.24 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 3.9% and a 1.6% increase in the average transaction size, which came in at about $94 for the quarter.

White House/Black Market saw a 10.3% increase in average unit retail and a 7% increase in the average transaction that was about $80 for the quarter for the average transaction.

For the year, Chico's saw a relatively flattish average unit retail and average transaction size, as the average unit retail increased by 0.4%, while the average transaction was flat at approximately $101.

White House/Black Market for the year experienced a 7.8% increase in average retail and a 3.6% increase in its average transaction, which amounted to approximately $82. We expect the Chico's average unit retail to increase in the 3 to 5% range for fiscal 2006, while White House/Black Market's average unit retail should remain relatively flattish for fiscal 2006.

Regarding comps for the quarter, as previously announced, the overall same-store sales increased 14.6%, while the Chico's same-store sales increase for the quarter was in the high single digits and the White House/Black Market same-store sales increase was in the low 40% range.

During the fourth quarter, White House/Black Market front-line stores accounted for approximately 20% of the same-store sales base and 22% of the overall sales, while for the year, White House/Black Market accounted for approximately 16% of the same-store sales and almost 19% of the overall sales.

Beyond the same-store sales increases we experienced during that quarter, we saw a 56% increase in direct-to-consumer sales, which still benefits from the strong launch in the third quarter of the White House/Black Market website and selling catalog, as well as continued strong increases in the Chico's and soma direct sales.

As we had indicated before, this is an area we believe that we are underpenetrated and is an area we intend to pursue further improvements to increase market penetration. To that end, last quarter, we acquired a 50,000 square foot building adjacent to our distribution center north of Atlanta, and we are now preparing this building so that it will soon handle all of our direct-to-consumer distribution activities, as well as provide for a backup call center. Again, this is another investment in the future of our portfolio of brands that we think could increase or enhance shareholder value over the longer term.

Turning now to gross margins, the Chico's merchandise margin exceeded our expectations and improved by approximately 50 basis points as we again saw improved IMUs for initial markets on our new product offerings that was partially offset by a higher markdown rate.

On the White House/Black Market front, we saw another quarter with steady improvement in the merchandise margins as we moved up about 90 basis points over last year's fourth quarter, largely due, again, to IMU gains and partially offset by the anticipated increase in markdowns that we discussed last quarter.

As we have stated many times, our goal has always been to bring the White House/Black Market merchandise margins to the same level as the Chico's margins over a four- to five-year period. Currently, White House/Black Market's merchandise margins are just under 4 points behind Chico's and are gaining ground every year.

The outlet division, which in fiscal 2004 had stellar margins for the last three quarters of the year, only saw a 40 basis point decline in its gross margins during the fourth quarter. Thus, they had less impact on the chain than we had anticipated. Since the outlet division will no longer be anniversarying these stellar 2004 margins, we do not expect further significant degradation during fiscal 2006 in the overall gross margin due to the clearance activities within these outlets.

The soma brand, which had its first full quarter-over-quarter results in the fourth quarter, improved dramatically, by 490 basis points, exceeding our expectations as assortments are becoming less test-oriented and we're now able to provide more of what she wants.

These merchandise margin improvements for each brand were slightly offset by a 30 basis point increase in freight and inventory clearance activities and were also pressured downward by about 20 basis points due to the increasing growth of the lower-margin White House/Black Market and soma brands.

We expect the fuel charges could, of course, continue, although we do not expect the inventory clearance activity to continue at a higher pace than we experienced in fiscal 2005. We are anticipating some pressure on the gross margin as the soma and White House/Black Market brands expand. More on that later.

Let's move now from gross margin to the combined SG&A and depreciation expense for the fourth quarter. As Scott indicated earlier, we planned a large increase in our marketing spend in the fourth quarter after deferring our spending in the first three quarters. This additional spend amounted to 1.1% of our sales and almost entirely offset the leverage of 1.2% of sales that we saw elsewhere.

We had anticipated a slightly higher leverage than this due to last year's one-time lease charge of about $4 million in the fourth quarter. But at the beginning of the quarter, we decided it would be in the best interest of both our store associates and our shareholders to change all of our store managers to hourly from salary. Looking back, this change was probably not done at the best time of the year, as the fourth quarter usually requires the most of the managers' time of any quarter of the year.

With that said, our stores were still flat to last year for the quarter from an SG&A standpoint in spite of roughly an 80 basis point rise in the store payroll and in spite of the increasing ratio of White House/Black Market and soma stores, which tend to run at a higher store SG&A level.

We have carefully evaluated our overtime and scheduling procedures to avoid this kind of deleverage in the future. And we do not anticipate charges in future quarters as high as we experienced in the fourth quarter, although it could pressure our SG&A expense level by 10 to 20 basis points until we anniversary it next November.

After reviewing all the factors that played into this quarter, we are very pleased with the 33% growth in fourth-quarter earnings, the improvement across all of our brands and the increase in the inquiries we have already seen that result from our marketing investments in the fourth quarter. With that said, we believe the investments we're making in the quarter and in the year are now positioning the Chico's portfolio of brands to better benefit from the anticipated continued growth of sales and earnings that we foresee.

Next, I will spend a few minutes on the year-end numbers and then we will look at some guidance for the future. Starting with gross margin, this was our third consecutive year of 61% or better of gross margins, even with the increasing ratio of White House/Black Market and soma stores.

This 61% gross margin was composed of higher IMUs across every quarter for both Chico's and White House/Black Market. During the first half of the year, this IMU increase was offset by higher markdown rates, while in the back half of the year, the IMU was only partially offset by higher markdown rates.

During the year, we also saw a 60 basis points leverage to our combined SG&A and depreciation expenses that more than offset the 40 basis points gross margin decline. And this resulted in our highest operAting margin ever of 21.2%. Within that SG&A figure, we again spent 3.7% on our sales for our direct marketing costs, as this investment remained the same as in fiscal 2004.

Lastly, in the SG&A area, we saw nice leverage in our store costs as our combined group of stores leveraged by 60 basis points for the year. It is important to remember that when you are running over $1000 per square foot, even rent becomes a variable cost, as we pay percentage rent rather than fixed rent on the bulk of our leases. Not only does this make our cost structure less leverageable on comp increases, but it also provides protection against deleverage on lower comp months as well.

Looking at the individual brands for the year, we saw positive improvement particularly in the last half in the soma business. These improvements came from both gross margin improvement and leverage of the initial costs as sales levels improved.

With that said, this is still an investment in the future, as I estimate these activities cost us about $0.025 per share in fiscal 2005 versus about $0.015 per share in fiscal 2004. We are anticipating this will increase to about $0.035 per share in fiscal 2006, should be approaching breakeven in fiscal 2007 and should be profitable from that point on.

Beyond this investment in earnings, I'd like to review the soma impact on some key metrics. The soma operations likely reduced our fiscal 2005 reported gross margin by just under 30 basis points. That likely reduced -- increased the combined SG&A expense by just over 30 basis point, and thus the soma investment reduced our fiscal 2005 operating margin by about 60 basis points. This index was about only 50 basis points last year, and we expect it to be in the neighborhood of 80 basis points in fiscal 2006.

After 2006, it turns the other way and starts helping the overall operating margin. As you know, we've decided to accelerate the rollout, and we did this to shorten this investment period and to get to the leverage period with this brand sooner than we originally planned.

Now considering the fact that we're launching a new brand organically and in a business with high barriers to entry and with very little competition at the specialty store level, our entire management team believes this is a small and wise investment for the future for all of our shareholders.

Next, let's look at the White House/Black Market brand, which adds substantial earnings per share to our organization each year. White House/Black Market has had the impact of reducing some of these key metrics as well, although in fiscal 2005, we saw a much smaller impact on these metrics than the investment year of fiscal 2004.

During fiscal 2005, we believe the White House/Black Market operations reduced the gross margin percent by about 70 basis points versus in fiscal 2004, it likely reduced the reported gross margin by about 80 basis points. The impact on the combined SG&A and depreciation expenses was to increase this percent in 2005 by about 70 basis points versus about 140 basis points in fiscal 2004, the year of investment.

As you can see, we are no longer in the investment stage here. Rather, we are now in the leverage stage. With all that said, we believe that White House/Black Market likely added over $0.20 per share to our earnings in fiscal 2005. We see this earnings growth expanding in fiscal 2006 and in future years, and that is the primary reason we decided to add an additional 20 White House/Black Market stores, as we previously announced. Although these stores will not add a lot of profitability to fiscal 2006, they, along with future new stores, will provide a steady stream of earnings growth in future years.

Now to our newest brand. About a month ago, as Scott said, we acquired a company called Fitigues, which we believe occupies an overlook area for our baby boomer customer, and that is luxurious, casual, comfortable clothing aimed at the higher price point arena of customers.

This brand will take some infrastructure improvements in fiscal 2006 similar to what we did with White House/Black Market in fiscal 2004, although to a much smaller degree, since there are only 12 stores at this time. And this is our second time to be doing this.

We will be installing new cash registers, back office software, training programs and all the other infrastructure improvements we offer through our store operations, real estate, construction, finance and the other back office divisions.

We expect this investment will cost $0.01 or $0.02 per share in fiscal 2006 and could pressure the gross margin and SG&A results by between 10 and 20 basis points each. You will not see significant store openings, as Scott said, here in fiscal 2006 as we are in the assessment and the infrastructure building stage in fiscal 2006.

Regarding future guidance, although we expect all three of our brands to show improved merchandise margins in the first two quarters of fiscal 2006, we expect the first two quarters' overall gross margin will likely be flat to down up to 40 basis points compared to each of the fiscal 2005 quarters.

Part of this anticipated decline in fiscal 2006 is a direct result of fiscal 2005's aggressive investment in our product development and merchandising areas for all three brands. The slight deleverage we're planning with our product development and merchandising team allows us to continue delivering new styles every week, supports the growing merchandise margins we expect and will become a leverageable cost in the very near future as we continue our topline growth.

During fiscal 2006, we will also begin investing small amounts into our news brand, Fitigues, after we complete a brief assessment period.

Lastly, in the gross margin area, the increased ratio of our newer brands, which currently run lower gross margins than the Chico's brand, is part of the reason we expect downward pressure on the margins during these quarters. Remember, though, White House/Black Market generates strong earnings per share, and we are confident that the investment in the soma and Fitigues brands will be earnings generators in the future.

For the last two quarters of fiscal 2006, we expect that gross margins will be down in the 40 and possibly up to 80 basis point range as we anniversary the best margins ever for all three brands in both of these quarters of fiscal 2005 and we also start seeing sales from the additional soma and White House/Black Market stores that have been planned in the back end of year.

On the marketing front, we begin fiscal 2006 with a marketing spend plan of between 3.5 and 4%, similar to our original plan of last year. The breakdown by quarter is something we keep very flexible, don't disclose to tip off our competitors, and is aimed at maximizing business in every quarter while positioning the brand for the longer term. At this point, the first quarter spend looks like it could exceed fiscal 2005's spend by about 10 to 30 basis points.

Regarding overall SG&A guidance for the combined depreciation and SG&A expenses, we believe the continuing investments in our new brands, including Fitigues, and in the accelerating rollout of soma and White House/Black Market stores, will likely raise our leverage point in fiscal 2006, excluding the impact of FASB 123R on expense optioning, to roughly a 7% same-store sales increase -- that is, at a 7% same-store sales increase, we would not expect leverage of the combined SG&A expenditures, while north of that, we would expect leverage, and south of that, we would expect deleverage.

We view this as a short-term change in this leverage point and we would expect it to start coming down by next year as we start anniversarying our new brands and multibrand investments similar to the leverage we're seeing now with the White House/Black Market brand.

I just earlier mentioned the FASB 123R expensing requirement. And next year, as you know, is the year that everyone will be expensing options as well as restricted stock grants. We expect that this non-cash charge will likely be between $0.08 and $0.09 per share and will reduce the reported operating margin by approximately 140 to 150 basis points.

Regarding taxes, you should plan the tax rate to be flattish with an opportunity for a small decline possibly in the tax rate. Regarding interest income, look to the recent quarters to determine where interest income will go as both rates and cash balances should be rising.

With all that said, and excluding the one-time impact of the FASB 123R options expensing requirement, we anticipate our earnings to grow nicely, likely to be in the neighborhood of the 25% range, even as we anticipate our operating margin to be slightly lower than fiscal 2005.

Next, let's step out of the financial arena and look at our loyalty programs for the Passport and Black Book clubs. The fourth quarter again saw continued growth in each of the clubs as we added approximately 400,000 net new Passport members at the Chico's brand and an even larger relative increase of 310,000 new Black Book members at the White House/Black Market brand.

Even better, 100,000 of those new members were permanent members for Chico's, while 78,000 or 34% of the 310,000 White House/Black Market new members were permanent Black Book members. For fiscal 2005, the Chico's Passport club added over 1.2 million new members, while the new White House/Black Market Black Book club added an amazing 1.65 million new members in the first full year of operation.

The new member sign-ups for the Black Book club I just mentioned exceeded the numbers experienced between the 1999 launch by Chico's of the Passport club, and this is very encouraging regarding the future loyalty we'll likely see in this still-emerging brand.

Lastly, in this area, remember that the average White House/Black Market permanent member spends about 80% more on each transaction than does a preliminary member of a Chico's -- while the Chico's customer spends an average of about 63% more on each transaction. We see many years of growth available to both brands in this area as we believe the Chico's brand has about a 12% penetration, while White House/Black Market is at about 2%.

Next, a note on the balance sheet and cash flow, and then we'll look at the store opening sizes and strategies. Then we will be done.

First, the balance sheet. Our balance sheet remains very strong as we ended the year with $404 million in cash and marketable securities and we ended the year with a solid and fresh inventory level of $64 per square foot versus $60 per square foot last year.

Our inventory is at $95 million. We're up on a year-over-year basis by 30%, versus our sales, which were up 32%. Our total assets almost broke the billion dollar mark for the year, with tangible net assets also approaching $1 billion as well, and our book value ended the year at over $800 million.

Our cash flow from operations generated just over $268 million, of which only $21 million was related to tax savings associated with stock option exercises and about a quarter of a billion was related to ongoing operations. This compares to 197 million from ongoing operations last year, a solid 26% increase year over year.

As I mentioned earlier, we acquired 16 acres of land adjacent to our distribution center north of Atlanta late last year. This plot has a 50,000 square foot building on it we will utilize for our direct-to-consumer business for all of our brands. The acquisition of this property takes pressure off expanding our current distribution center until this facility exceeds the 1200 stores for which it was originally designed.

Regarding CapEx, we ended the fiscal 2005 at $148 million versus $93 million in fiscal 2004. The increase is largely attributable to 105 acres we acquired in the fourth quarter for $38 million and to the direct-to-consumer distribution building we acquired for $4 million.

For fiscal 2006, we are guiding to approximate $200 million in CapEx, excluding [tenant] improvement money, composed of 150 full-sized stores at approximately $600,000 apiece, 20 soma boutiques at approximate $250,000 apiece and about 40 to 50 relocations or expansions at about $500,000 apiece.

Beyond that, we are planning approximately $10 million for the new ERP system that Scott told you about, $10 million in our technology maintenance CapEx and 30 to $45 million towards our corporate headquarters, and lastly, 10 to $15 million in let's call it miscellaneous CapEx for a total CapEx in the neighborhood of approximately $200 million.

Lastly, let's summarize the store openings and square footage growth for fiscal 2005. During fiscal 2005, we opened 104 net new Company stores, two new franchise stores, and we added an additional 263,000 selling square feet. That's a 21.5% increase for the year, slightly ahead of our stated fiscal 2005 20% goal for selling square footage. We end the year at just under 1.5 million square feet at 1.490 million selling square feet overall.

The average new Chico's front-line store last year was just short of 2400 selling square feet -- that is the new stores. And the chain now averages about 2,125 selling feet in all of its front-line stores. During fiscal 2005, the average front-line Chico's store sold about $2.2 million and averaged just over $1050 per selling foot, with 15% of those stores over $1500 per foot.

Chico's also had 25 stores with over $4 million in sales, half of which, we're pleased to announce, are already in our new larger store format, over 2500 square feet. To that end, last year, we also expanded or relocated 28 Chico's stores.

On the White House/Black Market side, the average new front-line store last year was just under 1800 selling square feet. And the average front-line White House/Black Market store is now up to about 1475 selling feet.

During fiscal 2005, the average White House/Black Market store produced about $1.4 million of sales and averaged about 1025 per selling square foot, with 14% of those stores also doing over $1500 per foot.

We are just beginning to roll out larger format stores here, although 20% of the stores doing over $2 million are already in a store over 2200 square feet. Last year, we expanded eight White House/Black Market stores and we look to expand or relocate more in fiscal 2006.

The five soma stores we opened last year averaged just under 2600 square feet, and the 15 soma stores opened at year end average about 2400 selling square feet.

Now, because of the pressures, our very high sales per square foot levels and to improving the customer store experience and because we have seen disproportionate increases in the bottom line of our expanded stores, we continue to focus our larger stores for both the Chico's and White House/Black Market brands.

Bear in mind, though, that these so-called larger stores for both brands are still 40% or more smaller than most of our competitors. For fiscal 2006, we are planning to open up approximately 20 new full-line soma stores in the same size range as the current stores, 60 net new Chico's stores averaging in the 2800 square foot range and 70 net new White House/Black Market stores in the 2300 square foot range.

In addition, 20 of the 60 Chico's stores have roughly an additional 1100 square feet either attached or within the Chico's store that will be allocated to a soma boutique and that will feature an edited collection of our best soma products to help get this brand name more recognition.

These boutique will be assigned a soma store number and will count as a soma store, although they will be under common store management, unlike our existing soma stores. This brings our new store count for fiscal 2006 to approximately 170 net new stores, 150 of which will be full-line stores and 20 of which will be boutiques.

On top of that, we believe we will likely get roughly 50 or so store expansions or relocations for the Chico's and White House/Black Market brands for a total square footage growth in the neighborhood of 30%. For fiscal 2005, we end the year with 499 Chico's front-line stores, 31 Chico's outlet stores, 14 franchised Chico's stores, 15 soma by Chico's front-line stores, 196 White House/Black Market front-line stores and eight White House/Black Market outlet stores for a total of 763 stores.

To wrap up, we closed fiscal 2005 with our best operating margin in our history at 21.2%, even with the significant investments you can see we made for our feature. We also completed our ninth year in a row of double-digit same-store sales increases. We saw marked improvements in all three brands, particularly in the last half of the year, and we have identified most of our store locations for all three brands for fiscal 2006.

Further, we begin the year with a solid mid-single-digit comp for February, in spite of an ugly weather situation that likely cost us at least five points of same-store sales. Although we are only three days into March, it's nice to see a double-digit comp at each of the three brands in a month where the weather is not a factor.

We're pleased with the status of all of our brands. To that end, we currently have Fitigues in the incubation stage, soma in the early rollout stage and accelerating, White House/Black Market charging ahead with improvements in almost every key metric and Chico's still showing its capability to draw new Passport customers and be the destination store of choice for the number one sought-after customer in America -- the affluent baby boomer female.

We still see room for many, many new doors for the Chico's brand, as well as a substantial amount of relocations and expansions. 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 continuing to show leverage and strong topline growth. And we have made significant strides in solidifying our management team as we approach the $1.5 billion mark in sales and look to $2 billion and beyond.

After our learning experiences and successes with the White House/Black Market integration, we are confident in our ability to develop our other two younger sister brands into solid earnings generators, as we have seen with both the Chico's and White House/Black Market brands. It is an exciting time to be with this growing portfolio of brands, and Marvin, our founder, always closed the conference call, keep your eye on Chico's.

Thanks for being with us on our fiscal 2005 conference call. And now we will take some questions.

(OPERATOR INSTRUCTIONS). Kimberly Greenberger.

I was wondering, Charlie, if you could quantify your actual marketing spending in 2005? And you mentioned I think that you thought February comps were hurt by approximately 5% or 5 points by the weather. If you could just talk to us a little bit more about your analysis there.

And then Scott, I'm not sure that I understand exactly the comments on the headquarters. It sounds like the building costs are very, very high, so you're going to try to stay in your current building for as long as possible. Is that a correct read there?

Okay, I will take first the marketing question. It is 3.7 of sales. I don't have in front of me the exact details of what that number mentions. But you can multiply it out times that 1.4 billion and figure exactly what we spent on the marketing dollars.

Kimberly, on the weather, we basically look at stores -- store days closed and then give the best analysis we can on stores that were open but literally couldn't get any traffic to.

And then on the headquarters comment, I want to be a little guarded there. We bought the 105 acres. We closed. We hired the appropriate professionals. We've been going through the design phase, the cost analysis. And the increasing cost of construction in Florida would speak to now might not be the best time to break ground on that 105 acres.

So we have a project being spearheaded by Michael Smith here. And that is take another look at the facility we are in and just what could we do to extend the life of this facility? With that being said, there have been no conclusions drawn. But we just want to be as prudent as we can as we spend the shareholders' dollar.

Great. So potentially, just defer the expenditure to some point in the future when construction costs are more reasonable?

That's a good summation at this point.

Mark Friedman.

Scott, Charlie, could you better explain to me the gross margin for '06? Because the press release says that you expect the first half likely to be less impacted than the second half. Yet last year, you had the linen issues that hurt you in the first half.

And I guess I want to understand better also some of these investments you are making at this stage because you have been investing in the internal sourcing. And I would have thought by this time they would have started to -- well, not go away, but certainly slow down where we would still -- we would see gross margins up.

Well, first off, yes, we do have what you might term easier margins for the Chico's brand in the first half of the year. That's why we believe it will be less impacted in the first half of the year than the last half of the year, that it's going to be harder to the anniversary in the last half of the year.

Most of our investments in our product development teams were last year, but they were done after the first quarter. So we are likely to see some small deleverage of the product development teams in the first quarter, which will lessen as the year goes on. Yes, those investments are over now. And what was the rest of your question?

Just understanding -- so those investments are over. I would have thought at some point in '06 you would have seen gross margins up year over year.

Well, toward the end of the year that's going to be possible. But with that said, we're up against our number one margins we've ever been up against for the year end and we're being cautious about our last two quarters. Plus, we're going to have about 70 more White House/Black Market stores by that time and about 40 more soma stores, which run substantially low margins.

So that will have a bigger impact on the last have than the front half. So it is a very complex environment to work in right now and to explain. And if I haven't done that with you, we can go off-line and talk about it.

Okay, thank you. And then, just for March, are you planning any extra drops to stimulate traffic? Or do you feel, just as the weather came back, as you talked about, the first three days, that sales will come back naturally on their own, along with what you had already planned initially into the marketing program?

This is Jim talking. We upped our circulations in the last half of '05. And we had very good results. Actually, that was for both brands, both for Chico's and White House. And we had dramatically good results for White House by doing that. And we intend to do that this year, too, right through the spring and summer. I really don't want to talk too much about which particular mailers and how many times we're going to mail per month. We give enough information out. I don't want to give any more to our competitors.

Dana Telsey.

Can you talk a little bit about as you invest into the product development team this year in terms of IMU, we've heard a lot about improvements to some of the product categories like the denim and linens and things like that. Is there potential for IMU improvement in each of the brands? Do you see that happening go-forward? And you see anything changing with the flow of product and the timing of getting goods to the stores? Thank you.

Dana, there is opportunity in the IMU for both brands. As far as improving the timing of the flow of goods to the stores, I'm a little lost on that question. Do you want to get a little more detailed on the question?

Sure, because it certainly seems like you are able -- you always like to replenish very quickly and to get new goods in there so people know if they don't buy it now, they're not going to have it when they come back. Is there anything you're seeing from the changes in the product development team that either shifts at all the mix of basic versus fashion in each of the different divisions?

Well, you know, Dana, we play very close to the vest. So part of our goal ongoing, even as we get larger, is to keep that flexibility and that instant response. So I don't really see any changes to that.

As far the mix, we have a certain number of core key items and key categories that we monitor weekly, even daily. And how the mix plays out, you know, as you know, we have a higher percentage at Chico's in novelty items than we do in basic. So I don't really see any change to that whole strategy.

And then Charlie, on fuel expenses, anything you're seeing in expenses for '06 that would at all be different than '05?

No, other than we've got the fuel charges, which still continue on. It amounts to about 10 basis points. Volume offset that in the first half of the year, but didn't offset it because it got again higher in the last half of the year. I don't really know where oil prices are going to go, but I suspect they're not going down much. So other than that, we have not seen -- you might be asking on the whole ripple effect of the fuel costs?

Right.

We have not seen that yet so far. Our stores a very small, so yes, the utility bills are up, but it doesn't mean much to the P&L. So we haven't seen it ripple through yet.

And Jim, it's your last conference call, so nice to hear you on the last call. Any replacements for Jim to be announced anytime shortly?

We can't talk about that right now. It's kind of interesting, though, to be able to have a three-hour dinner with your replacement. And I can only tell you that we had a great dinner.

Tracy Kogan.

My question is about White House. Can you talk about the success you've had with higher-priced belts, bags and jewelry and whether there are similar opportunities to introduce premium price levels in other categories? And then also, what are the IMUs like on these premium-priced products? I assume you're adding more quality and not just increasing the price.

You know, our philosophy is to always make sure that we give the customer value. So we're always looking for the best designs and increasing our IMUs where we feel we can. So it's something that we look at on a continual basis. We're looking at it as we increase the quality and we increase our designs. But I won't make any comments on the IMU. That's privileged.

Are there other categories where you see an opportunity for premium price levels like you found in bags?

Well, we are looking at denim, woven bottoms, belts, bags -- those would be all areas where we are looking.

Stacy Pak.

A couple questions. First of all, on the February comp, I was wondering if you could explain that a little bit because maybe you could give us the comp in locations where weather wasn't an issue? Because my sense is weather was an issue in the Northeast and Midwest. And Chico's exposure there I think is about 10 points lower than most of the other companies. So I don't totally understand that.

And then also, I'm wondering if you can comment on White House? I have been seeing 40% off sales on stuff in there. And I'm wondering why you would be doing that if the comps are so strong at White House. So it makes me wonder if the inventory and the division is outpacing the sales. And maybe you could therefore comment on inventory by division.

I will first answer the comp by region for the month. The Midwest was the worst, and they got hit the hardest, I think, by the storms. They were flat for the month -- the entire Midwest, which is a lower percent. But the Northeast I don't think is. I'm not sure what other company's there, but I don't think it is that low. That was the next worst. No -- the mid-Atlantic was the next worst. They were low single digit. The Northeast was mid-single. We were high single in the Southeast region --

Charlie, I have those. I guess what I am asking -- I just don't understand -- was it freezing in Florida? I don't understand why there was a weak comp in the core Chico's division. I mean, there wasn't -- I didn't think there was weather issues across the nation. I thought there were weather issues in week two in the Northeast and Midwest.

We have a tremendous amount of stores in the Northeast and the Midwest. So I don't -- are you --

Yes, but it's like 10 points lower than most of the other [softline] companies. I'm just trying to understand -- was the comp, I don't know -- it just doesn't make sense to me.

Well, the Southeast was a high-single-digit comp. we don't necessarily view that as bad. That's the whole Southeast region across Florida, Atlanta, Alabama, that sort of area. And the Southwest was strong as well, in the high single digits. We had -- it was the Southwest I believe that was up low double. Yes, the Southwest was up low double, and the West. So those two areas which did not have -- they didn't have the weather problems we saw about the comp. Does that answer it?

Not really, but that's okay. How about the White House question?

That's Patricia.

Patricia, why are we seeing a lot of [indiscernible] importance and off sales in White House?

We had 40% off on select items and categories. We had a really tough time with sweaters in the areas of shrugs or anything that had a handmade or a crafty feel. But we had really strong sales in other casual areas. We did great with cargo pants. We did great with woven tops. So we feel the 40% off was just to move items in the sweater category specifically and some handmade crafted jewelry as well.

But can you comment on inventory per square foot by division?

We don't generally give that by division. But White House was up. I can comment on that. But White House was up and that was a planned up. They are right on plan. Chico's was down a little bit overall. And then soma was also down.

Stacy, may I add one more thing? Last year, as part of our liquidation plan that we do every year, last year we did 50% off. So this year we were actually improved at 40% off.

Brian Tunick.

A couple questions, I guess sticking on the February comps, you did not really comment on White House in the press release. Does that mean they were pretty close for the month of February?

No, we commented on that. We said the White House was in the low 30s for the month while Chico's was in the low single digits. Not in the press release -- we don't ever put it in the press release -- it's [multiple speakers] information line.

So it was on the conference call?

No, it is in my sales information line, the 800 number at the bottom of the press release. And we did comment. And that's where we always comment about it.

I guess as far as the soma drag on earnings in 2005, can you give us a little color around that and maybe expectations for 2006?

We did that in the call. We said that the drag on the earnings was roughly $0.025 for 2005. And we expected it to be $0.035 in the next year. We still are opening stores. When you open 40 stores on the top of base 15, that put some tremendous SG&A on your books to get those stores open because of the hiring you have to do to get the people in there, for the new store construction, for the travel to it. Like if you look at that, that's like a 300% increase or something of our stores. So we expect that to happen during the year for next year. We expect it to be an investment year with a decline after that.

Just finally, how many Chico's front-line stores do you think can accommodate a soma boutique in their current footprints?

Almost none right now. These will all be new. They will be expanded stores -- we don't have any store in the Chico's chain that I am aware of that we want to give up square footage to soma. But we've got some expansion opportunities in some of them where we can get space for the Chico's, as well as even more space for the soma. We will jump on that. And we've got some new somas that are coming out -- I think I named two of them on my sales information line as well that are already on the books and ready to go.

Neely Tamminga.

Real two quick questions here. First, housekeeping, I'm having a hard time reconciling the 25% earnings growth excluding the expense for the options. And I'm just kind of wondering if you have pressure on your gross margin here for calendar '06, you are going to delever SG&A a little bit, are you saying that that deleverage is related to the stock option expensing? Or is that excluding it?

No, that's not related to the stock option expensing.

And I guess I might have to circle back off-line, then, on that. And then maybe if Jim could give us a little bit of an update in terms of '06, I know you don't want to give away specific plans, but I'm just wondering -- are we going to be looking for more direct marketing pieces this year like postcards -- using postcards versus catalogs as a mix between '06 looking relative to '05?

And then I have one real quick question on Fitigues. Is this a concept that you might start dabbling into third-party brands? Or will this be a vertically integrated effort 100%?

Neely, I will answer the Fitigues question quickly, and then I'm curious to hear Jim's answer as well. When he is out the door, we can change anything he is thinking about.

It is his last hurrah, Scott.

The Fitigues -- we will, if you look at the Anthropologie model, we do think it's important to have the hot jeans for that customer. We do think it may be important to have some mix of branded apparel in there along with the Fitigues label.

I think that big story for both Chico's and White House is still the circulation increases. And that means -- they are related to two things, the circulation increases. One, and it is a very happy thing, too, is the growth of the loyalty programs for both brands, and especially for White House/Black Market. It's just a huge growth beyond our forecast. We were pretty aggressive in our forecast.

And the other is that we are prospecting even more than we were last year, particularly in spring/summer. That is what's going to -- that's what's really going to help us out through spring/summer. And besides that, yes, we have plans for additional mailings. We always like to have a few wild cards in our pocket. That will happen whether I am here or somebody else is here.

Well put.

Great, and good luck to you, Jim.

Barbara Wyckoff.

Talking about the soma productivity, $450 a square foot -- where do you think this productivity -- I know it's still early, but where do you think it can go to three years out?

Then I have a question about should we just spread the option expense evenly across the quarters, or will it be weighted from one to the other? And then I have a question about lucy.

I'll take the option one first because I know that one, and then you guys will answer on the soma. The option expense will be likely relatively evenly spread out. It should be a little heavier toward the back end, I would guess, from the front end as we issue options to any new hires that come on board, that kind of thing. But you should barely be able to see it. It should be roughly $0.02 a share for each quarter, I would think. Then we'll take the soma question.

This is Chuck. I would say that we certainly look at Victoria's Secret as the model. And obviously, we've set our goals in the range that they have, even though their stores are significantly larger than our. So we -- obviously, at this point, it's early in the development of the brand. And we don't know the full potential in terms of the sales per foot. But we do have some very strong-performing stores that suggest that there's a lot of upside from where we are today.

And Barbara, what is your question on lucy?

I just wanted talk about the lucy investment a little bit -- is there any interaction with the lucy people with the soma and the Chico's people?

Not with the soma team and the lucy team -- the interaction is more again on an operational, financial, consultative basis. Chuck and Gary King were just out at a Board meeting recently in Seattle. They are looking at MIS investment, so Gary is consulting on that. But very little interaction between the merchants on the lucy side and the Chico's side.

Adrienne Tennant.

I have a couple of questions. Can you give us the end of year, the consolidated sales productivity? I think you did and I missed it.

Yes, I've got that. It was roughly 1050 for the Chico's brand -- north of 1050 for the Chico's brand, and roughly 1025 for the White House/Black Market brand. The soma was in the 450 range.

And one of the things I think you had mentioned was when you opened the larger stores, the productivity tends to go down for a period of time and then it climbs back up to where it was previously.

That's correct.

Can you talk about kind of the timeframe that that happens within?

Yes, we've looked at -- I've looked at over 100 stores. The average store in the hundred -- I think it is about 125 -- the average store will drop down. And they all drop fairly differently, but they will drop down fairly dramatically in the first year. They will be back to the exact number they started at within two years. That suggests we are not opening large enough stores to me, because I don't want to be back at 1500 in just two short years. So that's one of the reasons that we are opening larger stores now.

And then you had said -- is the gross margin differential between White House and Chico's, is that 800 basis points now or is that now 400 basis points?

On a merchandise basis, it is 400. You may be mixing up -- the store bottom line is roughly 8 points. The store net contribution is about 8 points, but the merchandise margin is 4 and the SG&A side of it is about 4.

And basically on both of those, you think that you could achieve levels similar to Chico's -- you can close the full gap?

Yes, we have always said really consistently since we acquired the brand and understood it well enough that it might take four or five years. But we expect them to come together at the Chico's number.

And then my last question is you had made a comment about Chico's AUR would increase this year? Where will that come from?

Well, actually, you know, we continue to have great success in the Platinum label -- our Platinum branding. And we are always looking for expansion to that. It's a natural addition to the whole Chico's brand. But really, the opportunities in AUR come across the board, including accessories. So I really can't say there's any one particular category that we would look to improve.

Okay, great. Thanks so much. Good luck, everyone, and good luck, Jim.

Margaret Whitfield.

Just some questions again back to the February comps, and listening to your recording, Charlie, you know, where you give the weekly breakdown, was that for the Company overall or for Chico's?

Yes. We only give the Company overall. We don't get into weeks or days by brand.

So you don't want to comment on what the trend was at Chico's itself?

No, we don't get in -- like I said, we are not going to start getting more granular on a comp. We are actually thinking about going to a quarterly comp to avoid this kind of talk. So we are not getting into weekly by brands.

Did you do anything to try and bring the customer into Chico's, as you sometimes do when there's a lull or a weather issue that we had back last month?

Margaret, we called some customers in the last week of the month. But we didn't rush to the Post Office or anything like that.

We did not pull out the nuclear weapon.

Well, I did get a little email on February 21 telling me to note the extra coupon embedded in the March flier. That caught my eye.

Just to tag on Charlie's commentary on the February -- I'd just be careful -- you're talking about a very short month, 28 days, a low-volume month for the total for the year, anyway, and a month that had three snowstorms, as well as a major ice storm in Texas. We take a much longer view on the business than that one 28-day period.

Well, on a positive note, the AUR at Chico's and the average transaction size grew nicely. What was the reason for that? It was up 11.2 in February.

You know, last year at this time, we were kind of struggling with some of our basics and our key items. And I can say that through a lot of hard work and preplanning, great success in our Spring Fling, we're just better positioned, I feel, at the start of 2006 than we were in 2005. So I think across the board, again, there's a lot of contributing factors that just put us in better shape.

And Pat, will we see some longer-sleeve items in the store, or do you think we're just going to hope for some warm weather up north?

Well, at this point in time, I'm hoping for warmer weather.

Well, Jim, I want to say goodbye and good luck. And it has been nice knowing you. Thanks.

Thank you very much.

Margaret Mager.

First of all, way back at the beginning of the call, when you were talking about the IT programs or systems need significant enhancements, can you talk about just a little bit what are the things that you feel you need to improve through this whole revamp of your systems?

And I'm curious about on the margins in the quarter, your comments about the factory outlet stores were a bit of a drag. And then you went on to say that inventory clearances in the quarter were a drag and you wouldn't expect inventory clearances to continue. Are those two things connected? Like, is the inventory clearance comment also attached to the factory outlets?

And then I guess I don't really understand how 39 factory outlets could have as much influence on the total Company gross margin as it seems to have. So maybe I don't understand the whole flow and how you deal with markdowns and clearances in factory outlets. So if you could help there, I would appreciate it.

You know what, Charlie, if you could do this -- I'm going to ask Chuck to -- in the interest of time, if Chuck can answer a little bit about the ERP system, while I do have Gary King, our CIO sitting here, the launch of the new ERP system is being driven primarily by the soma initiative and then sort of scalability across the other brands. And then maybe, Charlie, you could go off-line with her to explain the margin discussion? Because we've got an awful lot of people -- yes, that would be great.

Go ahead, Chuck, if you'd answer that, that would be great. Thank you, Margaret.

There are two dimensions to an intimate apparel business that require a different level of sophistication in the system than really a fashion-driven sportswear business. One is the high percentage of replenishment goods that occur, particularly on the foundation side of the business. That requires a forecasting system that will forecast demand at a SKU level across quite a few SKUs with fair precision.

And then there are some issues in terms of planning and allocation which are also forecast-related. Finally, there are supply chain issues with respect to managing all the component parts that are involved, particularly in the bra business. And in most cases, that includes such things as EDI transmissions back to vendors, and in some cases, even vendors with visibility to POS being able to actually manage their component of the business.

So it's not saying that our systems are inadequate across the business, it's saying that there are enhancements that are available in an ERP system which are particularly beneficial to an intimate apparel business we want to build to a $1 billion business. And then obviously, those enhancements are applicable to all the other businesses over time.

We see for the Chico's and the White House brands, we can roll these to them very cheaply. And they will then be scaleable to almost unlimited proportions, while our software right now has limitations on the top end. Okay? Margaret? Is there anybody there?

Margaret's line is muted at this time.

Okay. And I guess that's it. So thank you, everyone, for attending our fourth-quarter conference call. And we will see you in May for our first-quarter conference call again. Thanks very much, everybody.