Chico's FAS Inc (CHS) 2014 Q4 法說會逐字稿

Good morning and welcome to the Chico's fourth-quarter earnings conference call.

(Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Mr. David Slater, Vice President of Investor Relations. Please go ahead.

Thanks, Hilda and good morning everyone. Welcome to Chico's FAS fourth-quarter earnings conference call and webcast. Joining me today at our National Store Support Center in Fort Myers are Dave Dyer, CEO and Todd Vogensen, CFO.

Before Dave begins his executive overview we would like to remind you that our discussion this morning includes forward-looking statements and quarter-to-date data points which are subject to and protected by the Safe Harbor statement found in our SEC filings and in today's earnings release. These forward-looking statements are subject to a number of factors and uncertainties that could cause actual results to differ materially.

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 by such statements will not be realized. Also our current and prior-year results discussed on this call exclude charges related to Boston Proper non-cash goodwill and trade impairment, as well as cost reduction and restructuring initiatives charges. A reconciliation to GAAP results is included in today's press release for your reference.

And with that I'll turn the call over to Dave.

Thanks, Dave, and good morning to everyone. I am pleased to report that the actions we took last fall led to improved performance across all of our brands and created good momentum heading into FY15.

In the fourth quarter our decision to plan receipts more conservatively delivered many improvements including adjusted EPS growth, positive comparable sales, an increase in gross margin dollars, SG&A leverage, and a reduction in our inventory. I am pleased that all brands delivered positive comp growth, resulting in a total Company comp increase of 4.3% for the fourth quarter.

As anticipated the overall fourth-quarter environment was promotional. However, we were prepared to compete and we did so successfully.

Through careful inventory management we ended the year with fewer units to clear. This improved inventory position positively impacted our average unit retail.

As a result both transaction count and average dollar sale increased in the fourth quarter. Earnings were in line with our expectations for the quarter, and our adjusted earnings per diluted share results were up 25% as compared to last year.

While we remain cautious given the overall apparel retail environment, the positive fourth-quarter results have continued into FY15. Through yesterday our total Company sales were up approximately 3%, reflecting comp sales that are up approximately 1% on our unaudited daily sales flash report.

Reflecting back, 2014 proved to be a challenging year for most in apparel retail, and certainly we were no exception. I'm proud of how our teams finished the year, and I'm particularly proud of our achievements in key growth areas and in customer service initiatives, especially omni-channel development and loyalty program enhancements.

For omni-channel we created a cloud-based integrated platform which was a fundamental step in the development of our customer book. Behind the scenes our teams made solid progress in our new point-of-sale system which is currently rolling out in our Soma and Boston Proper brands.

I'm also pleased with the progress we made to further enhance our loyalty programs. At White House Black Market we found that rewarding our most loyal customers can be quite rewarding for us as well.

In addition Soma, who has now successfully launched their own loyalty program no longer tied to Chico's, and that program is going along very well. We are also happy to report our active customer file continues solid growth and is again at an all-time high for the Company, and we have over 9 million customers shopping our brands within the last 12 months.

As we end our fiscal year in transition to the next, the progress we are making across all of our brands reinforces our confidence in our business and in our strategies. To build on this success and to ensure that we are well-positioned for growth and value creation, we announced today a number of new capital allocation and cost reduction initiatives. These actions were carefully considered against the backdrop of the overall retail environment and our long-term growth objectives which over time continue to be a return to mid-teens earnings per share growth and double-digit operating income as a percent of sales.

The capital allocation and cost reduction initiatives include a renewed commitment to our share repurchase through an accelerated share repurchase plan, an overall reduction in the capital expenditures, a reduction in the pace of new store openings, an accelerated rationalization of our store portfolio, and an organizational realignment that includes corporate and field management headcount reduction. Today we announced an accelerated share repurchase plan which further reinforces our confidence in the Company's long-term growth potential.

We have historically maintained an active capital return program. Prior to the ASR today we had $290 million remaining in our share repurchase authorization. Under the new plan $250 million of this authorization will be utilized through an accelerated stock repurchase.

To fund the repurchase we will use $125 million of our own hand cash and marketable securities in combination with $125 million in financing from our current credit facility. Upon completion of the ASR and the dividend announced this morning we will surpass the $1 billion mark in returns of cash to our shareholders over the last five years.

Next I'd like to discuss our overall capital expenditure plans. While we still believe that all of our brands have store growth potential, given the current retail apparel environment we feel it is prudent to reduce the pace of our new store openings in the near term.

Specifically we are now expecting to open approximately 40 new stores in 2015. This is down from our previous range of 60 to 70 for 2015 and well below our new store openings from the past several years.

As the retail environment continues to evolve, we must look at new stores through a more sharply focused lens than in the past. However, we will continue to make the necessary allocations to both the customer experience and the seamless integration of digital with bricks and mortar.

The reduction of new stores this year along with other prioritizations will result in expected 2015 capital expenditures of approximately $100 million. This spend is inclusive of the $30 million investment related to our upgraded point-of-sale systems. Our estimated 2015 capital represents a 29% reduction from our three-year average, which is also a significant reduction from the previously discussed forecast and highlights our emphasis on value driven capital allocation.

Next I'd like to discuss the rationalization of our store portfolio. As the retail landscape continues to evolve, we must remain agile in how we connect with our customers. While we firmly believe that the store experience and our Most Amazing Personal Service model will always be critical to our customers, our omni-channel success underscores the fact that our customers utilize multiple buying platforms and have multiple connection points. Accordingly we have been looking for opportunities to reduce store count while preserving bottom line profitability.

As we have consistently done we will continue to close locations that are underperforming our expectations. As a result of our recent fleet review, we have identified opportunities to close approximately 120 locations over the next three fiscal years. Most of these stores will be closed in conjunction with their lease term end or kick out dates to minimize incremental charges from our landlords.

Lastly I'd like to cover our organizational realignment. Yesterday we took steps to streamline our corporate structure to ensure that our resources are better aligned with key growth initiatives, including omni-channel. These changes will result in the elimination of approximately 240 existing positions, or about 12% of our headquarters and field management employee base.

The positions eliminated were across all levels of management and across all functional areas. Although this action was difficult, it was necessary to achieve the long-term growth plans of our organization. Todd will discuss the financial impact in a moment.

The capital allocation and cost reduction initiatives that I've discussed this morning follow a careful review of our business and reflect a level of investment that we believe is necessary to support continued profitable growth over the long term balanced with our focus on returning excess cash to shareholders.

Now I'm going to turn the call over to Todd and I will be back in a moment to discuss our 2015 corporate priorities of inventory management, expense management, and enhancement of our customer experience. With that here's Todd.

Thanks, Dave, and good morning everyone. Now I'll provide additional details on our fourth-quarter financial results.

Net sales were $657 million, an increase of 7.6% compared to $610 million in last year's fourth quarter, primarily reflecting 75 net new stores and a 4.3% increase in comparable sales. The growth in comparable sales reflected an increase in both transaction count and average dollar sale.

As Dave mentioned all of our brands had positive comps for the quarter, and to the delight of many listening to this call, I will now provide the comp sales from all of our brands for the fourth quarter. I'm pleased to report that with Soma's record sales of over $300 million the results have become more meaningful and worthy of separate reporting.

In the fourth quarter Soma delivered their 23rd consecutive quarter of positive comps, with an increase of 13.7% on top of a 5.3% increase last year. The Chico's brands comparable sales increased 1.2% following a 3% decrease last year.

And White House Black Market comparable sales increased 5.4% following a 6.6% decrease last year. While comparable sales were positive, shipping delays resulting from issues at the west coast ports persisted throughout the entire quarter and negatively impacted our top line by over 1%.

Moving down to P&L, gross margin in the quarter was $328 million compared to $310 million in last year's fourth quarter. Gross margin rate for the quarter was 50% of net sales, a 70 basis point decrease from last year primarily reflecting increased promotional activity to sell through product delayed by port issues and seasonal merchandise.

Our gross margin was also negatively impacted by incremental air freight expense of approximately $4 million or 60 basis points related to the port issues. At the end of the fourth quarter total inventory decreased $3 million compared to last year primarily reflecting higher sales volume, more conservative receipt planning, and the favorable timing of the Chinese new year.

This represents a 5.7% reduction in total inventories per selling square foot compared to the fourth quarter last year. We are encouraged by these results because it further validates the more disciplined inventory management strategies that we have been implementing in the second half of 2014.

SG&A expenses for the fourth quarter were $318 million, compared to $302 million last year. SG&A was 48.4% of net sales, a 110 basis point improvement from last year, primarily reflecting sales leverage on store expenses and National Store Support Center costs, offset partially by the impact of $6 million in strategic initiative spending.

For the quarter total SG&A, excluding strategic initiative expenses, increased 3.6% over the same time period last year less than our square footage growth of 4.5%. Capital expenditures totaled $21.7 million in the fourth quarter primarily for new stores in our strategic initiatives. We opened eight new stores in the quarter and capital spending on strategic initiatives totaled approximately $6 million.

Now I'd like to provide more detail on the cost reduction initiatives announced this morning. And let's start with our updated capital expenditure estimate.

Our latest outlook is for $100 million in 2015 capital spending, which is a significant reduction from both our prior estimate and our three-year average. We've stat ranked our capital projects with this new outlook in mind.

Our highest priority project for 2015 is our new point-of-sale application which we estimate will cost approximately $30 million. This new system is foundational for many of our omni-channel initiatives, and will provide for a much better customer experience.

Next we took a hard look at new stores for 2015. During this review we decided to only open the approximately 40 stores that had been previously committed to. The breakdown of these store openings by brand is Chico's, approximately 14 to 16 stores, White House Black Market, 10 to 12 stores, Soma, 12 to 14 stores, and Boston Proper, 3 to 5 stores. As we look forward to 2016 our expectation is for a continued reduction in capital spend from previous years.

Moving to expense management, as background our SG&A falls into three primary buckets; store operating expenses, marketing, and headquarter expenses. Store operating expenses comprise approximately 70% to 75% of our total Company SG&A with the majority of those expenses related to occupancy and personnel cost. Dave has already discussed the actions we're taking to reduce these expenses, including the rationalization of our existing store fleet as well as a reduction in new store openings going forward.

The approximately 120 store closings over the next three fiscal years are expected to ultimately deliver expense savings of approximately $55 million upon completion. You may have noticed that we also accelerated the number of store closures in the fourth quarter of 2014 with 18 closures, and we look to close approximately 35 stores in 2015. Additionally our labor per store has steadily declined over the last several years, and we continue to evaluate additional efficiencies as appropriate.

The second bucket, marketing, comprises approximately a mid-teen percentage of our total Company SG&A. Our marketing spend is continuously evaluated based upon the return of each medium. Over the past five years marketing as a percent of sales has remained flat at both Chico's and White House, and Boston Proper has reduced its advertising expense by over 15% since their acquisition in 2011.

Soma is an area where we have chosen to invest in driving new customers, and we've been pleased with our return on Soma marketing. We expect Soma to leverage its marketing expense beginning in 2015 now that its growing store base better supports our investment and national TV advertising. For all of our brands our industry-leading customer file allows us to refine our mix of marketing on an ongoing basis, including shifting dollars towards productive digital contact strategies.

The last bucket is our headquarters expense which represents approximately 10% to 12% of our total Company SG&A. The majority of this spend is related to non-personnel costs such as depreciation and software fees. Our shared service model allows for meaningful leverage of our cross brand investments, and in addition as we announced this morning and Dave discussed, we have realigned our resources including personnel at our headquarters to gain further efficiencies.

This realignment has resulted in the elimination of approximately 240 positions and is expected to generate approximately $38 million in annualized savings. The 240 positions include approximately 165 filled positions and approximately 75 open positions.

We continue to scrutinize all of our headquarter expense to ensure that our resources are aligned with and focused on the most essential projects. In total we have identified approximately $93 million of annualized savings between the organizational realignment and our store rationalization initiative.

And while Dave will discuss the Company's 2015 priorities in just a moment, I want to emphasize that disciplined inventory management will remain a focus for us in the coming year. As we have discussed previously we have been taking a more conservative approach to receipts and we're pleased with what we've been seeing so far from this strategic shift. Heading into 2015, our inventory position is in better shape than it has been for some time, and our receipt dollars for the spring season are actually down compared to last year.

Next as we enter a new fiscal year I'd like to provide an update to our outlook for 2015. Our sales expectations are for a low-single digit increase in comparable sales. Even with fewer receipt dollars we are confident that we can deliver positive comps through a recovery in our average unit retail.

Also we'd expect the spread between our overall sales and comparable sales growth to be between 2% to 3%. For gross margin our expectations are for an improvement in gross margin rate in 2015 compared to the prior year, with the bulk of the opportunity in the second and fourth quarters primarily driven by AUR recovery.

For SG&A we expect slight deleverage in SG&A cost driven primarily by the 109 new stores opened in FY14, approximately 40 new stores in FY15, and a result to a more normalized historical level of incentive compensation. Our tightly managed inventory should yield total inventory growth less than sales growth as a result of the conservative inventory planning.

For your modeling purposes we expect our weighted average diluted shares outstanding to be approximately $145 million for the first quarter and $141 million for the full-year 2015, excluding the impact if any of further share repurchases beyond our ASR in 2015. Our expectations for the first quarter are consistent with our full-year outlook with the exception of SG&A growth as our new cost reduction initiatives will not have the benefit of a full quarter quite yet.

Our priorities remain centered on strategies and actions designed to deliver long-term value creation for our Company and its shareholders. We're pleased with our progress and look forward to keeping you updated on our continued success as we make even more progress with our strategies.

And with that, I'll turn the call back over to Dave.

Okay, thank you, Todd. I'd now like to cover our 2015 corporate priorities. We view FY15 as an inflection point in terms of operating profit. And although we cannot control the overall retail environment, our corporate priorities are laser focused on managing the pieces of our business that we can control. As we enter 2015 our corporate priorities will center on inventory management, improving our margins, expense management, and enhancement of our overall customer experience.

Starting with inventory management, I know Todd has just covered this but I want to mention it again as it is a top priority for all of us. Less receipts will translate into less clearance markdowns and higher full price sell through.

We have found that our most loyal customers do not automatically require promotions to inspire her visits. She is looking for newness and unique fashion.

Because we know her as well as we do, we have the ability to market to her specific tastes. Inventory discipline will impact promotions and liquidations and will lead to higher margins.

Next, expense management. Let me be clear we do not view expense management as a one-time project. We continue to look for areas in the organization where we can operate more efficiently.

Expense discipline is something that we continuously focus on. We are always looking for opportunities to drive efficiencies across the organization.

As Todd mentioned store operating expenses represent the lion's share of our total Company expenses. By further rationalizing our store portfolio and reducing the pace of our openings, there will be meaningful cost reductions that go along with these actions.

Lastly we will be sharply focused on the enhancement of the customer experience. In today's new world of retailing it isn't enough to have terrific products, world class in-store service, a smoothly functioning digital channel, and great marketing.

Each of these components is important but it's the sum of the parts that's even more powerful. We have discussed in great length the omni-channel infrastructure that we've been building over the last several years which ultimately improves how we interact with our customer and her experience with us.

In 2015 we will focus on how this infrastructure investments translate into customer facing technologies, technologies that are going to enable one unified holistic and seamless experience with each of our brands. For instance enhancing our customers' mobile experience will enable us to coordinate online browsing with suggested selling based on purchase history.

This year we launched our first mobile app that will among other features facilitate appointment setting with stylists at their local boutiques. We will also complete our expansion of iPads into all stores in 2015 and make further enhancements to the customer book application.

Our new point-of-sale system will operate -- will offer mobile check out through the iPads as well as other great new features. The goal is to continue to find ways to build on our Most Amazing Personal Service that each customer expects and receives from us, and to find new ways to deliver service that are consistent with how her shopping patterns are evolving.

In closing, Chico's FAS remains focused on a disciplined approach to inventory and expense management, our resources will be focused on initiatives that improve the shopping experience, and we've enter FY15 with positive momentum and look forward to reporting back to you on our continued progress.

With that I'll turn the call back over to Dave Slater.

Thanks, Dave, and that concludes our prepared remarks. At this time we'll be happy to take your questions.

In the interest of time and consideration of others please limit yourself to one question. And with that I'll turn the call back over to Hilda.

Thank you. We will now begin the question-and-answer session.

(Operator Instructions)

Randy Konik with Jefferies.

Can you hear me?

Absolutely.

Great, thanks. I guess more for Todd. Todd, can you talk -- if you look at the historical averages and peaks and troughs around gross margin and SG&A, your gross margin is more than 500 basis points off of peak.

You sound like you have a great strategy from a more disciplined inventory approach to reduce the mark down rates. So can you give us some color where you think -- obviously not next quarter, but over the medium term where do you think that gross margin opportunity can realistically go?

And then on the SG&A side, if you look at the historical average SG&A rate to sales, it's around 44%. And the trough is obviously much lower at a different point in time in the Company's history, but around 37%.

So is there some sort of -- when you look at all these nice initiatives you have on the cost reduction side, obviously a lot of them kicking in in the next fiscal year, is there some sort of rate you guys could be targeting or do target or not target around the SG&A as a percent of sales? Just want some color there.

And then lastly, sorry, just on the CapEx, good reduction in the CapEx and you said something I think in your commentary with regards to fiscal -- the years after next year that the CapEx will continue to be restrained. Any kind of color on where that number could shakeout every year over the next few years would be very helpful to gauge free cash flow generation. Thanks.

Absolutely. Good one question. In terms of SG&A and gross margin rate, I really -- where we're headed overall over the next several years is to get back to as a first hurdle that rate of double-digit operating income percent.

And as we look at where that's going to come from, it will be part and parcel gross margin and SG&A both that help drive us there. Gross margin from more conservative inventory planning and being less promotional or having to be less promotional.

And on the SG&A side part of it is the maturity of Soma and recovery of Boston Proper as well as just overall conservative expense management. So it's really going to be both that help get us to that double-digit rate from where we are at now.

And in terms of capital, really the way we're looking at it, we have a one-time unique project, very unique this year with our point-of-sale application. It's something that hasn't been updated in about 13 years, 14 years.

So that is $30 million that is somewhat of a catch up. And if you take that out of our $100 million total that gives a $70 million base.

Luckily it would be additional projects as we go forward and look at things like RFID and so forth, but certainly not to that scale. So if you think about it in that less than $100 million more than $70 million range is probably fair for the foreseeable future.

That's great. Can you hear me?

Yes.

Okay, just one more tiny follow up. I'm sorry.

We've got to move on.

Can I ask it?

Let us get to other people. We have not much time left.

Alright.

We'll catch up to you after the call, Randy. Thank you.

Anna Andreeva with Oppenheimer.

Great, thanks. Good morning and congrats to a strong finish to the year.

Thank you.

I was hoping to follow up on the quarter-to-date trends. Are all brands comping positively? Are you seeing variability cold weather versus warm weather states and also mall versus outlet?

And a quick follow up on Soma. Great to see disclosure on the sales line. I was hoping you could provide any other metrics whether four wall profitability or other metrics about this division? Thanks.

First in looking at the comps not all brands are comping positively right now, and honestly this is a tale of the weather. While the weather may have helped us a little bit in fourth quarter it certainly hasn't helped us as we move into the first quarter.

Our comps were significantly higher than they are now a week and a half ago before the weather started. So its amazing what can happen in the course of eight or nine days.

But we fully expect for the comps to recover and to be positive as we get into first quarter, and would expect that all brands would have a positive comp in the first quarter without putting other outside variables that we can't control on it. Todd, the second part?

In terms of Soma, I will -- we will disclose sales for each of our brands and typically don't get into more detail than that. But the one thing that we have said that is so very much true for us is for the Soma stores as they mature over time, when you get to stores that are four to five years plus, the four wall contribution from those stores as a percent of sales is equal to or greater than our other apparel brands.

So as Soma does get further into its maturity curve, we continue to see good positive momentum. And it's part of what gets us to the place of breaking them out separately today.

Great, thanks so much.

Thank you, Anna.

Janet Kloppenburg with JJK Research.

Good morning everyone and congratulations on a good quarter and a good outlook. I have just a couple of questions.

Todd, is inventory in line at all divisions? I know that White House was working down some clearance issues and I was wondering what had gone on there. And if you expect further reduction from this level at the end of first quarter.

And on the SG&A front in the first quarter, should we expect meaningful deleverage or just a few basis points as you adjust your expense line? Thanks. And if you could comment on port strike and if you see any issues there in the first quarter. Thank you.

You bet. So in terms of inventory it really has been across the entire Company. This is something that we've really -- all of the brands are participating in, all of the brands are looking at receipts and managing inventory tightly and getting the benefit out of that.

So yes, that is something that is a broad-based company-wide strategy that we expect to really bear fruit as we get into next year. From and SG&A leverage perspective it will obviously vary by quarter.

I think you had said there would be some pressure in the first quarter. Am I wrong about that?

I think that is fair given that we just really enacted a lot of our cost reductions in the course of the last week. So we're not getting the full benefit of the entire month -- excuse me, entire quarter for those reductions.

And then you had mentioned the ports. It is fair to say that while the port strike is settled there is a fair amount of backlog and we are expecting that we'll continue to see disruption as we go through certainly the early parts of this year if not further. And our supply chain and sourcing teams have done a great job in trying to find workarounds, but I think this is just one of those things where there is a lot of backlog and it is going to take a while to be able to move through it.

And we think that there could still be significant air cost, air freight cost in the first quarter that would be comparable to what the $4 million that we experienced in the fourth quarter.

Thanks, Dave.

Thanks, Janet.

Matthew McClintock of Barclays.

Good morning, this is Greg on for Matt. Just a quick question. Dave, you talked about managing expense reductions and not really having any impact on the Most Amazing Personal Service initiative. Can you elaborate a bit more there?

And then as you guys think about new customer acquisition, how has that trended as you look to cut back on promotions and wean the customer off of those moving forward? And I have one quick follow-up if you don't mind after that.

We may not be able to do the follow up because we got a lot of people and not too many minutes left. But first let's talk about Most Amazing Personal Service. That really is kind of the differentiator from Chico's, from our other specialty stores. It would be similar service to what you would find in Nordstrom.

Our selling is not done by somebody ringing it up at the register, it's done by building customer loyalty and building the relationship, and it's done in a fitting room. Most apparel retailers can sell 500,000 of an item by putting it on a table with a sign. That doesn't work for us. We sell big numbers, but we do it one item at a time and one outfit at a time and one customer at a time.

It's a very different selling relationship, and if you look at the productivity of our stores, our stores are much more productive per square foot than most of our competition. So we believe that there is value to this service model that we have and that it is a key differentiator between us and our competition. So the other questions, Todd?

New customers, really one of the things to reemphasize is our customer file is at an all-time high. We are continuing to see growth in our customer file even through the course of the fourth quarter.

And that's I think a testament to the quality of the loyalty programs, the quality of the service, and the fact that the merchandise has really resonated. So we would expect to continue to drive that customer file larger over time with part of that being new customers.

And then real quick the follow up is just on Soma. As you posted a solid comp this quarter and last year, but if you look at the square footage and the store count growth with the new updated plans it looks like it's a bit of a pullback from prior years. So I'm just wondering if you could talk a bit on that? Thanks.

Really more timing than anything else. As we were going through and doing our store planning and we decided to focus on about that 40-ish level of new stores, we had already committed to a number of stores next year. So as we cut that off that just happened to result in a fairly big reduction really across all the brands.

Going forward we still believe in Soma's store growth. We are still planning to see a healthy amount of that. And while you may see overall reduction in store count as we go forward, Soma is clearly a focus for us.

Simeon Siegel with Nomura Securities.

Thanks. Good morning. Strong results across the board, particularly at White House this quarter. What's your perspective on the longer-term run rate of that business as we anniversary the tough year ahead but then go forward? And then Todd, did you or can you outline the 35 closings by segment?

And then Dave to your earlier point can you just share the longer-term view of the store fleet by concept? Thanks.

I guess if we first want to talk about White House. White House we believe that last year the negative comps were self-inflicted as we went through a lot of product issues and had to make those necessary corrections. So we believe that the way White House is performing now is more consistent than the way they have performed historically, and probably more indicative of the way that they're going to perform going forward. So we think that White House was again somewhat environmental, but largely self-inflicted and certainly has been corrected.

In terms of the 35 closings, given where we are at in Soma's growth, you'd expect that would be a fairly small piece of the pie. Really it's mostly focused on Chico's and White House, and it's mostly focused on leases that are coming to end of term or hitting their kick out dates. So naturally expect that they would lean towards those two brands.

In terms of overall store fleet; so we still believe in stores.

We see it over and over again. She is able to touch and feel and try on the product and work with our associates. It does nothing but help both our store sales and our digital commerce sales. So we over the long term would still expect to see good store opportunity, and still very definitely a part of the long-term growth plan. What you're seeing this year is more prudence relative to the overall environment.

Great, thanks a lot.

Thank you.

Thomas Filandro with Susquehanna International Group.

Hi, thanks very much for the comprehensive call. Nice job across the board. Dave, I was hoping maybe you can provide us a little more color on the front end merchandising opportunities across the brands for the spring season?

On the -- are you talking about the front line? The store merchandising opportunities?

Exactly. I want to know -- we're hearing defensive strategies. I want to know what you are doing offensively.

I think that -- ours always starts with the product and strong product. And we believe -- let's just start with White House which was the last question. The White House, the new catalog, we're going back after our workwear. The color pink that we just introduced is performing unbelievably across all brands, Chico's and White house and Boston Proper.

We are seeing knits perform. When knits perform that is -- that is the one classification that brings most new customers to a brand. And when this performs it gives you higher units. So when you have a good knit business you've got a good chance of really building on that sale. So knits are performing across all of our brands, and I'm not sure that same has been reported across our competitive set.

Bottoms continue to be very, very strong. Leggings, which we've been actually going now for over a year has continued to increase. We are even seeing the prints and the patterns come into the bottoms. It has been much more effective.

Jackets, which have been somewhat anemic over the last few years, we've seen signs of life in jackets again. And certainly in Chico's our So Slimming collection is doing very well, which is again the bottoms. And again the way we talk about business is when you've got bottoms and knits going, you've got the basics of a really great business

Fantastic.

Thank you.

Lindsay Drucker Mann with Goldman Sachs.

Hi, this is Bill Schulz on for Lindsay. Great quarter. I guess in a similar vein to a prior question that was asked, with your new guidance on store openings have you changed your views on what the ultimate size of your fleet should be for each of your concepts?

No. In fact that's something that we'll always continue to look at, but at this point we really still believe that having a good solid store experience is critical to our long-term sales growth and customer growth.

Obviously we see as we move forward, we think Soma has a lot more room for greater store expansion than some of our larger brands. However, when you look at White House and Chico's generally when we open the store with those brands they pay back cash within 12 to 18 months. So they are very good investments of cash.

Got it, thanks. And congrats again on the great quarter.

Thank you.

Neely Tamminga with Piper Jaffray.

Great, good morning, thank you. This is Kayla Berg on for Neely Tamminga.

My question actually relates to your human capital. I'm just wondering if you could give us any more color on your org realignment that you announced today and how you think that -- more specifically how you are better positioned going forward to drive growth specifically as it relates to omni-channel?

I think that that's what a lot of the things that we have done is we have aligned, and I guess you would say there have been a lot of other retailers in the last few months similarly aligned to what we're doing. One of the things that we have done is we have put the accountability of driving merchandise online back in the merchandising divisions and the accountability of driving the marketing and the online back in the marketing division.

And I think that what we have now is we have it -- or maybe we had been set up by silo a little bit which gave you some channel conflict. We don't want channel conflict.

To us it is the seamless experience. We want the sale no matter where she shops and we thought that structurally that we were perhaps creating channel conflict where there should be none.

And so that's what we look to eliminate as we go forward. And I think that we've also looked at other pieces of the business and the way that we have structured the business, we're going to focus our international divisions on the franchise opportunities rather than on the on-store opportunities in Canada.

While those stores are doing well, we believe those can be looked after within the brands. And the real home run and the real ability for us to move forward is through our franchise business globally and internationally. So that's another change that we've made.

We've also streamlined in debt efficiencies and the way that we do some of the analytics and research where we were duplicating them division to division or function to function. We have now streamlined those. And we've looked at the way we manage our stores, the overall store growth management where we felt that we were perhaps a little top-heavy in management and now have streamlined that back a bit.

Thanks, Kayla.

Liz Pierce with Brean Capital.

Good morning, thanks. Nice job. Just to follow up what you were just talking to about Canada and Mexico, two-part question. How is the business and then maybe just elaborate a little bit more on this change in strategy? Thanks.

The Mexican franchise business, those stores are performing very similar to the best of our stores in our fleet. Very, very profitable for both our franchise partner and for us.

The Canadian stores, obviously when we went into Canada it was close to parity in terms of exchange rate. And now I think it's somewhere 25% less, 20% to 25% less than that. So obviously the exchange rate creates other issues and other problems for us and we feel we can manage that a little better.

So right now we're opening up a few stores next year. I think it's one or two, one store in 2015 in Canada, all again concentrated in the Ontario province. And that for right now is until we figure out the exchange rate and how we operate those stores, we'll be about what we're going to do in Canada. I'm not saying that we want to expand further, but I think we're going to take a little breather and make sure that we understand how to operate those stores more profitably than the exchange rate is allowing us to do now.

Pam Quintiliano with SunTrust.

Thanks so much for taking my question and squeezing me in. So quick one for David. You always have an interesting perspective on your consumer. How do think she is feeling right now from a macro perspective? Are we seeing any benefits from the lower gas prices?

And then sorry if I missed this one, but how are you thinking about the promotional environment going forward? What are you seeing out there and how are you planning for that?

One of the things that we're doing -- I want to do the promotional environment first. The promotional environment again part of that was self-inflicted. As I told you in the last year or so and certainly last year we bet that spring was going to recover. We took a shot at inventory and we planned our sales a lot more aggressively than we achieved.

As a result of that our inventory backed up on us and we had to take a lot more liquidations than we achieved, than we wish to have taken. And that led to all the other bad factors that go on. Lower average dollar sale, lower average unit retail.

Our transactions last year remained up, were up. So actually we had the transactions, we just didn't have the average unit retail to drive sales.

So the real key to this is to maintain the inventory. We will be appropriately promotional but we will not be promotional because we over bought. As Todd said our receipts are planned down for spring on an inventory that came in some 5% less than last year at the end of the year.

We are being very cautious with our inventory and believe that this will drive higher margins and all the good things that come with that. We'll have higher average dollar sale, higher average unit resale, and higher-margin. What was the other question now?

Overall consumer.

Oh the overall consumer.

How is she feeling, how do you think --

And I think the way the overall consumer is feeling is I think she is probably feeling better because of gas prices and certainly the stock market has continued to improve. We believe and from what I've read that she's still buying some durables.

But I think she'll come back and start buying more apparel. I think that she is really exhausted from the promotional efforts that have been out in the market.

Everybody has been so damn promotional, including us, that I think that she doesn't really even know what the right price is anymore. I think that that's one of the things that certainly we are going to do on our own is to get back to pricing that is more consistent with our history. Even if it's slightly at the expense of sales it will certainly drive margin.

So we're looking at our business through that lens. I think she has been inundated with emails from everybody. As a matter fact I think that we ourselves have sent more emails than we should have.

And we're going to be looking at the -- not only the amount of emails, the quantity, but the quality of the message. And that's one of the things that we've talked about with our ability to literally design a communication for each of our customers that is on what she likes.

We have a large part of our file that never responds to a promotional email, but they respond to new fashion, new items, new ideas. That's the type of emails we need to send her.

We have other customers who really are interested in the promotions. We'll send her the promotional e-mails.

I think it's making sure the communication we give the customer is relevant. That's what we think the breakthrough is and what we're working on this year.

Very exciting, best of luck.

Good, thank you.

Adrienne Tennant with Janney Capital Markets.

Thank you. Good morning everybody. Congratulations on the return to positive comps and of course my favorite topic, inventory.

So I'm going to have one question for Dave and then I'll save my other 50 for Todd, for you later him. You talked about White House Black Market and the product there, I was wondering if you can talk to us about Soma went in its double-digit comping, big comp in the fourth quarter from a run rate of mid- singles.

And so what did you see, is this a new step function up? And then Boston Proper product recovery, what's going on there and how do you feel about that? Thanks.

A couple of things; let's start with Soma. First Soma, unlike our other brands, actually has a fourth-quarter business. It is the largest quarter of their year is the fourth quarter.

I think that when you look at our sleepwear this year it was beautiful. Sleepwear and loungewear always drive sales in the fourth quarter.

Our assortments were right on. They were pretty. They were exciting and our customers responded.

Boston Proper we lost our way. We talked about the Boho Chic and -- which we've actually walked away from. Went too urban, too sophisticated, not casual enough. Boston Proper again has found their mojo too. And I think that we're seeing it in the sales, we're seeing it in the response rates in our catalogs.

So and again, those are the -- Boston Proper and White House were product oriented. Once we fix the product -- I think the customers love the brands, they were just saying give us something that we want.

Fantastic. The stores look great so good luck for spring.

Thank you. We feel the stores are really looking good at this point too. Thank you.

Ed Yruma with KeyBanc Capital Markets.

Thanks very much for squeezing me in. Good morning. I think when you held your analyst day you articulated a framework of regaining 200, 250 basis points of gross margin against half of the AUR decline recapture.

And I guess you talked about grosses being up in 2015, but where do think you are on that continuum and what timeframe should we expect to achieve that 200 to 250 basis points of improvement? Thanks.

Really with our inventory receipts being cut back, I think we are early in that process but making very good progress. It's something that we do want to make sure from a promotional perspective that we don't go ditch to ditch and do something that we would regret.

But we are building into a much more rational promotional cadence, and I expect that over the course of the next few years we are going to be able to recapture that. I feel like we're -- and really a lot of what you've heard today is setting ourselves up for success in 2015 and taking the actions at the end of 2014 to get us positioned to be successful. That encompasses gross margins as well. So good progress.

We'll take one more question and then we're going to have to sign off. Are there any more questions?

This concludes our questions and answers for today. I'd now like to turn the conference back over to Mr. David Slater for any closing remarks.

Thank you. And as Zelda said this does conclude our call this morning. We apologize for those that we didn't get to on the call.

As always I'm available for follow-up questions as necessary. And again thanks for all of you for joining us this morning and we appreciate your continuing interest in Chico's FAS.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.