Chico's FAS Inc (CHS) 2015 Q4 法說會逐字稿

Good day, and welcome to the Chico's FAS fourth-quarter 2015 earnings conference call.

(Operator Instructions)

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

Thanks, Laura, 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 Shelly Broader, our Chief Executive Officer; and Todd Vogensen, our Chief Financial Officer. This morning, Shelly will provide her initial impressions on joining Chico's FAS Inc, and our areas of focus going forward then Todd will discuss our fourth-quarter results along with our financial outlook for 2016.

As a reminder, any forward-looking statements and quarter-to-date data points that we make today are subject to risks and uncertainties, the most important of which are described in our SEC filings and in today's earnings release. Finally, in these remarks we will refer to adjusted earnings per share, which is a non-GAAP financial measure. A reconciliation to our GAAP earnings per share is included in today's press release for your reference.

And with that I would turn it over to Shelly.

Thank you, Jennifer. Good morning, everyone. First, let me say how thrilled I am to be leading the iconic and powerful brand here at Chico's FAS. I am fortunate to be able to build upon the strong culture and amazing personal service that Dave Dyer cultivated while he was Chief Executive Officer.

Before Todd reviews the fourth-quarter performance, I wanted to take a few minutes to discuss some of my early observations and then outline four key areas that we will be focusing on to drive improved results, enhance profitability, and increase shareholder value. Both as a retailer and as a shopper, I have admired this company and its three brands for a very long time. So you could say that my due diligence began long before I was approached by the Chico's FAS Board. As I contemplated this new role, I saw significant opportunities for growth in each of the three brands, not to mention incredible strength to leverage. Chico's is an iconic brand with a cult-like following of loyal customers. White House Black Market, with its aspirational and sophisticated styles, fill a niche for fashionable women. And certainly Soma, with an enviable position that caters to a vastly underserved market.

With each day in role, I grow even more excited about the revenue and growth potential of our portfolio of brands. So I have been here now for nearly three months, 86 days exactly -- but who's counting? And over this time, my objective has been to immerse myself into the business in order to understand firsthand how we are viewed by our valued customers, our dedicated associates and other key stakeholders like many of you. I have taken deep dives within our three brands and with our brand presidents and heads of marketing to understand our current marketing position and to delve into the vast data that fuels our decision-making.

I have done shop-alongs both with non-customers and extremely dedicated ones across our brands and across the country to experience our stores through their eyes. And soon I'll be working in each of our brands in stores from unloading freight to wardrobing to work working point-of-sale. And I'm sure my front-line retail muscles will be a little sore. I've met with our merchants to understand the flow and cadence of our business processes. With these insights, I've challenged myself and the senior executive team to take a fresh look at our strategic vision and long-range plans. We get it. Our industry faces a new reality, but we at Chico's embrace it. Our team is energized and excited about the future.

These past months have also helped me to refine and crystallize what I see as four key focus areas. The first priority is to evolve our customers' experience. The integration of our digital and physical retail environments is an imperative to achieving go-forward success. We need to have agility to meet our customers' expectations as their relationship with digital evolves. With all the power that is now in customers' hands, we need to ensure that our physical offerings and online offerings allow her to interact with us anytime and anywhere she chooses. We are in a unique position, given the life-stage of our customers. She is more sticky to the physical store than many other brands. This will be of great advantage to us, but we know that there is much more potential when it comes to empowering our customers digitally.

Our second key area of focus is to strengthen our brands position. We are carefully codifying the role that each of our brands will play in our portfolio and within each of the channels in which they operate. We are committed to finding additional revenue sources where our brands and our specialty products will resonate. Our aim is to continue to leverage the connection we have with our loyal customers, attract new customers, and continue to deliver the unparalleled service that is so unique and critical to our brands and would be nearly impossible to re-create today from the ground up.

Our third priority is leveraging actionable retail science. We have tremendous artists at Chico's FAS. They understand the art of fashion and design and the special art of serving our customers in our own unique way. However, there is some modernization to be done around the acceleration of the science of retail. We are hardly starting from scratch. Long before anyone else was tying purchases directly to specific customer names, Chico's was doing it. But the science behind that practice has expanded at a feverish rate these past years. A good amount of progress has been developed by pure-play online retailers whose algorithms have made their data more actionable.

We have made much progress on that front in recent years with new planning and allocation systems and customer information databases, for example. However, today it's not just about using data to determine the format of our marketing message or how we allocate product to a store. It's about developing algorithms and models to drive and enable real-time decision-making and the predictive analytics that will improve how we go to market, stock our product, and interact with our customers. And that's where I see tremendous opportunity here -- mining much more value out of the wealth of customer-specific data that already and has already existed at Chico's FAS for years.

The fourth focus area is to sharpen our financial principles. Since Todd took on the Chief Financial Officer role over a year and a half ago, he has led the Company to focus more intently on inventory management and cost control. Our progress can be measured by the improvement we've enjoyed in gross margin rate and in our reduced inventory. Operating under prudent financial principles has absolutely been a priority for me throughout my career. And given how vital it is to achieving improved profitability, I strongly believe that there is even more capacity for us to drive further savings through our shared services model, through the combination and negotiation of contracts, and a more effective use of marketing dollars and modernizing our processes.

Still being here within my first 86 days, we are in the early stages of developing our strategic vision and our long-range plans. As we get further down the path, I look forward to updating you on our progress and providing more specific details on our plans.

The reports of the death of the retail industry have been greatly exaggerated, but I think we all agree that there is a seismic shift that has occurred and retailers need to position themselves correctly to compete in it. Access to information, instant gratification, guarantee of availability, shopping from the comfort of our homes, in-depth knowledge of our customers, and the ability to leverage that, are all here to stay. These new tools will help us meet these demands, aid in attracting new customers, re-engaging with last ones, and incenting our most loyal customers to be even more so. At Chico's FAS, we already to have the foundation for this.

The focus areas I've discussed will help us modernize that foundation and grow our business. Importantly, developing and expanding our prospects for growth will be key to securing our future. Of course, we can't strengthen and grow without our dedicated associates or our most valued customers. In my short time here, I have been incredibly impressed with the level of talent, passion and commitment that I have seen from the associates across the Company. I have also been excited, and I'll say even awestruck, by the loyalty, dedication and enthusiasm that I see from our customers. It really isn't an exaggeration to say we have a cult-like following.

While there still is a lot of heavy lifting to do, I look forward to the future. I see the Chico's FAS has tremendous opportunities for growth. It is so exciting for me to be here at the right time and to be able to use the skill sets that I have acquired in my 25-plus years of retail experience to propel this Company and these powerful brands forward.

And now I'll turn the call over to Todd.

Thank you, Shelly. Good morning.

Before moving on to our results, I'd like to say how excited I am that Shelly has joined us here at Chico's FAS. Shelly and I worked together at Michaels Stores when she was President and Chief Operating Officer. As I look back on my own career, Shelly ranks right at the top with those of whom I truly enjoyed working. A merchant at heart, with solid financial and operational learnings from various roles, I can attest to her boundless energy. No surprise, then, that the transition here has been quite smooth. I'm delighted to be able to work with her again.

Now, turning to our fourth-quarter performance. As we've previously announced, we finalized the sale of our Boston Proper business in January. Therefore, for comparability purposes, the financial information that I'll be reviewing excludes Boston Proper. Total company comparable sales were down 3.2% on top of a positive 4.3% in 2014. We achieved positive gross margin leverage of 80 basis points and we continued our improved inventory management by ending the quarter with total on-hand inventory down slightly to last year despite the sales decline. Although our fourth-quarter results improved from where we were trending when we spoke last in November, it was a challenging quarter for sales.

Our responsiveness to the promotional environment, coupled with conservative inventory positioning, allowed us to improve from the quarter-to-date comp that we reported during our last call. I think we've proven over the last few years that our quarter-to-date comps have not been a great indicator of our actual full-quarter performance as illustrated by this past quarter, since it is such a small snapshot of the quarter as a whole. So, moving forward we do not intend to report the quarter-to-date comparable sales data point. However, for one last time, our quarter-to-date total Company comparable sales according to our un-audited daily flash sales report are up 1%.

Now I'd like to give you additional details on our results from the fourth quarter. Our net sales, excluding Boston Proper, were $612 million, a decrease of 3.4% from last year. Within the retail environment we occupy a unique position in the holiday season, as Chico's and White House Black Market are not traditionally viewed as gift-buying destinations, which provides us an opportunity in the future. The Chico's brand fourth-quarter comparable sales ended down 1.7% compared to an increase of 1.2% in the same period last year. As you have heard from a lot of other retailers, weather was not our friend this quarter. However, our season with jackets, especially the longer lengths in leather, suede, and denim were in demand. Our fashion woven tops were strong this year as we saw demand shift from knits into wovens.

As I just mentioned, the fourth quarter is traditionally the lowest sales quarter for the Chico's brand. So as we transition into Q1, we are looking forward to our own version of a Chico's Christmas. For us, it just happens to be in the spring. We've refreshed our pant collections by adding the print and pattern that our customers love to our popular solid silhouettes. We also plan to capitalize on the momentum in wovens by rolling out new fashion silhouettes and tops.

The White House Black Market brand had a tougher quarter. The brand's comparable sales were down 7.4% versus an increase of 5.4% last year. At White House, cold-weather sweaters are traditionally a significant portion of our fourth-quarter business. Sweaters have been challenging this year across the industry, and were our single biggest miss. Additionally, we were underpenetrated in special occasion apparel, especially dresses, this holiday season. On the bright side, our accessories business continued its growth and momentum. Our fashion accessories, including small leather goods, belts, and scarves are performing well. Going into the spring, we are further expanding our core pant program. We will feature more bootleg, flare, ankle, and skinny silhouettes in denim -- which has been a standout -- and in fabrics such as ponte and stretch twill. Additionally, we are correcting our assortment and should see more balance in our dress collection as we get further into the spring season.

The Soma brand had a fourth quarter comparable sales increase of 2.1% on top of the 13.7% increase last year for a two-year stack of up a whopping 15.8%. Some of our success can be attributed to the launch of our new Balconet bra this past quarter. Note that this will be the last time that I talk about the details of our intimates, as I look forward to handing these details to Shelly on future calls. But for today, our new Balconet bra features a sweetheart neckline that is lower-cut than our original version, with more lift and padding. Additionally, our semi-annual sales drove increased traffic and sales. Given our active inventory management, we had fewer items to clear, which allowed the Soma brand to not only grow sales but also to improve merchandise margins over the last year. Looking ahead to next quarter, Soma now has its successful swimwear collection in all of their stores, up from just 100 stores last year. The brand is also looking forward to its next significant bra launch over the coming weeks. We fully expect Soma's pipeline of new and innovative bra launches to help the brand gain new customers and increase loyalty.

Moving back to the consolidated P&L, our fourth-quarter gross margin rate increased by 80 basis points from last year to $315 million. Again, proactive management of our inventory has allowed us to achieve gross margin leverage despite the elevated promotional environment this quarter. Our SG&A increased from last year by only $2 million, or less than 1%, to $307 million. The increase was primarily driven by rising occupancy costs and selective marketing investments.

We ended the quarter with $140 million in cash and short-term investments after returning $51 million to our shareholders in share repurchases and dividends during Q4. We're very proud that for the full year we returned $334 million to our shareholders in the form of share repurchases and dividends, which represents approximately three times our 2015 free cash flow.

Capital expenditures totaled $18 million in the fourth quarter, mostly from a mix of investments in our stores and technology. We opened seven new stores in the quarter and closed 35, including 20 Boston Proper stores. Through the course of the third and fourth quarters,, watching sales trends and adjusting our spend wherever possible, be it SG&A or capital, resulted in full-year capital spend of $85 million versus the $100 million we had originally expected.

Before I share elements of our 2016 outlook, I would like to emphasize that I am in complete alignment with Shelly's focus areas. It's an understatement to say, given my title as Chief Financial Officer, that Shelly's fourth priority -- sharpening our financial principles -- strikes a chord with me. Since I started in this role over a year and a half ago I have been focus on getting us back to double-digit operating margins by way of cost controls, conservative capital allocation, more strategic and effective promotions, and inventory management. That said, I wholeheartedly agree with Shelly that we still have plenty of opportunity to intensify our efforts and drive profitability.

Next, I'll provide some parameters for our 2016 expectations. For clarification, we have excluded Boston Proper from our 2015 base to ensure comparability. The removal of Boston Proper's operating results will provide for improvement to our operating margin and earnings per share of 100 basis points and $0.09 per share respectively. So, excluding Boston proper, for the top-line we expect to see flat to slightly down comparable sales as we continue to optimize our inventory management and promotional cadence and we implement our long-range plans. These factors should also result in improvement to our merchandise margin rate for 2016.

For the year, we expect flattish gross margin and SG&A rate as a percent of sales as the improvements will likely be offset by return to targeted levels of incentive compensation. We do expect to have more ability to leverage gross margin in the second and fourth quarters, and more ability to leverage SG&A in the third quarter. Since our 2015 results did not meet our budgeted levels, we did have savings against our original incentive compensation target. Therefore, accruing to a more normalized level in 2016 will result in incentive compensation being a headwind to both gross margin and SG&A.

We estimate our capital expenditures will be between $75 million to $80 million. We will be opening approximately 25 stores this year, while closing approximately 50, and will continue to evaluate the optimal size of our fleet. We will also invest capital in a store remodeling program to ensure our older stores can deliver the experience our customers have come to expect from us. We are planning our on-hand inventory to be roughly flat to 2015. And finally, our weighted average shares, excluding share repurchases, should be approximately 135 million.

Our executive team is crafting a strategic vision to ensure that we can grow and prosper amid the new retail reality that Shelly talked about. We expect our iconic brands, dedicated associates, and amazing personal service, together with the new focus areas that Shelly has identified, to pave the way for our success. The loyalty of our customers is indisputable -- a huge differentiator in today's environment. We look forward to updating you on our plans and progress the next time we meet.

And with that, I'll turn it back over to Jennifer.

Thank you, Todd. That concludes our prepared comments. At this time we would be happy to take your questions. In the interest of time and consideration to others, please limit yourself to one question. I'll turn the call back over to Laura.

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

(Operator Instructions)

Our first question comes from Susan Anderson of FBR.

Good morning, everyone, and congrats on managing through a very tough quarter. I guess I will hone in on just the SG&A for 2016. Obviously, after significantly deleveraging in the back half of this year it sounds like you expect it to be slightly levered excluding [the incentive] comp. I guess my question is how do we get that reversal from 2015.

If you can maybe go into any detail on the increased occupancy and marketing costs this as quarter? And also, do you see more opportunity for cost cuts further in 2016? Thanks.

I think focusing on our overall cost structure is going to be a big priority just plain going forward. As we look at our current cost structure we are kind of early on in our plans for me to give you a lot of detail. We have, what I would call a treasure trove of customer information that should allow us to be very, very strategic about how we use our marketing dollars and we are testing into a number of different things that hopefully will provide the opportunity for savings on marketing.

You are right, occupancy was a large source of the increase in SG&A this year, actually the majority of it. As we go forward, just knowing what's going on with traffic in malls and knowing across the sector there is fairly sharp declines, that will be an area we will be talking to our landlords about and making sure that our cost structures are appropriate.

Okay great. Thank you.

Our next question comes from Brian Tunick of RBC.

Yes, thanks. Good morning and welcome, Shelly. I guess a question on White House, just a little more context. You guys are giving us your quarter to date comp trends. I think [plus 1] right now. Obviously, White House was disappointing. Can you maybe talk about some of the transition on merchandise, lead times and what are some changes you think as we look at the rest of the year, can White House affect? Thanks very much.

I'll start out by saying -- since this is officially the last time we are giving the quarter to date data points, I'll toss out that at this point going into Q1, White House is running a solidly positive comp. We have seen good performance so far in the quarter.

White House did get caught up in the trap, well, what is a normal assortment for them, but disproportionate amount of those heavy sweaters were probably more impacted by weather than other areas. And I think also as we step back and look at it, we had mentioned that we had a little bit of softness in dresses early in 2015.

We probably ended up pulling back a little bit too much and not having enough of that true special occasion dressing that is really synonymous with White House Black Market's history. As we are going forward through the rest of spring, we are making a transition back to a much more balanced assortment and I think that's going to pay dividends. Thanks, Brian.

Our next question comes from Liz Pierce of Brean Capital, LLC.

Good morning. I'll add my congratulations in managing through the quarter and welcome, Shelly. Just following up on Brian's question, it seems thinking about White House its has been somewhat of a back-and-forth between balance and not having this and that. Is there anything happening within the team or how you guys are approaching the assortment for them?

I think for White House in general, this has been a big year of going back and looking at branding. Looking at where they fit within the overall market. Part of what Shelly is bringing is much more the true focus on the customer. WhiteHouse had already started on it but taking it to that next level. That has allowed us to put in place, actually the brand to put in place. A lot more guard rails and a lot more structure around what the buy looks like. There should lead to much more consistent results.

I think you are seeing in the midterm results that Todd just announced, some of the fruits of their labor. They really went back to brand positioning piece of work. We looked at their customer, looked at their brand tenets, understand the consumer decision tree for their customer and made the adjustments to their mix according to that plan. I think we are starting to see that take hold as well.

So it sounds like this whole modernization thing is going to be able to mine the data and react faster.

Yes.

I will get back in the queue. Thanks so much. Best of luck, guys.

Next we have a question from Dana Telsey of Telsey Advisory Group.

Hello, how are you? First of all, welcome, Shelly. We would love to hear little bit about what learnings did you bring over from Walmart or your previous positions that you think are applicable to Chico's and what you were seeing in the 86 days to date or whatever? And also, when you spoke about the algorithms to make data more actionable, what steps do you see there and how do you see that evolving? Thank you.

Thank you for the question. As I said in my intro, I have 25 years-plus of retail experience from food, grocery, specialty crafting and my last six years at Walmart both in Canada, Europe and Africa. Just that host of in many ways, some early blocking and tackling parts of understanding how data is used, understanding all of the metrics of SG&A. And then, in the European portion of Walmart, that is a ground-up design apparel business as well.

Wanting to make sure that we have got full line of sight into production, into synergies, I'm very much into the shared services model and really believe in front of the house back of the house separation. The beautiful part to me about the opportunity of Chico's is the uniqueness of Soma, the uniqueness of White House and the uniqueness of Chico's and making sure the front of the house, what the customer sees, the essence of that brand, how we market to them, the uniqueness and style of that apparel that is customized for that specific group of targeted customers.

But also, allowing that back of the house to be incredibly leveraged and that the way we go to market, the way source product, the way we utilize factories, the way we look at shipping cost, the way we build a single platform in [decom] that can be skimmed in three different ways, that we built one analytic and algorithmic-based system that can have copious amounts of data through it. Yet the answers can be specified for each of those brands are all experiences that I've had in my previous life that we can lay on top of this business. And as I was going through my own decision-making process and saw that, that skill set applied to this business gives me a lot of upside hope, and that was part of the decision-making for sure.

Thanks, Dana.

Our next question comes from Pam Quintiliano of SunTrust.

Thanks so much, for taking my question and congratulations on the execution -- and welcome aboard, Shelly. And thank you for providing your four key areas of focus. Obviously, in the short period of time you've targeted where you think you can make meaningful impact.

Can you talk to us about how you are prioritizing those and when we could begin to see the results for each? Obviously, I know it is ongoing process and there is a lot to do. But how we think about it, is it really one through four how you are looking at it?

We are here, as we said, on day 86 or 87 -- we've lost count. I am still calling them key focus areas and I haven't put them in any prioritize group. Obviously, anything to do with customers comes first, comes for me for sure.

We are doing that within the conjunction of our three-year planning cycle. What are we thinking about, what are we doing and when do expect those results and what are commensurate expenses and profits that we will expect from each one of these initiatives.

We are building a strategy focused organization here. We are all 25,000 Associates at Chico's FAS will know what our move forward strategy is for the total Corporation and what their specific role in attaining our success is by brand. That is how I have worked in business in the past and had success in doing so. And so we're very much at the early stages and just sharing these focus areas with the way to allow you sort of an insight in to how we are grouping our priorities.

That is absolutely the next step, is running the detailed analytics on what the benefit of each one of these will be, what our expense ratio will be around executing them and what our expected return is and when we will start to see that reflected into our sales and profits. And so we are right at that stage now.

Excellent, very exciting. Thank you and best of luck.

The next question comes from Adrienne Yih of Wolfe Research.

Good morning, I will add my congratulations as well. Welcome, Shelly. I am look forward to meeting you.

In terms of the catalog, I wonder if you thought about this much yet -- if you haven't we can delay to the next call. In terms of historically, the catalog and the direct-mail piece has been such a huge piece of the marketing of the Chico's brand and White House Black Market. When you think about growing omni, how does that piece of the puzzle fit in?

My follow-up is for Todd, the $17.4 million. Where does that show up in the income statement, because the $14 million shows up as a separate line item. But I'm just trying to figure out the gross margin SG&A piece of it. Thanks.

To your first question, I am just learning that piece and starting to understand our marketing mix and not applying some of the traditional science of marketing mix that I've learned in the past because it's very, very different here. And I will just give you one example, that I'm still working through during the learning phase.

In the shop-along I did in Dallas with our customers, we have customers who keep the catalog and tape it up inside their closet so they know which necklace and scarf goes with which item. Before I start to get to analytic on you, what is the best marketing mix and how I can save money in print, I have a lot more to do about understanding how that catalog is used to drive inspiration and in some cases education to our customer. So I'm a ways away from making any decisions about that.

Okay, thank you. And Todd?

Just a little more background, what line were you looking at in particular?

I am looking at the restructuring line is $14.6 million but then the charge when it's broken out is $17.4 million. Basically if you could just give us the go forward, the adjusted gross margin in SG&A that would be even better.

Yes. In the release back on page 9 of the release, we actually give you what our consolidated results were and then break out what Boston Proper is which then gives you consolidated results excluding Boston Proper, our operating results. And those would exclude any strategic charges, restructuring charges, goodwill impairment and all that. That is much more your ongoing apples to apples.

Thank you, very much. Super helpful.

The next question is from Lindsay Drucker Mann of Goldman Sachs.

Good morning, this is [Eddie Valles] on for Lindsay. I have a couple questions related to gross margin. You mentioned on the 3Q call that you had to become sharper in your promotional message. Was 4Q a reversal of that? Did you see the customer responding more strongly without a need to be sharper in terms of promotions?

And then looking ahead to FY16, what are you expecting as the drivers of merch margin expansion? You've referenced better inventory management, but what does that look like in the context of guidance for inventory growth generally in line with sales growth?

As we look back on Q4 it was clearly a very promotional environment and I think you've heard that from a lot of people. For us what that meant is we had to get in there in and be promotional at specific periods in time. The good news is we were able to -- as we stayed competitive and moved through and maintained a certain rate of sales. We were able to move through our inventories at a healthy pace.

So really where you got the upside was not having as much inventory left to clear at the end of the day. And not having to have that access clearance inventory is really where we were able to drive a lot of that gross margin. As we look forward to next year, inventory is flat.

We've talked a little bit about this in the past but a huge opportunity for us as much as anything on inventory management is around the allocation of where exactly our inventory goes and this goes back into the retail science that Shelly was talking about. It's better understanding what items are going to sell in a particular location, how we can distort the assortment that we are allocating so that we are maybe putting more particular styles that are going to sell in a particular store and less in others. And doing that in a way that ultimately means we have to be either less promotional or have less clearance inventory.

The other thing we're doing a lot of right now is testing. We were joking that this is very much going to be the year of the test and that applies to inventory management as well. We are testing out different curing methodologies for allocating our inventory, testing out true profitability of different categories, going a lot of different directions to make sure the information we have is actionable and something that we can respond to very quickly. With flat inventory dollars you can basically make that inventory work harder for us.

If I could just one follow-up on that, would there be any offsetting expense in SG&A in order to drive that improvement in gross margin?

I think for this year, a lot of what we were talking about is getting better use out of the tools we have. Of course we will be looking at if there are more automated or efficient ways to do some of the things but it's probably early to get into that kind of detail.

Okay, thanks a lot.

Thank you.

The next question comes from Ed Yruma of KeyBanc Capital.

Hi guys, thanks for taking my question. I guess first on some of this use of data and being able to optimize the business, as you view 2016, will some of these initiatives be accretive or be able to move the dial on numbers? Or is this still pretty much a test phase and 2017 before we can expect to see some of the benefits from your learnings?

There is a lot of testing that we are going to do this year, to start there. I would expect as we get into 2017 we'll go into the year with more momentum. That's the plan.

I would say if there's benefits to be gained, they will probably be more back end oriented. There are probably some things that will be quicker hits that may hit the back end. I would really look more towards 2017 and beyond for the majority of the benefits.

Got it. I know obviously there was a weather call out and some tactical issues in the quarter at White House. As you view the competitive landscape you had a number of years with very strong comps, is there something you're seeing in the maturation of your store fleet or the competitive environment that are driving weaker results? Thanks.

No, we are finding in White House, and we can see it now with their positive comps, they have merchandise marketing that is resonating with the customer. The customer is coming in.

We continue to work at White House on the rebranding and making sure that customers -- well that there is awareness of exactly who White House is, exactly what White House can offer and we're finding there is still lots of opportunity around that awareness which in the long-term is a great thing. How we get there is kind of what we are working on right now and that's part of what Shelly is bringing to the table with looking at the branding and some of the customer research. It's ongoing.

In the shop-along that I did, I think these took place in Dallas. But the shop-alongs I did with non-customers, the non-White House customer, people who were in that demographic who of course should be a White House shopper but aren't.

It was fascinating to understand their view of the brand and why they hadn't been in and opens up a tremendous opportunity for us on describing that brand and marketing that brand to a customer segmentation who is very much aligned to that merchandise but has a certain view of what's inside that is representative. And so, I get pretty excited about thinking about sharing the offering of White House with a wider base of customers and I think there is opportunity there.

Great, thanks so much.

Our next question comes from Anna Andreeva of Oppenheimer.

Hi, good morning. It is Janet Lynn [Knopf] on for Anna. I had a quick one on the quarter to date, if White House is nicely positive, does that mean Chico's could be comping negatively or are all the brands positive? (laughter)

And then longer-term given the exit Boston Proper it has been harder to determine the real performance of each core business in 2015. Could you talk a little bit about margin opportunities by division, like where the bigger margin opportunities between White House and Chico's is?

First on the quarter-to-date comp, what I can tell you is that other brands are performing roughly in line with the Q4 run rate. We typically don't go much beyond that so I have probably already broken my rule. Nothing I would call out that's been a major change in trend outside of the White House positive performance to date.

In terms of margin opportunities, we really try not to get into that level of detail -- as much as anything, from a competitive perspective. We continue to look at opportunities really across the entire portfolio. I would say that is still the case for us that we do have opportunities across the Company. And probably as we get further into our planning, we will come back with a little more detail on that for you.

Okay, great. If I could sneak one more in, with CapEx coming down this year. Could you talk about your priorities for cash and if you have a minimum cash balance that you think about?

I would say generally we are looking at very similar to past years. We have a certain amount of capital that we want to spend that we think is important to spend internally and generates a return.

Beyond that to the extent that we have excess cash, we have a dividend that's in place that has a healthy yield right now. Share repurchases is really next in the priority list and I think we've shown our commitment to share repurchases and intend to continue to show that. That is probably about what we have for cash at this point.

Great, thank you so much.

Our next question comes from Marni Shapiro of The Retail Tracker.

Hey, guys. How are you? Welcome, Shelly.

How are you doing, Marni?

Thank you.

You brought up the humor in Todd, I love that. (laughter) I do have the one big trite question for you, Shelly. Before I get to that can you just, on Soma, it's really fantastic. The stores look great. I thought the marketing behind that bra [in the red lace] it was beautiful across-the-board.

If you could talk a little bit about the Soma customer, is this more of an online business than the other two and what you're doing to drive it either in stores or online. Or are you kind of channel-agnostic about Soma? And then Shelly, the big trite question, what has surprised you since coming to Chico's most? (Laughter) No one has asked it yet.

Talking about Soma, we have 287 Soma stores today in what I think is just a tremendously un-crowded space in the market for customers who has aged out of some of the traditional retailers and isn't finding what they want in a department store setting. As far as being channel-agnostic, if you just look at the different types of product that are accelerating online you see across the board where intimates stack up in there. Intimate apparel is heavily penetrated online and our expectation of Soma will be the same.

I do however, believe that bricks and mortar companion to that is incredibly important. And not just for the show roomy aspect of that, but for the tenants of that brand in comfort and fit, in every day sexiness, in things that look great and feel great and are appropriate for somebody living an active lifestyle. I certainly wouldn't say that I'm channel-agnostic and in order to continue to grow market share in intimate apparel you have got to be doing that by driving your online business.

You are seeing now and you will see it with the launch of our new bra which I can't wait for Todd to explain to you next time. You will see a much more exciting, much more sensuous type of marketing and advertising of coming from Soma. And I continue to be very bullish on that positioning. I think it's one of the few spots left in retail where there is room to grow. Part of my own decision-making was the excitement of the growth of that brand.

I agree there. What were you most surprised about coming there?

I don't know if it's really a big surprise or not, I did a lot of due diligence. It was a tough decision for me. I was having a terrific career where I was.

I don't know if it was a surprise, I just had a real affinity for the people here and a real affinity for the customers. This is a unique, incredibly loyal and dedicated customer base at all three of our brands and they are advocates.

When you find a Chico's customer who is a loyalist or a White House customer, and the same with the Soma. They are incredible advocates for our brand and the idea of unleashing that. And in some cases helping them unleash that.

At Chico's as we move forward with more digital commerce, the excitement of our customers to become part of that interaction with digital was really, really fun for me. I think the excitement was I just have an incredible affinity for the brand, for the customers and for the associates and I think it is all leverageable and I'm excited.

That's great. Nice talking to you guys.

Our next question will come from Betty Chen of Mizuho Securities.

Good morning, and congrats on a nice quarter despite the environment and welcome, Shelly. I was wondering if you could talk about any shop-along learnings for the Chico's customer besides maybe her usage of the catalog for inspirations. And what are her thoughts around the product that may present some opportunities. And also, how that may relate to initial assessment of the digital versus store for the Chico's brand?

My second question is related to Soma. I believe, Todd, you mentioned that the brand made additional progress on merchandise margins during the holiday quarter. Can you give us any color on the overall profitability for the Soma brand in 2015 relative to prior years and kind of where we could see that progress in 2016 or beyond? Thanks.

I'll start with the Chico's customer. The shop-along experiences that I've had have been terrific and I look forward to my week as a Chico's associate too. I've done this everywhere that I've worked. I just show up on a Sunday or Monday at an unannounced store and I work in that single store for six days straight as an Associate, running the register, wardrobing.

And that is the best deep dive of any brand I think that you can do. You not only become completely aware of the associate experience and what torturous things from the corporate office we are sending down that we need to stop immediately. But also, you get a true sense of what is happening with our customers. So I look forward to that.

During the shop-along I learned so much. One was what I shared with you about the customers who actually tapes up -- and this is not a single customer, by the way, who tapes up that magalog in her closet.

There were several different types of Chico's customers I interacted with during that shop-along. One is a woman who loves fashion. I wouldn't say that our customers are fashion forward as much as they are fashionable. They don't want to be a victim of fashion in something that is not age-appropriate or in any way makes them look silly, but they want to be stylish and they want to be rocking it.

What I learned from our customers in the shop-along is two very different camps. One who wants us to help her head to toe. She wants bottoms, tops, a scarf, an accent piece, maybe a sweater that can go over the top as well as jewelry, and she wants that in a very mix and match style and she will continue to build from that particular collection to build out that section of her wardrobe.

Which I think is very exciting when we think about leveraging our online data. Remember we -- on our loyalty to those customers who are part of our passport program, we know all of the apparel she has and what she has purchased from us. And imagine being able to pair that digitally with our new items coming in for her to show her that wardrobing aspect that she has got in her own closet. That is the kind of digital customer facing science that Todd was referring to that we can look forward to in some of the out years.

And then there is another type of customer who was part of the collecting of the individual items is part of the hunt. She doesn't want us to outfit her head to toe. She takes huge pride in being a bit of a fashionista and doing that herself. And so making sure that we are meeting the needs of both of those two different customer segmentations is great.

The most exciting part to me at Chico's is five women will come into Chico's and each one of them will leave with their own look. It doesn't look like I know where you got that or that or that is cookie-cutter look from Chico's. The ability to wardrobe and changeup is an enormously aspirational and fun part of that brand and our customers love that aspect of it.

And I'll take the brand profitability question. I will say good job in trying to take advantage [the new person] (laughter) -- we do not go into brand profitability. What I can say is yes, we did say merchandise margins were up in the quarter at Soma. I thought that was important context in relation to their comp because it really was about driving profitability.

Soma is at the point, and we've said before, where they have a product that inherently should have a little bit higher merchandise margin and they passed the point of scale where that is in fact true.

They're at the point where they are really growing the top-line is what will enable them to leverage SG&A and their other cost structure and continue to grow that profitability. But at this point as Shelly said, still seeing lots of opportunity and things are headed in the right direction.

Thanks so much, best of luck.

Our final question today will come from Simeon Siegel of Nomura Securities.

Hi, this is Gene Vladimirov on for Simeon. I think you had your first transaction increase in an year in a tough environment, any color on what drove that?

And on the flip side how do you view the environment and it's impact on future AUR. And then can you give us any help on the store openings and closings by concept within the 25 openings and closings?

Sure. So first on transactions. We are in a unique environment where you do see traffic to malls generally being down.

We get all of the shopper track information that you probably get and what I can tell you is generally our customer tends to love to come to the mall, touch it, try it on and feel the fabric. As a result, we end up seeing less negative traffic, than other retailers and to the extent there is net traffic that is down, we typically offset it at least with our conversion.

And then the added bonus for us to the extent that online becomes more and more accessible and we are able to bridge that gap in the customer experience even better than we see transactions online continuing to grow. So all that ultimately leads improvements in transactions which is something we would hope to see going forward.

And I'm sorry the second part of your question was?

Store openings and closings.

From a brand perspective the majority of those 25 openings would be Soma, actually about 15. The rest are evenly split between Chico's and White House. We are taking advantage of a new mall or a new location that is appropriate for us to be in.

From a closure perspective, one thing if you look at timing that we had last year, the overall timing will be very consistent with 2015 on the closures so that probably helps in your modeling. Then from the brand by brand perspective, about half of the closures are slotted to be for Chico's and obviously very few in Soma. And White House, somewhere in between.

Got it and good luck to the rest of the year. Thank you.

Awesome.

This concludes our question-and-answer session. I would like to turn the conference back over to Jennifer Powers for any closing remarks.

Thank you, Laura. That concludes our call for this morning. Thank you, all for joining us this morning and we appreciate your continued interest in Chico's FAS.

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