Quarterly Report (10-q)

Date : 11/27/2019 @ 2:08PM
Source : Edgar (US Regulatory)
Stock : Chicos FAS Inc (CHS)
Quote : 4.17  -0.01 (-0.24%) @ 12:59AM
Chicos FAS share price Chart
After Hours
Last Trade
Last $ 4.19 ▲ 0.02 (0.48%)

Quarterly Report (10-q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 
 
FORM
10-Q
 
 


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 2, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from   to
 
 Commission file number 001-16435
 
 
Chico's FAS, Inc.
(Exact name of registrant as specified in charter)
 

Florida
 
59-2389435
(State of Incorporation)
 
(I.R.S. Employer
Identification No.)
11215 Metro Parkway, Fort Myers, Florida 33966
(Address of principal executive offices)
239-277-6200
(Registrant's telephone number, including area code)
 
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, Par Value $0.01 Per Share
CHS
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
  
Accelerated filer
 
Non-accelerated filer
 
  
Smaller reporting company
 
 
 
 
 
Emerging growth company
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
At November 18, 2019, the registrant had 118,620,321 shares of Common Stock, $0.01 par value per share, outstanding.




1


CHICO'S FAS, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE
FISCAL THIRTEEN AND THIRTY-NINE WEEKS ENDED NOVEMBER 2, 2019
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
3
 
 
 
 
4
 
 
 
 
5
 
 
 
 
6
 
 
 
 
8
 
 
 
 
9
 
 
 
22
 
 
 
32
 
 
 
32
 
 
 
 
 
 
33
 
 
 
33
 
 
 
33
 
 
 
33
 
 
 
34
 
 
 
35
 
 
36

2


PART I – FINANCIAL INFORMATION
 
ITEM 1.
FINANCIAL STATEMENTS

CHICO'S FAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(Unaudited)
(Dollars in thousands, except per share amounts)
 
 
Thirteen Weeks Ended
 
Thirty-Nine Weeks Ended
 
November 2, 2019
 
November 3, 2018
 
November 2, 2019
 
November 3, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Amount
 
% of
Sales
 
Amount
 
% of
Sales
 
Amount
 
% of
Sales
 
Amount
 
% of
Sales
Net Sales
$
484,706

 
100.0
 %
 
$
499,877

 
100.0
 %
 
$
1,510,790

 
100.0
 %
 
$
1,606,412

 
100.0
 %
Cost of goods sold
313,668

 
64.7

 
318,899

 
63.8

 
980,299

 
64.9

 
1,001,699

 
62.4

Gross Margin
171,038

 
35.3

 
180,978

 
36.2

 
530,491

 
35.1

 
604,713

 
37.6

Selling, general and administrative expenses
180,586

 
37.3

 
178,394

 
35.7

 
536,977

 
35.5

 
538,902

 
33.5

(Loss) Income from Operations
(9,548
)
 
(2.0
)
 
2,584

 
0.5

 
(6,486
)
 
(0.4
)
 
65,811

 
4.1

Interest income (expense), net
25

 
0.0

 
97

 
0.0

 
79

 
0.0

 
(458
)
 
0.0

(Loss) Income before Income Taxes
(9,523
)
 
(2.0
)
 
2,681

 
0.5

 
(6,407
)
 
(0.4
)
 
65,353

 
4.1

Income tax (benefit) provision
(1,400
)
 
(0.3
)
 
(3,800
)
 
(0.8
)
 
2,000

 
0.2

 
13,100

 
0.8

Net (Loss) Income
$
(8,123
)
 
(1.7
)%
 
$
6,481

 
1.3
 %
 
$
(8,407
)
 
(0.6
)%
 
$
52,253

 
3.3
 %
Per Share Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income per common share - basic
$
(0.07
)
 
 
 
$
0.05

 
 
 
$
(0.07
)
 
 
 
$
0.41

 
 
Net (loss) income per common and common equivalent share – diluted
$
(0.07
)
 
 
 
$
0.05

 
 
 
$
(0.07
)
 
 
 
$
0.41

 
 
Weighted average common shares outstanding – basic
114,997

 
 
 
122,201

 
 
 
114,744

 
 
 
124,069

 
 
Weighted average common and common equivalent shares outstanding – diluted
114,997

 
 
 
122,273

 
 
 
114,744

 
 
 
124,120

 
 

The accompanying notes are an integral part of these condensed consolidated statements.

3


CHICO'S FAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)
(In thousands)
 
 
Thirteen Weeks Ended
 
Thirty-Nine Weeks Ended
 
November 2, 2019
 
November 3, 2018
 
November 2, 2019
 
November 3, 2018
Net (loss) income
$
(8,123
)
 
$
6,481

 
$
(8,407
)
 
$
52,253

Other comprehensive (loss) income:
 
 
 
 
 
 
 
Unrealized gains (losses) on marketable securities, net of taxes
14

 
(1
)
 
208

 
54

Foreign currency translation losses
(286
)
 
(388
)
 
(265
)
 
(475
)
Comprehensive (loss) income
$
(8,395
)
 
$
6,092

 
$
(8,464
)
 
$
51,832


The accompanying notes are an integral part of these condensed consolidated statements.

4


CHICO'S FAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except per share amounts)
 
 
November 2, 2019
 
February 2, 2019
 
November 3, 2018
ASSETS
 
 
 
 
 
Current Assets:
 
 
 
 
 
Cash and cash equivalents
$
70,188

 
$
124,128

 
$
169,380

Marketable securities, at fair value
57,253

 
61,987

 
59,484

Inventories
277,473

 
235,218

 
266,100

Prepaid expenses and other current assets
53,598

 
63,845

 
62,167

Total Current Assets
458,512

 
485,178

 
557,131

Property and Equipment, net
323,591

 
370,932

 
385,387

Right of Use Assets
664,052

 

 

Other Assets:
 
 
 
 
 
Goodwill
96,774

 
96,774

 
96,774

Other intangible assets, net
38,930

 
38,930

 
38,930

Other assets, net
18,511

 
15,220

 
13,929

Total Other Assets
154,215

 
150,924

 
149,633


$
1,600,370

 
$
1,007,034

 
$
1,092,151

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
Accounts payable
$
151,664

 
$
143,404

 
$
150,224

Current lease liabilities
155,403

 

 

Other current and deferred liabilities
112,456

 
131,820

 
126,337

Total Current Liabilities
419,523

 
275,224

 
276,561

Noncurrent Liabilities:
 
 
 
 
 
Long-term debt
46,250

 
57,500

 
61,250

Long-term lease liabilities
578,971

 

 

Other noncurrent and deferred liabilities
8,512

 
89,109

 
93,323

Deferred taxes
3,999

 
5,237

 
7,884

Total Noncurrent Liabilities
637,732

 
151,846

 
162,457

Commitments and Contingencies (see Note 11)

 

 

Shareholders’ Equity:
 
 
 
 
 
Preferred stock, $0.01 par value; 2,500 shares authorized; no shares issued and outstanding

 

 

Common stock, $0.01 par value; 400,000 shares authorized; 159,918 and 158,246 and 158,407 shares issued respectively; and 118,621 and 116,949 and 125,743 shares outstanding, respectively
1,186

 
1,169

 
1,257

Additional paid-in capital
490,281

 
486,406

 
482,340

Treasury stock, at cost, 41,297 and 41,297 and 32,664 shares, respectively
(494,395
)
 
(494,395
)
 
(444,309
)
Retained earnings
546,461

 
587,145

 
614,349

Accumulated other comprehensive loss
(418
)
 
(361
)
 
(504
)
Total Shareholders’ Equity
543,115

 
579,964

 
653,133

 
$
1,600,370

 
$
1,007,034

 
$
1,092,151


The accompanying notes are an integral part of these condensed consolidated statements.

5


CHICO'S FAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands, except per share amounts)

 
Thirteen Weeks Ended
 
Common Stock
 
Additional Paid-in Capital
 
Treasury Stock
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
 

Shares
 
Par Value
 
 
Shares
 
Amount
 
 
 
Total
BALANCE, August 3, 2019
118,000

 
$
1,180

 
$
487,789

 
41,297

 
$
(494,395
)
 
$
554,694

 
$
(146
)
 
$
549,122

Net loss

 

 

 

 

 
(8,123
)
 

 
(8,123
)
Unrealized gains on marketable securities, net of taxes

 

 

 

 

 

 
14

 
14

Foreign currency translation adjustment

 

 

 

 

 

 
(286
)
 
(286
)
Issuance of common stock
640

 
6

 
690

 

 

 

 

 
696

Dividends on common stock

 

 

 

 

 
(110
)
 

 
(110
)
Repurchase of common stock and tax withholdings related to share-based awards
(19
)
 

 
(65
)
 

 

 

 

 
(65
)
Share-based compensation

 

 
1,867

 

 

 

 

 
1,867

BALANCE, November 2, 2019
118,621

 
$
1,186

 
$
490,281

 
41,297

 
$
(494,395
)
 
$
546,461

 
$
(418
)
 
$
543,115

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, August 4, 2018
125,710

 
$
1,257

 
$
476,480

 
32,658

 
$
(444,252
)
 
$
607,643

 
$
(115
)
 
$
641,013

Net income

 

 

 

 

 
6,481

 

 
6,481

Unrealized losses on marketable securities, net of taxes

 

 

 

 

 

 
(1
)
 
(1
)
Foreign currency translation adjustment

 

 

 

 

 

 
(388
)
 
(388
)
Issuance of common stock
63

 

 
768

 

 

 

 

 
768

Dividends on common stock

 

 

 

 

 
225

 

 
225

Repurchase of common stock and tax withholdings related to share-based awards
(30
)
 

 
(193
)
 
6

 
(57
)
 

 

 
(250
)
Share-based compensation

 

 
5,285

 

 

 

 

 
5,285

BALANCE, November 3, 2018
125,743

 
$
1,257

 
$
482,340

 
32,664

 
$
(444,309
)
 
$
614,349

 
$
(504
)
 
$
653,133


The accompanying notes are an integral part of these condensed consolidated statements.

6


CHICO'S FAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands, except per share amounts)

 
Thirty-Nine Weeks Ended
 
Common Stock
 
Additional Paid-in Capital
 
Treasury Stock
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
 
 
Shares
 
Par Value
 
 
Shares
 
Amount
 
 
 
Total
BALANCE, February 2, 2019
116,949

 
$
1,169

 
$
486,406

 
41,297

 
$
(494,395
)
 
$
587,145

 
$
(361
)
 
$
579,964

Cumulative effect of adoption of ASU 2016-02 (see Note 1)

 

 

 

 

 
(1,287
)
 

 
(1,287
)
BALANCE, February 2, 2019, as adjusted
116,949

 
1,169

 
486,406

 
41,297

 
(494,395
)
 
585,858

 
(361
)
 
578,677

Net loss

 

 

 

 

 
(8,407
)
 

 
(8,407
)
Unrealized gains on marketable securities, net of taxes

 

 

 

 

 

 
208

 
208

Foreign currency translation adjustment

 

 

 

 

 

 
(265
)
 
(265
)
Issuance of common stock
2,129

 
21

 
1,067

 

 

 

 

 
1,088

Dividends on common stock ($0.2625 per share)

 

 

 

 

 
(30,990
)
 

 
(30,990
)
Repurchase of common stock & tax withholdings related to share-based awards
(457
)
 
(4
)
 
(2,545
)
 

 

 

 

 
(2,549
)
Share-based compensation

 

 
5,353

 

 

 

 

 
5,353

BALANCE, November 2, 2019
118,621

 
$
1,186

 
$
490,281

 
41,297

 
$
(494,395
)
 
$
546,461

 
$
(418
)
 
$
543,115

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, February 3, 2018
127,471

 
$
1,275

 
$
468,806

 
29,114

 
$
(413,465
)
 
$
599,810

 
$
(44
)
 
$
656,382

Cumulative effect of adoption of ASU 2018-02, ASU 2016-16 and ASU 2014-09

 

 

 

 

 
(5,015
)
 
(39
)
 
(5,054
)
BALANCE, February 3, 2018, as adjusted
127,471

 
1,275

 
468,806

 
29,114

 
(413,465
)
 
594,795

 
(83
)
 
651,328

Net income

 

 

 

 

 
52,253

 

 
52,253

Unrealized gains on marketable securities, net of taxes

 

 

 

 

 

 
54

 
54

Foreign currency translation adjustment

 

 

 

 

 

 
(475
)
 
(475
)
Issuance of common stock
2,179

 
21

 
1,427

 

 

 

 

 
1,448

Dividends on common stock ($0.255 per share)

 

 

 

 

 
(32,699
)
 

 
(32,699
)
Repurchase of common stock & tax withholdings related to share-based awards
(3,907
)
 
(39
)
 
(3,416
)
 
3,550

 
(30,844
)
 

 

 
(34,299
)
Share-based compensation

 

 
15,523

 

 

 

 

 
15,523

BALANCE, November 3, 2018
125,743

 
$
1,257

 
$
482,340

 
32,664

 
$
(444,309
)
 
$
614,349

 
$
(504
)
 
$
653,133



The accompanying notes are an integral part of these condensed consolidated statements.

7


CHICO'S FAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
 
Thirty-Nine Weeks Ended
 
November 2, 2019
 
November 3, 2018
Cash Flows from Operating Activities:
 
 
 
Net (loss) income
$
(8,407
)
 
$
52,253

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
67,876

 
69,290

Non-cash lease expense
160,363

 

Loss on disposal and impairment of property and equipment, net
225

 
3,592

Deferred tax benefit
(778
)
 
1,195

Share-based compensation expense
5,353

 
15,523

Deferred rent and lease credits

 
(14,868
)
Changes in assets and liabilities:
 
 
 
Inventories
(42,255
)
 
(33,198
)
Prepaid expenses and other assets
(10,861
)
 
(190
)
Accounts payable
8,261

 
31,947

Accrued and other liabilities
(2,600
)
 
(6,780
)
Lease liability
(169,970
)
 

Net cash provided by operating activities
7,207

 
118,764

Cash Flows from Investing Activities:
 
 
 
Purchases of marketable securities
(35,020
)
 
(31,300
)
Proceeds from sale of marketable securities
39,967

 
31,946

Purchases of property and equipment
(22,126
)
 
(36,601
)
Net cash used in investing activities
(17,179
)
 
(35,955
)
Cash Flows from Financing Activities:
 
 
 
Proceeds from borrowings

 
61,250

Payments on borrowings
(11,250
)
 
(68,750
)
Proceeds from issuance of common stock
1,088

 
1,448

Dividends paid
(30,992
)
 
(32,674
)
Repurchase of common stock

 
(30,879
)
Payments of tax withholdings related to share-based awards
(2,549
)
 
(3,420
)
Net cash used in financing activities
(43,703
)
 
(73,025
)
Effects of exchange rate changes on cash and cash equivalents
(265
)
 
(475
)
Net (decrease) increase in cash and cash equivalents
(53,940
)
 
9,309

Cash and Cash Equivalents, Beginning of period
124,128

 
160,071

Cash and Cash Equivalents, End of period
$
70,188

 
$
169,380

 
 
 
 
Supplemental Disclosures of Cash Flow Information:
 
 
 
Cash paid for interest
$
1,654

 
$
2,678

Cash (received) paid for income taxes, net
$
(506
)
 
$
22,481


The accompanying notes are an integral part of these condensed consolidated statements.

8


CHICO'S FAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and where otherwise indicated)
(Unaudited)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements of Chico's FAS, Inc. and its wholly-owned subsidiaries (collectively, the "Company") have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and notes required by accounting principles generally accepted in the U.S. for complete financial statements. In the opinion of management, such interim financial statements reflect all normal, recurring adjustments considered necessary to present fairly the condensed consolidated financial position, the results of operations and cash flows for the interim periods presented. All significant intercompany balances and transactions have been eliminated in consolidation. For further information, refer to the consolidated financial statements and notes thereto for the fiscal year ended February 2, 2019, included in the Company's Annual Report on Form 10-K for the fiscal year ended February 2, 2019 filed with the Securities and Exchange Commission ("SEC") on March 19, 2019 ("2018 Annual Report on Form 10-K").
As used in this report, all references to "we," "us," "our" and "the Company," refer to Chico's FAS, Inc. and all of its wholly-owned subsidiaries. Furthermore, we refer to our Chico's® and White House Black Market® brands collectively as our "Apparel Group" and refer to our Soma® and TellTaleTM brands collectively as our "Intimates Group."
Our fiscal years end on the Saturday closest to January 31 and are designated by the calendar year in which the fiscal year commences. Operating results for the thirteen and thirty-nine weeks ended November 2, 2019 are not necessarily indicative of the results that may be expected for the entire year.
Adoption of New Accounting Pronouncements
Effective February 3, 2019, the Company adopted the Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 2016-02, Leases, which requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The Company also adopted the package of practical expedients issued in subsequent ASUs related to ASU 2016-02. The original guidance required application on a modified retrospective basis with the earliest period presented. In August 2018, the FASB issued ASU 2018-11, Targeted Improvements, to Accounting Standard Codification ("ASC") 842, Leases ("ASC 842"), which included a provision to apply ASC 842 at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. The Company has elected to use the initial application date as the effective date of ASC 842. Consequently, the comparative periods are presented in accordance with ASC 840, Leases, and are not restated in accordance with ASC 842. As a result of the adoption of ASC 842, on February 3, 2019, we recorded operating lease right of use ("ROU") assets of $764.1 million and lease liabilities of $845.7 million. On February 3, 2019, the Company recorded a cumulative effect adjustment of $1.3 million as a decrease to opening retained earnings upon adoption of ASC 842. The adoption of ASC 842 had an immaterial impact on our unaudited condensed consolidated results of operations and statement of cash flows for the thirteen and thirty-nine weeks ended November 2, 2019. Additional information and disclosures required by this new standard are contained in Note 4, Leases.
Leases
Beginning on February 3, 2019, the Company accounts for leases pursuant ASC 842 as established by ASU 2016-02. We determine if an arrangement is a lease at inception. Operating leases are included in ROU assets, current lease liabilities and long-term lease liabilities in our unaudited condensed consolidated balance sheet. The Company does not have finance leases in the periods presented.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of fixed lease payments over the lease term. The operating lease ROU asset represents the net present value of fixed payments required under the lease, discounted at the Company's incremental borrowing rate, offset by impairments and lease incentives such as tenant improvements and deferred rent balances.
Our leases do not provide an implicit rate. Accordingly, we use the Company's incremental borrowing rate at commencement date in determining the present value of lease payments over the lease term. Furthermore, we elected to apply a portfolio approach, using the same discount rate applied to a portfolio of leases for similar asset types with a similar lease term.
Our lease terms may include options to extend or terminate the lease. When it is reasonably certain that we will exercise an option to extend or terminate a lease, the Company will adjust its ROU asset and lease liability. For leases with no impairment of the ROU asset, lease expense is recognized on a straight-line basis over the lease term. For stores with

9

CHICO'S FAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share amounts and where otherwise indicated)
(Unaudited)

impairment of the ROU asset, lease expense consists of straight-line amortization of the ROU asset and the implicit interest expense on the lease liability.
We have lease agreements with lease and non-lease components. We have made a policy election to treat both lease and non-lease components as a single component and account for the full consideration as a single lease component. This policy election is applied to all asset classes for which the Company is a lessee.
We lease retail stores and a limited amount of office space under operating leases. The majority of our lease agreements provide for tenant improvement allowances, rent escalation clauses and/or contingent rent provisions. Tenant improvement allowances, fixed rent escalation clauses and impairments are included in the ROU asset computation.
Certain leases provide for contingent rents based on defined criteria, such as gross sales in excess of a specified level. We record a contingent rent liability in accrued liabilities on the consolidated balance sheets and the corresponding rent expense when the criteria has been achieved or is probable.
Additionally, we have a nominal number of leases that meet the standard's definition of a "short-term lease" (a lease that, at the commencement date, has a lease term of twelve months or less and does not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise). We have made a policy election to recognize these leases as incurred and have not recognized a ROU asset or corresponding lease liability for them. The Company's short-term leases are not material.

2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements. ASU 2018-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. The amendments related to the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively. All other amendments should be applied retrospectively. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU 2018-13 and delay adoption of the additional disclosures until their effective date. We do not anticipate adoption to have a material impact on the Company's unaudited condensed consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The update and additional changes, modifications, clarifications, or interpretations related to this guidance thereafter, changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. The guidance is to be applied using the modified-retrospective approach. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We are currently evaluating the impact the adoption will have on our unaudited condensed consolidated financial statements.

3. REVENUE RECOGNITION
Disaggregated Revenue
The following table disaggregates our operating segment revenue by brand, which we believe provides a meaningful depiction of the nature of our revenue. Amounts shown include licensing and wholesale revenue, which is not a significant component of total revenue, and is aggregated within the respective brands in the table below.
 
Thirteen Weeks Ended
 
Thirty-Nine Weeks Ended
 
November 2, 2019
 
November 3, 2018
 
November 2, 2019
 
November 3, 2018
Chico's
$
249,973

 
51.5
%
 
$
259,503

 
51.9
%
 
$
795,599

 
52.6
%
 
$
847,247

 
52.8
%
WHBM
154,941

 
32.0

 
167,805

 
33.6

 
455,695

 
30.2

 
519,391

 
32.3

Soma (1)
79,792

 
16.5

 
72,569

 
14.5

 
259,496

 
17.2

 
239,774

 
14.9

Total Net Sales
$
484,706

 
100.0
%
 
$
499,877

 
100.0
%
 
$
1,510,790

 
100.0
%
 
$
1,606,412

 
100.0
%

(1) Includes TellTale net sales, which is not a significant component of Soma revenue.

10

CHICO'S FAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share amounts and where otherwise indicated)
(Unaudited)


Accounting Policies    
The Company recognizes revenue pursuant ASC 606 as established by ASU 2014-09 ("ASC 606"). Retail sales by our stores are recorded at the point of sale and are net of estimated customer returns, sales discounts under rewards programs and Company issued coupons, promotional discounts and employee discounts. Sales from our websites and catalogs are recognized at the time of shipment. Amounts related to shipping and handling costs billed to customers are recorded in net sales and the related shipping and handling costs are recorded in cost of goods sold in the accompanying unaudited condensed consolidated statements of (loss) income. Amounts paid by customers to cover shipping and handling costs are immaterial. Our policy towards taxes assessed by a government authority directly imposed on revenue producing transactions between a seller and a customer is, and has been, to exclude all such taxes from revenue. Licensing and wholesale revenue, which is not a significant component of total revenue, is recognized based upon delivery of products, except when the customer has a contractual right of return.    
We sell gift cards in stores, on our e-commerce website and through third parties. Our gift cards do not have expiration dates. We account for gift cards by recognizing a liability at the time the gift card is sold. The liability is relieved and revenue is recognized, net of third party sales commissions, for gift cards upon redemption. In addition, we recognize revenue for the amount of gift cards expected to go unredeemed (commonly referred to as gift card breakage) under the redemption recognition method. This method records gift card breakage as revenue on a proportional basis over the redemption period based on our historical gift card breakage rate. We determine the gift card breakage rate based on our historical redemption patterns. We recognize revenue on the remaining unredeemed gift cards based on determining that the likelihood of the gift card being redeemed is remote and that there is no legal obligation to remit the unredeemed gift cards to relevant jurisdictions.
Soma offers a points-based loyalty program in which customers earn points based on purchases. Attaining specified loyalty point levels results in the issuance of reward coupons to discount future purchases. As program members accumulate points, we accrue the estimated future liability, adjusted for expected redemption rates and expirations. The liability is relieved and revenue is recognized for loyalty point reward coupons upon redemption. In addition, we recognize revenue on unredeemed points when it can be determined that the likelihood of the point being redeemed is remote and there is no legal obligation to remit the point value. We determine the loyalty point breakage rate based on historical and redemption patterns.
As part of the normal sales cycle, we receive customer merchandise returns related to store, website and catalog sales. To account for the financial impact of potential customer merchandise returns, we estimate future returns on previously sold merchandise. Reductions in sales and gross margin are recorded for estimated merchandise returns based on return history, current sales levels and projected future return levels.
The Company's accounting policies and treatment over revenue recognition are consistent with the provisions of ASC 606 and represent a faithful depiction of the transfer of promised goods or services to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
Contract Liability
Contract liabilities in the unaudited condensed consolidated balance sheets are comprised of obligations associated with our gift card and customer loyalty programs. As of November 2, 2019 and February 2, 2019, contract liabilities primarily consisted of gift cards of $28.3 million and $42.6 million, respectively. For the thirteen and thirty-nine weeks ended November 2, 2019, the Company recognized $3.7 million and $23.3 million, respectively, of revenue that was previously included in the gift card contract liability as of February 2, 2019. The contract liability for our loyalty program was not material as of November 2, 2019 or February 2, 2019.
Performance Obligation
For the thirteen and thirty-nine weeks ended November 2, 2019, revenue recognized from performance obligations related to prior periods was not material. Revenue recognized in future periods related to performance obligations is not expected to be material.


11

CHICO'S FAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share amounts and where otherwise indicated)
(Unaudited)

4. LEASES
We lease retail stores, a limited amount of office space and certain equipment under operating leases expiring in various years through the fiscal year ending 2029. All of our leases have been classified as operating leases and are recognized and measured as such.
Certain operating leases provide for renewal options that are at a pre-determined period and rental value. Furthermore, certain leases provide that we may cancel the lease if our retail sales at that location fall below an established level. Within the first few years of the initial lease term, a majority of our store operating leases contain cancellation clauses that allow the leases to be terminated at our discretion, if certain minimum sales levels are not met. In the normal course of business, operating leases are typically renewed or replaced by other leases.
Escalation of operating lease payments of certain leases depend on an existing index or rate, such as the consumer price index or the market interest rate. These are considered variable lease payments and are included in lease payments when the escalation is known.
Operating lease expense was as follows:
 
November 2, 2019
 
Thirteen Weeks Ended
 
Thirty-Nine Weeks Ended
Operating lease cost (1)
$
62,696

 
$
189,939


(1) Includes approximately $6.9 million and $20.0 million in variable lease costs for the thirteen and thirty-nine weeks ended November 2, 2019, respectively.     
Supplemental balance sheet information related to operating leases was as follows:
 
November 2, 2019
Right of Use Assets
$
664,052

 
 
Current lease liabilities
$
155,403

Long-term lease liabilities
578,971

Total operating lease liabilities
$
734,374

 
 
Weighted Average Remaining Lease Term (years)
4.9

 
 
Weighted Average Discount Rate (1)
5.7
%

(1) The incremental borrowing rate used by the Company is based on the rate at which the Company could borrow funds using its credit rating for a collateralized loan of similar term to the lease. The weighted average discount rate represents a weighted average of the incremental borrowing rate for each lease weighted based on the remaining fixed lease obligations. 
Supplemental cash flow information related to operating leases was as follows:
 
Thirty-Nine Weeks Ended
 
November 2, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash outflows
$
169,970

Right of use assets obtained in exchange for lease obligations, non-cash
22,346



12

CHICO'S FAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share amounts and where otherwise indicated)
(Unaudited)

Maturities of operating lease liabilities were as follows:
Fiscal Year Ending:

February 1, 2020 (1)
$
36,572

January 30, 2021
209,945

January 29, 2022
185,251

January 28, 2023
147,479

February 4, 2024
100,312

Thereafter
168,708

Total future minimum lease payments
$
848,267

Less imputed interest
(113,893
)
Total
$
734,374


(1) Represents payments due for remainder of fiscal 2019.


5. RETAIL FLEET OPTIMIZATION PLAN
In the fourth quarter of fiscal 2018, the Company announced a retail fleet optimization plan to rebalance the mix between our physical store presence and our digital network with the closure of at least 250 stores in the United States in fiscal years 2019-2021. Under this plan, we expect to close approximately 100 Chico's, 90 WHBM and 60 Soma locations in fiscal years 2019-2021, with the majority of the closings occurring in fiscal years 2020 and 2021. During the fiscal 2019 year-to-date period, we had 45 net store closures consisting of 17 Chico's stores, 16 WHBM stores and 12 Soma stores. This initiative is part of the Company's efforts to better capitalize on its omnichannel platform, reduce costs and improve profitability and return on invested capital. For the thirteen and thirty-nine weeks ended November 2, 2019, the Company recorded $2.1 million and $9.9 million, respectively, in pre-tax accelerated depreciation of property and equipment within cost of goods sold associated with this retail fleet optimization plan. Accelerated depreciation on property and equipment reflects the impact of a change in the useful life of store assets for store closures added as a result of the Company's retail fleet optimization plan.

6. SHARE-BASED COMPENSATION
For the thirty-nine weeks ended November 2, 2019 and November 3, 2018, share-based compensation expense was $5.4 million and $15.5 million, respectively. As of November 2, 2019, approximately 4.3 million shares remain available for future grants of equity awards under our Amended and Restated 2012 Omnibus Stock and Incentive Plan (the "Amended Omnibus Plan"), which was amended and restated effective June 22, 2017.
Restricted Stock Awards
Restricted stock awards vest in equal annual installments over a three-year period from the date of grant, except for a restricted stock award granted to our CEO, which vests over a four-year period from the date of grant and is described further in the Company’s Current Report on Form 8-K/A filed with the SEC on August 20, 2019.
Restricted stock award activity for the thirty-nine weeks ended November 2, 2019 was as follows:

Number of
Shares
 
Weighted
Average
Grant Date
Fair Value
Unvested, beginning of period
2,715,466

 
$
10.92

Granted
3,563,105

 
4.22

Vested
(1,266,059
)
 
11.28

Forfeited
(1,638,433
)
 
7.11

Unvested, end of period
3,374,079

 
5.56



13

CHICO'S FAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share amounts and where otherwise indicated)
(Unaudited)

Performance-based Restricted Stock Units
For the thirty-nine weeks ended November 2, 2019, we granted performance-based restricted stock units ("PSUs"), contingent upon the achievement of Company-specific performance goals. The annual PSU grants in March 2019 have a performance period of the three fiscal years 2019 - 2021. Special PSU grants in August and October 2019 have a performance period of part of fiscal year 2019 through the end of fiscal year 2021. Any units earned as a result of the achievement of the performance goals of the PSUs will vest three years from the date of grant for the March 2019 grants and in March 2022 for the August and October 2019 grants and will be settled in shares of our common stock. All PSUs granted during the thirty-nine weeks ended November 2, 2019 were granted under our Amended Omnibus Plan, except for one PSU granted as an inducement award as permitted under New York Stock Exchange Rule 303A.08. The inducement award was granted to our CEO outside of the Amended Omnibus Plan and is described further in the Company’s Current Report on Form 8-K/A filed with the SEC on August 20, 2019.
Performance-based restricted stock unit activity for the thirty-nine weeks ended November 2, 2019 was as follows:
 
Number of Units/
Shares
 
Weighted
Average
Grant Date
Fair Value
Unvested, beginning of period
1,067,338

 
$
11.40

Granted
2,740,650

 
2.87

Vested
(244,628
)
 
13.19

Forfeited
(1,297,434
)
 
7.24

Unvested, end of period
2,265,926

 
3.27


Stock Option Awards
For the thirty-nine weeks ended November 2, 2019 and November 3, 2018, we did not grant any stock options.
Stock option activity for the thirty-nine weeks ended November 2, 2019 was as follows:
 
Number of
Options
 
Weighted
 Average
Exercise Price
Outstanding, beginning of period
214,277

 
$
13.54

Granted

 

Exercised

 

Forfeited or expired
(2,000
)
 
13.26

Outstanding and exercisable, end of period
212,277

 
13.54



7. INCOME TAXES
The provision for income taxes is based on a current estimate of the annual effective tax rate and is adjusted as necessary for quarterly events. Our effective income tax rate may fluctuate from quarter to quarter as a result of a variety of factors, including changes in our assessment of certain tax contingencies, valuation allowances, changes in tax law, outcomes of administrative audits, the impact of discrete items and the mix of earnings.
For the thirteen weeks ended November 2, 2019 and November 3, 2018, the Company's effective tax rate was 14.7% and (141.7)%, respectively. The effective tax rate of 14.7% for the thirteen weeks ended November 2, 2019 was primarily the result of an income tax benefit on the third quarter operating loss, offset by an unfavorable fiscal 2018 provision-to-return adjustment, and a valuation allowance on certain deferred tax assets for charitable contributions with limitations. The favorable effective tax rate of (141.7)% for the thirteen weeks ended November 3, 2018 was primarily due to the Company’s ability to accelerate certain income tax deductions into the 2017 federal tax return as a result of the Tax Cuts and Jobs Act of 2017 (the "Tax Act").

14

CHICO'S FAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share amounts and where otherwise indicated)
(Unaudited)

For the thirty-nine weeks ended November 2, 2019 and November 3, 2018, the Company's effective tax rate was (31.2)% and 20.0%, respectively. The effective tax rate of (31.2)% for the thirty-nine weeks ended November 2, 2019 was primarily the result of an income tax benefit on the year-to-date operating loss, offset by additional tax expense related to employee share-based awards, an unfavorable fiscal 2018 provision-to-return adjustment, and a valuation allowance on certain deferred tax assets for charitable contributions with limitations. The effective rate of 20.0% for the thirty-nine weeks ended November 3, 2018 was primarily due to the Company's ability to accelerate certain income tax deductions into the 2017 federal tax return as a result of the Tax Act, partially offset by additional tax expense related to employee share-based awards.

8. EARNINGS PER SHARE
In accordance with relevant accounting guidance, unvested share-based payment awards that include non-forfeitable rights to dividends, whether paid or unpaid, are considered participating securities. As a result, such awards are required to be included in the calculation of earnings per common share pursuant to the "two-class" method. For the Company, participating securities are comprised entirely of unvested restricted stock awards and PSUs that have met their relevant performance criteria.
Earnings per share ("EPS") is determined using the two-class method when it is more dilutive than the treasury stock method. Basic EPS excludes dilution and is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the period, including participating securities. Diluted EPS reflects the dilutive effect of potential common shares from non-participating securities such as stock options, PSUs and restricted stock units.
The following table sets forth the computation of net (loss) income per basic and diluted share shown on the face of the accompanying condensed consolidated statements of (loss) income:
 
Thirteen Weeks Ended
 
Thirty-Nine Weeks Ended
 
November 2, 2019
 
November 3, 2018
 
November 2, 2019
 
November 3, 2018
Numerator
 
 
 
 
 
 
 
Net (loss) income
$
(8,123
)
 
$
6,481

 
$
(8,407
)
 
$
52,253

Net income and dividends declared allocated to participating securities

 
(182
)
 

 
(1,365
)
Net (loss) income available to common shareholders
$
(8,123
)
 
$
6,299

 
$
(8,407
)
 
$
50,888

Denominator
 
 
 
 
 
 
 
Weighted average common shares outstanding – basic
114,997

 
122,201

 
114,744

 
124,069

Dilutive effect of non-participating securities

 
72

 

 
51

Weighted average common and common equivalent shares outstanding – diluted
114,997

 
122,273

 
114,744

 
124,120

Net (loss) income per common share:
 
 
 
 
 
 
 
Basic
$
(0.07
)
 
$
0.05

 
$
(0.07
)
 
$
0.41

Diluted
$
(0.07
)
 
$
0.05

 
$
(0.07
)
 
$
0.41


For the thirteen weeks ended November 2, 2019 and November 3, 2018, 0.5 million and 0.2 million potential shares of common stock, respectively, were excluded from the diluted per share calculation relating to non-participating securities, because the effect of including these potential shares was antidilutive.
For the thirty-nine weeks ended November 2, 2019 and November 3, 2018, 0.3 million and 0.8 million potential shares of common stock, respectively, were excluded from the diluted per share calculation relating to non-participating securities, because the effect of including these potential shares was antidilutive.


15

CHICO'S FAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share amounts and where otherwise indicated)
(Unaudited)

9. FAIR VALUE MEASUREMENTS
Our financial instruments consist of cash, money market accounts, marketable securities, assets held in our non-qualified deferred compensation plan, accounts receivable and payable, and debt. Cash, accounts receivable and accounts payable are carried at cost, which approximates their fair value due to the short-term nature of the instruments.
Marketable securities are classified as available-for-sale and as of November 2, 2019 generally consist of corporate bonds, commercial paper, U.S. government agencies and municipal securities, with $31.3 million of securities with maturity dates within one year or less and $26.0 million with maturity dates over one year and less than two years.
We consider all marketable securities available-for-sale, including those with maturity dates beyond 12 months, and therefore classify these securities within current assets on the condensed consolidated balance sheets as they are available to support current operational liquidity needs. Marketable securities are carried at fair value, with the unrealized holding gains and losses, net of income taxes, reflected in accumulated other comprehensive (loss) income until realized. For the purposes of computing realized and unrealized gains and losses, cost is determined on a specific identification basis.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. Entities are required to use a three-level hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date. The three levels are defined as follows: 
 
Level 1
Unadjusted quoted prices in active markets for identical assets or liabilities
 
 
 
 
 
Level 2
Unadjusted quoted prices in active markets for similar assets or liabilities; or Unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active; or Inputs other than quoted prices that are observable for the asset or liability
 
 
 
 
 
Level 3
Unobservable inputs for the asset or liability
We measure certain financial assets at fair value on a recurring basis, including our marketable securities, which are classified as available-for-sale securities, certain cash equivalents, specifically our money market accounts and assets held in our non-qualified deferred compensation plan. The money market accounts are valued based on quoted market prices in active markets. Our marketable securities are generally valued based on other observable inputs for those securities (including market corroborated pricing or other models that utilize observable inputs such as interest rates and yield curves) based on information provided by independent third-party pricing entities, except for U.S. government securities which are valued based on quoted market prices in active markets. The investments in our non-qualified deferred compensation plan are valued using quoted market prices and are included in other assets on our consolidated balance sheets.
From time to time, we measure certain assets at fair value on a non-recurring basis. This includes the evaluation of long-lived assets, goodwill and other intangible assets for impairment using Company-specific assumptions which would fall within Level 3 of the fair value hierarchy.
We assess the carrying amount of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company uses market participant rents to calculate the fair value of ROU assets and discounted future cash flows of the asset or asset group using a discount rate that approximates the cost of capital of a market participant to quantify fair value for other long-lived assets. The asset group is defined as the lowest level for which identifiable cash flows are available and largely independent of the cash flows of other groups of assets, which for our retail stores, is primarily at the store level. On February 3, 2019, the Company recorded a transition day fair value impairment on our ROU asset of $1.3 million, after-tax, as a decrease to opening retained earnings upon adoption of ASC 842.
To assess the fair value of goodwill, we utilize both an income approach and a market approach. Inputs used to calculate the fair value based on the income approach primarily include estimated future cash flows, discounted at a rate that approximates the cost of capital of a market participant. Inputs used to calculate the fair value based on the market approach include identifying sales and EBITDA multiples based on guidelines for similar publicly traded companies and recent transactions.

16

CHICO'S FAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share amounts and where otherwise indicated)
(Unaudited)

To assess the fair value of trade names, we utilize a relief from royalty approach. Inputs used to calculate the fair value of the trade names primarily include future sales projections, discounted at a rate that approximates the cost of capital of a market participant and an estimated royalty rate.
The carrying value of goodwill for the Chico's and White House Black Market ("WHBM") reporting units and WHBM trade name as of November 2, 2019 and November 3, 2018 was $36.4 million, $60.4 million and $34.0 million, respectively. No impairment charges were recognized for the thirteen and thirty-nine weeks ended November 2, 2019 and November 3, 2018. If profitability trends do not improve as projected for our Chico's and WHBM reporting units, it is possible that a future interim test, or our annual impairment test in the fourth quarter of fiscal 2019, may result in an impairment of these assets.
As of November 2, 2019 and February 2, 2018, our revolving loan and letter of credit facility approximates fair value as this instrument has a variable interest rate which approximates current market rates (Level 2 criteria).
To assess the fair value of long-term debt as of November 3, 2018, we utilized a discounted future cash flow model using current borrowing rates for similar types of debt of comparable maturities.
Fair value calculations contain significant judgments and estimates, which may differ from actual results due to, among other things, economic conditions, changes to the business model or changes in operating performance.
During the quarter ended November 2, 2019, we did not make any transfers between Level 1 and Level 2 financial assets. Furthermore, as of November 2, 2019February 2, 2019 and November 3, 2018, we did not have any Level 3 financial assets measured on a recurring basis. We conduct reviews on a quarterly basis to verify pricing, assess liquidity and determine if significant inputs have changed that would impact the fair value hierarchy disclosure.

17

CHICO'S FAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share amounts and where otherwise indicated)
(Unaudited)

In accordance with the provisions of the guidance, we categorized our financial assets and liabilities which are valued on a recurring basis, based on the priority of the inputs to the valuation technique for the instruments, as follows:
 
 
 
Fair Value Measurements at Reporting Date Using
 
Balance as of November 2, 2019
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
Financial Assets:
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market accounts
$
6,898

 
$
6,898

 
$

 
$

Marketable securities:
 
 
 
 
 
 
 
Corporate bonds
54,264

 

 
54,264

 

Commercial paper
2,989

 

 
2,989

 

Noncurrent Assets
 
 
 
 
 
 
 
Deferred compensation plan
7,168

 
7,168

 

 

Total
$
71,319

 
$
14,066

 
$
57,253

 
$

Financial Liabilities:
 
 
 
 
 
 
 
Long-term debt
$
46,250

 
$

 
$
46,250

 
$

 
 
 
 
 
 
 
 
 
Balance as of February 2, 2019
 
 
 
 
 
 
Financial Assets:
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market accounts
$
711

 
$
711

 
$

 
$

Marketable securities:
 
 
 
 
 
 
 
Corporate bonds
60,281

 

 
60,281

 

Commercial paper
1,706

 

 
1,706

 

Noncurrent Assets
 
 
 
 
 
 
 
Deferred compensation plan
6,644

 
6,644

 

 

Total
$
69,342

 
$
7,355

 
$
61,987

 
$

Financial Liabilities:
 
 
 
 
 
 
 
Long-term debt
$
57,500

 
$

 
$
57,500

 
$

 
 
 
 
 
 
 
 
 
Balance as of November 3, 2018
 
 
 
 
 
 
Financial Assets:
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market accounts
$
2,691

 
$
2,691

 
$

 
$

Marketable securities:
 
 
 
 
 
 
 
Municipal securities
2,306

 

 
2,306

 

Corporate bonds
57,178

 

 
57,178

 

Noncurrent Assets
 
 
 
 
 
 
 
Deferred compensation plan
6,966

 
6,966

 

 

Total
$
69,141

 
$
9,657

 
$
59,484

 
$

Financial Liabilities:
 
 
 
 
 
 
 
Long-term debt
$
61,250

 
$

 
$
61,529

 
$



10. DEBT
On August 2, 2018, the Company and certain of its domestic subsidiaries entered into a credit agreement (the “Agreement”) as borrowers and guarantors, with Wells Fargo Bank, National Association, as Agent, letter of credit issuer and swing line lender, and certain lenders party thereto. Our obligations under the Agreement are guaranteed by the subsidiary guarantors and secured by a lien on certain assets of the Company and the subsidiary borrowers and guarantors, including inventory, accounts receivable, cash deposits, and certain insurance proceeds. The Agreement provides for a five-year asset-

18

CHICO'S FAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share amounts and where otherwise indicated)
(Unaudited)

based senior secured revolving loan and letter of credit facility of up to $200 million, maturing August 2, 2023. In addition, during the term of the Agreement, the Company may increase the commitments under the Agreement by up to an additional $100 million, subject to customary conditions, including obtaining the agreements from the lenders to provide such commitment increase. The interest rate applicable to the loans under the Agreement will be equal to, at the Company's option, either a base rate, determined by reference to the federal funds rate, plus an interest rate margin, or a LIBO rate, plus an interest rate margin, in each case, depending on availability under the Agreement. The Company expects borrowings to be at a LIBO rate, plus an interest rate margin. In addition, the Company will pay a commitment fee per annum on the unused portion of the commitments under the Agreement.
The Agreement contains customary representations, warranties, and affirmative covenants, as well as customary negative covenants, that, among other things restrict, subject to certain exceptions, the ability of the Company and certain of its domestic subsidiaries to: (i) incur liens, (ii) make investments, (iii) issue or incur additional indebtedness, (iv) undergo significant corporate changes, including mergers and acquisitions, (v) make dispositions, (vi) make restricted payments, (vii) prepay other indebtedness and (viii) enter into certain other restrictive agreements. The Company may pay cash dividends and repurchase shares under its share buyback program, subject to certain thresholds of available borrowings based upon the lesser of the aggregate amount of commitments under the Agreement and the borrowing base, determined after giving effect to any such transaction or payment, on a pro forma basis.
As of November 2, 2019, our outstanding debt consisted of $46.3 million in borrowings under the Agreement, resulting in $153.7 million available for borrowings under the revolving loan and letter of credit facility. As of November 2, 2019, deferred financing costs of $0.5 million was outstanding related to the Agreement and is presented in other current assets in the accompanying unaudited condensed consolidated balance sheet.
The following table provides additional detail on our outstanding long-term debt:
 
November 2, 2019
 
February 2, 2019
 
November 3, 2018
Credit Agreement
$
46,250

 
$
57,500

 
$
61,250


11. COMMITMENTS AND CONTINGENCIES
In July 2015, White House Black Market, Inc. ("WHBM") was named as a defendant in Altman v. White House Black Market, Inc., a putative class action filed in the United States District Court for the Northern District of Georgia ("District Court"). The complaint alleges that WHBM, in violation of federal law, willfully published more than the last five digits of a credit or debit card number on customers' point-of-sale receipts. The plaintiff seeks an award of statutory damages of $100 to $1,000 for each alleged willful violation of the law, as well as attorneys' fees, costs and punitive damages. WHBM denies the material allegations of the complaint and believes the case is without merit. On February 12, 2018, the District Court issued an order certifying the class.
On April 9, 2018, the District Court, sua sponte, issued an order granting WHBM's earlier 2016 request to appeal, to the Eleventh Circuit Court of Appeals ("Eleventh Circuit"), the District Court's ruling that the plaintiff has standing to maintain the lawsuit. On April 19, 2018, WHBM filed a petition for review in the Eleventh Circuit. In the meantime, the District Court stayed all further proceedings in the case pending the outcome of the appeal in the Eleventh Circuit.
On July 12, 2018, the plaintiff and WHBM notified the Eleventh Circuit that the plaintiff and WHBM had reached a class settlement on all claims and therefore voluntarily dismissed WHBM's appeal to the Eleventh Circuit. On August 2, 2018, the District Court reopened the case for purposes of reviewing/approving the proposed settlement. On October 22, 2018, the plaintiff filed the settlement papers with the District Court, along with a motion to stay the District Court's consideration of the settlement pending the Eleventh Circuit's final disposition of Muransky v. Godiva Chocolatier, Inc., in which the Eleventh Circuit held, in an opinion issued October 3, 2018, that the display of the first five and last four digits of a credit or debit card number on a customer's receipt given at the point of sale establishes a "concrete injury" sufficient to confer Article III standing, enabling the customer to maintain a lawsuit. The motion to stay was granted on November 15, 2018. A petition for rehearing on the October 2018 opinion was filed in the Muransky case on October 24, 2018. The Eleventh Circuit issued a new opinion on April 22, 2019, sua sponte, superseding the October 2018 opinion, and reaffirming the establishment of Article III standing in the Muransky case.  A petition for rehearing on that April 2019 opinion was filed on May 13, 2019 and is currently pending before the Eleventh Circuit. The Muransky opinion, if not altered on the petition for rehearing, would bind the District Court in the Altman case and likely establish that the plaintiff has standing to maintain her lawsuit against WHBM. In such event, the

19

CHICO'S FAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share amounts and where otherwise indicated)
(Unaudited)

stay will be lifted and the proposed settlement will be reviewed by the District Court. If the Eleventh Circuit does not find standing in the Muransky case, the parties have agreed to submit the proposed settlement to the Superior Court for Cobb County, Georgia for approval. The proposed settlement would not have a material adverse effect on the Company's consolidated financial condition or results of operations.
However, no assurance can be given that the proposed settlement will be approved. If the proposed settlement is rejected and the case were to proceed as a class action and WHBM were to be unsuccessful in its defense on the merits, then the ultimate resolution of the case could have a material adverse effect on the Company’s consolidated financial condition or results of operations.
In May 2016, Chico's Retail Services, Inc. ("CRS") was named as a defendant in Corporate Cleaners, Inc. v. Chico's Retail Services, Inc., an action filed in the Seventeenth Judicial Circuit of Florida (“Seventeenth Judicial Circuit”). The plaintiff alleges that CRS breached a contract (and related amendments thereto) with the plaintiff by, among other reasons, failing to pay outstanding invoices and failing to allow the plaintiff the exclusive right to provide certain cleaning services. The plaintiff seeks an award of lost profits, lost revenue, as well as attorneys' fees and costs. CRS denies the material allegations brought by the plaintiff and filed a counterclaim seeking recovery of amounts associated with alleged misrepresentations by the plaintiff as to the quantity of inventory units cleaned by the plaintiff.
Mediation commenced in 2018, but was adjourned with the expectation that the parties would continue mediation after expert disclosures have been exchanged. CRS' expert was deposed in April 2019. A trial date was set for September 17, 2019; however, on August 15, 2019, the parties entered into a settlement agreement for an amount that was not material to our annual consolidated financial statements. On October 28, 2019, the Seventeenth Judicial Circuit dismissed the case with prejudice upon the Company's satisfaction of the terms of the settlement agreement.
In May 2019, the Company was named as a defendant in Fisher v. Chico's FAS, Inc., a putative class action filed in the United States District Court for the Southern District of California. The complaint alleges that the Company advertised fictitious prices and corresponding phantom discounts on its made-for-outlet products in its Chico's outlets in violation of California's Unfair Competition Laws, California's False Advertising Laws and the California Consumer Legal Remedies Act. The plaintiff seeks disgorgement of the Company's profits and alleged unjust enrichment resulting from such advertising practices, injunctive relief, a corrective advertising campaign, as well as attorneys' fees and costs. The Company was served on May 10, 2019. On October 22, 2019, the parties attended a mediation, where they discussed potential settlement terms, subject, to among other things, agreement upon final terms, the execution of definitive documentation and court approval. The terms of the settlement as discussed would not be material to our annual consolidated financial statements.
There can be no assurances that a settlement agreement will be reached or that a settlement agreement, once finalized, will be approved. If the matter were instead to proceed as a class action and the Company were to be unsuccessful in its defense on the merits, then the ultimate resolution of the case could have a material adverse effect on the Company's consolidated financial condition or results of operations.
Other than as noted above, we are not currently a party to any material legal proceedings other than claims and lawsuits arising in the normal course of business. All such matters are subject to uncertainties, and outcomes may not be predictable. Consequently, the ultimate aggregate amounts of monetary liability or financial impact with respect to these matters as of November 2, 2019 are not estimable. However, while such matters could affect our consolidated operating results when resolved in future periods, management believes that upon final disposition, any monetary liability or financial impact to us would not be material to our annual consolidated financial statements.

20

CHICO'S FAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share amounts and where otherwise indicated)
(Unaudited)

12. SUBSEQUENT EVENTS

On November 25, 2019, the Board of Directors declared a quarterly dividend of $0.0875 per share on our common stock. The dividend will be payable on December 20, 2019 to shareholders of record at the close of business on December 9, 2019. Although it is our Company’s intention to continue to pay a quarterly cash dividend in the future, any decision to pay future cash dividends will be made by the Board of Directors and will depend on future earnings, financial condition and other factors.


21


ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in this Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended February 2, 2019, filed with the SEC on March 19, 2019 ("2018 Annual Report on Form 10-K").

Executive Overview

We are a leading omnichannel specialty retailer of women's private branded, sophisticated, casual-to-dressy apparel, intimates and complementary accessories, operating under the Chico's® , White House Black Market® ("WHBM"), Soma® and TellTaleTM brand names in the United States ("U.S."), Puerto Rico, the U.S. Virgin Islands and Canada. We refer to our Chico's and WHBM brands collectively as our "Apparel Group" and refer to our Soma and TellTale brands collectively as our "Intimates Group." Our distinct lifestyle brands serve the needs of fashion-savvy women 35 years and older. We earn revenue and generate cash through the sale of merchandise in our domestic and international retail stores, our various Company-operated e-commerce websites, our call center (which takes orders for all of our brands), through an unaffiliated franchise partner in Mexico and through third-party channels.
We utilize an integrated, omnichannel approach to managing our business. We want our customers to experience our brands holistically and to view the various retail channels we operate as a single, integrated experience rather than as separate sales channels operating independently. This approach allows our customers to browse, purchase, return or exchange our merchandise through whatever sales channel and at whatever time is most convenient. As a result, we track total sales and comparable sales on a combined basis.
The Company reported a third quarter loss per diluted share of $0.07, compared to $0.05 earnings per diluted share in last year's third quarter. Comparable store sales were down 2.2%, driven by lower average dollar sale, partially offset by an increase in transaction count.

Fiscal 2019 Third Quarter Business Highlights

The following fiscal 2019 third quarter business highlights reflect the Company’s progress executing on its three strategic priorities: (i) driving stronger sales through improved product and marketing; (ii) optimizing the customer journey by simplifying, digitizing and extending the Company’s unique and personalized service; and (iii) transforming sourcing and supply chain operations to increase product speed to market and improve quality.
Chico’s reported sequential improvement in comparable sales, reflecting a focus on key items and a more balanced inventory position between basics and fashion.
WHBM reported sequential improvement in comparable sales enabled by changes made in talent, merchandising and product design.
Soma reported double-digit positive comparable sales growth for the second consecutive quarter, driven by product innovation and inventory and marketing investments.
In the third quarter, the Company strengthened its product teams and made investments in growth areas, such as digital and customer experience. The Company also repositioned some departments, consolidated others, and reduced areas where the Company can operate more efficiently with fewer resources.
The Company completed the implementation of its Buy On-Line, Pick-up In-Store (BOPIS) capability across all of its brands.
The Company is actively diversifying its country of origin mix and reducing manufacturing penetration in China, thereby mitigating the majority of tariff increases.




22


Current Trends
Macroeconomic Impacts
The Company has exposure to volatility of the macroeconomic environment due to political uncertainty and potential changes to international trade agreements, such as new tariffs imposed on certain Chinese-made products imported to the U.S. During fiscal 2018, the U.S. began to impose duties on certain Chinese-made imported products. In May 2019, the current administration announced an increase to the tariffs currently being imposed on certain imports from 10% to 25%, effective May 10, 2019, which was further increased to 30% beginning on October 1, 2019. In August 2019, the administration announced plans to implement a tariff of 15% on approximately $300 billion of products imported into the U.S. from China.  On August 13, 2019, the list of goods subject to the tariff, referred to as List 4, was divided into two parts. The tariffs for products on List 4a became effective as of September 1, 2019. The tariffs for imported goods on List 4b are subject to a delay until December 15, 2019, which is not expected to have a material impact on the Company. To minimize these increased tariffs, the Company is actively reducing its penetration of products sourced from China and has engaged vendor participation to negotiate cost-sharing agreements, and managed and adjusted spring buys and product pricing. There can be no assurance that these actions will mitigate the impact of new and/or incremental tariffs and consequentially future net sales, income from operations and net income may be adversely impacted at a material level.
Our Business Strategy
Our overall business strategy is focused on building a collection of distinct high-performing retail brands serving the fashion needs of women 35 and older. The primary function of the Company is the production and procurement of beautiful merchandise that delivers the brand promise and brand positioning of each of our brands and resonates with customers. To that end, we are further strengthening our merchandise and design capabilities in the coming months and enhancing our sourcing and supply chain to deliver product in a timely manner to our customers while also concentrating on improvements to the quality and aesthetic of our merchandise. Over the long term, we may build our brand portfolio by organic development or acquisition of other specialty retail concepts if research indicates that the opportunity complements our current brands and is appropriate and in the best interest of the shareholders.
We pursue improving the performance of our brands by building our omnichannel capabilities, managing our store base, growing our online presence, executing marketing plans, effectively leveraging expenses, considering additional sales channels and markets, and optimizing the merchandise offerings of each of our brands. We continue to invest heavily in advancing our omnichannel capabilities, so our customers can fully experience our brands in the manner they choose.
We view our stores and e-commerce websites as a single, integrated sales function rather than as separate, independently operated sales channels. As a result, we maintain a shared inventory platform for our operations, allowing us to fulfill orders for all channels from our distribution center ("DC") in Winder, Georgia. Our domestic customers can return merchandise to a store or to our DC, regardless of the original purchase location. Using our enhanced "Locate" tool, we ship in-store orders from other locations directly to the customer, expediting delivery times while reducing our shipping costs. In addition, we expanded our omnichannel capabilities in fiscal 2018 with the launch of Endless Aisle, our shared inventory system, enabling customers to purchase online and ship from store.
We seek to acquire new customers and retain existing customers by leveraging existing customer-specific data and through targeted marketing, including digital marketing, social media, television, catalogs and mailers. We seek to optimize the potential of our brands with improved product offerings, potential new merchandise opportunities, and brand extensions that enhance the current offerings, as well as through our continued emphasis on our trademark "Most Amazing Personal Service" standard. We also will continue to consider potential alternative sales channels for our brands, including international franchise, wholesale, licensing and other opportunities.
In fiscal 2016, we implemented cost reduction and operating efficiency initiatives, including realigning marketing and digital commerce, improving supply chain efficiency and reducing non-merchandise expenses. In fiscal 2017, we focused on our brand positioning and evolving the customer experience and leveraging actionable retail science to drive sales. In fiscal 2018, we launched multiple initiatives that utilize technology and new platforms to drive growth such as Endless Aisle and STYLECONNECTTM (which enables store associates to personalize the customer experience). As a result of these multi-year initiatives, we have the technology and tools in place to leverage our omnichannel capabilities, which should allow us to capture and stay connected with our customers, whether in-store or online.
To support our supply chain strategy, we are working diligently to consolidate our vendor base. Through ongoing negotiations with our vendors, we believe there is opportunity for even more consolidation and scale. Throughout fiscal 2020, we plan to significantly reduce our base to a key set of top vendors. We intend to supplement that with a subset of smaller niche vendors to support us where we have unique needs. As we exit 2019, we anticipate a reduction in our vendor base of an additional 25% on top of last year’s 25% reduction. As we reach scale with key vendors, we believe we will have stronger partnerships, greater control over product quality, and the ability to achieve better terms and lower costs.

23


We also continue to reduce our exposure in China by diversifying into other countries of origin. Throughout fiscal 2020, we anticipate we will be in the low 30% range compared to our current penetration in China of approximately 40% as we shift more of our sourcing to other countries. We are also working on mitigating strategies with respect to tariffs imposed in the second half of fiscal 2019, including engaging with our vendors on cost-sharing agreements and managing and adjusting our forward buys and product pricing. 
In the fourth quarter of fiscal 2018, we announced a retail fleet optimization plan to rebalance the mix between our physical store presence and our digital network with the closure of at least 250 stores in the U.S. in fiscal years 2019-2021. The Company had a challenging conclusion to fiscal 2018 and, under the direction of our Board of Directors ("the Board"), are addressing these challenges and taking steps to better position the Company for growth and future success.
On April 24, 2019, the Company announced a CEO transition plan and appointed Bonnie Brooks, former Vice Chair, President and CEO of Hudson’s Bay Company and a member of the Company's Board, as Interim CEO of the Company. Ms. Brooks made significant changes to leadership and reset the Company’s priorities for growth and value creation in fiscal 2019. Actions are underway across the brands with a focus on three distinct areas that we believe will positively impact results. These are:
Driving stronger sales through improved product and marketing;
Optimizing the customer journey by simplifying, digitizing and extending our unique and personalized service; and
Transforming our sourcing and supply chain operations to increase product speed to market and improve quality.
On July 18, 2019, the Company announced the appointment of Ms. Brooks as CEO and President of Chico's FAS, Inc. and a new leadership structure to drive a simpler, nimbler organization. The responsibility of our apparel brands, Chico’s and WHBM, was consolidated under one leader, Molly Langenstein, President, Apparel Group, to create clear lines of responsibility and accelerate sales driving priorities. The Company’s intimate brands, Soma and TellTale, are led by Mary van Praag, President, Intimates Group.
In the third quarter, Ms. Brooks continued her consolidation and transformation efforts at the Company. As a result of these efforts, the Company took action to reduce costs and reposition its organizational structure.

24


Results of Operations
Thirteen Weeks Ended November 2, 2019 Compared to the Thirteen Weeks Ended November 3, 2018
Net Sales
The following table depicts net sales by Chico's, WHBM and Soma in dollars and as a percentage of total net sales for the thirteen weeks ended November 2, 2019 (the "third quarter") and the thirteen weeks ended November 3, 2018 ("last year's third quarter"):
 
Thirteen Weeks Ended
 
November 2, 2019
 
November 3, 2018
 
 
 
 
 
(dollars in millions) (1)
Chico's
$
250

 
51.5
%
 
$
260

 
51.9
%
WHBM
155

 
32.0

 
168

 
33.6

Soma (2)
80

 
16.5

 
73

 
14.5

Total Net Sales
$
485

 
100.0
%
 
$
500

 
100.0
%
(1) May not foot due to rounding
(2) Includes TellTale net sales, which is not a significant component of Soma revenue.
For the third quarter of fiscal 2019, net sales were $485 million compared to $500 million in last year's third quarter. This decrease of 3.0% reflects a comparable sales decline of 2.2% as well as the impact of 58 net store closures since last year's third quarter. The comparable sales decline was driven by lower average dollar sale, partially offset by an increase in transaction count. In the third quarter, comparable sales at Soma were up positive double-digits for the second consecutive quarter while Chico's and WHBM posted sequential quarter-over-quarter improvement by adjusting product assortment and presentation.
The following table depicts comparable sales percentages by Chico's, WHBM and Soma for the thirteen weeks ended November 2, 2019 and November 3, 2018:
 
Thirteen Weeks Ended
 
November 2, 2019
 
November 3, 2018
Chico's
(3.6
)%
 
(10.2
)%
WHBM
(5.7
)
 
(5.1
)
Soma
11.3

 
2.4

Total Company
(2.2
)
 
(6.8
)
Cost of Goods Sold/Gross Margin
The following table depicts cost of goods sold ("COGS") and gross margin in dollars and gross margin as a percentage of total net sales for the thirteen weeks ended November 2, 2019 and November 3, 2018:
 
Thirteen Weeks Ended
 
November 2, 2019
 
November 3, 2018
 
 
 
 
 
(dollars in millions)
Cost of goods sold
$
314

 
$
319

Gross margin
171

 
181

Gross margin percentage
35.3
%
 
36.2
%

For the third quarter of fiscal 2019, gross margin was $171 million, or 35.3% of net sales, compared to $181 million, or 36.2% of net sales, in last year's third quarter. This 90-basis point decrease primarily reflects accelerated depreciation as a result of our previously announced retail fleet optimization plan, severance and other related net charges (collectively, “Severance Charges”) in connection with actions taken to reposition our organizational structure, the clearance of seasonal merchandise and the impact of tariffs, partially offset by improvement in occupancy costs as a percent of sales.


25


Selling, General and Administrative Expenses
The following table depicts selling, general and administrative expenses ("SG&A"), which includes direct operating expenses, marketing expenses and National Store Support Center ("NSSC") expenses, in dollars and as a percentage of total net sales for the thirteen weeks ended November 2, 2019 and November 3, 2018:
 
Thirteen Weeks Ended
 
November 2, 2019
 
November 3, 2018
 
 
 
 
 
(dollars in millions)
Selling, general and administrative expenses
$
181

 
$
178

Percentage of total net sales
37.3
%
 
35.7
%

For the third quarter of fiscal 2019, SG&A was $181 million, or 37.3% of net sales, compared to $178 million, or 35.7% of net sales, for last year's third quarter. This $2 million increase primarily includes Severance Charges in connection with our revised organizational structure.
Retail Fleet Optimization Plan
In the third quarter of fiscal 2019, the Company recorded approximately $2 million in pre-tax accelerated depreciation charges of property and equipment within cost of goods sold related to our retail fleet optimization plan. The third quarter after-tax impact of these charges was approximately $2 million.
Severance Charges
In the third quarter, the Company recorded pre-tax Severance Charges of approximately $3 million. These charges are reflected in the financial statements as approximately $1 million, or 20 basis points, in COGS and approximately $2 million, or 40 basis points, in SG&A. The third quarter after-tax impact of these charges was approximately $2 million.
Income Taxes
For the third quarter, the effective tax rate was 14.7% compared to (141.7)% for last year’s third quarter. The 14.7% effective tax rate was primarily the result of an income tax benefit on the third quarter operating loss, offset by an unfavorable fiscal 2018 provision-to-return adjustment, and a valuation allowance on certain deferred tax assets for charitable contributions with limitations. The favorable prior year effective tax rate was primarily due to the Company’s ability to accelerate certain income tax deductions into the 2017 federal tax return as a result of the Tax Cuts and Jobs Act of 2017 (the "Tax Act").
    Net (Loss) Income and Earnings per Diluted Share
For the third quarter of fiscal 2019, the Company reported a net loss of $8 million, or $0.07 loss per diluted share, compared to net income of $6 million, or $0.05 earnings per diluted share in last year's third quarter. Results for the third quarter include the unfavorable impact of accelerated depreciation of approximately $2 million, after-tax, related to our retail fleet optimization plan and Severance Charges of approximately $2 million, after-tax, related to our revised organizational structure. The change in earnings per diluted share reflects a decrease in net income.
Thirty-Nine Weeks Ended November 2, 2019 Compared to the Thirty-Nine Weeks Ended November 3, 2018
Net Sales
The following table depicts net sales by Chico's, WHBM and Soma in dollars and as a percentage of total net sales for the thirty-nine weeks ended November 2, 2019 and November 3, 2018:
 
Thirty-Nine Weeks Ended
 
November 2, 2019
 
November 3, 2018
 
 
 
 
 
(dollars in millions)
Chico's
$
796

 
52.6
%
 
$
847

 
52.8
%
WHBM
456

 
30.2

 
519

 
32.3

Soma (1)
259

 
17.2

 
240

 
14.9

Total net sales
$
1,511

 
100.0
%
 
$
1,606