Return to colors drives full-price sales at Chico's

Wed Aug 22, 2012 11:11am EDT

(Reuters) - Chico's FAS Inc's (CHS.N) second-quarter results came in ahead of Wall Street as vibrant colors and improved styles at the women apparel retailer's namesake and White House/Black Market brands drove sales.

Gross margins in the quarter were 56.4 percent, up 30 basis points from last year, reflecting increased full-price selling, introduction of newer products and reduced promotions.

"In terms of pricing we still plan to have a very high percentage of full price sales versus promotional," said Chief Executive David Dyer, adding that the company was not planning for big markdowns and clearances in future.

Retailers that cater to women over 30 such as Ann Inc (ANN.N) and Chico's have been revamping their merchandise to drive higher store traffic in an attempt to appeal to a larger clientele.

Ann Inc, the parent of Ann Taylor and LOFT stores, recently posted earnings above estimates for the eighth quarter in a row driven by sales of affordable and bright colored clothes.

Last year Chico's neutral palette and soft colors didn't fare well, pushing the company to return to its roots and replenish its stock with color and pattern.

"We are clearly winning with color, print and pattern," an executive said on the company's earnings conference call.

An increasing number of retailers are switching over to colored offerings that go with the warm weather. Analysts believe this is the next big thing for retailers.

Despite a competitive promotional environment Chico's sold trend-right merchandise at full-prices, which also drove new store performance. It expects the pace of new store growth to ramp up in future.

The company raised the low end of its full-year net sales forecast to $2.55 billion from $2.50 billion. It maintained the top end of the outlook at $2.60 billion. Analysts on average were expecting $2.58 billion, according to Thomson Reuters I/B/E/S.

For the quarter ended July 28, earnings rose to $53.4 million, or 32 cents, from $43.4 million, or 25 cents a year ago.

Revenue increased 16 percent to $641.7 million.

Analysts on average had expected earnings of 30 cents on revenue of $641.3 million.

Chico's shares were up 7 percent at $18.275 on Wednesday in late morning trading on the New York Stock Exchange. They have gained more than half their value this year.

(Reporting by Juhi Arora in Bangalore; Editing by Maju Samuel and Saumyadeb Chakrabarty)

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