Jennifer Powers - VP, IR Shelley Broader - CEO Todd Vogensen - CFO

Paul Lejuez - Citigroup Kimberly Greenberger - Morgan Stanley Dana Telsey - Telsey Advisory Julie Kim - Nomura Instinet Pam Quintiliano - SunTrust Gaby Carbone - Deutsche Bank Janet Kloppenburg - JJK Research Roxanne Meyer - MKM Partners Brian Tunick - RBC Susan Anderson - FBR Capital Markets

Good morning and welcome to the Chico’s Second Quarter 2017 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. And now, I would like to turn the conference over to Jennifer Powers. Ms. Powers, please go ahead.

Thank you, Keith, and good morning, everyone. Welcome to Chico’s FAS second quarter earnings conference call and webcast. Joining me today at our National Store Support Center in Fort Myers are Shelley Broader, our Chief Executive Officer; and Todd Vogensen, our Chief Financial Officer. As a reminder, any forward-looking statements 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. And with that, I’ll turn it over to Shelley.

Thank you, Jennifer, and good morning, everyone. As we discussed in last quarter’s call, our first half financial results fell short of the goals we set. And we are taking significant steps to improve key performance metrics in the near-term. We are focused on controlling the controllable while we are taking aggressive action to drive healthy improvements in the business. I will talk about some of those steps shortly. At the same time, we are successfully executing on our strategic initiatives, and I remain confident that we are building a resilient and profitable business that will thrive in any environment. Before I speak to the actions we are taking to improve our near-term results, I would like to reiterate why we are uniquely positioned for success. We have three powerful and differentiated brands, and enviable and loyal customer base, a strong and balanced omni-channel presence, leading industry consumer data, and a powerfully unique selling proposition. Encouragingly, we entered the third quarter with clean inventory. Our expense management and cash flow remain strong. And in August, several key categories demonstrated increased sale, all of which give us confidence in our current direction. Our teams are implementing the merchandise and operational initiatives that we discussed last year. To measure our success on these initiatives, we will evaluate a number of key performance metrics across the Company including the profitable sales growth and incremental customers generated from those initiatives. First, Chico’s and White House Black Market each identified an opportunity to attract new customers by expanding their petite offering and launching plus sizing. While each brand has developed their petite and plus size assortments in ways that are appropriate for their unique target customers, the high level opportunity is similar. For both brands, our customer research indicates that approximately one-third of our targeted customers wear petite sizes and nearly one-quarter wear plus sizes. Petite sizes have been available online and in limited stores for the past year and we have been pleased with our results. As a result, Chico’s will expand petite to nearly 300 boutiques in the second half, up from 55 locations; and White House Black Market will expand to a 150 boutiques by the end of the year, up from 58 locations. And for the first time ever, both brands will be testing plus sizes online, starting in the fourth quarter. As we discussed last year, another key initiative underway is an adjustment to the cadence of our merchandise delivery. To better align the timing of new products with the frequency of our customer shopping pattern, we have reduced the number of new floor sets by approximately 30%. Chico’s was the first brand to implement the floor set reduction. The implementation of the strategy allowed for Chico’s August delivery to remain at full price for approximately six weeks compared to four weeks last year. We are pleased to report that the revised cadence generated favorable results. In fact, over the course of the six weeks, the floor set delivered higher AUR, greater full price sell-through, and expansion in merchandise margin. White House Black Market will implement its new floor set cadence in the fourth quarter. And we look forward to sharing the results with you. Next, our digital commerce channels continued to gain traction. With the completion of Soma in July, all three of our brands are now on the same website platform. This responsive design is providing faster load times, better site functionality, and an increase in sales conversion, and a decline in cart abandonment. We are also ramping up our efforts to increase digital sales at an even more robust pace through exclusive products, events and promotions. Digital commerce is an important growth opportunity for us as our customers continue to migrate towards online purchases. As we said before, our digital channel is accretive to our business overall. Sales and overall penetration from our e-commerce platform continue to increase and become a more meaningful portion of our overall business. This growth combined with our bricks and mortar presence provides a balanced approach to driving multi-channel customer expansion and being available to her where and when she wants to shop. To that end, we recently expanded our omni-channel capability, expanding the endless aisle available to our customers in store with products shipped either from our distribution center or another store. Our elevated omni-channel capabilities include faster and easier look and find features for our associates, and we have significantly increased available Locate inventory to satisfy the immediate needs of our customers. Whether shipped from our distribution center or in other store, the expanded omni-channel capabilities are yielding strong improvements in sales, margin and inventory utilization. This functionality also continues to leverage technology in-store to facilitate the seamless interaction between stores and online. It’s important to highlight that we continue to firmly believe in our store fleet. Our bricks and mortar presence not only offers the convenience factor for returns which drive incremental sales but also provides the ability for our associates to showcase their highest level of personal service. At a brand level, we also have several actions underway to address our near-term trends. We are in the midst of rebalancing our assortment architecture both at Chico’s and White House Black Market. These changes will better align to targeted shoppers’ needs for the fall season and we will measure our success to the profitable sales growth within our key categories. The Chico’s brand is returning to customer favorite silhouettes including longer sleeves, adding length to both our tunics and jackets. Our customers are responding to this more flattering fit. As an example, beginning with our fall collection, we have seen positive comp sales in jackets, a category that facilitates outfitting for our customers and represents a high AUR category. Overall, we expect the full impact of these merchandise enhancements to be implemented by the fourth quarter. At White House Black Market, we are reemphasizing polished Wear to Work merchandise. While it is early in the season, our initial sales trends have improved. And in our most recent floor set, we’re pleased with the results. An area of focus for White House Black Market has been driving the dress business, which has shown increasing strength over the last several quarters. Dresses has historically been the largest single category for the brand with a distinctive design aesthetic that is the foundation for its Wear to Work assortment. Turning to Soma, our differentiated core intimate program continues to drive positive comps, signaling underlying brand health. Loungewear and sleepwear continued to miss our expectations in the second quarter. However, lounge and sleep appear to be turning the corner as the brand delivered positive comps in each of these categories in August; furthermore, proving the value of our focus on profitable sales. Even though comparable sales declined, in the second quarter, Soma drove its highest ever operating income, both in dollars and rate. I am excited to announce today that we have hired Mary van Praag as the new Soma Brand President. She will start next week. Mary comes to us most recently from Perricone MD where she was the CEO. Prior to Perricone, Mary held senior executive roles at Coty and Johnson & Johnson’s beauty division. Mary has a successful track record of operating multichannel businesses including online, licensing and franchising. We look forward to leveraging her multichannel, global and brand building expertise along with her deep, deep understanding of our precious target customers to capitalize on Soma’s growth potential. In conclusion, while our second quarter was challenging, the benefits from our cost reduction and operating efficiency initiatives and our proven skill in controlling inventory, advance our ability to build a resilient business that is positioned to drive strong free cash flow in any retail environment. Our lower SG&A base has partially offset the weakness of our top-line, while also enabling us to invest in our business and to generate $248 million in free cash flow over the past year and a half. We have confidence in the numerous actions underway across the Company and in our four strategic pillars. Our foundational work continues to support efficiencies throughout our business to increase our profitability over time. To be clear, across the brand and within our shared services platform, we are intensely focused on driving better results over both the near term and the long term. Now, let me turn the call over to Todd for some additional perspective on our results.

Thanks Shelley, and good morning, everyone. Our second quarter performance was consistent with the plans that we outlined on our first quarter call. We increased our promotional intensity to clear through spring assortments, which led to comparable sales of down 8.4% and gross margin deleverage of 180 basis points. The good news is we’re successful in clearing through our spring merchandise and we ended the quarter with clean on-hand inventory that was down 7.4% last year. Included in the 180 basis points of gross margin deleverage was a 90 basis-point deleverage of occupancy costs driven by the decline in sales. However, our continued efforts to rationalize our store portfolio and aggressively renegotiate leases resulted in a year-over-year occupancy cost reduction of $4 million or 4%. Moving to SG&A expenses. With our continued focus on cost reduction and operating efficiency initiatives, we decreased SG&A expenses by $13 million compared to last year’s second quarter. The savings were across all SG&A categories. We appropriately managed store expenses in line with our sales volumes. We improved the efficiency of our marketing spend by 15%, and we continued to deliver strong savings in our headquarter costs. Based on top-line trends, we are prudently adjusting our outlook for the year. We expect comparable sales for the year to be down high single digit percentage excluding approximately $30 million in sales during the 53rd week. As we continue to manage inventories tightly, second half inventory receipts are planned lower than our sales estimate. This lower level of inventory receipts enables us to activate our open-to-buy model if sales trends improve. For the year, we expect gross margin rate to decline by approximately 75 to 100 basis points. We also anticipate full year SG&A expenses to decrease by $50 million to $60 million compared to last year. We expect the level of comparable sales declines for both third quarter and fourth quarter to be consistent with first half with modest gross margin deleverage in each quarter. To be clear, while we’re generating encouraging signs throughout the business, as Shelley discussed, we will also believe that it is impropriate to set expectations in line with first half trends until we see a sustained improvement in performance. Additionally, due to our adjusted outlook for 2017, we’re pushing out our timeline to achieve a double digit operating margin. While we’re not providing revised timing, we are confident that our strategic priorities provide a clear path to our double digit operating margin target. Returning to our second quarter results. Our flexible and profitable and operating model continued to generate positive cash flows and maintain a sound balance sheet. We ended the quarter in a strong cash position with $186 million in cash and short-term investments and $76 million in debt. Our longstanding capital allocation strategy emphasizes value creating investments and capital returns. In the second quarter, we repurchased 1.2 million shares for $11.2 million and we delivered $11 million to shareholders in the form of dividends. $143 million remains outstanding under our share repurchase authorization. Second quarter capital expenditures totaled $8.5 million, mostly comprised of investments in technology projects and existing stores. For the year, we anticipate capital expenditures of $55 to $60 million. Included in this capital spend is the enhancement to our omni-channel capabilities, which Shelley referred to, as well as other projects within our digital strategy roadmap. Investment in our existing stores is also an important capital expenditure to ensure our boutiques deliver the brand experience that our customers expect. Our boutiques enable associates to deliver our signature personalized customer service and remain an important complement to our digital presence in driving sales and loyalty. Year-to date, we’ve reinvested in 59 locations through relocations, refreshes and remodels that we expect will elevate the brands and enhance the customer experience. As part of our ongoing strategy to improve the productivity of our fleet, we closed 10 stores during the quarter. Through 2020, more than three quarters of our boutiques have lease actions that will allow us the opportunity to reconsider or renegotiate our lease terms. As customer shopping habits evolve, we will continue to optimize our store fleet. In addition to our store rationalization plan, we announced a range of initiatives last year that we expected to deliver 100 to $110 million of savings. We remain on track to achieve those savings. With an SG&A and cost of goods sold, we have generated $55 million of savings related to the initiatives we announced last year. We still anticipate another $25 million of initiative savings in the second half, primarily from our supply chain initiatives and non-merchandise procurement negotiations. Over the past six quarters, we’ve reduced our SG&A expenses by a total of $94 million year-over-year, demonstrating that we are achieving our cost targets and that we also have the financial discipline to drive incremental savings across the organization. In conclusion, improving results and enhancing shareholder value remain our priorities. We continue to believe our financial discipline and targeted investments will lead to a more flexible and profitable business. While we are laser-focused on our near-term initiatives to improve key performance metrics and build profitable sales growth, we are also committed to executing against our strategic plan to build a resilient business that will thrive over the long-term. Now, I will turn the call back over to Shelley.

Thanks, Todd. We know more can be done. And we are intent on further improving our business. The complementary nature of our digital commerce channels and physical stores give us an advantage in this evolving omni-channel environment. We are making progress against our four strategic pillars and we remain confident that these initiatives will continue to transform our business for long-term, profitable growth and value creation. Thank you so much. And I will turn the call back over to Jen for Q&A.

Thank you, Shelley. At this time, we’d be happy to take your questions. In the interest of time and consideration to others, please limit yourself to one question. And I’ll turn the call back over to Keith.

[Operator Instructions] And the first question today comes from Paul Lejuez from Citigroup.

Hey thanks, guys. You mentioned the switch on the floor set life at Chico’s moving it to six weeks or every six weeks and some of the better metrics like full price selling and merchandise margins. But, I guess it kind of amounts to maybe a less promotional stance. So, I am curious if you can talk about what the sales impact was of that change and whatever you’re seeing there, did that drive your weaker sales guidance for the second half at all? And then, just separately, curious about your mall versus off-mall performance, by concept. Thanks.

Thanks for the question, Paul. I will start just a little bit about the philosophy of that change. As we really started analyzing and understanding the art and science of the business, and really looking at the science, because of our extensive customer data, we could really see when our customers were coming in and purchasing from us; the frequency in which they hit our boutiques, their penchant to buy at full price, plus their penchant to buy at discount. And what we realized through our analytics is that in many cases with the frequency in which we were changing out our full product lines, we were in fact competing against ourselves, and having to clear product to make room for new product. And so, our confidence level in being able to hold those floor sets for a longer timeframe was really the science that we based it on and we have been pleased with the results.

And to address your question on mall versus off-mall performance, really the overall sales results are fairly similar what I’d say as we’ve talked about, we have only about a third of our stores in malls and those tend to be A malls and B+ malls, a third are in lifestyles and a third are in strip centers. And we tend to have a customer that really does like to have the convenience factor being able to drive up to our store, have easy accessibility and to walk right in and get the service that she is looking for. So, because of that, we do see a slightly better performance in our strip stores. But, overall, what I would tell you is performance across first, malls and lifestyle centers and then also across A malls, B malls and C malls, really it’s fairly consistent. We are seeing a consistent sales trend across each of those. So, we continue to go back and look for ways that we can emphasize that personal service that we can optimize our real estate portfolio, and all of those things are factors that lead us back to what we hope is a more productive fleet over time.

Thank you. And the next question comes from Kimberly Greenberger with Morgan Stanley.

I wanted to know if you could give us any additional color around e-commerce sales in the quarter. And Shelley, I think you said [Technical Difficulty]. Can you hear me? Great. I’m not sure what happened there. Sorry about that. E-commerce sales, you mentioned that e-commerce sales are accretive. I’m wondering if there is any sort of order of magnitude you might be able to share with us on level of accretion or is it just the differential between e-commerce and store margin? And any other -- it sounds like e-commerce sales were a bright spot in the quarter, any other color you might be able to provide around that would be great.

Sure. So, I’ll start with the accretive nature of e-commerce sales. We have a little bit different than I think a lot of folks in terms of efficiency of our fulfillment. We have a distribution center that will fulfill not only the floor replenishment orders but also online orders. And that results in a very efficient fulfillment model. In addition, we’ve been offering free shipping to our loyalty customers for a very long time now and have figured out ways to be as efficient with that as we possibly can be. On the other side of the coin from a store perspective, we do offer a store bonus or store commission program that we believe is really critical to that personal service that we do offer. And so, as we get incremental sales, really in either channel, that ends up being a neutral proposition from a profitability perspective. So, incremental sales doesn’t necessarily hurt or harm either channel, and obviously incremental sales drive incremental profitability for us. So, that was what we referred to on that comment. And then, in terms of overall e-commerce sales, we mentioned that Soma had gone live this quarter with our overall website platform. So, now, we have that consistent platform that does allow for faster load times, better site functionality, increased conversion and a host of other benefits. So, as we look at that, not surprisingly, our e-commerce sales were up this quarter. As we look at it going forward, we’re obviously looking to increase omni-channel sales and we talked a little bit about that with our better, easy to find endless aisle functionality. And so, I do believe strongly those lines between what is the store sale and what is in e-commerce sale are going to continue to get very blurry over time, and we will likely start moving towards looking at our business more holistically, just because from stores we are going to want to drive e-commerce sales. And from e-commerce, we’re going to drive store sales. So, getting into the game of segregating those out is going to be a little funky. For now, though, we can tell you clearly, we are seeing increased volume directly online and that is the future of retail.

The next question comes from Dana Telsey of Telsey Advisory.

Hi. Good morning, everyone. As you think about the product changes that you are making, whether it’s bringing some of the sleeves back to Chico’s, whether it’s workwear back to White House Black Market, where are you in that journey and when do you expect the product assortment to be where you want? And then, you talked about marketing efficiencies. What are you seeing there and what should we look for as changes going forward? Thank you.

I will start out with the trend piece. And thank you so much for the question, Dana. We are starting to see some success with those products gains now. We’re certainly seeing that with our jacket business at Chico’s by sort of adjusting the length of our jackets by lengthening the sleeves of our tunics and making sure that they are a little bit longer in length. We’re seeing that in store now and expect most of that to be hitting in the fall. With White House Black Market, it’s both the continuation of the trends that we are seeing. I mean, we are seeing still the artisanal details and feminine details are still trending in the business. But the idea that White House Black Market is famous for that dress business and famous for that Wear to Work business. And as we’ve started to refocus and reintroduce some of those core elements of back into White House, we are quite pleased with the success that we are having with that. And we will be anxious to see as more of that product hits in the fall.

And then for your marketing question, Dana. So, we are continuing as we’ve discussed before to shift from what I would call, more traditional marketing into more digital marketing, and just inherently that for us is a more efficient vein. And we do go back using the analytics we have, and again we capture customer information on well over 90% of our sales. So, that does give us the ability to go back and look at marketing effectiveness in a way that a lot of folks would not have. And that allows us to go back and really understand which marketing veins are driving the most profitable sales for us. It’s something we will continue to do. That is ongoing research we are looking at how we continue to drive profitable sales, drive new customers to file, and that is an ongoing evolution that we are continuing to analyze.

And I think Dana, just to put a little color on that too, and it’s also very much true about what Todd talked about e-commerce in the last question. It’s some of the benefits of running a shared service model is our ability to combine back of the house cost. It’s why we can have the kind of e-commerce experience for our customer because it’s shared, the cost of that is shared between those three brands. And very much the same is true for marketing, back-office marketing expense, how we look and buy a print and digital allows us to save a lot of dollars that we can spend them uniquely in the front of the house where each of those brands needs to be very unique, have very sharp brand edges. And our cash flow allows us to invest in some of those systems behind the house that allows us to be more effective with every marketing dollar. Thank you.

[Operator Instructions] And our next question comes from Simeon Siegel with Nomura Instinet.

Good morning. This is Julie Kim on for Simeon. Thank you for taking our question. Could you just give more color on the drivers of the gross margin decline if the promotional activity was specific to one brand or across brands? And if we should expect similar promotional levels moving forward? Thank you.

Sure. Thanks for the questions. So, as we went into the quarter, I think we were pretty transparent that we had more inventory than we would have liked exiting the first quarter and then really second quarter was going to be focused on getting ourselves back into a healthy inventory position. And the good news is, we’ve got to a point where our inventories were down 7.4%, and that really sets us up for a much more success as we go into the second half. As we do go into second half, we really are looking for our overall gross margins to be down slightly, both in Q3 and Q4. And remember with our comps being what they are, that means there will likely been occupancy cost deleverage but it should also allow us to be more effective in our promotional stance; so, in order words, grow margin on -- merchandise margin both from being more focused on promotions as well as the benefits that we should be seeing out of our supply chain initiatives. So, the combination of those two really should be driving that better maintain margin results that we are looking for.

Thank you. And the next question comes from Pam Quintiliano with SunTrust.

Actually I have two of them. The first one would be, can you talk a little bit about the comp progression throughout the quarter? And then, if the trends that you saw were similar both online and in-store?

So, our comp progression through the quarter, we obviously had timing of promotion and those types of things that can cause ups and downs. But generally, what I would tell you is it was relatively consistent through the quarter. In terms of online and store trends, really same story. To the extent there are shifts in promotions that can cause ups and down, but we did see relatively consistent performance overall across each of the month.

And then when you think about the in-store traffic versus the mall average, just how your store traffic was and how that compares sequentially to what you saw in 1Q?

Sure. So, our store traffic overall was relatively consistent with Q1, maybe just a little bit better. And so, we generally see across our business that those assortments drive that customer to both our stores and online. So, as we look to the second half, returning to more of those customer favorites, silhouettes and Chico’s, more of the polished Wear to Work and White House are some of the things that we really focus on that can help buffet that traffic trend.

If I could squeeze one more in, can you just remind us of the lead times with White House Black Market and Chico’s, particularly as we think about rebalancing the assortment if the customer continues to respond really well to jackets, or really well to the dresses, how quickly you could potentially chase into some of that strength?

Sure. So, thanks for the question. And clarification is, there are really two answers to that. The first is our normal lead times which are very consistent with overall industry, probably in that nine monthish timeframe. But then, what we’ve implemented is the ability to be much more responsive to key trends. And so, to the extent we are seeing key trends in the business and we are in a position where we can be positioning fabric upfront and working with our suppliers, that does give us the ability to respond much quicker as we can go through and have the fabric there, go through cut and sew and get the product back in a position, which is really within the quarter type of activity.

It ties together, Todd, with the question from the floor on some of the changes that we made to the cadence of our calendar. And again, sort of one of the benefits of the shared services model is combining the three entities on to sort of a common calendar, allows us to leverage factories, allows us to leverage our vendor community, allows us to position fabric upfront and it gives us the time and the space within the cadence of that calendar to activate on additional chase for example, or to go after resale on some items that have been tremendously successful.

Thank you. And the next question comes from Paul Trussell with Deutsche Bank.

Hi. This is Gaby Carbone on for Paul. Thanks for taking our question. You just touched on this a little bit. But, could you maybe give some more color around how your open-to-buy model has kind of changed over the past two years or so? What kind of category does that apply the most to? Thank you.

I’ll start and then I’ll have Todd finish up. As we talked about in previous quarters too, with any fashion business, it’s that blend of what is fashion and what is trend, and what is basic. And by being more disciplined around our calendar and more disciplined in the cadence of our business, we are able to be really prudent and responsible in the level of fashion and trends that we are procuring. And with the right time and space and dollars dedicated to open-to-buy and to chase, when we see and feel a winner, we can go after it right away instead of having to make that bet upfront.

Great. Thanks so much.

You bet. And I would just check on. This is part of the supply chain initiative that we announced last year and something that we’ve been very focused on which is providing that flexibility within our assortment. So, when we talk about things like building resilient business model that’s positioned to drive cash flow, these are the types of things really that will enable that and things that we are very focused on at this point.

Thank you. And the next question comes from Janet Kloppenburg with JJK Research.

Good morning everyone.

Janet, you are breaking up a little bit.

Can you hear me, Todd?

Yes.

Todd, can you hear me?

Yes, I can.

Okay. I was just wondering with the product flows being [Technical Difficulty] and how you might excite her that way? And also, just, if you could talk a little bit more about August and what trends you are seeing there that are encouraging? And Todd, I just wanted to ask about your SG&A and occupancy expense cuts. Is there an opportunity for those reductions to become even greater, should the topline profile of the company continue to be challenged? Thank you.

So, you might have been breaking up in the first part of your question. I…

I was asking Shelley about the level of newness, if she worries about that given the less frequent flow of product? And secondly, if she could talk a little bit more about what categories are working here in August. I know, Shelley, you said something about the jackets performing better at Chico’s.

Great question. I’ll hit that real quick and then turn that over to Todd. And I know that part of our team is listening and they’re probably having a good chuckle at your question right now because I absolutely was concerned. Our customer loves newness and is excited by newness. And as we looked at the cadence in which she shops and frequency of which she was in the boutique, the idea of cutting our full floor set certainly caused me to take a pause and say how are we going to make sure that we flow enough newness in. And in fact, what the team has done I think is genius. One is, they have changed the cadence of how we flow that new product into the store, and we have added a series of small and exciting fashion capsules in between those major floor set changes. So, in fact, our customer wasn’t recognizing the newness that we had in the store when we were doing sort of the big curtains up and curtains down on our stage set, and our customer wasn’t even recognizing the newness that we had. Since we have instituted the test into Chico’s and been core careful on how we flow new product on a much more regular basis into this stores as well as adding the fashion capsules, she is actually experiencing and seeing and recognizing newness at a greater rate. So, it wasn’t early concern of mine but that has been mitigated by our test.

And August, what’s happening in categories?

As we discussed before, there is bright spots really in every brand. And just starting with Soma, the idea that our core foundations business which is the backbone of that intimate apparel space has continued to comp positive and perform well, is very exciting for us. White House Black Market with its introduction of Wear to Work and a bit more structured apparel has done well and at Chico’s, we also have a very healthy denim business. Denim, as you know, here to stay, and we have a healthy and growing denim business at Chico’s and we’re very, very happy to see that some the oldies and goodies are really performing. And to see something like travelers, sort of a heritage brand that’s experiencing its 30th anniversary at Chico’s having a real renaissance growing is also exciting for us.

Thanks for that color, Shelley.

And then on occupancy expenses, we continue to rationalize our store portfolio as well as looking at an appropriate rate of rent increases and overall occupancy costs. So, very much looking at how we can provide more flexibility on occupancy. One of the great things for us is having about three quarters of those leases, actually over three quarters of those leases that are coming up for lease action by the end of 2020. That provides us an enormous amount of flexibility and leverage, and we will continue to look at how we can best take advantage of that leverage. So, yes, we are looking all the time at how we can be optimizing our occupancy expenses.

Thank you. And the next question comes from Edward Yruma from KeyBanc Capital Markets.

Ed, are you there? Keith, please check the line.

Yes. Mr. Yruma, your line is live. Okay. Well, in which case we’ll move on then to Randy Konik with Jefferies. Please go ahead, Mr. Konik. All right. We’re going to move on to Roxanne Meyer with MKM Partners.

Great, good morning. And thanks for taking my question. You’ve obviously done a terrific job with SG&A and the initiatives and delivering on those. It looks like in the back half of the year that you may be looking to achieve even greater SG&A leverage than we may have anticipated prior. So, I am just wondering, my first question is, was there additional cost savings that you are able to recognize in the back half of the year that’s included in your guidance? And then secondly, are you on track with CapEx and are there any projects that in light of first half performance you’re putting off into next year? Thanks a lot.

Sure. Thanks, Roxanne. So in terms of SG&A, I don’t think that -- so, we are looking at overall expense reductions of $50 million to $60 million across the entire year. So, the intent was not necessarily that we were going to be increasing SG&A leverage so much as that we’re going to continue to look for opportunities within SG&A. I think we’ve demonstrated that we have a high level of financial discipline that really is driving a lot of those savings and those disciplines continue forward into the future. And it should continue to generate savings for us. In terms of CapEx, one of the important things that really is critical for our business is making sure that we are investing in the long term. Now, our capital outlook probably came down just a scooch which is based on more so the timing of products or projects. But we continue to invest behind our digital strategies, behind making sure that our stores are delivering the experience that our customers expect. And that perspective really is now changing. Shelley talked a lot about the fact that we are rolling out more improved omni-channel capabilities, more responsive website platform. And those projects are going to continue because we truly believe that is driving our long-term and part of what is driving our confidence in building that long-term profitable machine that will continue to generate value.

Thank you. And the next question comes from Brian Tunick with RBC.

Great, thanks. Good morning. I was hoping, maybe you could just reconcile, I mean, Shelley, you talked a lot about some bright spots in the businesses, but yet your high single-digit comp decline guidance. So, I was just curious if you could maybe talk about what categories are underperforming, if you’re being conservative, if you’re seeing something out there, just curious if you could reconcile that? And then, maybe on the Soma profitability, you highlighted the highest margin I believe despite the negative comps. Just maybe talk about what’s happening there? Is it just the size of the business, is it scale, what allowed those margins to hit records? Thanks very much.

Sure. So, in terms of the outlook -- and thanks for asking the question, so that we could clarify. We are seeing encouraging signs as we go into August and it does give us a lot of confidence as we look forward to the future. At the same time, we’re realistic. August is one of our smallest volume months out of the entire year. So, as we see positive signs in certain categories, that’s very different than seeing sustained companywide performance over some of our highest volume months. So, what we did is we stood back and looked at our outlook was -- we wanted to provide an outlook that was consistent with how we are managing our business. And we are managing our business very tightly in line with those first half trends, both in terms of inventory management, in terms of expense management and in terms of how we’re overall buying our inventories. So, this is more a matter of being appropriate relative to how we’re managing our business while we continue to focus on the near-term and look for opportunities to drive upside.

And on the Soma question, as we discussed earlier, the underlying success in Soma is in that foundation business, and that we’ve got a healthy and growing foundation business, which is a greater margin plus for us. And so, the parts of the business that were struggling are coming in the lower margin and so, it’s allowing that business to perform at that rate.

And then, maybe just finally on cash flow. Shelley, you highlighted that. But, I guess Todd, as we look forward, what kind of minimum I guess cash would you feel comfortable holding on the balance sheet as we go into next year?

Sure. It’s something that we continually look at. You’ve seen us hold as little as about $100 million of cash in short-term investments. So that should give you an idea roughly where we’re headed. At the same time, we’re -- we continue to look for ways that we are returning cash to shareholders, consistent with how we’re generating cash flow. And I think we’ve generated that over time with our share repurchases and our dividends. So that will be an ongoing basis of how we look at our business, and make sure that we are generating and returning an appropriate amount of cash for shareholders.

Thank you. And the next question comes from Susan Anderson with FBR Capital Markets.

Hi, good morning. Thanks for taking my question. I was wondering if maybe you can give some more color on the reasons for pushing back the double-digit op margin. Is it really just deleverage on the negative sales, which are worse than you would have expected and so will take longer to recover that or are there some other initiatives that are getting pushed out? And then, maybe just a quick update, I may have missed it, on the supply chain savings in the second half, if you’re still on track to meet those? Thanks.

Absolutely. So, in terms of the double-digit operating margin, we’ve talked about before that when we gave that target of double-digit operating margin by 2019, we pressure tested the model and even with low single digit negative comp, that was well within reach, based on our initiatives. Now, clearly, with high single digit negative comps, that’s a little bit of a different story. So, what we are trying to be as purely just being realistic with the fact that where our sales trends have been this year and then also taking into account the additional initiatives that are coming. And to your point, those initiatives haven’t been -- forestalled haven’t been delayed. We are still committed to building the business for the long-term and continue to be focused on not only driving near-term results but also making sure that we are setting ourselves up for long-term success.

I guess, just one follow-up just on the sales line. Now we are seeing I guess multiple years of sales under pressure. Maybe you could just talk about the competitive dynamic, is she going elsewhere, is she going to pure online players, and I guess how do you guys get sales back positive and start to see more consistent results?

As you know, we’ve got tremendous data. And so, we can understand our current customer at a very nuance level and understanding where she is spending here dollars today. And she has made some shift in how she spends her dollars and she is certainly spending more on entertainment and spending more on experiential aspects of her life. And that’s the reason why we are so focused on creating an in-store experience for our customer that is special and unique. And we use the term Most Amazing Personal Service, and we’re not through that term around lightly. When you go into one of our boutiques, you are still greeted by a sales associate. He still assists you in shopping and procures a dressing room for you and helps you outfit as well as looking online to see if you have petite needs or plus size needs or additional color or sizes with endless aisle. So, we are really focusing on that omni experience, as well as making sure that our marketing spend is as efficient and effective as it can be, not only by leveraging our back of the house similarities between our three brands and outlets, but also by making sure that our digital dollars are not only spent on our current and existing customers and making sure that we’re reactivating anyone that hasn’t been active, but really focusing on prospecting new and exciting dynamic customers whose needs aren’t being met. And so, we are very, very focused on driving those top-line initiatives as well as what we’ve discussed before on alternative channel opportunities for some of the iconic brands that we have at Chico’s FAS. We continue to look at licensing and international opportunities and look forward to sharing more on that with you later.

Thank you. And as there are no more questions at the present time, I would like to turn the call to Jennifer Powers for any closing comments.

Thank you, Keith. We apologize for any questions that we did not get to today. As always, I am available for any follow-ups if necessary.

And in closing, thanks so much for being on the call today. And although we know we have some opportunities ahead of us, we are very excited to be in the kind of cash flow position that we’re in to be able to invest in our business, not only for short-term sales driving initiatives but the long-term value creation of our business. We love our stores. We have a productive fleet. We have a lot of flexibility on our leases. And we are creating a unique selling proposition with our Most Amazing Personal Service and omni-channel capabilities in store. We are pleased with the growth of our DCOM channel and we have some great bright spots in our merchandise and see some tremendous improvement there. So, thank you for your interest today and in Chico’s FAS.

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