Chico's sales up 31% in Q1, increased marketing cited as factor

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Chico's FAS reported that sales increased 31% to $481.6 million in the first quarter compared with the same period last year. Net income rose 144% to $35.4 million. Chico's FAS is a multichannel retailer of Chico's, White House/Black Market and Soma Intimates brands.

This marked improvement was due in part to the “lower markdowns at front-line stores, higher initial markups and continued gross margin improvement at Chico's outlet stores,” according to Chico's earnings report.

Another reason for Chico's robust performance may have been the retailer's decision to increase its marketing budget by 63% to $29.1 million, resulting in a 6% increase. According to Betty Chen, an analyst at Wedbush, Chico's hiking its marketing spend is part of a continuing trend that began in the second half of 2009, following cutbacks.

“They thought the merchandise had improved and that they could increase marketing spend to build awareness,” said Chen. “Spending is up because partly they're lapping the cutbacks from last year.”

Chen feels Chico's growth is part of an upswing that will persist throughout 2010. “We expect the merchandising to continue to resonate, and that the marketing will carry through the back half,” she added.

Chen also noted that Chico's recent agreement with The Connor Group, a company that provides merchandising sourcing services for more than 60 retailers, “should also allow Chico's to have better merchandise margins over time.”

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