Chico's looks to prospecting with direct sales up 46%

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Multichannel apparel merchant Chico's FAS Inc. is looking to continue the momentum displayed in its second quarter financial results into the second half with a new TV campaign for the Chico's brand and increased catalog prospecting, among other strategies.

Chico's, whose women's apparel brands include White House/Black Market, Soma Intimates and Chico's, said sales for the 13 weeks ended August 1 totaled $419.9 million compared with $405.2 million during the same period last year. Consolidated comparable store sales increased 1.3%, reversing a long trend of quarterly comparative-store decreases, and direct-to-consumer sales increased 46%.

The company's net income in the second quarter totaled $14.9 million or $0.08 per diluted share, compared to net income totaling $6.7 million or $0.04 per diluted share last year.

In a conference call with analysts to discuss the results, Chico's CEO David Dyer pointed to several initiatives being undertaken by the company to continue it on a positive growth curve, including “more effective marketing.”

On August 24, Chico's launched its first TV campaign since 2006, which will run through the end of October on national and cable TV. The campaign will be augmented with print ads in More, Vogue and other women's magazines. The company is also considering adding a small TV campaign for the fourth quarter.

Chico's said its overall marketing spending for the year will be approximately 5% below what it was in 2008. However, the majority of the savings took place in the first half of the year “so we can spend in the second half,” said Dyer. Chico's will spend approximately $4 million to $5 million more than the $26 million it spent on marketing expenses in the third quarter of last year.

The company is also making some changes to its catalog marketing, including launching a revamped look for the Chico's brand earlier this summer.

The mailing strategy is different as well. The company made cuts to its catalog circulation in the spring that were “too deep,” said Dyer. So for summer, it invested in reactivating lapsed customers via catalog mailings and e-mail.
“Compared to the first quarter, we are seeing a significant lift in the number of reactivated customers coming into stores and on our direct-to-consumer list,” said Dyer.

In the fourth quarter, Chico's plans to invest into prospecting more heavily.

“When you cut out prospecting, it's a short term gain because you really count on a lot of the new customers coming into the brand to continue to populate your customer file,” said Dyer.

In the second quarter, Chico's moved its direct-to-consumer operations into a new 300,000 square foot facility adjoining its store distribution center in Georgia. This will increase the retailer's daily order capacity from 7,500 orders to over 75,000 orders.

The company has also invested in new e-commerce software from ATG and database management and analytics tools as it continues to build its direct-to-consumer business.

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