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CHICO'S FAS, INC. - Quarter Report: 2021 October (Form 10-Q)

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q

☑
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 30, 2021

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 its charter)
 
Florida 59-2389435
(State or other jurisdiction of incorporation or organization) (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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, Par Value $0.01 Per ShareCHSNew 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  ☑
At November 22, 2021, the registrant had 122,542,092 shares of Common Stock, $0.01 par value per share, outstanding.



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CHICO'S FAS, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE
FISCAL THIRTEEN AND THIRTY-NINE WEEKS ENDED OCTOBER 30, 2021
TABLE OF CONTENTS
 
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PART I – FINANCIAL INFORMATION 
ITEM 1.FINANCIAL STATEMENTS


CHICO'S FAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
(Dollars in thousands, except per share amounts)
 
 Thirteen Weeks EndedThirty-Nine Weeks Ended
 October 30, 2021October 31, 2020October 30, 2021October 31, 2020
 Amount% of
Sales		Amount% of
Sales		Amount% of
Sales		Amount% of
Sales
Net Sales$453,644 100.0 %$351,416 100.0 %$1,313,664 100.0 %$937,854 100.0 %
Cost of goods sold269,205 59.3 274,252 78.0 820,973 62.5 827,019 88.2 
Gross Margin184,439 40.7 77,164 22.0 492,691 37.5 110,835 11.8 
Selling, general and administrative expenses162,469 35.8 153,096 43.6 442,637 33.7 390,571 41.6 
Goodwill and intangible impairment charges— 0.0 — 0.0 — 0.0 113,180 12.1 
Income (Loss) from Operations21,970 4.9 (75,932)(21.6)50,054 3.8 (392,916)(41.9)
Interest expense, net(1,744)(0.4)(536)(0.2)(5,170)(0.4)(1,387)(0.1)
Income (Loss) before Income Taxes20,226 4.5 (76,468)(21.8)44,884 3.4 (394,303)(42.0)
Income tax provision (benefit)2,000 0.5 (20,600)(5.9)9,400 0.7 (113,300)(12.0)
Net Income (Loss)$18,226 4.0 %$(55,868)(15.9)%$35,484 2.7 %$(281,003)(30.0)%
Per Share Data:
Net income (loss) per common share - basic$0.15 $(0.48)$0.30 $(2.43)
Net income (loss) per common and common equivalent share – diluted$0.15 $(0.48)$0.29 $(2.43)
Weighted average common shares outstanding – basic117,304 116,174 117,005 115,887 
Weighted average common and common equivalent shares outstanding – diluted123,166 116,174 121,897 115,887 
The accompanying notes are an integral part of these condensed consolidated statements.

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CHICO'S FAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands)
 
 Thirteen Weeks EndedThirty-Nine Weeks Ended
 October 30, 2021October 31, 2020October 30, 2021October 31, 2020
Net income (loss)$18,226 $(55,868)$35,484 $(281,003)
Other comprehensive income (loss):
Unrealized (losses) gains on marketable securities, net of taxes(10)(32)(64)(61)
Foreign currency translation adjustment— — — 580 
Comprehensive income (loss)$18,216 $(55,900)$35,420 $(280,484)
The accompanying notes are an integral part of these condensed consolidated statements.

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CHICO'S FAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except per share amounts)
 
October 30, 2021January 30, 2021October 31, 2020
ASSETS
Current Assets:
Cash and cash equivalents$134,458 $90,791 $126,497 
Marketable securities, at fair value3,006 18,559 18,667 
Inventories277,738 203,983 256,542 
Prepaid expenses and other current assets51,841 30,565 36,766 
Income tax receivable13,125 58,140 56,774 
Total Current Assets480,168 402,038 495,246 
Property and Equipment, net199,853 241,370 256,715 
Right of Use Assets494,808 586,061 582,074 
Other Assets:
Goodwill16,360 16,360 16,360 
Other intangible assets, net5,000 5,000 6,164 
Other assets, net25,413 24,049 37,839 
Total Other Assets46,773 45,409 60,363 
$1,221,602 $1,274,878 $1,394,398 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable$172,897 $116,506 $147,354 
Current lease liabilities177,563 194,551 208,351 
Other current and deferred liabilities140,982 120,729 123,474 
Total Current Liabilities491,442 431,786 479,179 
Noncurrent Liabilities:
Long-term debt99,000 149,000 149,000 
Long-term lease liabilities415,458 515,797 509,118 
Other noncurrent and deferred liabilities6,647 11,863 14,284 
Deferred taxes1,500 1,313 52 
Total Noncurrent Liabilities522,605 677,973 672,454 
Commitments and Contingencies (see Note 13)
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; 163,806 and 161,032 and 161,219 shares issued respectively; and 122,509 and 119,735 and 119,922 shares outstanding, respectively
1,225 1,197 1,199 
Additional paid-in capital505,419 498,488 496,993 
Treasury stock, at cost, 41,297 shares, respectively
(494,395)(494,395)(494,395)
Retained earnings195,306 159,765 238,877 
Accumulated other comprehensive gain— 64 91 
Total Shareholders’ Equity207,555 165,119 242,765 
$1,221,602 $1,274,878 $1,394,398 

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

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CHICO'S FAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands, except per share amounts)
Thirteen Weeks Ended
 Common StockAdditional Paid-in CapitalTreasury StockRetained EarningsAccumulated Other Comprehensive Gain 
SharesPar ValueSharesAmountTotal
BALANCE, July 31, 2021122,565 $1,226 $503,168 41,297 $(494,395)$177,077 $10 $187,086 
Net income— — — — — 18,226 — 18,226 
Unrealized losses on marketable securities, net of taxes— — — — — — (10)(10)
Issuance of common stock94 — (1)— — — — (1)
Dividends on common stock— — — — — 3 — 3 
Repurchase of common stock & tax withholdings related to share-based awards(150)(1)(895)— — — — (896)
Share-based compensation— — 3,147 — — — — 3,147 
BALANCE, October 30, 2021122,509 $1,225 $505,419 41,297 $(494,395)$195,306 $— $207,555 
BALANCE, August 1, 2020119,891 $1,199 $495,163 41,297 $(494,395)$294,708 $123 $296,798 
Net loss— — — — — (55,868)— (55,868)
Unrealized losses on marketable securities, net of taxes— — — — — — (32)(32)
Issuance of common stock132 1 160 — — — — 161 
Dividends on common stock— — — — — 37 — 37 
Repurchase of common stock & tax withholdings related to share-based awards(101)(1)(137)— — — — (138)
Share-based compensation— — 1,807 — — — — 1,807 
BALANCE, October 31, 2020119,922 $1,199 $496,993 41,297 $(494,395)$238,877 $91 $242,765 


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

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CHICO'S FAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands, except per share amounts)
Thirty-Nine Weeks Ended
Common StockAdditional Paid-in CapitalTreasury StockRetained EarningsAccumulated Other Comprehensive Gain (Loss) 
 SharesPar ValueSharesAmountTotal
BALANCE, January 30, 2021119,735 $1,197 $498,488 41,297 $(494,395)$159,765 $64 $165,119 
Net income— — — — — 35,484 — 35,484 
Unrealized losses on marketable securities, net of taxes— — — — — — (64)(64)
Issuance of common stock3,242 33 (33)— — — — — 
Dividends on common stock— — — — — 57 — 57 
Repurchase of common stock & tax withholdings related to share-based awards(468)(5)(1,872)— — — — (1,877)
Share-based compensation— — 8,836 — — — — 8,836 
BALANCE, October 30, 2021122,509 $1,225 $505,419 41,297 $(494,395)$195,306 $— $207,555 
BALANCE, February 1, 2020118,418 $1,184 $492,129 41,297 $(494,395)$531,602 $(428)$530,092 
Cumulative effect of adoption of ASU 2016-13— — — — — (838)— (838)
BALANCE, February 1, 2020, as adjusted118,418 1,184 492,129 41,297 (494,395)530,764 (428)529,254 
Net loss— — — — — (281,003)— (281,003)
Unrealized losses on marketable securities, net of taxes— — — — — — (61)(61)
Foreign currency translation adjustment— — — — — — 580 580 
Issuance of common stock1,940 19 393 — — — — 412 
Dividends on common stock ($0.09 per share)
— — — — — (10,884)— (10,884)
Repurchase of common stock & tax withholdings related to share-based awards(436)(4)(1,129)— — — — (1,133)
Share-based compensation— — 5,600 — — — — 5,600 
BALANCE, October 31, 2020119,922 $1,199 $496,993 41,297 $(494,395)$238,877 $91 $242,765 

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

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CHICO'S FAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
 Thirty-Nine Weeks Ended
 October 30, 2021October 31, 2020
Cash Flows from Operating Activities:
Net income (loss)$35,484 $(281,003)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Goodwill and intangible impairment charges— 113,180 
Inventory write-offs374 59,687 
Depreciation and amortization39,662 48,536 
Non-cash lease expense139,116 163,072 
Exit of frontline Canada operations— 498 
Right of use asset impairment— 3,236 
Loss on disposal and impairment of property and equipment, net1,432 27,554 
Deferred tax benefit190 (18,409)
Share-based compensation expense8,836 5,600 
Changes in assets and liabilities:
Inventories(74,129)(71,004)
Prepaid expenses and other assets(13,830)(2,704)
Income tax receivable45,015 (49,643)
Accounts payable56,503 12,923 
Accrued and other liabilities16,643 19,097 
Lease liability(166,990)(94,500)
Net cash provided by (used in) operating activities88,306 (63,880)
Cash Flows from Investing Activities:
Purchases of marketable securities(269)(5,351)
Proceeds from sale of marketable securities15,753 50,500 
Purchases of property and equipment(8,246)(9,537)
Net cash provided by investing activities7,238 35,612 
Cash Flows from Financing Activities:
Proceeds from borrowings— 255,500 
Payments on borrowings(50,000)(149,000)
Payments of debt issuance costs— (4,279)
Proceeds from issuance of common stock— 412 
Dividends paid— (10,701)
Payments of tax withholdings related to share-based awards(1,877)(1,133)
Net cash (used in) provided by financing activities(51,877)90,799 
Effects of exchange rate changes on cash and cash equivalents— (6)
Net increase in cash and cash equivalents43,667 62,525 
Cash and Cash Equivalents, Beginning of period
90,791 63,972 
Cash and Cash Equivalents, End of period
$134,458 $126,497 
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest$4,590 $6,456 
Cash received for income taxes, net$42,084 $(45,397)
The accompanying notes are an integral part of these condensed consolidated statements.

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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., a Florida corporation, and its wholly-owned subsidiaries (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. The fiscal year ended January 30, 2021 balance sheet data was derived from audited consolidated financial statements. For further information, refer to the consolidated financial statements and notes thereto for the fiscal year ended January 30, 2021, included in the Company's Annual Report on Form 10-K for the fiscal year ended January 30, 2021 filed with the Securities and Exchange Commission ("SEC") on March 9, 2021 ("2020 Annual Report on Form 10-K").
As used in this report, all references to "we," "us," "our", "the Company" and "Chico's FAS," refer to Chico's FAS, Inc. and all of its wholly-owned subsidiaries.
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 October 30, 2021 are not necessarily indicative of the results that may be expected for the entire year.
COVID-19 Pandemic Update
The COVID-19 pandemic (the "pandemic") has resulted in significant challenges across our business since March 2020 and is expected to continue to disrupt our business operations for the balance of fiscal 2021. Many markets imposed limitations, varying by market and in frequency, on the access to the Company's store fleet, including temporary store closures and/or a reduction in hours, staffing and capacity. We continue to focus on evolving consumer demand emerging from the pandemic and have accelerated our transformation to a digital-first company, fast-tracking numerous innovation and technology investments across all three of our brands. Even as governmental restrictions have relaxed and markets are primarily open, we expect continued uncertainty and volatility on our business operations, operating results and operating cash flows as the ongoing economic impacts and health concerns associated with the pandemic continue to affect consumer behavior, spending levels and shopping preferences and cause disruptions to the supply chain and increase our raw materials and freight costs. Due to the above circumstance, the Company’s results of operations for the thirteen and thirty-nine weeks ended October 30, 2021 are not necessarily indicative of the results to be expected for the full fiscal year.
Use of Estimates
    The preparation of unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The pandemic has had a significant material adverse impact on our business operations, operating results and operating cash flows starting in March 2020 and is expected to continue to disrupt our business operations for the balance of fiscal 2021. The Company assessed the impact that the pandemic has had on our estimates, assumptions and accounting policies and made additional disclosures, if and as necessary.
Exit of Canada Frontline Operations
On July 30, 2020, Chico’s FAS Canada, Co., an immaterial subsidiary of the Company, filed for bankruptcy with the Ontario, Canada office of the Superintendent in Bankruptcy. This action resulted in the permanent closure of four Chico’s and six White House Black Market ("WHBM") boutiques in Ontario, Canada. The permanent closure of the Canadian boutiques, which constituted all of the Company’s Canadian boutiques, was part of the Company’s cost-savings measures taken to mitigate the impact of the pandemic during fiscal 2020 and address the operational and financial challenges associated with operating in Canada. In connection with this effort, in the second quarter of fiscal 2020, we exited our Canada frontline operations and recorded on a net basis a non-material charge, including the realization of a cumulative foreign currency translation adjustment.
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Adoption of New Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2019-12, Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. This guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company adopted this new guidance in the first quarter of fiscal 2021. The adoption of ASU 2019-12 did not have a material impact on our unaudited condensed consolidated financial statements.
In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848) (“ASU 2021-01”). The amendments in ASU 2021-01 provide optional expedients and exceptions for applying Generally Accepted Accounting Principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of the reference rate reform. This guidance is effective upon issuance (January 7, 2021). The Company adopted this new guidance in the first quarter of fiscal 2021. The adoption of ASU 2021-01 did not have a material impact on our unaudited condensed consolidated financial statements.

2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
    The Company currently has no material recent accounting pronouncements yet to be adopted.

3. GOODWILL AND INTANGIBLE IMPAIRMENT CHARGES
During the thirteen weeks ended May 2, 2020 ("last year's first quarter"), the Company experienced a significant decline in its market capitalization and disruptions to its operations as a result of the pandemic. Consequently, the Company reduced its level of forecasted earnings for fiscal 2020 and future periods across all of its brands. In light of the decline in the Company's stock price and market capitalization, the Company concluded that these factors, among other factors, represented impairment indicators which required the Company to test its goodwill and indefinite-lived intangible assets for impairment during last year's first quarter.
The Company performed its valuation of its goodwill and indefinite-lived intangible assets using a quantitative approach as of April 4, 2020 (the "interim test"), which was the last day in the second month of last year's first quarter. Changes in key assumptions and the resulting reduction in projected future cash flows included in the interim test resulted in a decrease in the fair values of our Chico's and WHBM reporting units such that their fair values were less than their carrying values. As a result, the Company recognized the following pre-tax goodwill impairment charges during the thirty-nine weeks ended October 31, 2020: a charge of $20.0 million at the Chico's reporting unit and a charge of $60.4 million at the WHBM reporting unit. The carrying values of goodwill at the Chico's and WHBM reporting units were $16.4 million and zero, respectively, and are included in goodwill in the accompanying unaudited condensed consolidated balance sheet as of October 31, 2020. In addition, the Company recognized pre-tax impairment charges during the thirty-nine weeks ended October 31, 2020 to write down the carrying values of its other indefinite-lived intangible assets to their fair values as follows: $28.0 million of our WHBM trademark and $4.8 million of our Chico's franchise rights. The carrying values of the trademark and franchise rights were $6.0 million and $0.2 million, respectively, and are included in other intangible assets, net, in the accompanying unaudited condensed consolidated balance sheet as of October 31, 2020. Collectively, these impairment charges are included in goodwill and intangible impairment charges in the accompanying unaudited condensed consolidated statements of income (loss).
The Company evaluated the need to perform an interim impairment test for its goodwill and indefinite-lived intangible assets during the thirteen and thirty-nine weeks ended October 30, 2021 and during the thirteen weeks ended October 31, 2020. We considered macroeconomic, industry-specific and Company-specific factors in addition to the estimates and assumptions used in the most recently completed goodwill and indefinite-lived intangible assets analysis. Based on review of both quantitative and qualitative factors, we determined that we did not have a triggering event that would require an interim impairment test of goodwill and indefinite-lived intangible assets, and accordingly, we did not record any goodwill and intangible impairment charges during the thirteen and thirty-nine weeks ended October 30, 2021 and during the thirteen weeks ended October 31, 2020.
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The following table details the changes in goodwill and other indefinite-lived intangible assets, net:
October 30, 2021
Gross Carrying AmountAccumulated Impairment ChargeNet Carrying Amount
Goodwill:
Chico's reporting unit$36,403 $(20,043)$16,360 
WHBM reporting unit60,371 (60,371)— 
$96,774 $(80,414)$16,360 
Other intangible assets:
WHBM trademark$34,000 $(29,000)$5,000 
Chico's franchise rights4,930 (4,930)— 
$38,930 $(33,930)$5,000 
January 30, 2021
Gross Carrying AmountAccumulated Impairment ChargeNet Carrying Amount
Goodwill:
Chico's reporting unit$36,403 $(20,043)$16,360 
WHBM reporting unit60,371 (60,371)— 
$96,774 $(80,414)$16,360 
Other intangible assets:
WHBM trademark$34,000 $(29,000)$5,000 
Chico's franchise rights4,930 (4,930)— 
$38,930 $(33,930)$5,000 
October 31, 2020
Gross Carrying AmountAccumulated Impairment ChargeNet Carrying Amount
Goodwill:
Chico's reporting unit$36,403 $(20,043)$16,360 
WHBM reporting unit60,371 (60,371)— 
$96,774 $(80,414)$16,360 
Other intangible assets:
WHBM trademark$34,000 $(28,000)$6,000 
Chico's franchise rights4,930 (4,766)164 
$38,930 $(32,766)$6,164 

4. LONG-LIVED ASSET IMPAIRMENT CHARGES
Long-lived assets, including definite-lived intangibles, are reviewed periodically for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company uses market participant rent assumptions to calculate the fair value of right of use ("ROU") assets and discounted future cash flows of the asset or asset group using projected financial information and 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.
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Fiscal 2021 Long-Lived Asset Impairment Charges
During the thirteen and thirty-nine weeks ended October 30, 2021, the Company considered whether events or changes in circumstances existed that would indicate the carrying amount of long-lived assets at retail stores may not be recoverable. Based on a review of both quantitative and qualitative factors, only a small number of underperforming stores had triggering events and were assessed for impairment during the thirteen and thirty-nine weeks ended October 30, 2021. Pre-tax impairment charges for long-lived assets at retail stores during the thirteen and thirty-nine weeks ended October 30, 2021 were immaterial.
We recorded $1.2 million in impairment expense during the thirty-nine weeks ended October 30, 2021 related to certain Company-owned real estate which is included in selling, general and administrative expenses in the accompanying unaudited condensed consolidated statements of income (loss).
We did not record impairment charges related to our operating lease assets during the thirteen and thirty-nine weeks ended October 30, 2021.
Fiscal 2020 Long-Lived Asset Impairment Charges Related to the Pandemic
The Company experienced varying degrees of business disruptions and periods of store closures or reduced operating hours as a result of the pandemic during the thirteen and thirty-nine weeks ended October 31, 2020. In light of the pandemic and lower-than-expected earnings for fiscal 2020 and future periods, the Company concluded that these factors, among other factors, represented impairment indicators which required the Company to test certain of its long-lived assets and operating lease assets for impairment during the thirteen and thirty-nine weeks ended October 31, 2020.
As a result of the impact of the pandemic during the thirteen and thirty-nine weeks ended October 31, 2020, we recorded pre-tax impairment charges of approximately $8.8 million and $27.3 million, respectively, upon completion of our evaluation of long-lived assets, which primarily consisted of leasehold improvements at certain underperforming stores, capitalized implementation costs related to our cloud computing arrangements, and other technology-related assets. For the thirteen weeks ended October 31, 2020, these charges are reflected in the financial statements as $0.4 million in cost of goods sold ("COGS") and $8.4 million in selling, general and administrative ("SG&A") expenses in the accompanying unaudited condensed consolidated statements of income (loss). For the thirty-nine weeks ended October 31, 2020, these charges are reflected in the financial statements as $18.4 million in COGS and $8.9 million in SG&A expenses in the accompanying unaudited condensed consolidated statements of income (loss). These charges reduced the net carrying value of certain long-lived assets to their estimated fair value, as determined using a discounted cash flow model.
As a result of the impact of the pandemic during the thirty-nine weeks ended October 31, 2020, we completed an evaluation of our operating lease assets for indicators of impairment, and consequently, recorded pre-tax impairment charges of approximately $3.2 million, which is included in COGS in the accompanying unaudited condensed consolidated statements of income (loss). We did not record impairment charges related to our operating lease assets during the thirteen weeks ended October 31, 2020.
    
5. INVENTORY
We use the moving average cost method to determine the cost of merchandise inventories. We identify potentially excess and slow-moving inventories by evaluating inventory aging, turn rates and inventory levels in conjunction with our overall sales trend. Further, inventory realization exposure is identified through analysis of gross margins and markdowns in combination with changes in current business trends. We record excess and slow-moving inventories at net realizable value.
We recorded no inventory write-offs for the thirteen weeks and $0.4 million in inventory write-offs for the thirty-nine weeks ended October 30, 2021, which is included in COGS in the accompanying unaudited condensed consolidated statements of income (loss). Inventory adjustments made in ordinary course are presented in inventories in the accompanying unaudited condensed consolidated statements of cash flows.
Inventory write-offs for the thirteen weeks ended October 31, 2020 were $5.4 million. Inventory write-offs for the thirty-nine weeks ended October 31, 2020 were $59.7 million, including $55.4 million in significant inventory write-offs as a result of changes in the market for those inventories and the resulting slowdown in sell through rates due to the impact of the pandemic. These inventory write-offs are included in COGS in the accompanying unaudited condensed consolidated statements of income (loss).


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6. 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 EndedThirty-Nine Weeks Ended
 October 30, 2021October 31, 2020October 30, 2021October 31, 2020
Chico's$203,505 44.9 %$163,847 46.6 %$601,914 45.8 %$434,868 46.4 %
WHBM138,159 30.4 104,024 29.6 364,250 27.7 270,197 28.8 
Soma111,980 24.7 83,545 23.8 347,500 26.5 232,789 24.8 
Total Net Sales$453,644 100.0 %$351,416 100.0 %$1,313,664 100.0 %$937,854 100.0 %
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 October 30, 2021, January 30, 2021 and October 31, 2020, contract liabilities primarily consisted of gift cards of $32.4 million, $40.4 million and $31.5 million, respectively.
    For the thirteen and thirty-nine weeks ended October 30, 2021, the Company recognized $3.0 million and $18.7 million, respectively, of revenue that was previously included in the gift card contract liability as of January 30, 2021. For the thirteen and thirty-nine weeks ended October 31, 2020, the Company recognized $4.1 million and $16.9 million, respectively, of revenue that was previously included in the gift card contract liability as of February 1, 2020. The contract liability for our loyalty program was not material as of October 30, 2021, January 30, 2021 or October 31, 2020.
Performance Obligation
    For the thirteen and thirty-nine weeks ended October 30, 2021 and October 31, 2020, 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.

7. 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 2031. 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.
The Company deferred substantially all rent payments due in the months of April, May and June 2020 and otherwise made reduced rent payments where and when applicable during fiscal 2020 as a result of the impact of the pandemic. In April 2020, the FASB granted a practical expedient permitting an entity to choose to forgo the evaluation of the enforceable rights and obligations of the original lease contract, specifically in situations where rent concessions have been agreed to with landlords as a result of the pandemic. Instead, the entity may account for pandemic-related rent concessions, whatever their form (e.g. rent deferral, abatement or other) either: a) as if they were part of the enforceable rights and obligations of the parties under the existing lease contract; or b) as lease modifications. During the thirteen and thirty-nine weeks ended October 30, 2021 and October 31, 2020, we received concessions from certain landlords in the form of rent deferrals, rent abatements and other lease or rent modifications as a result of the impact of the pandemic. In accordance with the practical expedient allowed by the FASB, the Company has elected to treat all pandemic-related rent concessions and related amendments, including pandemic-related lease amendments that extended the lease term, as lease modifications under ASC 842, Leases. In addition, the
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Company continued recording lease expense during deferral periods, as applicable, in accordance with its existing policies. The Company made rent payments in accordance with its lease terms during the thirteen and thirty-nine weeks ended October 30, 2021.
Operating lease expense was as follows:
Thirteen Weeks EndedThirty-Nine Weeks Ended
October 30, 2021October 31, 2020October 30, 2021October 31, 2020
Operating lease cost (1)
$53,448 $58,710 $164,195 $179,273 
(1) For the thirteen and thirty-nine weeks ended October 30, 2021, includes $9.5 million and $28.7 million, respectively, in variable lease costs. For the thirteen and thirty-nine weeks ended October 31, 2020, includes $9.8 million and $25.9 million, respectively, in variable lease costs.
Supplemental balance sheet information related to operating leases was as follows:
October 30, 2021January 30, 2021October 31, 2020
Right of use assets$494,808 $586,061 $582,074 
Current lease liabilities$177,563 $194,551 $208,351 
Long-term lease liabilities415,458 515,797 509,118 
Total operating lease liabilities$593,021 $710,348 $717,469 
Weighted Average Remaining Lease Term (years)4.14.54.6
Weighted Average Discount Rate (1)
4.5 %4.9 %5.5 %
(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
October 30, 2021October 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows$166,990 $94,500 
(1)
Right of use assets obtained in exchange for lease obligations, non-cash27,510 75,938 
(1) The Company suspended or deferred rental payments when and where applicable as a result of the impact of the pandemic during the thirteen and thirty-nine weeks ended October 31, 2020.
Maturities of operating lease liabilities as of October 30, 2021 were as follows:
Fiscal Year Ending:
January 29, 2022$52,959 
January 28, 2023192,698 
February 4, 2024149,453 
February 1, 2025107,390 
January 31, 202669,107 
Thereafter79,291 
Total future minimum lease payments$650,898 
Less imputed interest(57,877)
Total$593,021 
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8. SHARE-BASED COMPENSATION
For the thirty-nine weeks ended October 30, 2021 and October 31, 2020, share-based compensation expense was $8.8 million and $5.6 million, respectively. As of October 30, 2021, approximately 7.9 million shares remain available for future grants of equity awards under our 2020 Omnibus Stock and Incentive Plan.
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 then Chief Executive Officer in fiscal 2019, which vests over a four-year period from the date of grant, and restricted stock awards granted in March 2021, which vest 50% one year from the date of grant, 30% two years from the date of grant and 20% three years from the date of grant.
Restricted stock award activity for the thirty-nine weeks ended October 30, 2021 was as follows:
Number of
Shares		Weighted
Average
Grant Date
Fair Value
Unvested, beginning of period3,419,645 $3.75 
Granted3,730,651 2.96 
Vested(1,498,137)4.03 
Forfeited(483,901)2.89 
Unvested, end of period5,168,258 3.17 
Restricted Stock Units
    Restricted stock units vest 100% one year from the date of grant with certain rights to defer settlement in shares of our common stock, except for restricted stock units granted in March 2021, which vest 50% one year from the date of grant, 30% two years from the date of grant and 20% three years from the date of grant.
Restricted stock unit activity for the thirty-nine weeks ended October 30, 2021 was as follows:
Number of
Shares		Weighted
Average
Grant Date
Fair Value
Unvested, beginning of period163,930 $2.49 
Granted500,000 2.56 
Vested(16,580)8.75 
Unvested, end of period647,350 2.38 
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Performance-based Restricted Stock Units
During the third quarter, we granted performance-based restricted stock units ("PSUs") contingent upon the achievement of Company-specific performance goals during the three fiscal years 2021 through 2023. 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 and will be settled in shares of our common stock.
PSU activity for the thirty-nine weeks ended October 30, 2021 was as follows:
Number of Units/
Shares		Weighted
Average
Grant Date
Fair Value
Unvested, beginning of period2,782,457 $2.04 
Granted1,171,170 2.67 
Forfeited(209,420)2.10 
Unvested, end of period3,744,207 2.23 

9. 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 across jurisdictions.
For the thirteen weeks ended October 30, 2021 and October 31, 2020, the Company's effective tax rate was 9.9% and 26.9%, respectively. The effective tax rate of 9.9% for the thirteen weeks ended October 30, 2021 primarily reflects a change in estimate from the second quarter due to an increase in annual projected deferred tax assets on which a full valuation allowance exists, offset by a 2020 fiscal provision to return benefit due to the reversal of a valuation allowance related to 2020 temporary differences and the rate differential provided by the Coronavirus Aid, Relief, and Economic Security ("CARES") Act. The 26.9% effective tax rate for the thirteen weeks ended October 31, 2020 includes the annual benefit of the fiscal 2020 pre-tax loss due to the CARES Act, which was slightly offset by the impact of nondeductible book goodwill impairment charges.
For the thirty-nine weeks ended October 30, 2021 and October 31, 2020, the Company's effective tax rate was 20.9% and 28.7%, respectively. The effective tax rate of 20.9% for the thirty-nine weeks ended October 30, 2021 primarily reflects an annual projected deferred tax assets on which a full valuation allowance exists, offset by a 2020 fiscal provision to return benefit due to the reversal of a valuation allowance related to 2020 temporary differences, the rate differential provided by the CARES Act and favorable state audit settlements. The 28.7% effective tax rate for the thirty-nine weeks ended October 31, 2020 was primarily impacted by the benefits provided by the enactment of the CARES Act, which was reduced by the unfavorable impact of the Company’s book goodwill impairment, a valuation allowance on certain state tax credit carryforwards that are expected to expire unutilized and share-based compensation expense.
As of October 30, 2021, our unaudited condensed consolidated balance sheet reflected a $10.4 million income tax receivable, after collection of $50.0 million during the thirty-nine weeks ended October 30, 2021, related to the recovery of Federal income taxes paid in prior years and other tax law changes as a result of the CARES Act.

10. INCOME (LOSS) 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 income (loss) per common share pursuant to the "two-class" method. For the Company, participating securities are comprised entirely of unvested restricted stock awards granted prior to fiscal 2020.
Net income (loss) per share is determined using the two-class method when it is more dilutive than the treasury stock method. Basic net income (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted-average number of common shares outstanding during the period, including participating securities. Diluted net income (loss) per share reflects the dilutive effect of potential common shares from non-participating securities such as restricted stock awards granted after fiscal 2019, stock options, PSUs and restricted stock units.
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The following table sets forth the computation of net income (loss) per basic and diluted share shown on the face of the accompanying condensed consolidated statements of income (loss):
 Thirteen Weeks EndedThirty-Nine Weeks Ended
 October 30, 2021October 31, 2020October 30, 2021October 31, 2020
Numerator
Net income (loss)$18,226 $(55,868)$35,484 $(281,003)
Net income and dividends declared allocated to participating securities(123)— (313)(173)
Net income (loss) available to common shareholders$18,103 $(55,868)$35,171 $(281,176)
Denominator
Weighted average common shares outstanding – basic117,304,112 116,174,306 117,004,683 115,886,832 
Dilutive effect of non-participating securities5,862,125 — 4,891,986 — 
Weighted average common and common equivalent shares outstanding – diluted123,166,237 116,174,306 121,896,669 115,886,832 
Net income (loss) per common share:
Basic$0.15 $(0.48)$0.30 $(2.43)
Diluted$0.15 $(0.48)$0.29 $(2.43)
For the thirteen weeks ended October 30, 2021 and October 31, 2020, 0.1 million and 2.4 million potential shares of common stock, respectively, were excluded from the diluted income (loss) per common share calculation relating to non-participating securities, because the effect of including these potential shares was antidilutive.
For the thirty-nine weeks ended October 30, 2021 and October 31, 2020, 0.2 million and 2.2 million potential shares of common stock, respectively, were excluded from the diluted income (loss) per common share calculation relating to non-participating securities, because the effect of including these potential shares was antidilutive.

11. 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, less reserves for credit losses as applicable, 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 October 30, 2021 generally consist of corporate bonds, commercial paper, U.S. government agencies and municipal securities, with $3.0 million of securities with maturity dates within one year or less and no maturity dates over one year.
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 gain until realized, and any credit risk related losses recognized in net income (loss) during the period incurred. 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.
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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
Assets Measured on a Recurring Basis
    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 unaudited condensed consolidated balance sheets.
Assets Measured on a Nonrecurring Basis
From time to time, we measure certain assets at fair value on a nonrecurring basis when carrying value exceeds fair value. 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. Assets that are measured at fair value on a nonrecurring basis are remeasured when carrying value exceeds fair value. Carrying value after impairment approximates fair value.
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 and a market participant discount rate to calculate the fair value of ROU assets. The Company uses 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 within the asset group, which are primarily leasehold improvements. 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.
To assess the fair value of goodwill, we have historically utilized 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.
To assess the fair value of trademarks, we utilize a relief from royalty approach. Inputs used to calculate the fair value of the trademarks primarily include future sales projections, discounted at a rate that approximates the cost of capital of a market participant and an estimated royalty rate.
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The following tables present quantitative information about Level 3 significant unobservable inputs for the WHBM trademark, long-lived assets and operating lease assets at retail stores for impairment charges incurred during the periods indicated.
Thirty-Nine Weeks Ended October 31, 2020
Valuation TechniqueUnobservable InputRange (Weighted Average)
WHBM TrademarkRelief from royaltyWeighted-average cost of capital
11% to 13%
Long-term revenue growth rate
-2.5% to 0%
Long-lived assets and operating lease assets at retail stores (1)
Discounted cash flow
Weighted-average cost of capital
9.5% to 11.5%
Long-term revenue growth rate
-10% to 15%
(1) Specifically relates to only those locations which had impairment charges related to the pandemic during fiscal 2020.
Fifty-Two Weeks Ended January 30, 2021
Valuation TechniqueUnobservable Input
WHBM TrademarkRelief from royaltyWeighted-average cost of capital
13% to 15%
Long-term revenue growth rate
 -1% to 16%
Long-lived assets at retail stores and operating lease assets (1)
Discounted cash flow
Weighted-average cost of capital
11% to 13%
Long-term revenue growth rate
2% to 53%
(1) Specifically relates to only those locations which had impairment charges related to the pandemic during fiscal 2020.
As of October 30, 2021, January 30, 2021 and October 31, 2020, 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).
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. The most sensitive assumptions in our estimates include short and long-term revenue recoverability rates as a result of the pandemic, which could impact future impairment charges.
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.
In accordance with the provisions of the guidance, we categorized our financial assets and liabilities which are valued on a recurring and nonrecurring basis, based on the priority of the inputs to the valuation technique for the instruments, as follows:
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  Fair Value Measurements at the End of the Reporting Date UsingThirty-Nine Weeks Ended October 30, 2021
 Balance as of October 30, 2021Quoted Prices in Active Markets for Identical Assets
(Level 1)		Significant Other Observable Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)
Total Impairment (1)
Recurring fair value measurements:
Current Assets
Cash equivalents:
Money market accounts$22,388 $22,388 $— $— 
Marketable securities:
Corporate bonds3,006 — 3,006 — 
Noncurrent Assets
Deferred compensation plan6,317 6,317 — — 
Total recurring fair value measurements$31,711 $28,705 $3,006 $— 
Fair Value Measurements at the End of the Reporting Date UsingFifty-Two Weeks Ended
January 30, 2021
Balance as of January 30, 2021Quoted Prices in Active Markets for Identical Assets
(Level 1)		Significant Other Observable Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)		Total Impairment
Recurring fair value measurements:
Current Assets
Cash equivalents:
Money market accounts$36,809 $36,809 $— $— 
Marketable securities:
Corporate bonds18,559 — 18,559 — 
Noncurrent Assets
Deferred compensation plan8,993 8,993 — — 
Total recurring fair value measurements$64,361 $45,802 $18,559 $— 
Nonrecurring fair value measurements:
Noncurrent Assets
Goodwill$16,360 $— $— $16,360 $(80,414)
Trademark5,000 — — 5,000 (29,000)
Long-lived assets7,090 — 5,990 1,100 
(2)
(29,669)
Operating lease assets88,488 — — 88,488 
(2)
(4,795)
Total nonrecurring fair value measurements$116,938 $— $5,990 $110,948 $(143,878)
Fair Value Measurements at the End of the Reporting Date UsingThirty-Nine Weeks Ended October 31, 2020
 Balance as of October 31, 2020Quoted Prices in Active Markets for Identical Assets
(Level 1)		Significant Other Observable Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)		Total Impairment
Recurring fair value measurements:
Current Assets
Cash equivalents:
Money market accounts$36,678 $36,678 $— $— 
Marketable securities:
Corporate bonds18,667 — 18,667 — 
Noncurrent Assets
Deferred compensation plan7,902 7,902 — — 
Total recurring fair value measurements$63,247 $44,580 $18,667 $— 
Nonrecurring fair value measurements:
Noncurrent Assets
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Goodwill$16,360 $— $— $16,360 $(80,414)
Trademark6,000 — — 6,000 (28,000)
Long-lived assets7,161 — 5,990 1,171 
(2)
(27,307)
Operating lease assets88,942 — — 88,942 
(2)
(3,236)
Total nonrecurring fair value measurements$118,463 $— $5,990 $112,473 $(138,957)
(1) Impairment charges for assets evaluated for impairment on a nonrecurring basis were not material during the thirty-nine weeks ended October 30, 2021.
(2) The fair value of $1.1 million, $88.5 million, $1.2 million and $88.9 million specifically relates to only those locations which had asset impairment charges related to the pandemic.

12. DEBT
On October 30, 2020, the Company and certain material domestic subsidiaries entered into Amendment No. 1 (the "Amendment") to its credit agreement (as amended, the "Agreement"), dated as of August 2, 2018, by and among the Company, certain material domestic subsidiaries as co-borrowers and guarantors, Wells Fargo Bank, National Association ("Wells Fargo Bank"), as Agent, letter of credit issuer and swing line lender, and certain lenders party thereto. Our obligations under the Agreement are guaranteed by the guarantors and secured by a first priority lien on certain assets of the Company and certain material domestic subsidiaries, including inventory, accounts receivable, cash deposits, certain insurance proceeds, real estate, fixtures and certain intellectual property. The Agreement provides for a five-year asset-based senior secured revolving loan ("ABL") and letter of credit facility of up to $285.0 million, maturing October 30, 2025. The interest rate applicable to the ABL is equal to 2.25% (subject to increase to 2.50% based upon average quarterly excess availability under the ABL), with a LIBOR floor of 75 basis points. The Agreement also provides for a $15.0 million first-in last-out ("FILO") loan. The interest rate applicable to the FILO is equal to, at the Company's option, either a base rate, determined by reference to the federal funds rate, or a LIBOR with a floor of 75 basis points, plus in each case an interest rate margin of 4.5%. The Company expects borrowings to be at a LIBOR, plus an interest rate margin of 4.5%. The FILO includes a prepayment penalty equal to 1.0% in the first year, 0.5% in the second year and none thereafter. The FILO can only be prepaid if there are no outstanding borrowings under the ABL. 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 October 30, 2021, our outstanding debt consisted of $99.0 million in borrowings under the Agreement. Availability under the Agreement is determined based upon a monthly borrowing base calculation which includes eligible credit card receivables, real estate and inventory, less outstanding borrowings, letters of credit and certain designated reserves. As of October 30, 2021, the available additional borrowing capacity under the Agreement was approximately $166.0 million, inclusive of $29.3 million of excess availability.
As of October 30, 2021, deferred financing costs of $3.7 million was outstanding related to the Agreement and is presented in other current assets in the accompanying unaudited condensed consolidated balance sheet.

13. COMMITMENTS AND CONTINGENCIES
In February 2021, the Company was named as a defendant in Mercedes Haldy, et al. v. White House Black Market, Inc. (“WHBM”), et al., a putative class action filed in the Superior Court of California, Orange County, and subsequently removed to the United States District Court, Central District of California (“Haldy”). The complaint alleges numerous violations of California law related to payment of wages and other compensation, meal periods, rest periods, and wage statements, among other things. Plaintiff seeks to represent a class of current and former nonexempt employees of WHBM and Chico’s stores in California.
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In August 2021, the Company was named as a defendant in Margarita Hernandez v. Chico’s FAS, Inc., et al., a putative class action filed in the Superior Court of California, Orange County seeking to represent a class of current and former nonexempt employees of Chico’s, WHBM and Soma stores in California (“Hernandez”). The complaint alleges many of the same wage and labor violations as the Haldy complaint, described above, and seeks the same relief.
During a mediation in September 2021, the Company reached an agreement in principle to settle the above cases. A Memorandum of Understanding was entered into by all parties as of October 18, 2021. A full settlement agreement has been drafted and is being finalized for execution by all parties. Based on the foregoing, the Company does not expect that the resolution of these cases will have a material adverse effect on its results of operations or consolidated financial statements, but if a settlement agreement is not executed or is not approved by the court, the ultimate resolution of these cases could have a material adverse effect on the Company’s results of operations or consolidated financial statements.
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 our 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 other matters as of October 30, 2021 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.
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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 Quarterly Report on Form 10-Q ("this Form 10-Q") and in our Annual Report on Form 10-K for the fiscal year ended January 30, 2021, filed with the Securities and Exchange Commission ("SEC") on March 9, 2021 ("2020 Annual Report on Form 10-K").
Executive Overview
    Chico’s FAS is a Florida-based fashion company founded in 1983 on Sanibel Island, Florida. The Company reinvented the fashion retail experience by creating fashion communities anchored by service, which put the customer at the center of everything we do. As one of the leading fashion retailers in North America, Chico’s FAS is a company of three unique brands - Chico’s®, White House Black Market® and Soma® - each thriving in their own white space, founded by women, led by women, providing solutions that millions of women say give them confidence and joy. 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 unaffiliated franchise partners 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.
Business Highlights
Company highlights for the thirteen weeks ended October 30, 2021 (the "third quarter") include:
•Robust results: Chico's FAS continued its profitable growth, posting $0.15 net income per diluted share for the third quarter, compared to a $0.48 net loss per diluted share for the thirteen weeks ended October 31, 2020 ("last year's third quarter") and a $0.07 net loss per diluted share for the thirteen weeks ended November 2, 2019 (the "third quarter of fiscal 2019" as a pre-pandemic reference). The current quarter earnings represent the best third quarter performance since 2016.
•Continued improving sales performance at Chico's: Comparable sales at Chico's increased 23.3% over last year's third quarter. Chico's continued to benefit from elevated product styling and quality enhancements, and customers particularly responded enthusiastically to denim, wovens and sweaters. Inventories remained lean, which fueled high productivity and increased full-price sales in the quarter.
•Continued improving sales performance at White House Black Market ("WHBM"): Comparable sales at WHBM grew 33.4% over last year's third quarter. WHBM continued to benefit from elevated quality and product enhancements, and customers particularly responded to denim and new jacket silhouettes. Inventories remained lean, which fueled high productivity and increased full-price sales in the quarter.
•Continued exceptional sales growth at Soma: Soma posted a 30.2% comparable sales increase over last year's third quarter and a remarkable 43.5% comparable sales increase over the third quarter of fiscal 2019. Data from market research firm NPD Group Inc. shows that Soma’s growth continues to outpace the market in non-sport bras, panties and sleepwear. Management believes this research, along with Soma’s recent performance, is a clear indication that Soma is well positioned to continue capturing additional market share and grow into a billion dollar brand.
•Enhanced marketing continued to drive traffic as well as new customers: Chico's FAS continued to elevate its marketing efforts, allocating more resources to digital storytelling, influencers and other social efforts. These enhanced marketing initiatives are driving more customers to our brands, with our total customer count up nearly 8% from the third quarter last year, and their average age continues to trend younger than existing customers.
•Strong balance sheet: The Company ended the third quarter with more than $137 million in cash and marketable securities, even after repaying $50 million of long-term debt during the quarter.
•Improved gross margin: The third gross margin rate rose to 40.7%, the best third quarter performance since fiscal 2014, driven by higher full-price sales, less promotional activity, strategic inventory management and improved leverage of occupancy costs on higher sales, partially offset by increases in raw materials and freight costs.
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•Continued cost discipline: Selling, general and administrative ("SG&A") expenses declined to 35.8% of net sales for the third quarter, an improvement over the third quarter rates of both fiscal 2020 and 2019, reflecting the impact of cost savings initiatives put in place in prior years, continued cost discipline efforts and sales leverage.
•Obtained additional rent reductions: In the first nine months of fiscal 2021, Chico's FAS obtained approximately $22 million in incremental savings from landlords. This is in addition to the $65 million of reductions and abatements negotiated during fiscal 2020, for a total savings of $87 million. We believe these renegotiated store leases will provide an occupancy tailwind and will further enhance store profitability.
Financial Results
    Income per diluted share for the third quarter was $0.15 compared to loss per diluted share of $0.48 for last year's third quarter. Results for the third quarter include the unfavorable impact of litigation settlement charges of approximately $4 million, after-tax. Results for last year's third quarter included the after-tax impact of impairment charges of approximately $6 million as a result of the coronavirus ("COVID-19") pandemic (the "pandemic").
Income per diluted share for the thirty-nine weeks ended October 30, 2021 was $0.29 compared to loss per diluted share of $2.43 for the thirty-nine weeks ended October 31, 2020. Results the thirty-nine weeks ended October 30, 2021 include the unfavorable impact of litigation settlement charges of approximately $4 million, after-tax. Results for the thirty-nine weeks ended October 31, 2020 includes the after-tax impact of impairment charges and inventory write-offs of approximately $154 million as a result of the pandemic.
Select Financial Results
    The following table depicts select financial results for the thirteen and thirty-nine weeks ended October 30, 2021 and October 31, 2020:
Thirteen Weeks EndedThirty-Nine Weeks Ended
October 30, 2021October 31, 2020October 30, 2021October 31, 2020
(in millions, except per share amounts)
Net sales$454 $351 $1,314 $938 
Significant non-cash charges (1):
Inventory write-offs (2)
— — — 55 
Long-lived store asset impairment (2)(3)
— — — 18 
Right of use asset impairment (2)
— — — 2 
Other long-lived asset impairment (2)(4)
8 8 
Goodwill impairment (2)
— — — 80 
Indefinite-lived asset impairment (2)
— — — 33 
Income (loss) from operations22 (76)50 (393)
Net income (loss)18 (56)35 (281)
Net income (loss) per common and common equivalent share - diluted0.15 (0.48)0.29 (2.43)
(1) All significant charges relate to the impact of the pandemic. Less significant charges that may have been incurred are not reflected in the table above.
(2) Presented pre-tax.
(3) Primarily includes impairment on leasehold improvements at certain underperforming stores.
(4) Includes impairment on capitalized implementation costs related to our cloud computing arrangements and other technology-related assets.
Current Trends
The pandemic has resulted in significant challenges across our business starting in March 2020 and is expected to continue to disrupt our business operations for the balance of fiscal 2021. Many markets imposed limitations, varying by market and in frequency, on the access to the Company's store fleet, including temporary store closures and/or a reduction in hours, staffing and capacity. We continue to focus on evolving consumer demand emerging from the pandemic experience and have accelerated our transformation to a digital-first company, fast-tracking numerous innovation and technology investments across all three of our brands. Even as governmental restrictions become relaxed and markets are primarily open, we expect continued uncertainty and volatility on our business operations, operating results and operating cash flows as the ongoing economic
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impacts and health concerns associated with the pandemic continue to affect consumer behavior, spending levels and shopping preferences.
The Company remains confident that it currently has sufficient liquidity to repay its obligations as they become due for the foreseeable future as the Company continues to drive operational efficiency and effectiveness, including executing on its cost saving initiatives announced in fiscal 2020 to mitigate the macro challenges of the pandemic. However, the extent to which the pandemic impacts our business operations, financial results, and liquidity will depend on numerous evolving factors that we may not be able to accurately predict or assess, including the duration and scope of the pandemic; our response to and ability to mitigate the impact of the pandemic; the negative impact the pandemic has on global and regional economies and economic activity, including the duration and magnitude of its impact on unemployment rates and consumer discretionary spending; its short- and longer-term impact on the levels of consumer confidence; the ability of our suppliers, vendors and customers to successfully address the impacts of the pandemic; supply chain disruptions; actions governments, businesses and individuals take in response to the pandemic; and how quickly economies recover after the pandemic subsides.
Exit of Canada Frontline Operations
On July 30, 2020, Chico’s FAS Canada, Co., an immaterial subsidiary of the Company, filed for bankruptcy with the Ontario, Canada office of the Superintendent in Bankruptcy. This action resulted in the permanent closure of four Chico’s and six WHBM boutiques in Ontario, Canada. The permanent closure of the Canadian boutiques, which constituted all of the Company’s Canadian boutiques, is part of the Company’s ongoing cost-savings measures taken to mitigate the impact of the pandemic and address the operational and financial challenges associated with operating in Canada. In connection with this effort, in the second quarter of fiscal 2020, we exited our Canada frontline operations and recorded on a net basis a non-material charge, including the realization of a cumulative foreign currency translation adjustment.
Fiscal 2021 Fourth Quarter Outlook
For the fiscal 2021 fourth quarter the Company currently expects:
•Consolidated net sales of $495 million to $510 million;
•Gross margin rate as a percent of net sales of 33.0% to 34.5%;
•SG&A expenses as a percent of net sales of 32.3% to 32.8%;
•Effective income tax rate of 33.0%; and
•Earnings per diluted share of $0.00 to $0.05.
Key Performance Indicators
    In assessing the performance of our business, we consider a variety of key performance and financial measures to evaluate our business, develop financial forecasts and make strategic decisions. These key measures include comparable sales, gross margin as a percent of sales, diluted income (loss) per share and return on net assets ("RONA"). In light of the pandemic, we have shifted our focus to effectively manage our liquidity position, including aligning our operating cost structure with expected sales. We will continue to evaluate our other key performance and financial measures in addition to our liquidity position. The following describes these measures.
Liquidity
    Liquidity is measured through cash flow, which is the measure of cash provided by or used in operating, investing and financing activities. We believe that as a result of the Company’s extensive measures to mitigate the impact of the pandemic discussed above, we were able to, and continue to, effectively manage our liquidity position.
Comparable Sales
    Comparable sales is an omnichannel measure of the amount of sales generated from products the Company sells directly to the consumer relative to the amount of sales generated in the comparable prior-year period. Comparable sales is defined as sales from stores open for the preceding twelve months, including stores that have been expanded, remodeled or relocated within the same general market and includes online and catalog sales, and beginning in the third quarter of fiscal 2019, includes international sales. The comparable sales calculation excludes the negative impact of stores closed four or more days. The Company has historically viewed comparable sales as a key performance indicator to measure the performance of our business, however, we are not providing comparable sales figures for the thirty-nine weeks ended October 30, 2021 compared to the thirty-nine weeks ended October 31, 2020 as we believe it is not a meaningful measure due to the varying degrees of business disruptions and periods of store closures and/or stores operating at reduced hours as a result of the pandemic during fiscal 2020.
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    Gross Margin as a Percentage of Net Sales
    Gross margin as a percentage of net sales is computed as gross margin divided by net sales. We believe gross margin as a percentage of net sales is a primary metric to measure the performance of our business as it is used to determine the value of incremental sales, and to guide pricing and promotion decisions.
    Diluted Income (Loss) per Share
    Income (loss) per share is determined using the two-class method when it is more dilutive than the treasury stock method. Basic income (loss) per share 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 income (loss) per share reflects the dilutive effect of potential common shares from non-participating securities such as stock options, performance stock units and restricted stock units. Whereas basic income (loss) per share serves as an indicator of the Company's profitability, we believe diluted income (loss) per share is a key performance measure because it gauges the Company's quality of income (loss) per share assuming all potential common shares from non-participating securities are exercised.
    Return on Net Assets
    RONA is defined as (a) net income (loss) divided by (b) the “five-point average” (based on balances at the beginning of the first quarter plus the final balances for each quarter of the fiscal year) of net working capital less cash and marketable securities plus fixed assets. We believe RONA is a primary metric as it helps to determine how well the Company is utilizing its assets. As such, a higher RONA could indicate that the Company is using its assets and working capital efficiently and effectively.
Our Business Strategy
    Our overall business strategy is focused on building a collection of distinct high-performing retail brands primarily serving the fashion needs of women 35 and older.
In fiscal 2020, the Company took actions to rapidly transform into a digital-first company, fast-tracking numerous innovation and digital technology investments. We also enhanced our marketing efforts to drive traffic and new customers to our brands, while retaining newly acquired customers at a meaningfully higher rate than fiscal 2019.
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 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, growing our online presence, managing our store base, 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 our omnichannel capabilities so our customers can fully experience our brands in the manner they choose.
We view our stores and Company-operated 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 primary 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, our shared inventory system, Endless Aisle, enables customers to make purchases online and ship from store. In fiscal 2019, we completed the implementation of our Buy On-Line, Pick-up In-Store (BOPIS) capability across all our brands, further enhancing our omnichannel capabilities, and in fiscal 2020, we completed the implementation of StyleConnectTM, our proprietary digital styling software that enables us to communicate directly with the majority of our customers, to drive the frontline business to digital fulfillment.
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”
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standard. We also will continue to consider potential alternative sales channels for our brands, including international franchise, wholesale, licensing and other opportunities.
We continue to leverage our digital investments to convert single-channel customers to be omnichannel customers, as the average omnichannel customer spends approximately three times more than a single-channel customer.
In order to maximize the opportunities in each of our brands, we are targeting five key focus areas for 2021:
1.Continuing our ongoing digital transformation;
2.Further refining product through fit, quality, fabric and innovation in each of our brands;
3.Driving increased customer engagement through marketing;
4.Maintaining our operating and cost discipline; and
5.Further enhancing the productivity of our real estate portfolio.
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Results of Operations
Thirteen Weeks Ended October 30, 2021 Compared to the Thirteen Weeks Ended October 31, 2020
    Net Income (Loss) and Income (Loss) per Diluted Share
For the third quarter, the Company reported net income of $18 million, or $0.15 per diluted share, compared to a net loss of $56 million, or $0.48 per diluted share, in last year's third quarter. Results for the third quarter include pre-tax litigation settlement charges of approximately $4 million. Results for last year's third quarter included a pre-tax impairment charge of $8 million as a result of the impact of the pandemic and is reflected in SG&A expenses in the accompanying unaudited condensed consolidated statements of income (loss).
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 October 30, 2021 and October 31, 2020:
 Thirteen Weeks Ended
 October 30, 2021October 31, 2020
 
(dollars in millions) (1)
Chico's$204 44.9 %$164 46.6 %
WHBM138 30.4 104 29.6 
Soma112 24.7 84 23.8 
Total Net Sales$454 100.0 %$351 100.0 %
(1) May not foot due to rounding.
For the third quarter, net sales were $454 million compared to $351 million in last year's third quarter. This 29.1% improvement primarily reflects the decline in store sales during last year’s third quarter as a result of the pandemic and higher full-price sales partially offset by 31 net permanent store closures since last year’s third quarter.
The following table depicts comparable sales percentages by Chico's, WHBM and Soma for the thirteen weeks ended October 30, 2021 and October 31, 2020:
Thirteen Weeks Ended
October 30, 2021October 31, 2020
Chico's23.3 %(32.3)%
White House Black Market33.4 (28.7)
Soma30.2 10.5 
Total Company27.9 (24.1)
    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 October 30, 2021 and October 31, 2020:
 Thirteen Weeks Ended
 October 30, 2021October 31, 2020
 (dollars in millions)
Cost of goods sold$269 $274 
Gross margin184 77 
Gross margin percentage40.7 %22.0 %
For the third quarter, gross margin was $184 million, or 40.7% of net sales, compared to $77 million, or 22.0% of net sales, in last year's third quarter. The year-over-year improvement in gross margin rate primarily reflects margin expansion as a result of higher full price sales, less promotional activity, strategic inventory management and improved leverage of occupancy costs on higher sales, partially offset by increases in raw materials and freight costs.
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Selling, General and Administrative Expenses
The following table depicts SG&A expenses, which includes store and 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 October 30, 2021 and October 31, 2020:
 Thirteen Weeks Ended
 October 30, 2021October 31, 2020
 (dollars in millions)
Selling, general and administrative expenses$162 $153 
Percentage of total net sales35.8 %43.6 %
    For the third quarter, SG&A expenses were $162 million, or 35.8% of net sales, compared to $153 million, or 43.6% of net sales, for last year's third quarter, primarily reflecting the benefit of fiscal 2020 cost savings initiatives and sales leverage, slightly offset by the impact of $4 million in pre-tax litigation settlement charges for the third quarter and pre-tax impairment charges in last year’s third quarter.
Income Taxes
    For the third quarter, the $2.0 million income tax provision resulted in an effective tax rate of 9.9% compared to 26.9% for last year’s third quarter. The 9.9% effective tax rate for the third quarter primarily reflects a change in estimate from the second quarter of fiscal 2021 due to an increase in annual projected deferred tax assets on which a full valuation allowance exists, offset by a 2020 fiscal provision to return benefit due to the reversal of a valuation allowance related to 2020 temporary differences and the rate differential provided by the CARES Act. The 26.9% effective tax rate for last year's third quarter includes the annual benefit of the fiscal 2020 pre-tax loss due to the CARES Act, which was slightly offset by the impact of nondeductible book goodwill impairment charges.
Thirty-Nine Weeks Ended October 30, 2021 Compared to the Thirty-Nine Weeks Ended October 31, 2020
Net Income (Loss) and Income (Loss) per Diluted Share
    For the thirty-nine weeks ended October 30, 2021, the Company reported net income of $35 million, or $0.29 per diluted share, compared to net loss of $281 million, or $2.43 per diluted share, for the thirty-nine weeks ended October 31, 2020. Results for the thirty-nine weeks ended October 30, 2021 include pre-tax litigation settlement charges of approximately $4 million. Results for the thirty-nine weeks ended October 31, 2020 included approximately $198 million in pre-tax non-cash charges as a result of the impact of the pandemic and is reflected in the accompanying unaudited condensed consolidated statements of income (loss) as $76 million in COGS, $8 million in SG&A expenses and $113 million in goodwill and intangible impairment charges.
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 October 30, 2021 and October 31, 2020:
 Thirty-Nine Weeks Ended
 October 30, 2021October 31, 2020
 (dollars in millions)
Chico's$602 45.8 %$435 46.4 %
WHBM364 27.7 270 28.8 
Soma348 26.5 233 24.8 
Total net sales$1,314 100.0 %$938 100.0 %
Net sales for the thirty-nine weeks ended October 30, 2021 increased to $1,314 million from $938 million for the thirty-nine weeks ended October 31, 2020. This increase of 40.1% primarily reflects disruptions related to the pandemic, including temporary store closures and limited hours, during the thirty-nine weeks ended October 31, 2020, partially offset by the impact of 31 net store closures since last year's third quarter.
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The Company is not providing comparable sales figures for the thirty-nine weeks ended October 30, 2021 compared to the thirty-nine weeks ended October 31, 2020 as it is not a meaningful measure due to the significant impact of the pandemic during the thirty-nine weeks ended October 31, 2020, including temporary store closures or stores operating at reduced hours.
Cost of Goods Sold/Gross Margin
The following table depicts COGS and gross margin in dollars and gross margin as a percentage of total net sales for the thirty-nine weeks ended October 30, 2021 and October 31, 2020:
 Thirty-Nine Weeks Ended
 October 30, 2021October 31, 2020
 (dollars in millions)
Cost of goods sold$821 $827 
Gross margin493 111 
Gross margin percentage37.5 %11.8 %
Gross margin for the thirty-nine weeks ended October 30, 2021 was $493 million, or 37.5% of net sales, compared to $111 million, or 11.8% of net sales, for the thirty-nine weeks ended October 31, 2020. The year-over-year improvement in gross margin rate primarily reflects the impact of inventory write-offs and store impairments as a result of the pandemic during the thirty-nine weeks ended October 31, 2020, improved leverage of occupancy costs with rising sales and margin expansion as a result of less promotional activity.
Selling, General and Administrative Expenses
The following table depicts SG&A expenses, which includes store and direct operating expenses, marketing expenses and NSSC expenses, in dollars and as a percentage of total net sales for the thirty-nine weeks ended October 30, 2021 and October 31, 2020:
 Thirty-Nine Weeks Ended
 October 30, 2021October 31, 2020
 (dollars in millions)
Selling, general and administrative expenses$443 $391 
Percentage of total net sales33.7 %41.6 %
For the thirty-nine weeks ended October 30, 2021, SG&A expenses was $443 million, or 33.7% of net sales, compared to $391 million, or 41.6% of net sales, for the thirty-nine weeks ended October 31, 2020. The decrease in SG&A expenses as a percent of total net sales primarily reflects the benefit of fiscal 2020 cost savings initiatives and sales leverage, partially offset by the impact of $4 million in pre-tax litigation settlement charges for the thirty-nine weeks ended October 30, 2021 and pre-tax impairment charges for the thirty-nine weeks ended October 31, 2020.
    Income Taxes
    The effective tax rate for the thirty-nine weeks ended October 30, 2021 and October 31, 2020 was 20.9% and 28.7%, respectively. The 20.9% for the thirty-nine weeks ended October 30, 2021 primarily reflects an annual projected deferred tax assets on which a full valuation allowance exists, offset by a 2020 fiscal provision to return benefit due to the reversal of a valuation allowance related to 2020 temporary differences, the rate differential provided by the CARES Act and favorable state audit settlements. The effective tax rate of 28.7% for the thirty-nine weeks ended October 31, 2020 was primarily impacted by the benefits provided by the enactment of the CARES Act, which was reduced by the unfavorable impact of the Company’s book goodwill impairment, a valuation allowance on certain state tax credit carryforwards that are expected to expire unutilized and share-based compensation expense.
Cash, Marketable Securities and Debt
At the end of the third quarter, cash and marketable securities totaled $137 million compared to $145 million at the end of last year’s third quarter. Debt at the end of the third quarter totaled $99 million, a $50 million decrease from last year’s third quarter.
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Inventories
    At the end of the third quarter, inventories totaled $278 million compared to $257 million at the end of last year's third quarter. The $21 million, or 8.3%, increase from last year’s third quarter primarily reflects strategic inventory management to align assortments with consumer demand to support the Company’s sales growth.
Income Tax Receivable
    At the end of the third quarter, our unaudited condensed consolidated balance sheet reflected a $10 million income tax receivable after collection of $50 million during the thirty-nine weeks ended October 30, 2021, related to the recovery of Federal income taxes paid in prior years and other tax law changes as a result of the CARES Act.
Adoption of New Accounting Pronouncements
    As discussed in Note 1 to our unaudited condensed consolidated financial statements included in this Form 10-Q, we adopted Accounting Standards Update ("ASU") 2019-12, Simplifying the Accounting for Income Taxes and ASU 2021-01, Reference Rate Reform (Topic 848) as of January 31, 2021. Adoption of ASU 2019-12 and ASU 2021-01 did not have a material impact on our unaudited condensed consolidated financial statements.
Recently Issued Accounting Pronouncements
See Note 2 to our unaudited condensed consolidated financial statements included in this Form 10-Q for a description of certain newly issued accounting pronouncements which may impact our financial statements in future reporting periods, as applicable.

Liquidity and Capital Resources
    In response to the pandemic, the Company has taken actions to reinforce its financial position and liquidity. Specific actions include: significantly reducing capital and expense structures, centralizing key functions to create a more nimble organization to better align costs with expected sales; suspending the quarterly dividend commencing April 2020; aligning inventory receipts with expected demand; partnering with suppliers and vendors to reduce operating costs and extend payment terms; and reviewing real estate and actively negotiating with landlords to deliver rent relief in the form of reductions, abatements and other concessions. In October 2020, the Company also amended and extended its credit facility to strengthen its liquidity and enhance its financial stability. The Company anticipates satisfying its material cash requirements from its cash flows from operating activities, our cash and marketable securities on hand, capacity within our credit facility and other liquidity options.
The following table summarizes cash flows for the year-to-date period October 30, 2021 compared to last year's year-to-date period October 31, 2020:
Thirty-Nine Weeks Ended
October 30, 2021October 31, 2020
 
(dollars in millions) (1)
Net cash provided by (used in) operating activities$88 $(64)
Net cash provided by investing activities7 36 
Net cash (used in) provided by financing activities(52)91 
Net increase in cash and cash equivalents$44 $63 
(1) May not foot due to rounding.
Operating Activities
Net cash provided by operating activities for the year-to-date period of fiscal 2021 was $88 million compared to net cash used in operating activities of $64 million in last year's year-to-date period. The change in net cash provided by operating activities primarily reflects higher net income, the timing of income taxes and payables, as well as inventory management, partially offset by normalized rent payments and rent settlements.
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Investing Activities
Net cash provided by investing activities for the year-to-date period of fiscal 2021 was $7 million compared to $36 million in last year's year-to-date period, reflecting a $30 million decrease in net proceeds from the sale of marketable securities, partially offset by reduced capital spend.
Financing Activities
Net cash used in financing activities for the year-to-date period of fiscal 2021 was $52 million compared to net cash provided by financing activities of $91 million in last year's year-to-date period, primarily reflecting a $50 million payment on borrowings in the current year-to-date period compared to a $107 million in proceeds from borrowings in last year's year-to-date period, partially offset by an $11 million dividend payment in last year's year-to-date period.
Credit Facility
On October 30, 2020, the Company and certain material domestic subsidiaries entered into Amendment No. 1 (the "Amendment") to its credit agreement (as amended, the "Agreement"), dated as of August 2, 2018, by and among the Company, certain material domestic subsidiaries as co-borrowers and guarantors, Wells Fargo Bank, National Association ("Wells Fargo Bank"), as Agent, letter of credit issuer and swing line lender, and certain lenders party thereto. Our obligations under the Agreement are guaranteed by the guarantors and secured by a first priority lien on certain assets of the Company and certain material domestic subsidiaries, including inventory, accounts receivable, cash deposits, certain insurance proceeds, real estate, fixtures and certain intellectual property. The Agreement provides for a five-year asset-based senior secured revolving loan ("ABL") and letter of credit facility of up to $285.0 million, maturing October 30, 2025. The interest rate applicable to the ABL is equal to 2.25% (subject to increase to 2.50% based upon average quarterly excess availability under the ABL), with a LIBOR floor of 75 basis points. The Agreement also provides for a $15.0 million first-in last-out ("FILO") loan. The interest rate applicable to the FILO is equal to, at the Company's option, either a base rate, determined by reference to the federal funds rate, or a LIBOR with a floor of 75 basis points, plus in each case an interest rate margin of 4.5%. The Company expects borrowings to be at a LIBOR, plus an interest rate margin of 4.5%. The FILO includes a prepayment penalty equal to 1.0% in the first year, 0.5% in the second year and none thereafter. The FILO can only be prepaid if there are no outstanding borrowings under the ABL. 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 October 30, 2021, $99 million in borrowings were outstanding under the Agreement, and is reflected as long-term debt in the unaudited condensed balance sheet included in this Form 10-Q. Availability under the Agreement is determined based upon a monthly borrowing base calculation which includes eligible credit card receivables, real estate and inventory, less outstanding borrowings, letters of credit and certain designated reserves. As of October 30, 2021, the available additional borrowing capacity under the Agreement was approximately $166 million, inclusive of $29 million of excess availability.
The Company is currently evaluating the impact that the pending discontinuation of, or transition away from, LIBOR will have on the Agreement. We have been in discussions with Wells Fargo Bank, regarding this and do not currently expect the transition to have a significant impact on our unaudited condensed consolidated financial statements.
Store and Franchise Activity
During the thirty-nine weeks ended October 30, 2021, we had 23 permanent store closures, consisting of 11 Chico's stores, 9 WHBM stores and 3 Soma stores. As of October 30, 2021, the Company's franchise operations consisted of 59 international retail locations in Mexico and 2 domestic airport locations.
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Stores continue to be an important part of our omnichannel strategy, and digital sales are higher in markets where we have a retail presence, but we intend to continue rationalizing our real estate portfolio, reflecting our emphasis on digital and our priority for higher profitability standards. We have closed 23 underperforming locations since the beginning of fiscal 2021 and ended the third quarter with 1,279 boutiques. We will continue to shrink our store base to align with these standards, primarily as leases come due, lease kickouts are available, or buyouts make economic sense. However, with the uncertainty of the pandemic, we intend to continuously evaluate the appropriate store base in light of economic conditions and our business strategy and may adjust the openings and closures as conditions require or as opportunities arise.

Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon the condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management has discussed the development and selection of these critical accounting policies and estimates with the Audit Committee of our Board of Directors and believes the assumptions and estimates, as set forth in our 2020 Annual Report on Form 10-K, are significant to reporting our results of operations and financial position. There have been no material changes to our critical accounting policies as disclosed in our 2020 Annual Report on Form 10-K.

Forward-Looking Statements
This Form 10-Q contains statements concerning our current expectations, assumptions, plans, estimates, judgments and projections about our business and our industry and other statements that are not historical facts. These are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In most cases, words or phrases such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “will,” “plans,” "path," “should,” “approximately,” “our planning assumptions,” “future outlook” and similar expressions identify forward-looking statements. These forward-looking statements are based largely on information currently available to our management and are subject to various risks and uncertainties that could cause actual results to differ materially from historical results or those expressed or implied by such forward-looking statements. Although we believe our expectations are based on reasonable estimates and assumptions, they are not guarantees of performance. There is no assurance that our expectations will occur or that our estimates or assumptions will be correct, and we caution investors and all others not to place undue reliance on such forward-looking statements. Factors that could cause actual results to differ include, but are not limited to, those described in Item 1A, “Risk Factors” in our most recent Annual Report on Form 10-K and, from time to time, in Item 1A, “Risk Factors” of our Quarterly Reports on Form 10-Q and the following:
The effects of the pandemic, including uncertainties about its depth and duration, new variants of COVID-19 that have emerged, the speed, efficacy and availability of vaccines and treatments, its impact on general economic conditions, consumer behavior and discretionary spending, the effectiveness of any actions taken in response to the pandemic, and the impact of the pandemic on our manufacturing operations; the extent, availability and effectiveness of any pandemic stimulus packages or loan programs, including the CARES Act; the ability of our suppliers, logistics providers, vendors and landlords, to meet their obligations to us in light of financial stress, staffing shortages, liquidity challenges, bankruptcy filings by other industry participants, and supply chain and other disruptions; increases in unemployment rates and taxes; general economic conditions, inflation, consumer confidence, consumer spending patterns and market disruptions including pandemics or significant health hazards, severe weather conditions, natural disasters, terrorist activities, financial crises, political crises or other major events, or the prospect of these events; shifts in consumer behavior, and our ability to adapt, identify and respond to new and changing fashion trends and customer preferences, and to coordinate product development with buying and planning; changes in the general or specialty retail or apparel industries, including market demand and overall level of spending for women’s private branded clothing and related accessories; our ability to secure and maintain customer acceptance of styles and in-store and online concepts; competition in the markets in which we operate, including our ability to remain competitive with customer shipping terms and costs; customer traffic at our stores; fluctuations in foreign currency exchange rates; significant changes in the costs of manufacturing, raw materials, transportation, importing, distribution, labor and advertising; the quality and timeliness of merchandise received from suppliers; our ability to manage our store fleet, including achieving the expected results of store openings or store closures; our ability to appropriately manage our inventory and allocation processes and leverage targeted promotions; our ability to maintain our cost saving discipline; our ability to operate our retail websites in a profitable manner; our ability to successfully identify and implement additional sales and distribution channels; our ability to successfully execute and achieve the expected results of our business and brand strategies, awareness, merchandising and
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marketing programs including, but not limited to, the Company’s turnaround strategy, retail fleet optimization plan, sales initiatives and multi-channel strategies and five operating priorities for fiscal 2021, which are: 1) continuing our ongoing digital transformation; 2) further refining product through fit, quality, fabric and innovation in each of our brands; 3) driving increased customer engagement through marketing; 4) maintaining our operating and cost discipline; and 5) further enhancing the productivity of our real estate portfolio; our ability to utilize our distribution center and other support facilities in an efficient and effective manner; our reliance on sourcing from foreign suppliers, including significant economic labor, political or other shifts (including the impact of changes in tariffs, taxes or other import regulations, particularly with respect to China, or legislation prohibiting certain imports from China); U.S. and foreign governmental actions and policies and changes thereto; the continuing performance, implementation and integration of our management information systems; the impact of any system failure, cyber security or other data security breaches, including any security breaches resulting in the theft, transfer, or unauthorized disclosure of customer, employee, or company information; our ability to comply with any domestic and foreign information security and privacy laws, regulations and technology platform rules or other obligations related to data privacy and security; the ability to attract, hire, train, motivate and retain qualified employees in an inclusive environment; the successful recruitment of leadership and transition of members of our senior management team; uncertainties regarding future unsolicited offers to buy the Company and actions of activist shareholders and others and our ability to respond effectively; our ability to secure and protect our intellectual property rights and to protect our reputation and brand images; unanticipated changes in legal, regulatory or tax laws; and our ability to comply with the terms of our Credit Agreement, which includes restrictive provisions limiting our flexibility in operating our business and obtaining credit on reasonable terms.
These factors should be considered in evaluating forward-looking statements contained herein. All forward-looking statements that are made or attributable to us are expressly qualified in their entirety by this cautionary notice. The forward-looking statements included herein are only made as of the date of this Form 10-Q. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.


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ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk of our financial instruments as of October 30, 2021 has not materially changed since January 30, 2021. We are exposed to market risk from changes in interest rates on any future indebtedness and our marketable securities and from foreign currency exchange rate fluctuations.
Our exposure to interest rate risk relates in part to our credit agreement with our bank. On October 30, 2020, we entered into Amendment No. 1 (the "Amendment") to our credit agreement (as amended, the "Agreement"), as further discussed in Note 12 to the accompanying unaudited condensed consolidated financial statements and Part I, Item 2, MD&A, included in this Form 10-Q. The Agreement, which matures on October 30, 2025, has borrowing options which accrue interest, at our election, at either a base rate, determined by reference to the federal funds rate, plus an interest rate margin, or LIBOR, plus an interest rate margin, as defined in the Agreement. As of October 30, 2021, $99 million in borrowings were outstanding under the Agreement and is reflected as long-term debt in the accompanying unaudited condensed consolidated balance sheet. Due to the 75 basis points LIBOR floor under the Agreement, an increase in market interest rates of 100 basis points would increase interest expense in the amount of approximately $1.4 million over the remaining term of the loan. 
The Company is currently evaluating the impact that the pending discontinuation of, or transition away from, LIBOR will have on the Agreement. We have been in discussions with Wells Fargo Bank, National Association regarding this and do not expect the move to have a significant impact on our unaudited condensed consolidated financial statements.
Our investment portfolio is maintained in accordance with our investment policy which identifies allowable investments, specifies credit quality standards and limits the credit exposure of any single issuer. Our investment portfolio consists of cash equivalents and marketable securities which primarily includes corporate bonds. The marketable securities portfolio as of October 30, 2021 consisted of $3 million of securities with maturity dates within one year or less and no maturity dates over one year. We consider all securities available-for-sale, including those with maturity dates beyond 12 months, and therefore classify these securities as short-term investments within current assets on the condensed consolidated balance sheets as they are available to support current operational liquidity needs. As of October 30, 2021, an increase or decrease of 100 basis points in interest rates would not have a material effect on the fair value of our marketable securities portfolio.

ITEM 4.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.
As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of such period, our disclosure controls and procedures were effective in providing reasonable assurance in timely alerting them to material information relating to us (including our consolidated subsidiaries) and that information required to be disclosed in our reports is recorded, processed, summarized and reported as required to be included in our periodic SEC filings.
Changes in Internal Controls
There were no significant changes in our internal controls or in other factors that could significantly affect our disclosure controls and procedures subsequent to the date of the above referenced evaluation. Furthermore, there was no change in our internal control over financial reporting or in other factors during the quarterly period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION
 
ITEM 1.LEGAL PROCEEDINGS
    Information regarding legal proceedings is incorporated by reference from Note 13 to our unaudited condensed consolidated financial statements included in this Form 10-Q under the heading "Commitments and Contingencies."
ITEM 1A.RISK FACTORS

    In addition to the other information discussed in this report, the factors described in Part I, Item 1A. “Risk Factors” in our 2020 Annual Report on Form 10-K should be considered as they could materially affect our business, financial condition or future results. There have been no material changes with respect to the risks described in our 2020 Annual Report on Form 10-K, except for those risks updated in our quarterly report on Form 10-Q for the quarter ended July 31, 2021, but these are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may adversely affect our business, financial condition or operating results.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table sets forth information concerning our purchases of common stock for the periods indicated (amounts in thousands, except share and per share amounts):
PeriodTotal
Number of
Shares
Purchased (a)		Average Price
Paid per Share		Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans (b)		Approximate Dollar
Value of Shares that
May Yet Be
Purchased Under
the Publicly
Announced Plans
August 1, 2021 - August 28, 2021130,806 $6.18 — $55,192 
August 29, 2021 - October 2, 202119,113 4.59 — 55,192 
October 3, 2021 - October 30, 2021— — — 55,192 
Total149,919 5.98 — 

(a) Total number of shares purchased consists of 149,919 shares of restricted stock repurchased in connection with employee tax withholding obligations under employee compensation plans, which are not purchases under any publicly announced plan.
(b) In November 2015, we announced a $300 million share repurchase plan. There was approximately $55.2 million remaining under the program as of the end of the third quarter. The repurchase program has no specific termination date and will expire when we have repurchased all securities authorized for repurchase thereunder, unless terminated earlier by our Board of Directors. The Company has no continuing obligation to repurchase shares under this authorization, and the timing, actual number and value of any additional shares to be purchased will depend on the performance of our stock price, market conditions and other considerations.

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ITEM 6.EXHIBITS
(a)The following documents are filed as exhibits to this Form 10-Q:
Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 10.4
Exhibit 10.5
Exhibit 10.6
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
Exhibit 101The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended October 30, 2021, formatted in Inline XBRL: (i) Condensed Consolidated Statements of Income (Loss), (ii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Shareholders' Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
Exhibit 104The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended October 30, 2021, formatted in Inline XBRL (included within Exhibit 101).

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
  CHICO'S FAS, INC.
Date:December 1, 2021  By:/s/ Molly Langenstein
  Molly Langenstein
  Chief Executive Officer, President and Director
Date:December 1, 2021  By:/s/ Patrick J. Guido
  Patrick J. Guido
  Executive Vice President, Chief Financial Officer
Date:December 1, 2021  By:/s/ David M. Oliver
  David M. Oliver
  Senior Vice President - Finance, Controller and Chief Accounting Officer
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