UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
 
 
   
þ
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 200930, 2010
o
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file number 0-21258number:001-16435
 
Chico’s FAS, Inc.
(Exact name of registrant as specified in its charter)
 
 
   
Florida 59-2389435
(State or other jurisdiction
of incorporation)		 (IRS Employer
Identification No.)
 
11215 Metro Parkway,
Fort Myers, Florida 33966
(Address of principal executive offices) (Zip code)
(239) 277-6200
(Registrant’s telephone number)
 
Securities registered pursuant to Section 12(b) of the Act:
 
   
Title of Class
 
Name of Exchange on Which Registered
 
Common Stock, Par Value $.01 Per Share New York Stock Exchange
 
Securities registered pursuant to Section 12(g) of the Act:
None
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ     Noo
 
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     Noþ
 
 
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 þ     Noo
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o     Noo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K  o.
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitiondefinitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in RuleRule 12b-2 of the Exchange Act. (Check one):
 
       
Large accelerated filerþ
 Accelerated filero Non-accelerated filero Smaller reporting companyo
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Act).  Yes o     No þ
 
State the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant:
 
Approximately $963,000,000$2,018,000,000 as of August 1, 2008July 31, 2009 (based upon the closing sales price reported by the NYSE and published in the Wall Street Journal on August 4, 2008)2, 2009).
 
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:
Common Stock, par value $.01 per share — 177,272,938178,615,561 shares as of March 16, 2009.12, 2010.
 
Documents incorporated by reference:
 
Part III Definitive Proxy Statement for the Company’s Annual Meeting of Stockholders presently scheduled for June 25, 2009.24, 2010.
 

 

 
CHICO’S FAS, INC.

ANNUAL REPORT ONFORM 10-K
FOR THE
YEAR ENDED JANUARY 31, 2009

30, 2010
TABLE OF CONTENTS
         
PART II
       
 
Item 1.
  Business  2 
       
 
Item 1A.
  Risk Factors  109 
       
 
Item 1B.
  Unresolved Staff Comments  1715 
       
 
Item 2.
  Properties  1816 
       
 
Item 3.
  Legal Proceedings  1916 
       
 
Item 4.
  Submission of Matters to a Vote of Security Holders(Removed and Reserved)  1916 
 
PART II
       
 
Item 5.
  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities  1917 
       
 
Item 6.
  Selected Financial Data  2119 
       
 
Item 7.
  Management’s Discussion and Analysis of Financial Condition and Results of Operations  2220 
       
 
Item 7A.
  Quantitative and Qualitative Disclosures About Market Risk  3632 
       
 
Item 8.
  Financial Statements and Supplementary Data  3733 
       
 
Item 9.
  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  6257 
       
 
Item 9A.
  Controls and Procedures  6257 
       
 
Item 9B.
  Other Information  6358 
 
PART III
       
 
Item 10.
  Directors, Executive Officers and Corporate Governance  6459 
       
 
Item 11.
  Executive Compensation  6459 
       
 
Item 12.
  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters  6459 
       
 
Item 13.
  Certain Relationships and Related Transactions, and Director Independence  6459 
       
 
Item 14.
  Principal Accounting Fees and Services  6459 
 
PART IV
       
 
Item 15.
  Exhibits and Financial Statement Schedules  6560 
 EX-10.16EX-3.2
 EX-10.28
EX-10.35
EX-10.37
 EX-21
 EX-23
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2


1

 
PART I
 
ITEM 1.  BUSINESS
 
General
 
Chico’s FAS, Inc. (together with its subsidiaries, the “Company”), a Florida corporation, is a national specialty retailer of private branded, sophisticated,casual-to-dressy clothing, intimates, complementary accessories, and other non-clothing gift items under the Chico’s, White House |Black| Black Market (“WH|BM”) and Soma Intimates (“Soma”) brand names. As of January 30, 2010, we operated 1,080 stores across 48 states, the District of Columbia, Puerto Rico and the Virgin Islands ande-commerce websites for each of our brands.
As used in this report, all references to “we,” “us,” “our,” and “the Company,” 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. The periods presented in these financial statements are the fiscal years ended January 30, 2010 (“fiscal 2009” or “2009”), January 31, 2009 (“fiscal 2008” or “2008”), February 2, 2008 (“fiscal 2007” or “2007”), February 3, 2007 (“fiscal 2006 or “2006”) and January 28, 2006 (“fiscal 2005” or “2005”). Each of these periods had 52 weeks, except for fiscal 2006, which consisted of 53 weeks.
Our Brands
 
Chico’s.  The Chico’s brand, which began operations in 1983, sells primarily exclusively designed, private branded clothing focusing on women 35 and over with a moderate to high income level. The styling interprets fashion trends in a unique, relaxed figure-flattering manner using generally easy-care fabrics. Interpreting current fashion trends with frequent deliveries of new and distinctive designs, Chico’s emphasizes a comfortable relaxed fit in a modern style. Accessories, such as handbags, belts, scarves, earrings, necklaces and bracelets, are specifically designed to coordinate with the colors and patterns of the Chico’s brand clothing, enabling customers to easily individualize their wardrobe selections. The Chico’s brand generally controls mostalmost all aspects of the design process, including choices of pattern, prints, construction, design specifications, fabric, finishes and color through in-house designers, purchased designs, and working with its independent vendorssuppliers to develop designs.
 
The distinctive nature of Chico’s clothing is carried through to its sizing. Chico’s uses international sizing, comprising sizes 0 (size 4-6), 1 (size 8-10), 2 (size10-12), and 3 (size14-16), and will occasionally offer one-size-fits-all and small, medium and large sizing for some items. The relaxed nature of the clothing allows the stores to utilize this kind of sizing and thus offer a wide selection of clothing without having to invest in a large number of different sizes within a single style. Chico’s has also added half sizes to some of its offerings.
WH|BMWhite House | Black Market.  The WH|BM brand, which began operations in 1985 and waswhich we acquired by the Company in September 2003, sells fashionfashionable clothing and merchandiseaccessory items, primarily in black and white and related shades focusing on women who are 25 years old and upover with a moderate to high income level. WH|BM offers feminine, sophisticated apparel and accessories from wearable basics to elegant fashion. The accessories at WH|BM, such as handbags, shoes, belts, earrings, necklaces and bracelets, are specifically developed and purchased to coordinate with the colors and patterns of the clothing, enabling customers to easily coordinate with and individualize their wardrobe selections. WH|BM controls almost all aspects of the design process, including choices of pattern, construction, specifications, fabric, finishes and color utilizing an in-house design team and also works closely with its independent vendorssuppliers and agents to select, modify, and create itsthe brand’s product offerings.
WH|BM uses American sizes in the00-14 range (with online sizes up to size 16), which we believe is more appropriate for the target WH|BM customer. As a result, the fit of the WH|BM clothing tends to be more styled to complement the figure of a body-conscious woman, while still remaining comfortable.
 
Soma Intimates.  The Soma brand, which began operations in 2004 under the name “Soma by Chico’s,” sells primarily exclusively designed private branded intimate apparel, sleepwear and activewear. Soma was initially focused on the Chico’s brand target customer. However, in early 2007, the Soma brand was repositioned under the name “Soma Intimates” in response to its appeal to a broader customer base. The Soma brand product offerings are developed by working closely with a small number of its independent vendors and agents to design proprietary products in-house primarily through a close collaborative effort and, in some cases, include designs provided by its independent vendors and under labels other than the Soma label.
Prior to 2007, the Company consisted of both franchised and Company-owned stores. In 2007, the Company completed its strategic plan to take full control of its brand image by acquiring all outstanding franchise rights and having entirely Company-owned stores with no further franchise operations. Going forward, the Company does not intend to establish any franchise arrangements, or to enter into any additional franchise territory development agreements for any of its brands.
At this time, the Company has no immediate plans to enter any foreign markets and it has not decided if, when, or in what manner, it may enter any foreign markets in the future.
The Company will, from time to time, consider the acquisition or organic development of other specialty retail concepts when its research indicates that the opportunity is appropriate and in the best interest of the shareholders. At present, the Company believes it is important to focus its energies on its core Chico’s, WH|BM and Soma brands. The Company continues to explore a number of potential merchandise venues and brand extensions that would both complement the current brands and provide future growth.
Business Strategies
Overall Growth Strategy.  The Company’s growth strategy is multi-faceted. Over the last several years, the Company has built its store base primarily through the opening of new stores for all of its brands, through the expansion of existing stores in its Chico’s and WH|BM brands, through the acquisition and expansion of other concepts such as WH|BM, and through the organic growth of the Soma concept. During that time, the Company built its infrastructure to accommodate the growth in its store base, its multi-branded and multi-channel approach to retailing, and the associated increase in revenues and expenses. This increase in infrastructure included significant and necessary additions of senior and middle management level headquarters associates, including the merchandising and marketing teams, increases in direct-to-consumer staffing, the roll out of the SAP software to all brands


2

(for more detail, see page 6),Soma offers trend-right, innovative and other infrastructure initiatives. More recently, however, the Company is revisiting much of its planned infrastructure investments because of declining sales trends, the current recessionary economic environmentexpertly fitted intimate and is choosing judiciously where to invest in order to increase market share for each of the brands and the direct-to-consumer channel.
In fiscal 2009, the Company will continue to focus on improving the performance of merchandising efforts in its existing stores and expanding its direct-to-consumer business. These activities, coupledlifestyle apparel, with a strong balance sheet, a commitment to better control its expense structure and more effectively manage its inventory investments, and targeting its capital expenditures for higher returns, should allow the Company to effectively manage its growth strategies.
Distinctive Private Branded Clothing and Coordinated Accessories.  The most important element of the Company’s business strategies is the distinctive clothing and complementary accessories it sells under its proprietary brands.
Chico’s.  Interpreting current fashion trends with frequent deliveries of new and distinctive designs, Chico’s targets women 35 and over, emphasizing a comfortable relaxed fit in a modern style. Accessories, such as handbags, belts, scarves, and jewelry, including earrings, watches, necklaces and bracelets, are specifically designed to coordinate with the colors and patterns of the Chico’s brand clothing, enabling customers to easily enhance and individualize their wardrobe selections.
The distinctive nature of Chico’s clothing is carried through to its sizing. Chico’s uses international sizing, comprising sizes 0 (size 4-6), 1 (size 8-10), 2 (size10-12), and 3 (size14-16). As in the past, Chico’s occasionally will offer one-size-fits-all and small, medium and large sizing for some items. The relaxed nature of the clothing allows the stores to utilize this unusual sizing and thus offer a wide selection of clothing without having to invest in a large number of different sizes within a single style. Chico’s has also added half sizes (sizes 0.5, 1.5, 2.5 and 3.5) to some of its bottom and top styles.
WH|BM.  WH|BM offers feminine, sophisticated apparel and accessories from wearable basics to elegant fashion. Its clothing is made primarily in white and black and related shades. The accessoriesdesigner quality at WH|BM, such as handbags, shoes, belts and jewelry, including earrings, necklaces and bracelets, are specifically developed and purchased to coordinate with the colors and patterns of the clothing, enabling customers to easily coordinate with and individualize their wardrobe selections.
WH|BM stores use American sizes in the 0-14 range (with online sizing up to size 16), which the Company believes is more appropriate for the target WH|BM customer. As a result, the fit of the WH|BM clothing tends to be more styled to complement the figure of a body-conscious woman, while still remaining comfortable.
Soma Intimates.affordable prices. Soma offerings are broken into two broad categories: foundations and apparel. The foundations category includes bras, panties, and shapewear, while the apparel category includes activewear, sleepwear, robes and loungewear. Accessories volume within the Soma concept is currently small but may be developed further in the future.
The apparel offerings utilize small, medium and large sizing, while bras are sized using traditional American band and cup sizes. The Soma brand product offerings are developed by working closely with a small number of its independent suppliers and agents to design proprietary products in-house and, in some cases, include designs provided by its independent suppliers and under labels other than the Soma label.
 
PersonalizedOur Business Strategy
Our overall growth strategy is focused on a multi-faceted approach to retailing. This approach includes building our store base, improving store productivity levels, and growing ourdirect-to-consumer (“DTC”) channels. We build our store base primarily through the opening of new stores, the expansion of existing stores in our Chico’s and WH|BM brands, acquisitions such as the WH|BM brand, and the organic growth of Soma. We seek to improve store productivity with our product offerings and our Most Amazing Personal Service and Customer Assistance.  Another important elementwe grow our DTC business through investments in the Company’s strategypeople, products, and infrastructure necessary to support our DTC channels.
To support these strategies and the associated increase in revenues and expenses, we were required to build our infrastructure. This increase in infrastructure included additions of senior and middle management level National Store Support Center (“NSSC”) associates, including our merchandising and marketing teams, increases in DTC staffing, the roll out of the SAP and JDA software to all brands (see page 6), expansion of our distribution center facilities, and other infrastructure initiatives. During fiscal 2009, we focused our infrastructure investments on areas where we could increase market share for successeach of the brands and the DTC channel.
We will continue to consider the acquisition or organic development of other specialty retail concepts when our research indicates that the opportunity is appropriate and in the best interest of the shareholders. We will also continue to explore a number of potential merchandise venues and brand extensions that would both complement the current brands and provide future growth. Our primary focus, however, remains on the core Chico’s, WH|BM and Soma brands.
In fiscal 2010, we will continue to focus on 1) rebuilding the Chico’s brand into a high performance brand, 2) growing the WH|BM and Soma store fleet, 3) accelerating the growth of our DTC sales, and 4) leveraging our cost structure and enhancing our systems. We believe that these initiatives, coupled with a strong balance sheet and targeting capital expenditures for higher returns on investment, will help us with an interim goal of reaching a level of profitability in fiscal 2011 comparable to that earned in fiscal 2005, where we earned over $1.00 per diluted share.
Our Customers
We believe that our customers deserve outstanding and personalized customer service and we strive to achieve this through the Company’s commitment to itsour trademarked “Most Amazing Personal Service” standard. The Company providesWe provide store associates with specialized training in providing customer assistance and advice on their customers’ fashion and wardrobe needs, including clothing and accessory style and color selection, coordination of complete outfits, and suggestions on different ways in which to wear the clothing and accessories. The Company’sOur sales associates are encouraged to know their regular customers’ preferences and to assist those customers in selecting merchandise best suited to their tastes and wardrobe needs.
 
The Company takesWe take pride in empowering itsour associates to make decisions that best serve theour customer. The Company believesWe believe this sense of empowerment enables the Company’sour associates to exceed customers’ expectations. In addition, many of the store managers and sales associates, especially for the Chico’s brand, were


3

themselves our customers prior to joining the Companyus and can therefore more easily identify with current customers. The Company’sOur associates are expected to keep individual stores open until the last customer in the store has been served. If an item is not available at a particular store, sales associates are encouraged tocan locate the item at another location and arrange for the itemit to be shipped directly to the customer from other stores or the distribution center.customer.


3

Customer Loyalty.Another key success strategy is building customer loyalty through focused preferred customer programs. The data we gather from these programs and effective implementation of the Company’s merchandising and customer service strategies. The Company’s customer tracking database allows the Companyallow us to more sharply focus itsour design, merchandising and marketing efforts to better address and define the desires of itsour target customer.
 
Chico’s and Soma Intimates.  Chico’s preferred customer club is known as the “Passport Club” (“Passport”), and is designed to encourage repeat sales and customer loyalty for its Chico’s and Soma brands. Features of the club include discounts, special promotions, invitations to private sales, and personalized phone calls regarding new Chico’s and Soma merchandise.
A Chico’s or Soma customer signs up to join the Passport Club at no cost, initially as a “preliminary” member. Once the customer spends a total of $500 over any time frame in either brand, the customer becomes a “permanent” member and is currently entitled to a 5% discount on all apparel and accessory purchases, advance sale notices and other benefits, subject to certain restrictions.
• Chico’s and Soma.  Chico’s preferred customer club is known as the “Passport Club,” and is designed to encourage repeat sales and customer loyalty for our Chico’s and Soma brands. Features of the club include discounts, special promotions, invitations to private sales, and personalized phone calls regarding new Chico’s and Soma merchandise. A Chico’s or Soma customer signs up to join the Passport Club at no cost, initially as a “preliminary” member. Once the customer spends a total of $500 over any time frame in either brand, the customer becomes a “permanent” member and is entitled to a 5% discount on all apparel and accessory purchases, advance sale notices and other benefits, subject to certain restrictions. We are currently evaluating our Passport Club in conjunction with our overall customer research management and marketing activities to ensure that it remains a compelling reason for customers to shop at Chico’s.
 
In fiscal 2007, in conjunction with the repositioning of the Soma Intimates brand to appeal to a broader customer base, the Companywe began testing a separate loyalty program for its Soma brand.Soma. Although the test ended in fiscal 2008, it is possible the Companywe will offer a separate Soma loyalty program at a future date.
 
WH|BM.  In late fiscal 2004, the Company launched a customer loyalty program for WH|BM called “The Black Book.” Similar to the Passport Club, The Black Book is designed to encourage repeat sales and customer loyalty. Features of the club are similar to the Passport Club and include discounts, special promotions, invitations to private sales, and personalized phone calls regarding new WH|BM merchandise.
A WH|BM customer signs up to join The Black Book at no cost, initially as a “preliminary” member. Once the customer spends a total of $300 on WH|BM merchandise over any time frame, the customer becomes a “permanent” member and is currently entitled to a 5% discount on all apparel and accessory purchases, advance sale notices and other benefits, subject to certain restrictions.
• WH|BM.  WH|BM’s preferred customer club is called “The Black Book.” The purposes, prerequisites, and benefits of The Black Book are identical to Passport Club except that a customer need only spend $300 over any time frame to become a “permanent” member. We are currently evaluating The Black Book in conjunction with our overall customer research management and marketing activities to ensure that it remains a compelling reason for customers to shop at WH|BM.
 
Our Stores and Expansion
 
In general, our stores, which are internally referred to as boutiques, are located in upscale outdoor destination shopping areas, lifestyle specialty centers, shopping malls, and some standalone street front locations. Store locations are determined on the basis of various factors, including but not limited to: geographic market and demographic characteristics of the market, the location of the shopping venue including the site within the shopping center, proposed lease terms, and anchor tenants in a mall location.
In response to business conditions over the last two or so years, we have become more innovative in the way we execute our real estate strategy. For example, in fiscal 2009, we opened several“pop-up” stores. These stores are designed to take advantage of vacancies in high profile shopping locations. They require minimal investment and have short or flexible lease terms facilitating our ability to test a brand’s potential for success in a particular location. We also began the “sister store” concept, consisting of placing Soma stores within existing, oversized Chico’s stores. The sister store allows us to test Soma merchandise in new markets and should help improve the productivity of existing Chico’s stores.
In fiscal 2010, we expect an increase in square footage of approximately 5%, reflecting approximately 4 to 6 net openings of Chico’s stores, 13 to 15 net openings of WH|BM stores, approximately 30 net openings of Soma stores, and 12 to 14 relocations or expansions, which does not include “sister stores”.
Historically, our outlet stores have primarily acted as a channel for clearing marked down merchandise from our front-line stores. However, during fiscal 2009, we increased the amount ofmade-for-outlet product, primarily within the Chico’s brand outlets, which carries a higher margin than the clearance items from our front-line stores. We believe that this approach will allow us to increase outlet store margins and improve profitability. We expect to continue this strategy in fiscal 2010 and beyond and expand it to the WH|BM and Soma brands in the future.


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As of January 31, 2009, the Company30, 2010, we operated 1,0761,080 retail stores in 4948 states, the District of Columbia, the U.S. Virgin Islands and Puerto Rico. The retail stores operate under the Company’s three brands. The following table provides information regarding the Company’s stores by brand:
                 
        Soma
    
  Chico’s
  WH|BM
  Intimates
  Total
 
  Stores  Stores  Stores  Stores 
 
Specialty Centers  377   183   32   592 
Malls  159   125   36   320 
Street  83   20   2   105 
                 
Total Front-line  619   328   70   1,017 
Outlets  41   17   1   59 
                 
Total Stores  660   345   71   1,076 
                 
Average Selling Square Footage  2,668   2,022   1,935   2,412 
                 
Management believes the ability to open additional stores will be a factor in the future success of the Company, particularly in the WH|BM and Soma brands. Due to current macroeconomic and other business conditions, the Company has scaled back its real estate growth targets for 2009 and 2010, and does not intend to increase the number of new stores beyond current commitments until it begins to see improvements in the economy and individual brand performance.


4

Although there were some items manufactured for outlets, the Company’s outlet stores have historically acted mainly as a vehicle for clearing marked down merchandise. Soma also uses the Chico’s outlets as a clearance vehicle for its products at this time. The use of the outlets as a vehicle for clearing merchandise helps front-line stores maintain a more limited markdown policy. Because of the challenging economic times in recent years and the inability of the outlets to absorb the increased volume of marked down merchandise, the Company’s front-line stores have seen a more significant growth in the volume of markdowns. Although the Company is addressing this trend by working to manage the overall inventory levels more tightly, this trend is likely to continue until there is an improvement in the economy and the Company’s performance. Additionally, the Company has targeted an increase of made-for-outlet product primarily within the Chico’s brand which is intended to increase outlet store margins and lower the accessibility to transfer clearance merchandise from the front-line to outlet stores.
The following tables set forth information concerning changes in the number ofour retail stores during the past five fiscal years:
 
                    
 Fiscal Year Ended 
 January 29,
 January 28,
 February 3,
 February 2,
 January 31,
                   
 2005
 2006
 2007
 2008
 2009
  Fiscal Year 
 (52 weeks) (52 weeks) (53 weeks) (52 weeks) (52 weeks)  2005 2006 2007 2008 2009 
Company-Owned Stores
                                        
Stores at beginning of year*  545   645   749   907   1,038 
Opened**  109   109   157   143   62 
Stores at beginning of year(A)
  645   749   907   1,038   1,076 
Opened(B)
  109   157   143   62   40 
Acquired from franchisees  1   —   1   13   —   —   1   13   —   — 
Acquired pursuant to Fitigues Transaction  —   —   12   —   — 
Acquired pursuant to Fitigues transaction  —   12   —   —   — 
Closed  (10)  (5)  (12)  (25)***  (24)  (5)  (12)  (25)(C)  (24)  (36)
                      
Stores at end of year  645   749   907   1,038   1,076   749   907   1,038   1,076   1,080 
                 ��     
Franchise Stores
                                        
Stores at beginning of year  12   12   14   13   —   12   14   13   —   — 
Opened  1   2   —   —   —   2   —   —   —   — 
Acquired by Company  (1)  —   (1)  (13)  —   —   (1)  (13)  —   — 
                      
Stores at end of year  12   14   13   —   —   14   13   —   —   — 
                      
Total Stores
  657   763   920   1,038   1,076   763   920   1,038   1,076   1,080 
                      
 
 
*(A)Not retroactively restated to include Fitigues stores prior to January 31, 2006.
**(B)Not retroactively restated to include Fitigues stores prior to January 31, 2006. Also, does not include relocations, expansions or conversions of previously existing stores within the same general market area (approximately five miles).
 
***(C)Includes 10 Fitigues stores closed in fiscal 2007.2008.
 
                    
 Fiscal Year Ended 
 January 29,
 January 28,
 February 3,
 February 2,
 January 31,
                   
 2005
 2006
 2007
 2008
 2009
  Fiscal Year End 
 (52 weeks) (52 weeks) (53 weeks) (52 weeks) (52 weeks)  2005 2006 2007 2008 2009 
Stores by Brand
                                        
Chico’s front-line  450   499   541   604   619   499   541   604   619   599 
Chico’s outlet  25   31   34   37   41   31   34   37   41   44 
Chico’s franchise  12   14   13   —   —   14   13   —   —   — 
WH|BM front-line  156   196   254   309   328   196   254   309   328   333 
WH|BM outlet  4   8   16   19   17   8   16   19   17   17 
Soma Intimates front-line  10   15   52   68   70   15   52   68   70   83 
Soma Intimates outlet  —   —   —   1   1   —   —   1   1   4 
Fitigues front-line  —   —   9   —   —   —   9   —   —   — 
Fitigues outlet  —   —   1   —   —   —   1   —   —   — 
                      
Total stores at end of year
  657   763   920   1,038   1,076   763   920   1,038   1,076   1,080 
                      


5

Direct-to-Consumer
 
The CompanyWe currently mailsmail a Chico’s and WH|BM catalog to its current and prospective customers virtually every month. These catalogs are designed to drive customers into the stores as well asand promote the website and catalog sales. Each of the Company’sour brands has its own dedicated website,www.chicos.com,www.whitehouseblackmarket.com andwww.soma.com. Each website provides, providing customers the ability to order merchandise online or through theour call center. The Companycenters. We occasionally sends amail stand-alone Soma catalog,catalogs, but utilizesalso utilize Soma catalog inserts in selected Chico’s mailings, where applicable, as a highly efficient customer prospecting vehicle.tools.
 
Sales through the Company’s three websites, together with sales from the Company’sour call center’scenters’ toll free telephone numbers, amounted to $98.3 million in 2009 compared to $70.6 million in fiscal 2008, and are viewedincluded in the each brand’s total


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sales. We view this area as additional sales that provide a customer service for those who prefer shopping through these convenient alternative channels.
 
The Company is targeting the direct-to-consumerDuring fiscal 2009, our DTC growth of approximately 39% was a result of our strategy to invest in this previously underserved revenue channel. For fiscal 2010, we expect to continue to focus on this channel as a growth area that is currently under-penetrated. To that end, the Company is continuing its investment in new hardware, software and personnelorder to increase its direct-to-consumer (i.e. Internet & catalog)our DTC sales penetration.penetration and look for future expansion.
 
Advertising and Promotion
 
TheOur marketing program for the Company currently consists of the following integrated components:
 
 • The Company’s loyaltyLoyalty programs — the Passport Club and The Black Book (see page 4)
 
 • Direct Marketing efforts:marketing activities: direct mail,e-mail, and localized calling campaigns
 
 • National print and broadcast advertising
 
 • Internet and direct phone sales
 
 • Social media
• Public relations and community outreach programs
 
The Company’sOur direct marketing efforts have been successful in driving traffic to stores and the direct-to-consumerDTC channels. During 2009, we expanded our prospecting efforts across all three brands. Also, we tested a number of new sources for prospects, and as a result, we were able to contribute a large number of new customers at a positive return on investment. Lastly, we developed a personalized “Lapsed Buyer” program that drove considerable customer reactivation. A large portion of the active Passport and Black Book customers maintained in the database currently receive an average of one mailer per month.
 
During the last six months of fiscal 2007, the Company ran extensive television advertising in four distinct markets to support the Soma2009, we launched fresh marketing campaigns for our brands. The Chico’s brand which resulted in strong same store sales during and after the time theseaired television commercials aired. The Company continuedduring the Fall season for the first time in several years. In September 2009, the WH|BM brand launched its marketing campaign during “Fashion Week” in New York City positioning itself as a designer brand alternative. We believe that these marketing campaigns inspired our customers and were a key factor in our improved performance in fiscal 2009.
During fiscal 2009, we also began to use television advertising in fiscal 2008 for the Somasocial media websites such as Facebook and Twitter to connect with our customers. Social media marketing is another strategy by which we can actively engage with customers to provide them targeted brand but at lower spending levels than fiscal 2007.messages or news concerning our brands.
 
The CompanyWe also places additional emphasisplace great value on our “outreach programs.” These outreach programs include among othereditors’ events, VIP parties, fashion shows and wardrobing parties. As part of these outreach programs, the Company also encourages itswe encourage our managers and sales associates to become involved in community projects. The Company believesWe believe that these programs, in addition to helping build and support community and charitable activities, are also effective marketing vehicles in providing introductions to new customers. The Company has developed programs to help its store level associates use these programs.
 
Management Information SystemsTechnology
 
The Company isWe are committed to an ongoing review andcontinuous improvement of itsour information systems to enable the Companyus to obtain, usefulanalyze and act upon information on a timely basis and to maintain effective financial and operational controls. This revieweffort includes testing of new products and systemsapplications to assure that the Company iswe are able to take advantage of technological developments. The Company is working
We have worked with SAP, a third party vendor, to implement an enterprise resource planning system (ERP)(“ERP”) to manage its retail stores.all selling channels. This fully integrated system is expected to support and coordinate allmost aspects of product development, merchandising, finance and accounting and to be fully scalable to accommodate rapid growth.
 
On February 4,In fiscal 2007, the Companywe completed the first major phase of itsour multi-year, planned implementation of the new ERP system by converting its Soma brand to the new merchandising system as well as rolling out the new financial systems at the


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financial systems at the same time. The second major phase was completed in early 2010 and we are currently anticipates an initial roll out and utilization ofutilizing this new system in mid fiscal 2009 and subsequently in early fiscal 2010.all of our brands. The third major phase contemplatesincludes on-going enhancements and optimization of the new ERP across all three brands, as well as the deployment of additional functionality across various other functions withinfunctions.
Also, in early fiscal 2009, we purchased JDA Enterprise Planning, JDA Assortment Planning and JDA Allocation software applications instead of previously planned implementations of related SAP applications and revised our roll out plan accordingly. We completed the Company.implementation of the allocation functionality during fiscal 2009 and plan to complete a substantial portion of the remaining JDA applications in fiscal 2010.
 
Merchandise Distribution
 
Distribution for all brands is handledfacilitated through the Company’sour distribution centercenters in Winder, Georgia. New merchandise is generally received daily at the distribution center.centers. Merchandise from United States based vendorssuppliers arrives at the distribution centerin Georgia by truck, rail, or air, as the circumstances require. A majority of the merchandise from foreign vendorssuppliers arrives in this country via air at various points of entry and is transported via truck or rail to the distribution center. The Company has targeted this area as an opportunity to shift more merchandise from air transportation to ocean transportation in order to lower in-bound freight costs.centers. After arrival at thea distribution center, merchandise is sorted and packaged for shipment to individual stores or for transfer to the direct-to-consumerour DTC fulfillment center. Merchandise is generally pre-ticketed with price and all otherrelated informational tags at the timepoint of manufacture.
During fiscal 2009, we purchased an additional 39 acres of property, including an approximate 300,000 square foot building in close proximity to our existing distribution center for approximately $10.4 million. We believe that as a result of this acquisition together with additional infrastructure enhancements, our distribution facilities can now support over $3 billion in sales.
 
Product Development/Sourcing
 
Chico’s, WH|BM, and Soma private branded merchandise is developed through the coordinated efforts of itstheir respective merchandising, creative and production teams working with its independent vendors.suppliers. Style, pattern, color and fabric for individual items of the Company’sour private branded clothing are developed based upon perceived current and future fashion trends that will appeal to itseach brand’s target customer, anticipated future sales and historical sales data.
 
Chico’s and Soma have historically purchased most of their clothing and accessories from companies that manufacture such merchandise in foreign countries except forand take ownership of the “cut and sew” operations described below.goods at the point of consolidation in those foreign countries. WH|BM has historically purchased a significant amount of its clothing and accessories from domestic importers. However, all brands have experienced a growing trend where more of their clothing and accessories are purchased from companies that arrange for such items to be manufacturedmanufacture merchandise in foreign countries. The Company doescountries and we take ownership in the foreign country. We conduct business with all of itsour foreign vendorssuppliers and importers in United States currency.
 
Except for certain U.S., Mexico and Guatemala based “cut and sew” operations, the Company generally does not directly purchase and supply the raw materials for its clothing, leaving the responsibility for purchasing raw materials with the manufacturers. In the “cut and sew” operations, the Company buys fabric and trim components and provides the materials to one intermediary, which then assigns the “cut and sew” responsibilities to “cut and sew” manufacturers in the United States, Mexico or Guatemala, who make the specified Chico’s brand designs and styles.
Because of certainour initiatives to lower sourcing costs associated with the Company’s vendors in various parts of the world and certain other long term uncertainties, presented by such vendor relationships, the Companywe regularly evaluatesevaluate where best to manufacture itshave our goods manufactured and may continue to pursue new vendorsupplier relationships throughout the world.
 
Chico’s, WH|BMIn order to leverage the purchasing power and Soma collaborate ontalent of all three brands, we have recently consolidated our sourcing operations, including sharingactivities previously residing within each brand into one service group to support all three brands. We expect that this single group working in concert with our key supply chain partners, will deliver higher quality, lower piece goods and finished merchandise costs while providing the opportunity to lessen freight costs and perform more of the vendor base, where appropriate. The Company believesquality assurance function at the sharingpoint of the vendor base could continue to expand in fiscal 2009. The Company also plans to begin implementing a metric based “supplier scorecard” inmanufacture.
During fiscal 2009, we entered into a non-exclusive relationship with a sourcing service company. Acting as an agent for its shared vendor base and ultimately its entire vendor base across all three brands.brands, this third party provides us with a number of different merchandise sourcing services. Aside from identifying key suppliers of apparel and other consumer goods, they are also involved with product development, quality assurance, negotiation of prices, and product flow tracking within the supply chain.
 
In fiscal 2009, the Company plans to continue its direct-to-manufacturer sourcing opportunities. In addition, the Company continues to evaluate establishing overseas offices or relationships in Asia that would provide technical support in areas such as fit, fabric, color and quality assurance. The Company believes these initiatives could lead to improved product cost, quality control, timeliness of deliveries, and overall speed to market.
In fiscal 2008, China sources accounted for approximately 66% of our merchandise value compared to approximately 58% in the Company’s purchases of merchandise whileprior fiscal year. The United States sources (including fabric and “cut and sew” vendors) accounted for approximately 10%7% of merchandise purchases. Approximately 14% of total purchases in fiscal 2008 were made from one vendor compared to approximately 7.5% for the same vendor in fiscal 2007.


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merchandise purchases, while other Western Hemisphere sources accounted for approximately 8%. Approximately 13% of total purchases in fiscal 2009 were made from one supplier, compared to 14% in fiscal 2008.
Competition
 
The women’s retail apparel business is highly competitive and has become even more so in the past several years. The retailers that are believed to most directly compete with the Chico’s brand are the mid-to-high endincludes department stores, including Nordstrom’s, Bloomingdale’s, Macy’s and Saks Fifth Avenue, specialty stores including Gap, Talbots, J. Jill, Ann Taylor, Ann Taylor Loft, Christopher & Banks, and Coldwater Creek, direct-to-consumer retailers such as Lands’ End and L.L. Bean, as well as local or regional boutique stores. We believe that our distinctively designed merchandise offerings and emphasis on customer service distinguish us from other retailers. The retailers that are believed to most directly compete with the WH|BM brand are the same mid-to-high end department stores named above and specialty stores which include Ann Taylor, Ann Taylor Loft, Banana Republic, J. Crew, Gap, New York and Co., and Express as well as local or regional boutiques. Although management believes there is currently limited direct competition for Soma merchandise largely because of the distinctive nature of the brand’s merchandise designed with the targeted customer age 35 and over in mind, the retailers that are believed to most directly compete with Soma stores are the same mid-to-high end department stores andNevertheless, certain of the specialty stores named above, local boutiques, and, to a more limited extent, Victoria’s Secret. The perceived growth opportunities within the women’s apparel market has encouraged the entry of newthese competitors as well as increased competition from existing competitors. Certain of these competitorsmay have greater name recognition as well as greater financial, marketing and other resources than the Company.us.
 
The following are several factors that the Company considers important in competing successfully in the retail apparel industry: newness and innovation of product styles, breadth of selection in colors, prints, sizes and styles of merchandise, product procurement and pricing, abilitySpecific to address customer preferences and be in line with fashion trends, reputation, quality of merchandise, store design and location, visual presentation, effective use of marketing data, frequent shopper programs, advertising, and customer service. The Company believes that its emphasis on personalized service and customer assistance, the distinctive designs of its clothing and accessories, which provide a perceived high value, exclusive availability of the product offerings at its stores, the locations of its stores, and the effectiveness of the frequent shopper programs and its other marketing programs, are the various means by which the Company competes. Although the Company believes that it is able to compete favorably with other merchandisers, including department stores and specialty retailers, with respect to each of these factors, the Company believes it competes mainly on the basis of its customer service emphasis and distinctive merchandise selection.
Along with certain retail segment factors noted above, otherour DTC operations, key competitive factors for the direct-to-consumer operations include the success or effectiveness of customer mailing lists, response rates, catalog presentation, merchandise delivery and web site design and availability. The direct-to-consumerOur DTC operations compete against numerous catalogs and web sites, which may have greater circulation and web traffic.
 
Employees
As of January 31, 2009, the Company employed approximately 14,460 people, approximately 40% of whom were full-time associates and approximately 60% of whom were part-time associates. The number of part-time associates fluctuates during peak selling periods. As of the above date, over 90% of the Company’s associates worked in its front-line and outlet stores.
The Company has no collective bargaining agreements covering any of its associates, has never experienced any material labor disruption and is unaware of any efforts or plans to organize its associates. The Company currently contributes most of the cost of medical, dental and vision coverage for eligible associates and also maintains a
401(k), stock incentive and stock purchase plans. All associates also are eligible to receive substantial discounts on Company merchandise. The Company considers relations with its associates to be good.
Trademarks and Service Marks
 
The Company, through its subsidiaries, isWe are the owner of certain registered and common law trademarks and service marks (collectively referred to as “Marks”).
 
The Company’s Marks registered in the United States include, but are not limited to: CHICO’S, CHICO’S PASSPORT, M.A.P.S., MARKET BY CHICO’S, MOST AMAZING PERSONAL SERVICE, NO TUMMY,


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PASSPORT, THE WHITE HOUSE, WHITE HOUSE BLACK MARKET, FASHION FOR BOTH SIDES OF YOU, and SOMA BY CHICO’S. The company is seeking to register SOMA INTIMATES in the United States and hasINTIMATES. We have registered or isare seeking to register a number of these Marks in certain foreign countries as well.
 
In the opinion of management, the Company’sour rights in the Marks are important to the Company’sour business. Accordingly, the Company intendswe intend to maintain itsour Marks and the related registrations and applications. The Company isWe are not aware of any claims of infringement or other challenges to itsour rights to use any registered Marks in the United States or any other jurisdiction in which the Marks have been registered.
 
Available Information
 
The Company’sOur investor relations website is located atwww.chicosfas.comwww.chicosfas.com.. Through this website, the Company makeswe make available free of charge itsour Securities and Exchange Commission (“SEC”) filings including its annual reportour Annual Report onForm 10-K, quarterly reports onForm 10-Q, current reports onForm 8-K, and amendments to those reports, as soon as reasonably practicable after those reports are electronically filed with the SEC. The CompanyThis website also maintains various other data on this website within the investor relations page, including itsincludes recent press releases, corporate governance information, beneficial ownership reports, institutional slide show presentations, quarterly and institutional conference calls and other quarterly financial data, e.g., historical store square footage, etc. The CompanyWe also operates websites through which it primarily sells its merchandise, those beingoperate three websites:www.chicos.com,www.whitehouseblackmarket.com andwww.soma.com, through which we primarily sell merchandise, each of which also provides a convenient link to the Company’sour investor relations website,www.chicosfas.com.website.
 
The Company has aOur Code of Ethics, which is applicable to all associates of the Company,our associates, including the principal executive officer, the principal financial officer and the Board of Directors, and which is posted on the Company’sour investor relations website. The Company intendsWe intend to post amendments to or waivers from itsour Code of Ethics (to the extent applicable to the Company’s chief executive officer, principal financial officer, principal accounting officer or its Directors) on this website. Copies of the charters of each of the Company’s Audit Committee, Compensation and Benefits Committee and Corporate Governance and Nominating Committee as well as the Company’s Corporate Governance Guidelines, Code of Ethics, Terms of Commitment to Ethical Sourcing, and Stock Ownership Guidelines are available on this website or in print upon written request by any shareholder.
 
Employees
As of January 30, 2010, we employed approximately 16,200 people, approximately 30% of whom were full-time associates and approximately 70% of whom were part-time associates. The Company has included the CEO and CFO certifications regarding its public disclosure required by Section 302number of part-time associates fluctuates during peak selling periods. As of the Sarbanes-Oxley Actabove date, approximately 90% of 2002 as Exhibits 31.1our associates worked in our front-line and 31.2outlet stores. We have no collective bargaining agreements covering any of our associates, have never experienced any material labor disruption and are unaware of any efforts or plans to this report onForm 10-K. Additionally, the Company filed with the New York Stock Exchange (“NYSE”) the CEO’s certification regarding the Company’s compliance with the NYSE’s Corporate Governance Listing Standards (“Listing Standards”) pursuant to Section 303A.12(a)organize our associates. We currently contribute most of the Listing Standards, which was dated July 18, 2008,cost of medical, dental and indicated that the former CEO was not aware of any violations of the Listing Standards by the Company.vision coverage for eligible associates and also maintain


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a 401(k), stock incentive and stock purchase plans. All associates are also eligible to receive substantial discounts on our merchandise. We consider relations with our associates to be good.
 
Executive Officers of the Registrant
 
Set forth below is certain information regarding our executive officers:
 
David F. Dyer, 59,60, is the Company’sour President and Chief Executive Officer and joined us in January 2009. He is also a member of our Board of Directors having joined the Board of Directors. Mr. Dyer became President and CEO in January 2009.March 2007.
 
Donna M. Colaco, 50,51, is our Brand President — White House | Black Market for the Company. Ms. Colacoand joined the Companyus in August 2007.
 
Cynthia S. Murray, 51,52, is our Brand President — Chico’s for the Company. Ms. Murrayand joined the Companyus in February 2009.
 
Charles L. Nesbit, Jr., 53,Lee Eisenberg, 63, is Brandour Executive Vice President — Soma Intimates for the Company. Mr. Nesbit has been with the Company since August 2004, first became an executive officer of the CompanyCreative and joined us in April 2005 and has held his current position as Brand President — Soma Intimates since February 2009.
 
Manuel O. Jessup, 53,54, is the Company’sour Executive Vice President — Chief Human Resources Officer. Mr. Jessup joined the Companyus in September 2006 and first became an executive officer of the Company when he was promoted to his current position as Executive Vice President — Chief Human Resources Officer in December 2007.


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Jeffrey A. Jones, 62,63, is the Company’sour Executive Vice President — Chief Operating Officer. Mr. JonesOfficer and joined the Companyus in February 2009.
 
Gary A. King, 51,52, is the Company’sour Executive Vice President — Chief Information Officer. Mr. KingOfficer and joined the Companyus in October 2004.
 
Kent A. Kleeberger, 56,57, is the Company’sour Executive Vice President — Chief Financial Officer and Treasurer. Mr. KleebergerTreasurer and joined the Companyus in November 2007.
 
Mori C. MacKenzie, 59, is the Company’sour Executive Vice President — Chief Stores Officer. Ms. MacKenzie joined the Companyus in October 1995, first became an executive officer in June 1999 and has held her current position as Executive Vice President — Chief Stores Officer since February 2004.
 
A. Alexander Rhodes, 50,51, is the Company’s Seniorour Executive Vice President — General Counsel and Secretary. Mr. Rhodes joined the Companyus in January 2003 and first became an executive officer of the Company when he was promoted to his current position as Senior Vice President — General Counsel and Secretary in April 2006.
 
All of the above officers serve at the discretion of our Board of Directors.
 
ITEM 1A.  RISK FACTORS
 
The Company makesWe make forward-looking statements in itsour filings with the Securities and Exchange CommissionSEC and in other oral or written communications. Forward-looking statements involve risks and uncertainties that could cause actual results to be materially different from those indicated (both favorably and unfavorably). These risks and uncertainties include, (butbut are not limited to)to, the risks described below. The Company undertakesWe undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
 
Effective ManagementThere can be no assurance that we have correctly identified and appropriately assessed all factors affecting our business operations or that the publicly available and other information with respect to these matters is complete and correct. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial also may adversely impact our operations. Should any risks or uncertainties develop into actual events, these developments could have material adverse effects on the business, financial condition and results of Growth Strategyoperations.
Our results of operations depend in part on the effective management of our growth strategies.
 
The Company’sOur growth strategy which includes brand extensions, square footage expansion, increasing the number of new stores, and increasing its direct-to-consumerour DTC business is dependent upon a number of factors, including: testing of new products, locating suitable store sites, negotiating favorable lease terms, having the infrastructure to address the increased number and size of its stores and the increased demands of a direct-to-consumerDTC business, sourcing sufficient levels of inventory, hiring and training qualified management level and other associates, generating sufficient operating cash flows to fund the expansion plans, and integrating new stores and a larger direct-to-consumerDTC business into its existing operations. The Company expects to continue to open new stores in future years, while also remodeling, relocating and expanding a portionManagement of the existing store base, and closing underperforming stores. The planned openings and expansionsour growth strategy could place increased demands on operational, managerial and administrative resources. These increased demands could cause the Company to operateresources and may


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result in us operating the business less effectively, which in turn could cause deterioration in the financial performance of individual stores.storesand/or our DTC business. In addition, to the extent that a number of new store openings are in existing markets, the Companywe may experience reduced net sales volumes in previously existing stores in those same markets. Furthermore, the continued effective expansion of our DTC business may draw sales away from individual stores, negatively impacting the net sales volumes at such stores and thus negatively impacting our comparable store sales. There can be no assurance that the Companywe will achieve itsour planned expansion or that such expansion will be profitable or that the Companywe will be able to manage itsour growth effectively.
 
Effective Managementmanagement of Store Performancethe performance of our stores is a key factor in the success of our business.
 
The Company operated 660 Chico’s stores, 345 WH|BM stores and 71 Soma stores as of January 31, 2009, 66 of which opened within the last thirteen months. The results achieved by these stores may not be indicative of longer term performance or the potential market acceptance of stores in other locations. The CompanyWe cannot be assured that any new store that it opens will have similar operating results to those of prior stores. New stores commonlymay take up to two years to reach planned operating levels due to inefficiencies typically associated with new stores, including demands on operational, managerial and administrative resources. The failure of existing or new stores to perform as predicted could negatively impact the Company’sour net sales and results of operations as well asand may result in impairment of long-lived assets at Companyour stores.


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Strategic DevelopmentOur ability to develop new concepts and brand extensions is a significant component of New Conceptsour business strategy.
 
A significant portion of the Company’sour longer term business strategy involves the strategic acquisition or the organic development and growth of new concepts and brand extensions within established brands. The Company’sextensions. Our ability to succeed in new concepts may require significant capital expenditures and management attention. Additionally, any new concept is subject to certain risks including customer acceptance, competition, product differentiation, challenges to economies of scale in merchandise sourcing, and the ability to attract and retain qualified personnel, including management and designers.personnel.
 
The Company isWe are currently expanding itsour Soma target customer audience and continuescontinue to invest in development of the brand through marketing, and new product launches and the opening of new Soma stores in order to create and maintain brand awareness and create economies of scale, which is anare integral factorfactors in the success of the brand. Although the Company believeswe believe building brand awareness will attract new customers, the Companywe cannot provide assurance that the marketing activities, and new product launches and store openings will result in increased sales or profitability in the future for the Soma brand. In addition, the Company believes that eventual profitability is dependent on the ability to open a critical mass of Soma stores (currently believed to be at least100-125 stores) and the continued focus on improving the existing Soma operations and profitability. Thus,Accordingly, if the Companywe cannot successfully execute itsour growth strategies for development of the Soma brand, or any other new concepts or brand extensions for that matter, the Company’sour financial condition and results of operations may be adversely impacted.
 
General Economic ConditionsOur results of operations are sensitive to, and may be adversely affected by, general economic conditions and overall consumer confidence.
 
The recent downturns in the overall economy and the volatility in the financial markets have adversely impacted the Company’s business and are likely to continue to impact sales volume and profitability levels of the Company. Certain economic conditions affect the level of consumer spending on the merchandise offered by the Company,that we offer, including, among others, risinghigh unemployment levels, availability of consumer credit, deteriorating business conditions, inflation, interest rates, recessionary pressures, energy costs, taxation, uncertainty, and consumer confidence in future economic conditions. The recent disruptionsDisruptions in the overall economy and financial markets tend to reduce consumer confidence in the economy and negatively affect consumers’ spending patterns, which could be harmful to the Company’sour financial position and results of operations, as was the case in fiscal 2008, and may cause the Company to decidelead us to further decelerate the number and timing of new store openings, relocations, or expansions. Furthermore, declines in consumer spending patterns due to economic downturns may have a more negative effect on apparel retailers than some other retailers, particularly in the Company’sour competitive space, and can negatively affect the Company’s net sales and profitability. There can be no assurances that government responses to the disruptions in the financial markets will restore consumer confidence, stabilize the markets or increase liquidity and the availability of credit.
 
Fluctuations in Comparable Store SalesOur comparable store sales and Company Operating Resultsoperating results may fluctuate.
 
The Company’sOur comparable store sales and overall operating results have fluctuated in the past and are expected to continue to fluctuate in the future. A variety of factors affect comparable store sales and Company operating results, including changes in fashion trends, changes in the Company’sour merchandise mix, customer acceptance of merchandise offerings, timing of catalog mailings, expansion of our DTC business, calendar shifts of holiday periods, actions by competitors, new store openings, weather conditions, and general economic conditions. Past comparable store sales or operating results are not an indicator of future results. In fiscal 2008,


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Our gross margin may be impacted by the Company experienced negative overall (and negative Chico’s and WH|BM brand) comparable store sales results, which had a significant negative effect on the Company’s operations and market price of the Company’s common stock. Similarly, the Company’s overall and individual brand comparable store sales results in the future, both positive and negative, are likely to have a significant impact on the Company’s operations and market price of the Company’s common stock.
Gross Margin Impact of Mix of Salesmix between our brands or within product categories.
 
The Company’s grossGross margins are impacted by the sales mix both from the perspective of merchandise sales mix within a particular brand and relative sales volumes of the different brands. Certain categories of apparel and accessories tend to generate somewhat higher margins than others within each brand. Thus, a shift in sales mix within a brand can often create a significant impact on the Company’sour overall gross margins. On the other hand,Additionally, the gross margins for the Chico’s brandand WH|BM brands have historically been higher than at the WH|BM and Soma brands. Asbrand. If sales at WH|BM


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and Soma grow at a faster pace than at the Chico’s brand as planned, the Company’sand WH|BM brands, our overall gross margin margins may be negatively impacted which could in turn have an adverse effect on the Company’s overall operating margin and the market price of the Company’s common stock.consolidated earnings.
 
ImpactOur DTC operations include risks that could have a material adverse effect on Selling, General and Administrative Expenses from the Openingour financial condition or results of Larger Storesoperations.
 
The average size of the Chico’s and WH|BM stores has been increasing over the last several years. In particular, new Chico’s and WH|BM front-line stores were approximately 30% larger than the chain average in fiscal 2007. Although these stores are expected to produce incremental profit dollars that will be in the range of each respective chain’s average anticipated profits, they will likely increase selling, general and administrative expenses as a percentage of sales due to their larger size and anticipated initial lower sales per selling foot. Although it is anticipated that these stores will eventually achieve profit margins equal to more mature stores, these stores are likely, to put short-term pressure on the Company’s operating margin by increasing selling, general and administrative expenses as a percentage of sales. This could have an adverse effect on the Company’s operating margins and the market price of the Company’s common stock.
Risks Associated with Direct-to-Consumer Sales
The Company sells merchandise over the Internet through its websites,www.chicos.com,www.whitehouseblackmarket.com, andwww.soma.com. Although the Company’s direct-to-consumer operations encompassed only 4.5% of the Company’s total sales for fiscal 2008, it is anticipated that the percentage will continue to grow and could grow faster than in the past, due to the Company’s concentrated efforts in the area. The Company’s direct-to-consumerOur DTC operations are subject to numerous risks, including unanticipated operating problems, reliance on third party computer hardware and software providers, system failures and the need to invest in additional infrastructure. The direct-to-consumerDTC operations also involve other risks that could have an impact on the Company’sour results of operations including hiring, retention and training of personnel, to conduct the Company’s direct-to-consumer operations, increased postage or printing costs, rapid technological change, liability for online content, credit card fraud, risks related to the possible failure of the computer systems that operate the website and its related support systems, including computer viruses, telecommunication failures and electronic break-ins and similar disruptions. Given the Company’sour business strategy to target sustained growth in its direct-to-consumer operations and thus increaseincreased sales penetration supported by investment in infrastructure,the DTC area, the risks associated with direct-to-consumerDTC operations are likely to be of greater significance in fiscal 20092010 and future years than in prior years. There can be no assurance that the Company’s direct-to-consumerDTC operations will be able to achieve targeted sales and profitability growth or even remain at their current level.
 
PrivacyWe significantly rely on our ability to implement and Information Securitymaintain our information technology systems.
 
The Company’sWe rely on various information systems to manage our operations and regularly make investments to upgrade, enhance or replace such systems. Any delays or difficulties in transitioning or in integrating new systems with our current systems, or any other disruptions affecting our information systems, could have a material adverse impact on the business. We also use ofinformation technology for individually identifiable data, which is regulated at the international, federal and state levels. Privacy and information security laws and regulation changes, and compliance with them may result in cost increases due to necessary system changes and the development of new administrative processes. If the Companywe or itsour associates fail to comply with these laws and regulations or experience a data security breach, the Company’sour reputation could be damaged, possibly resulting in lost future business, and itwe could be subjected to fines, penalties, administrative orders and other legal riskrisks as a result of non-compliance.
 
DependenceWe rely on Single Distribution Locationone location to distribute goods to our stores and fulfill DTC orders.
 
The Company’s distribution functions for all of itsour stores and for its direct-to-consumerour DTC sales are handled from two separate facilities located beside each otherour distribution centers in Winder, Georgia. Any significant interruption in the operation of either of these distribution facilities due to natural disasters, accidents, system failures or other unforeseen causes could delay or impair the Company’sour ability to distribute merchandise to itsour storesand/or fulfill direct-to-consumerDTC orders, which could cause sales to decline. The CompanyWe regularly reviews and is developing itsreview our options to mitigate this riskthese risks including contingency plans andback-up relationships with outside providers of distribution services.
 
SuccessOur success depends on a high volume of traffic to our stores and Locationthe availability of Shopping Centerssuitable store locations.
 
In order to generate customer traffic, the Company locateswe locate many of itsour stores in prominent locations within shopping centers that have been or are expected to be successful. The CompanyWe cannot control the development of new shopping centers, the availability or cost of appropriate locations within existing or new shopping centers, or


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the success of individual shopping centers. Furthermore, factors beyond the Company’sour control impact shopping center traffic, such as general economic conditions, weather conditions, consumer acceptance of new or existing shopping centers, regional demographic shifts, and consumer spending levels. A slowdown in the U.S. economy, as has been seen in fiscal 2008 and so far in fiscal 2009, tends to negatively affect consumer spending and reduce shopping center traffic. The Company’sOur sales are partly dependent on a high volume of shopping center traffic and any decline in such shopping center traffic, whether because of the slowdown in the economy, a falloff in the popularity of shopping centers among our target customers, or otherwise, could have a material adverse effect on our business.


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Seasonal FluctuationsOur business fluctuates on a seasonal basis.
 
The nature of the Company’sOur business is comprised of two distinct selling seasons; spring and fall. During the peaks of these seasons, higher inventory levels, increased marketing costs, availability of temporary personnel, and other expensesfactors may be incurred to prepare and compete for the anticipated stronger consumer spending.impact our results. Lower than expected sales or profit margins during these periods as was experienced in fiscal 2008, could materially affect theour financial condition andor results of operations.
 
Merchandising/Fashion SensitivityOur inability to remain current with fashion trends and introduce new products successfully could negatively impact our financial results.
 
The Company’sOur success is principally dependent upon itsour ability to gauge the fashion tastes of itsour customers and to provide merchandise that satisfies customer demand in a timely manner. Misjudgments or unanticipated fashion changes could have a material adverse impact on our business, results of operations and financial condition. There can be no assurance that new products will be met with the same level of acceptance as in the past. The Company’s failure to anticipate, identify or react appropriately and in a timely manner to changes in fashion trends or demands, could lead to lower sales, excess inventories and more frequent markdowns or inventory write-downs, which could have a material adverse impact on the Company’s business. Misjudgments or unanticipated fashion changes could also have a material adverse impact on the Company’s image with its customers. There can be no assurance that the Company’s new products will be met with the same level of acceptance as in the past or that the failure of any new products will not have a material adverse impact on the Company’s business, results of operations andour financial condition.results.
 
Maintaining Proper Inventory LevelsOur inability to maintain proper inventory levels could have a negative effect on our results of operations.
 
The Company maintains anWe maintain inventory of merchandiselevels in itsour stores and distribution center, particularly of selected productscenters that the Company anticipateswe anticipate will be in highline with projected demand. Inventory levels in excess of customer demand may result in inventory write-downs or the sale of excess inventory at discounted or closeout prices, such as occurred in fiscal 2007 and fiscal 2008.prices. These events could significantly harm the Company’sour operating results and impair the image of one or more of the Company’sour brands. Conversely, if the Company underestimateswe underestimate consumer demand for itsour merchandise, particularly higher volume styles, or if the Company’s manufacturersour suppliers fail to supply quality products in a timely manner, the Companywe may experience inventory shortages, which might result in missed sales, negatively impact customer relationships, diminish brand loyalty and result in lost revenues, any of which could harm the Company’sour business.
 
Price, Availability and Quality of its Offerings
Fluctuations in the price, availability and quality of fabrics and other raw materials used in producing the Company’s products could have a material adverse effect on the Company’s cost of goods or its ability to meet customer demands. The price and availability of such fabrics, other raw materials and labor may fluctuate significantly, depending on many factors, including natural resources, increased freight costs, increased labor costs, weather conditions and currency fluctuations. In the future, the CompanyOur suppliers may not be able to pass all orprovide goods in a portion of such higher fabric, other raw materials or labor prices on to its customers.
Competitiontimely manner and meet quality standards.
 
The retail apparel and accessory industry is highly competitive. The Company competes with national, international and local department stores, specialty and discount store chains, independent retail stores and Internet and catalog businesses that market similar lines of merchandise. The Company’s successful performance in recent years has increased the amount of imitation by other retailers, often at lower price points. Such imitation has made and will continue to make the retail environment in which the Company operates more competitive. Many competitors are significantly larger andWe have greater financial, marketing and other resources and enjoy greater national, regional and local name recognition than the Company. Depth of selection in sizes, colors and styles of


13

merchandise, merchandise procurement and pricing, the ability to anticipate fashion trends and consumer preferences, inventory control, reputation, quality of merchandise, store design and location, brand recognition and customer service are all important factors in competing successfully in the retail industry.
Vendor Relationships
The Company has no material long-term or exclusive contracts with any apparel or accessory manufacturer or supplier. TheOur business depends on itsour network of suppliers and on continued good relations with its vendor base.our suppliers. A key vendorsupplier may become unable to supplyaddress our merchandising needs due to payment terms, cost of manufacturing, adequacy of manufacturing capacity, quality control, and timeliness of delivery. If the Company waswe were unexpectedly required to change vendorssuppliers or if a key vendorsupplier was unable to supply acceptable merchandise in sufficient quantities on acceptable terms, the Companywe could experience a significant disruption in the supply of merchandise. The CompanyWe could also experience operational difficulties with its manufacturers,our suppliers, such as reductions in the availability of production capacity, errors in complying with merchandise specifications, insufficient quality control, shortages of fabrics or other raw materials, failures to meet production deadlines or increases in manufacturing costs. In fact, manufacturing costs may fluctuate significantly, depending on many factors, including natural resources, increased freight costs, increased labor costs, weather conditions, inflationary pressures from emerging markets and currency fluctuations. In the future, we may not be able to pass all or a portion of such higher raw materials or labor prices on to our customers.
Approximately 13% of total purchases in fiscal 2009 and 14% of total purchases in fiscal 2008 were made from one vendor compared to approximately 7.5% for the same vendor in fiscal 2007. The Companysupplier. We cannot guarantee that this relationship will be maintained in the future or that the vendorsupplier will continue to be available to manufacturesupply merchandise. A significant disruption in the supply of merchandise from this, or any other key vendor,supplier, could have a material adverse impact on the Company’sour operations.
 
Working Capital Requirements of Third-Party ManufacturersCompetition could negatively impact our results.
 
We compete with national, international and local department stores, specialty and discount store chains, independent retail stores and online businesses that market and sell similar lines of merchandise. Many competitors are significantly larger and have greater financial, marketing and other resources and enjoy greater national, regional and local name recognition. In addition to competing for sales, we compete for favorable store locations, lease terms and qualified associates. Increased competition could result in price reductions, increased marketing expenditures and loss of market share, any of which could have a material adverse effect on our financial condition


12

and results of operations. The Company reliesrecent recessionary conditions have resulted in more significant competition as our competitors have lowered prices and engaged in more promotional activity.
The inability of our suppliers to obtain credit may cause us to experience delays in obtaining merchandise.
We rely on independent manufacturerssuppliers for producing itsour merchandise. Many of these manufacturerssuppliers rely on working capital financing to finance their operations. As a result of recentAlthough the credit market events,has improved since last year, lenders have over the last several months generallystill maintained tightened credit standards and terms. To the extent any of the Company’s manufacturersour suppliers are unable to obtain adequate credit or their borrowing costs increase, the Companywe may experience delays in obtaining merchandise, the manufacturerssuppliers may increase their prices or they may modify payment terms in a manner that is unfavorable to the Company. Any of the aforementioned could adversely affect the Company’s net sales or gross margin, which could adversely affect the Company’s business, financial condition and results of operations.us.
 
RelianceWe rely significantly on Foreign Sourcesforeign sources of Productionproduction.
 
Although the Company has certain portionsThe majority of itsour clothing and accessories produced within the United States, a majority of the Company’s clothing and accessories are stillis produced outside the United States, and the percentage has been growing, and this trend may continue. As a result, the Company’sour business remains subject to the various risks of doing business in foreign markets and importing merchandise from abroad, such as: (i) political instability; (ii) imposition of new legislation relating to import quotas that may limit the quantity of goods that may be imported into the United States from countries in which the Company doeswe do business; (iii) imposition of new or increased duties, taxes, and other charges on imports; (iv) foreign exchange rate challenges and pressures presented by implementation of U.S. monetary policy; (v) local business practice and political issues, including issues relating to compliance with the Company’sour Terms of Commitment to Ethical Sourcing and domestic or international labor standards; (vi) transportation disruptions, and (vii) seizure or detention of goods by U.S. Customs authorities. In particular, we source a substantial portion of our merchandise from China. A change in the Chinese currency, other policies affecting labor laws or the costs of goods in China could negatively impact our merchandise costs.
 
The CompanyWe cannot predict whether or not any of the foreign countries in which itsour clothing and accessories are currently, produced or any ofin the countries in which the Company’s clothing and accessoriesfuture may be produced, in the future will be subject to import restrictions by the United States government, including the likelihood, type or effect of any trade retaliation. Trade restrictions, including increased tariffs, or more restrictive quotas, including safeguard quotas, or both,anything similar, applicable to apparel items could affect the importation of apparel generally and, in that event, could increase the cost, or reduce the supply, of apparel available to the Companyus and adversely affect the Company’sour business, financial condition and results of operations. The Company’s merchandise flow and cost may also be adversely affected by political instability in anyWe are, however, a member of the countries in which its goods are producedU.S. Customs Trade Partnership Against Terrorism (“C-TPAT”) supply chain security program and continuing adverse changes in foreign exchange rates.the U.S. Customs Importer Self Assessment (“ISA”) trade compliance program. Both programs afford certain trade benefits by U.S. Customs that may mitigate some of these risks.
 
In addition, the laws and customs protecting intellectual property rights in many foreign countries can be substantially different and potentially less protective of intellectual property than those in the United States. The


14

Company hasWe have taken numerous steps to protect itsour intellectual property overseas, but cannot guarantee that such rights are not infringed. The intentional or unintentional infringement on the Company’sour intellectual property rights by one of its vendorsour suppliers or any other person or entity, could diminish the uniqueness of the Company’sour products, tarnish the Company’sour trademarks, or damage the Company’sour reputation.
 
Vendor’s Compliance with Labor Practices Requirements
Although the Company haswe have adopted itsour Terms of Commitment to Ethical Sourcing and seeksuse the services of a third party auditory to be diligent in itsour monitoring of compliance with these terms, the Company doeswe do not have absolute control over the ultimate actions or labor practices of itsour independent vendors.suppliers. The violation of labor or other laws by one of itsour key independent vendorssuppliers or the divergence of an independent vendor’ssupplier’s labor practices from those generally accepted by us as ethical by the Company could interrupt or otherwise disrupt the shipment of finished merchandise to the Company or damage the Company’sour reputation. Any of these, in turn, could have a material adverse effect on the Company’s financial condition, results of operations and its stock price.
 
Changes in Accounting Principles, Interpretationsaccounting principles, interpretations and Practicespractices may impact our results.
 
Financial statements are prepared in accordance with U.S. generally accepted accounting principles. These accounting principles can be complex for certain aspects of the Company’sour business and may involve subjective judgments. A change fromin current accounting standards could have a significant effect on the Company’simpact our financial condition or results of operations.


13

Internal ControlA failure in the effectiveness of internal control over Financial Reportingfinancial reporting could adversely impact our business.
 
The Company’sOur system of internal controls over financial reporting is designed to provide reasonable assurance that the objectives of an effective financial reporting control system are met. However, any system of internal controls is subject to inherent limitations and the design of controls will not provide absolute assurance that all objectives will be met. This includes the possibility that controls may be inappropriately circumvented or overridden, that judgments in decision-making can be faulty and that misstatements due to errors or fraud may not be prevented or detected. Any failure in the effectiveness of internal control over financial reporting could have a material effect on financial reporting or cause the Companyus to fail to meet reporting obligations, and could negatively impact investor perceptions.
 
Adverse OutcomesWe may be subject to adverse outcomes of Litigation Matterslitigation matters.
 
The Company isWe are involved from time to time in litigation and other claims against itsour business. These issuesmatters arise primarily in the ordinary course of business but could raise complex, factual and legal issues, which are subject to multiple risks and uncertainties and could require significant management time. The Company believesWe believe that the Company’sour current litigation issuesmatters will not have a material adverse effect on the Company’s results of operations or financial condition. However, the Company’sour assessment of current litigation could change in light of the discovery of facts with respect to legal actions pending against the Companyus not presently known to the Companyus or determinations by judges, juries or other finders of fact which do not accord with the Company’sour evaluation of the possible liability or outcome of such litigation and additional litigation that is not currently pending could have a more significant impact on the Companyour business and its operations.
 
Headquarters ExpansionThe ongoing expansion of our National Store Support Center may impact our financial condition.
 
During the first quarter of fiscal 2006, the Company completed the purchase of approximately 22 acres of property adjacent to the Company’s current headquarters site in Fort Myers, Florida to serve as the base for expansion of the Company’s corporate headquarters operations. The Company anticipatesWe anticipate that itsour cash and marketable securities on hand and cash from operations will be adequate to cover the necessary costs of construction for its headquartersour ongoing NSSC expansion. However, in the event that such cash and marketable securities on hand and cash from operations is not sufficient to meet the Company’sour capital expenditures needs, the Companywe may need to draw on itsour line of credit or seek other financing in order to fund the costs of expansion of the headquarters campus or other capital expenditures.NSSC campus. In addition, such activities could potentially result in temporary disruptions of operations or a diversion of management’s attention and resources.


15

Reliance on Key PersonnelWe may be unable to retain key personnel.
 
The Company’sOur success and ability to properly manage itsour growth depends to a significant extent both upon the performance of itsour current executive and senior management team and itsour ability to attract, hire, motivate, and retain additional qualified management personnel in the future. The Company’s inability toIf we cannot recruit and retain such additional personnel or the loss ofwe lose the services of any of itsour executive officers, it could have a material adverse impact on the Company’sour business, financial condition and results of operations.operations
 
Effects of War, Terrorismterrorism or Other Catastrophesother catastrophes may negatively impact our results.
 
In the event of war, acts of terrorism or any furtherthe threat of terrorist attacks, customer traffic in shopping centers and consumer spending could significantly decrease. In addition, local authorities or shopping center management could close in response to any immediate security concern or weather catastrophe such as a hurricanehurricanes, earthquakes, or tornado.tornadoes. Similarly, war, acts of terrorism, threats of terrorist attacks, or a weather catastrophe could severely and adversely affect the Company’s headquartersour NSSC campus or distribution center that,centers which, in turn, could have a material adverse impact on the Company’sour business. Any such event
Recognition of an impairment charge on our goodwill or intangible assets could result in decreased sales that would have a material adverse impact on the Company’s business, financial condition andour results of operations.
Goodwilloperations and Intangible Assetsfinancial condition.
 
Goodwill and intangible assets with indefinite lives are not amortized, but rather are tested for impairment annually or more frequently if impairment indicators arise. In addition to the annual review, management uses certain indicators to evaluate whether the carrying value of goodwill and other intangible assets may not be recoverable, such as (i) the Company’s market capitalization in relation to the book value of its stockholders’ equity, (ii) current-period operating or cash flow declines combined with a history of operating cash flow declines or a forecast that


14

demonstrates continuing declines in cash flow or inability to improve operations to forecasted levels, or (iii) a significant adverse change in business climate that could affect the value of reporting units.
 
The significant estimates and assumptions used by management in assessing the recoverability of goodwill and other intangible assets include estimated future cash flows, the discount rate, and other factors. Any changes in these estimates or assumptions could result in an impairment charge. The estimates of future cash flows, based on reasonable and supportable assumptions and projections, require management’s subjective judgment. Depending on the assumptions and estimates used, the estimated future cash flows projected in the evaluations of long-lived assets can vary within a range of outcomes. Nevertheless, the unprecedented credit crisis including extreme volatilityAny changes in the capital markets and the global economic downturnthese estimates or assumptions could result in changes to expectations of future cash flows and key valuation assumptions and estimates. These events could result in changes to management’s estimates of the fair value of the Company’s reporting units and may result in material impairments in the future.an impairment charge. If the Company determineswe determine in the future that impairments have occurred, the Company would be required to write offwe will write-off the impaired portion of either 1) goodwill, 2) the WH|BM trademark asset or 3) the Minnesota territorial rights, any of which could substantially and negatively impact the Company’sour results of operations.
 
RelianceOur failure to protect our brand reputationand/or intellectual property could have an adverse effect on Information Technologyour brand images.
 
The Company relies on various information systems to manage its operations and regularly makes investments to upgrade, enhance or replace such systems. The Company is currently implementing a new enterprise resource planning system (ERP) through SAP, a third party vendor, to assist in managing its retail stores. This fully integrated system is expected to support and coordinate all aspects of product development, merchandising, finance and accounting and to be fully scalable to accommodate rapid growth. Any delays or difficulties in transitioning or in integrating SAP with the Company’s current systems, or any other disruptions affecting the Company’s information systems, could have a material adverse impact on the Company’s business.
Brand Reputation
The Company’sOur ability to protect itsour brands’ reputation is an integral part of itsour general success strategy. The Chico’s image of high qualitystrategy and unique styles as well as the WH|BM image of classic and timeless designs is critical to the overall value of the brands. Maintaining and positioning these brands is an on-going investment for the Company in which it is likelyus and our continued investment in customer research and promotional eventsvenues will be essential. Although the Company believes product development investments will help attract new customers, it cannot


16

provide assurance that they will result in increased revenue and profitability. Additionally, if the Company failswe fail to maintain high standards for merchandise quality and integrity, such failures could jeopardize the brands’ reputation and have a negative effect on earnings.our business. Damage to the Company’sour reputation as a whole could also cause a loss of consumer and investor confidence and could have a material effect on theour business.
 
Protection of Intellectual Property
The Company believesWe believe that itsour trademarks, copyrights, and other intellectual and proprietary rights are important to itsour success. Even though the Company takeswe take action to establish, register and protect itsour trademarks, copyrights, and other intellectual and proprietary rights, there can be no assurance that the Companywe will be successful or that others will not imitate the Company’sour products or infringe upon the Company’sour intellectual property rights. In addition, there can be no assuranceother parties may claim that others will not resist or seek to block the salesome of the Company’sour products as infringements ofinfringe on their trademarks, copyrights, or other proprietaryintellectual property rights. IfTo the Company is required to stop using any of its registered or non-registered trademarks or copyrights, the Company’sextent such claims are successful, sales could decline and itsour business and results of operations could be adversely affected.
 
Volatility of Stock PriceOur stock price may be volatile.
 
The market price of the Company’sour common stock has fluctuated substantially in the past and there can be no assurance that the market price of theour common stock will not continue to fluctuate significantly. Future announcements or management discussions concerning the Companyus or itsour competitors, sales and profitability results, quarterly variations in operating results or comparable store net sales, or changes in earnings estimates by analysts, or changes in accounting policies, among other factors, could cause the market price of the common stock to fluctuate substantially. In addition, stock markets, in general, have experienced extreme price and volume volatility in recent years. This volatility has had a substantial effect on the market prices of securities of many public companies for reasons frequently unrelated to the operating performance of the specific companies.
 
List Not Exclusive
The foregoing list of risk factors is not exhaustive. There can be no assurance that the Company has correctly identified and appropriately assessed all factors affecting its business operations or that the publicly available and other information with respect to these matters is complete and correct. Additional risks and uncertainties not presently known to the Company or that it currently believes to be immaterial also may adversely impact the business. Should any risks or uncertainties develop into actual events, these developments could have material adverse effects on the Company’s business, financial condition and results of operations.
ITEM 1B.  UNRESOLVED STAFF COMMENTS
 
Like other seasoned issuers, the Company, from time to time receiveswe receive written comments from the staff of the SEC regarding the Company’s periodic or current reports under the Exchange Act. There areAs of the date of this filing, there were no comments that the Company received not less than 180 days before the end of its 2008 fiscal year to which thisForm 10-K relates that remain unresolved.


1715

ITEM 2.  PROPERTIES
 
Stores
 
As a matter of policy, the Company prefers to lease its stores and all theof our stores are currently leased. As of January 31, 2009, the Company’s 1,07630, 2010, our 1,080 stores were located in 4948 states, the District of Columbia, the U.S. Virgin Islands and Puerto Rico, as follows:
 
                          
Alabama  15  Louisiana  18  Ohio  27   16  Louisiana  16  Ohio  29 
Arizona  28  Maine  1  Oklahoma  9   25  Maine  1  Oklahoma  9 
Arkansas  8  Maryland  31  Oregon  19   8  Maryland  32  Oregon  18 
California  126  Massachusetts  27  Pennsylvania  49   126  Massachusetts  28  Pennsylvania  47 
Colorado  21  Michigan  25  Rhode Island  5   20  Michigan  24  Rhode Island  5 
Connecticut  18  Minnesota  17  South Carolina  19   19  Minnesota  18  South Carolina  19 
Delaware  4  Mississippi  4  South Dakota  1   4  Mississippi  4  South Dakota  1 
District of Columbia  4  Missouri  19  Tennessee  20   3  Missouri  21  Tennessee  22 
Florida  104  Montana  2  Texas  96   103  Montana  2  Texas  97 
Georgia  41  Nebraska  6  Utah  8   41  Nebraska  6  Utah  8 
Hawaii  6  Nevada  15  Vermont  1   6  Nevada  16  Vermont  1 
Idaho  2  New Hampshire  2  Virginia  28   2  New Hampshire  2  Virginia  29 
Illinois  44  New Jersey  44  Washington  20   44  New Jersey  48  Washington  20 
Indiana  16  New Mexico  8  West Virginia  2   16  New Mexico  8  West Virginia  2 
Iowa  5  New York  41  Wisconsin  13   5  New York  39  Wisconsin  13 
Kansas  9  North Carolina  31  Wyoming  1   9  North Carolina  31  U.S. Virgin Islands  1 
Kentucky  11  North Dakota  1  U.S. Virgin Islands  1   12  North Dakota  1  Puerto Rico  3 
           Puerto Rico  3 
 
HeadquartersNSSC and Distribution CenterCenters
 
The Company’s World HeadquartersOur NSSC is located on approximately 57 acres in Fort Myers, Florida and consists of approximately 347,600 square feet of office space. During fiscal 2006, the Company completed the purchase of approximately 22 acres (which is included in the 57 total acres above) of property, including seven existing buildings aggregating approximately 200,600 square feet of office space (which is included in the 347,600 total office space above) adjacent to the Company’s headquarters site for approximately $26.4 million. This World Headquarters campus currently consists of its corporate and administrative headquarters for all of its brands.
In order to facilitate temporary space needs, the Company has leased approximately 12,500 square feet of off-site space in the Fort Myers area for its call center and has leased approximately 21,000 square feet of off-site space for its finance department, which it plans to vacate by June 2009.
The CompanyWe also owns 71own 110 acres of land in Winder, Georgia for itsthat house our distribution and fulfillment centers operations. These facilities consist of 202,000approximately 583,000 square feet of distribution, space, 50,000 square feet of fulfillment, and call center space and 31,000 square feet of office space. AtDuring fiscal 2009, we completed the timepurchase of the original acquisition, the Company also secured a commitment from the local county to permit the addition of up to another 200,000 square feet of distribution space and 6,000 square feet of office space39 acres (which is included in the future, subjecttotal 110 acres above) of property in close proximity to final approval byour existing distribution center in Winder, Georgia including an approximately 300,000 square foot building (which is included in the local county at the time the Company petitions the county to add the additionalaforementioned 583,000 square footage.foot total) for approximately $10.4 million.
 
The Company is currently evaluating its requirements and the appropriate timing to make additional distribution center capacity available particularly in light of its recent decision to slow its new store growth until improvements in the economy and the Company’s performance are achieved. Even with the scaled down growth plans, the Company’s present goal is to begin design work to increase capacity in late fiscal 2009. It is currently anticipated that the Company will require additional distribution space in fiscal 2010. The Company is evaluating the expansion of its current distribution center on the existing adjacent land that is already owned by the Company, as well as other strategic alternatives.


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ITEM 3.  LEGAL PROCEEDINGS
 
The Company was named as defendant in a putative class action filed in June 2008 in the Superior Court for the State of California, County of San Diego,Michele L. Massey Haefner v. Chico’s FAS, Inc. The Complaint alleges that the Company, in violation of California law, requested or required customers to provide personal information in conjunction with credit card transactions. The Company filed an answer denying the material allegations of the Complaint. The Company believes that the case is wholly without merit and, thus, doesWe are not believe that the case should have any material adverse effect on the Company’s financial condition or results of operations.
The Company is notcurrently a party to any other legal proceedings, other than various claims and lawsuits arising in the normal course of business, none of which the Company believeswe believe should have a material adverse effect on itsour financial condition or results of operations.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS(REMOVED AND RESERVED)
 
None.


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PART II
 
ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
The Company’sOur Common Stock trades on the New York Stock Exchange (“NYSE”) under the symbol “CHS”. On March 16, 2009,12, 2010, the last reported sale price of the Common Stock on the NYSE was $4.84$14.76 per share. The number of holders of record of common stock on March 12, 2010 was 1,918.
 
The following table sets forth, for the periods indicated, the range of high and low sale prices for the Common Stock, as reported on the New York Stock Exchange:NYSE:
 
         
For the Fiscal Year Ended January 31, 2009
 High  Low 
 
Fourth Quarter (November 2, 2008 - January 31, 2009) $4.44  $1.72 
Third Quarter (August 3, 2008 - November 1, 2008)  7.99   2.24 
Second Quarter (May 4, 2008 - August 2, 2008)  8.18   4.26 
First Quarter (February 3, 2008 - May 3, 2008)  10.72   5.42 
         
For the Fiscal Year Ended January 30, 2010
 High  Low 
 
Fourth Quarter (November 1, 2009 - January 30, 2010) $15.43  $11.95 
Third Quarter (August 2, 2009 - October 31, 2009)  14.14   11.03 
Second Quarter (May 3, 2009 - August 1, 2009)  11.69   7.17 
First Quarter (February 1, 2009 - May 2, 2009)  8.05   3.40 
 
         
For the Fiscal Year Ended February 2, 2008
 High  Low 
 
Fourth Quarter (November 4, 2007 - February 2, 2008) $12.87  $6.70 
Third Quarter (August 5, 2007 - November 3, 2007)  20.12   11.90 
Second Quarter (May 6, 2007 - August 4, 2007)  27.70   17.98 
First Quarter (February 4, 2007 - May 5, 2007)  27.94   20.06 
         
For the Fiscal Year Ended January 31, 2009
 High  Low 
 
Fourth Quarter (November 2, 2008 - January 31, 2009) $4.44  $1.72 
Third Quarter (August 3, 2008 - November 1, 2008)  7.99   2.24 
Second Quarter (May 4, 2008 - August 2, 2008)  8.18   4.26 
First Quarter (February 3, 2008 - May 3, 2008)  10.72   5.42 
 
AlthoughOn February 24, 2010, the Company currently does not intendBoard of Directors declared an initial quarterly cash dividend of $0.04 per share on our common stock. The dividend was payable on March 22, 2010 to Chico’s FAS, Inc. shareholders of record at the close of business on March 8, 2010. This is the first quarterly dividend declared since we became a publicly traded company in March 1993. While it is our intention to continue to pay anya quarterly cash dividends or repurchase shares over the near termdividend for fiscal 2010 and intends to retain its earnings for the future operation and expansion of the Company’s business, the Company may reconsider this intention as the Company monitors its build up of cash reserves. Anybeyond, any determination to pay dividends or repurchase shares in the future will be at the discretion of the Company’s Board of Directors and will also be dependent upon the Company’s results of operations, financial condition, contractual restrictions and other factors deemed relevant by the Board of Directors.


19

In fiscal 2008, the Company2009, we repurchased 60,16876,479 restricted shares in connection with employee tax withholding obligations under employee compensation plans, of which 31,49451,324 were repurchased in the fourth quarter as set forth in the following chart.
 
                 
           Approximate
 
        Total
  Dollar Value
 
        Number of
  of Shares that
 
        Shares
  May Yet Be
 
        Purchased as
  Purchased
 
        Part of
  Under the
 
  Total Number
  Average
  Publicly
  Publicly
 
  of Shares
  Price Paid
  Announced
  Announced
 
Period
 Purchased  per Share  Plans  Plans 
 
November 2, 2008 to November 29, 2008  —  $—   —  $— 
November 30, 2008 to January 3, 2009  4,504  $3.28   —  $— 
January 4, 2009 to January 31, 2009  26,990  $3.73   —  $— 
                 
Total  31,494  $3.66   —  $— 
                 
                 
        Approximate
      Total
 Dollar Value
      Number of
 of Shares that
      Shares
 May Yet Be
      Purchased as
 Purchased
      Part of
 Under the
  Total Number
 Average
 Publicly
 Publicly
  of Shares
 Price Paid
 Announced
 Announced
Period
 Purchased per Share Plans Plans
 
November 1, 2009 to November 28, 2009  45,482  $14.74   —  $— 
November 29, 2009 to January 2, 2010  5,842  $13.87   —  $— 
January 3, 2010 to January 30, 2010  —  $—   —  $— 
                 
Total  51,324  $14.64   —  $— 
                 


17

The approximate number of equity security holders of the Company is as follows:
Number of Record Holders
Title of Class
as of March 16, 2009
Common Stock, par value $.01 per share1,936
Five Year Performance Graph
 
The following graph compares the cumulative total return on the Company’sour common stock with the cumulative total return of the companies in the Standard & Poor’s 500 Index and the Standard & Poor’s 500 Apparel Retail Index. Cumulative total return for each of the periods shown in the Performance Graph is measured assuming an initial investment of $100 on January 31, 200429, 2005 and the reinvestment of dividends.
 
Comparison of Cumulative Five Year Total Return
 
 
                                                
  1/31/2004  1/29/2005  1/28/2006  2/3/2007  2/2/2008  1/31/2009  1/29/2005  1/28/2006  2/3/2007  2/2/2008  1/31/2009  1/30/2010
Chico’s FAS, Inc.   $100   $138   $229   $119   $58   $22   $100   $166   $86   $42   $16   $50 
S&P 500 Index  $100   $105   $118   $135   $133   $81   $100   $112   $128   $126   $76   $102 
S&P 500 Apparel Retail Index  $100   $120   $111   $132   $128   $64   $100   $93   $110   $107   $54   $106 
                                    


2018

ITEM 6.  SELECTED FINANCIAL DATA
 
Selected Financial Data at the dates and for the periods indicated should be read in conjunction with, and is qualified in its entirety by reference to the financial statements and the notes thereto referenced in this Annual Report onForm 10-K. The Company’s fiscal years end onAmounts in the Saturday closest to January 31following tables are in thousands, except per share data, number of stores data, net sales and are designated by the calendar year in which the fiscal year commences.inventory per square foot, and number of associates.
 
                     
  Fiscal Year Ended 
  January .31,
  February 2,
  February 3,
  January 28,
  January 29,
 
  2009
  2008
  2007
  2006
  2005
 
  (52 weeks)  (52 weeks)  (53 weeks)  (52 weeks)  (52 weeks) 
  (In thousands, except per share and selected operating data) 
 
Operating Statement Data:
                    
Net sales by Chico’s/Soma stores $1,074,939  $1,223,217  $1,210,474  $1,095,938  $889,429 
Net sales by WH|BM stores  436,875   418,901   367,063   261,601   142,092 
Net sales bydirect-to-consumer
  70,591   72,093   52,959   36,151   26,831 
Other net sales(1)  —   115   10,431   10,885   8,530 
                     
Net sales  1,582,405   1,714,326   1,640,927   1,404,575   1,066,882 
Cost of goods sold(2)  762,913   745,265   673,742   547,532   411,908 
                     
Gross margin  819,492   969,061   967,185   857,043   654,974 
Store operating expenses  645,352   633,288   525,529   416,833   328,491 
Marketing  80,326   95,717   75,121   58,164   43,441 
Shared services  109,744   118,598   102,835   83,733   58,666 
Impairment and restructuring charges  23,664   —   —   —   — 
                     
Income (loss) from operations  (39,594)  121,458   263,700   298,313   224,376 
Gain on sale of investment  —   6,833   —   —   — 
Interest income, net  7,757   10,869   10,626   8,236   2,327 
                     
Income (loss) before income taxes  (31,837)  139,160   274,326   306,549   226,703 
Income tax provision (benefit)  (12,700)  48,012   99,635   112,568   85,497 
                     
Income (loss) from continuing operations  (19,137)  91,148   174,691   193,981   141,206 
Loss on discontinued operations, net of tax  —   2,273   8,055   —   — 
                     
Net income (loss) $(19,137) $88,875  $166,636  $193,981  $141,206 
                     
Income (loss) from continuing operations-basic(3) $(0.11) $0.52  $0.99  $1.07  $0.79 
Loss on discontinued operations-basic(3)  —   (0.01)  (0.05)  —   — 
                     
Basic net income (loss) per share(3) $(0.11) $0.51  $0.94  $1.07  $0.79 
                     
Income (loss) from continuing operations-diluted(3) $(0.11) $0.51  $0.98  $1.06  $0.78 
Loss on discontinued operations-diluted(3)  —   (0.01)  (0.05)  —   — 
                     
Diluted net income (loss) per share(3) $(0.11) $0.50  $0.93  $1.06  $0.78 
                     
Weighted average shares outstanding-basic(3)  175,861   175,574   177,273   180,465   178,256 
                     
Weighted average shares outstanding-diluted(3)  175,861   176,355   178,452   182,408   180,149 
                     
Selected Operating Data:
                    
Total stores at period end  1,076   1,038   920   763   657 
Average net sales per Company store:(4)                    
Chico’s $1,564  $1,929  $2,139  $2,179  $2,010 
WH|BM  1,291   1,418   1,575   1,402   995 
Soma  893   818   1,044   1,054   — 
Average net sales per selling square foot at Company stores:(4)                    
Chico’s $598  $792  $961  $1,028  $988 
WH|BM  656   804   1,040   1,028   814 
Soma  469   400   434   460   — 
Percentage (decrease) increase in comparable Company store net sales  (15.1)%  (8.1)%  2.1%  14.3%  12.9%
Balance Sheet Data (at year end):
                    
Total assets $1,226,183  $1,250,126  $1,060,627  $999,413  $715,729 
Long-term debt  —   —   —   —   — 
Other noncurrent liabilities  177,251   156,417   116,860   70,318   59,546 
Stockholders’ equity  902,196   912,516   803,931   806,427   560,868 
Working capital $339,639  $305,540  $334,513  $415,310  $269,252 
                     
  Fiscal Year 
  2009  2008  2007  2006  2005 
 
Summary of operations:
                    
Net sales $1,713,150  $1,582,405  $1,714,326  $1,640,927  $1,404,575 
Gross margin $959,741  $819,492  $969,061  $967,185  $857,043 
Gross margin as a percent of net sales  56.0%  51.8%  56.5%  58.9%  61.0%
Income (loss) from operations $108,153  $(39,594) $121,458  $263,700  $298,313 
Net income (loss) $69,646  $(19,137) $88,875  $166,636  $193,981 
Net income (loss) as a percent of net sales  4.1%  (1.2)%  5.2%  10.2%  13.8%
Per share results:
                    
Basic $0.39  $(0.11) $0.51  $0.94  $1.07 
                     
Diluted $0.39  $(0.11) $0.50  $0.93  $1.06 
                     
Weighted average shares outstanding-basic  177,499   176,606   176,082   177,627   180,649 
                     
Weighted average shares outstanding-diluted  178,858   176,606   176,735   178,679   182,219 
                     
Balance sheet data (at year end) :
                    
Cash and marketable securities $423,543  $268,702  $274,270  $275,539  $404,480 
Total assets  1,318,803   1,226,183   1,250,126   1,060,627   999,413 
Working capital  405,274   322,728   305,540   334,513   415,310 
Stockholders’ equity  981,918   902,196   912,516   803,931   806,427 
Other selected operating data:
                    
Capital expenditures $67,920  $104,615  $202,223  $218,311  $147,635 
Total depreciation and amortization  96,372   97,572   91,979   69,404   48,852 
Total inventory per selling square foot  53   51   60   57   64 
Total stores at period end  1,080   1,076   1,038   920   763 
Total selling square feet  2,619   2,596   2,405   1,954   1,490 
Average net sales per selling square foot at Company stores: *                    
Chico’s $606  $598  $792  $961  $1,028 
WH|BM  682   656   804   1,040   1,028 
Total number of associates (rounded)  16,200   14,500   14,300   12,500   11,000 
Percentage increase (decrease) in comparable store net sales  6.1%  (15.1)%  (8.1)%  2.1%  14.3%
 
 
(1)Includes net sales to franchisees.
(2)Cost of goods sold includes distribution, merchandising and product development costs, but does not include store occupancy cost.
(3)Restated to give retroactive effect for the 2 for 1 stock split in February 2005.
(4)*Average net sales per Company store and average net sales per selling square foot at Companyour stores are based on net sales of stores that have been operated by the Companyus for the full year. For the year ended February 3, 2007, average net sales per Company store andfiscal 2006, average net sales per selling square foot at Companyour stores have been adjusted to exclude the effect of the fifty-thirdfifth-third week.


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ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and notes thereto.
 
Key Events and Recent Developments
Several key events have occurred in early fiscal 2009 and in fiscal 2008 that did have or could be expected to have a significant effect on the Company’s results of operations, including:
• On February 25, 2009, the Company announced that it had named Andrea M. Weiss to its Board of Directors. Ms. Weiss has extensive specialty retail experience having served in several senior executive positions with dELiA*s, Inc., The Limited, Inc., Intimate Brands, Inc., Guess, Inc., and Ann Taylor Stores, Inc. She is the founder and current Chief Executive Officer of Retail Consulting, Inc., a boutique consulting practice focused on product and brand development, consumer contact strategies, operational improvements, and turnarounds.
• On February 24, 2009, the Company announced the naming of Jeffrey Jones as the Company’s Chief Operating Officer and Charles Nesbit to Brand President — Soma Intimates. Mr. Jones brings substantial retail experience to the Company including executive positions at such companies as Sears and Lands’ End. Mr. Jones’ responsibilities include supervising the implementation of the Company’s enterprise systems and continuing to develop the infrastructure related to the Company’sdirect-to-consumer business. Mr. Nesbit, who was formerly the Company’s Chief Operating Officer, is now able to focus all of his time and attention to the opportunities presented by the Soma brand.
• On February 5, 2009, the Company announced that it had hired Cynthia “Cinny” Murray as its Brand President — Chico’s. Ms. Murray has nearly 30 years of experience in retail including executive positions with Stage Stores, Inc. and Talbot’s.
• On January 28, 2009, the Company announced impairment and restructuring charges totaling $23.7 million on a pre-tax basis. Approximately 11% of the Company’s headquarters employee base was eliminated. This action, resulting in a total of $10.0 million in pre-tax charges, is expected to reduce payroll and related benefit expenses for the Company by $15 million in fiscal 2009. In addition, the Company announced non-cash impairment charges totaling $13.7 million pre-tax, to write off impaired long-lived assets at certain underperforming stores across all three brands.
• On January 8, 2009, the Company announced the retirement and resignation of its previous President and Chief Executive Officer and named David F. Dyer as his replacement. Mr. Dyer, who has been a member of the Company’s Board of Directors since March 2006, brings significant retail experience to the Company. Mr. Dyer was previously President and Chief Executive Officer for Tommy Hilfiger and Lands’ End.
• On November 24, 2008, the Company entered into a $55 million senior secured revolving credit facility with SunTrust Bank. The credit facility provides for swing advances of up to $5 million and issuance of letters of credit up to $10 million and also provides the Company the ability, subject to satisfaction of certain conditions, to increase the commitments available under the credit facility up to $100 million through additional syndication. This credit facility replaces the Company’s previous $45 million credit facility.
Executive Overview
 
The Company isWe are a specialty retailer of private branded, sophisticated,casual-to-dressy clothing, intimates, complementary accessories, and other non-clothing gift items operating under the Chico’s, White House | Black Market, (“WH|BM”), and Soma Intimates (“Soma”) brand names. The Company earnsWe earn revenues and generatesgenerate cash through the sale of merchandise in itsour retail stores, and on itsour various websites and through itsour call centers, which take orders for all brands.
Results of 2009 Initiatives
For 2009 we outlined several goals that we believed would be vital to improving our performance:
• Improving the performance of the Chico’s brand
• Investing in the growth potential of the WH|BM and Soma brands
• Accelerating the investment in and growth of thedirect-to-consumer (“DTC”) channel
• Controlling expenses and rationalizing the expense structure
• Improving inventory control
Our financial results were the direct result of executing on these goals and we saw improvements in key financial indicators for each brand as well as increased consolidated earnings.
Chico’s — The successful performance of the Chico’s brand is primarily the result of distinctive merchandise offerings, an effective and fresh print and television marketing campaign, and the renewed focus on providing our customers with our trademarked Most Amazing Personal Service. As a result, the Chico’s brand experienced significant improvement in sales and gross margin over the prior year.
WH|BM — The WH|BM brand, which now encompasses approximately 30% of total net sales, was also a key driver of our improved results in 2009, generating double-digit comparable store sales growth. WH|BM’s results were largely attributable to providing our customer with the right fashion and high quality customer service. In fact, WH|BM total sales for 2009 totaled $516 million, including stores and DTC, which is the highest level of annual sales ever achieved by the brand.
Soma — The Soma brand delivered improved results in 2009 and we continue to believe in its growth potential. During 2009, we refocused the Soma brand with a mission of providing innovative and expertly fitted intimate and lifestyle apparel, while offering designer quality at affordable prices.
Direct-to-consumer — Our DTC channel experienced significant growth in 2009 as sales increased 39.3% over last year. We believe this improvement was attributable to enhanced functionality on our websites and improved online assortments.
Expense Structure — The success of on-going savings initiatives, particularly at the store level, and throughout the business in 2009, coupled with the increase in comparable store sales, contributed to a significant decrease in selling, general and administrative expenses expressed as a percentage of net sales, compared to 2008 both before and after excluding the impairment and restructuring charges from both years.
Inventory Management — Another area of focus during 2009 was control over our inventory. By successfully implementing a tight inventory management strategy, we decreased our markdowns, enabling more full-price selling. Our inventory management initiative proved to be a significant contributing factor in the improved performance of all three brands during the year.


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Financial Highlights for Fiscal 2008 was a challenging year for the Company. In fiscal year 2008, the Company reported net sales, operating loss and net loss of $1.582 billion, ($39.6) million and ($19.1) million, respectively. Net sales decreased by 7.7%. The Company’s gross margin decreased to 51.8% in fiscal 2008 from 56.5% in fiscal 2007.2009
• Net sales increased 8.2% to $1.71 billion compared to $1.58 billion in 2008, and consolidated comparable store sales increased 6.1% compared with a decrease of (15.1)% last year.
• Gross margin rate increased to 56.0% from 51.8% in 2008, and operating income was $108.2 million compared to an operating loss last year of $(39.6) million.
• Net income in 2009 was $69.6 million compared to a net loss of $(19.1) million in 2008, and earnings per diluted share was $0.39 compared to a loss of $(0.11) last year. Net income for 2009 included $15.0 million of pre-tax non-cash impairment charges compared to the 2008 net loss which included total impairment and restructuring pre-tax charges of $23.7 million.
• Net sales for the DTC channel increased 39.3% in 2009 to $98.3 million.
• Cash and marketable securities ended the year at $423.5 million, an increase of 57.6% over last year.
• Cash flows from operations were $215.4 million compared with $99.4 million in 2008.
Key Performance Indicators
 
The retail industry, in general, has been significantly impacted by a number of economic developments, such as a deteriorating macroeconomic environment, combined with the unstable financial markets. Amidst the current recessionary environment, customers have, in turn, curtailed their spending in the face of uncertainty. The Company is not immune to these circumstances.
In addition to the general economic slowdown, the Company’s results were impacted by continuing product issues at its Chico’s brand. The Company believes that the Chico’s brand became too predictable and was straying from its core competencies including novelty in its assortment and delivering amazing personal service. The Company is focused on renewing its emphasis on the customer experience for the Chico’s brand, and improving the Chico’s contact strategy to drive customer traffic into stores, develop new customers and improving product offerings that will inspire customers to shop.
With regard to its WH|BM brand, the Company believes that this brand’s performance stabilized in late fiscal 2008. Although the WH|BM brand experienced negative comparable store sales in fiscal 2008, the Company believes that this brand is poised for operating improvement and growth in fiscal 2009.
Finally, the Company’s Soma brand continues to show improvement. Soma posted increased comparable store sales during fiscal 2008. The Company continues to believe Soma has the potential for sustained future growth.
For fiscal 2009, the Company has established several significant shorter-term goals: 1) improve the performance of the Chico’s brand, 2) continue to invest in the growth potential of the WH|BM and Soma brands, 3) invest in and accelerate the growth of thedirect-to-consumer channel, 4) continue to control expenses and rationalize the Company’s expense structure and 5) improve controls over inventory investment.
The Company believes its strong balance sheet, which includes approximately $269 million in cash and marketable securities and no debt at the end of fiscal 2008, increases its financial flexibility and further reinforces its ability to successfully emerge from this economic crisis. For fiscal 2009, the Company generally expects to continue to generate positive cash flow to fund its operations and to take advantage of new growth opportunities.
Additional factors that will be critical to determining the Company’s future success include, among others, managing its overall growth strategy, including the ability to open and operate stores effectively, increasing itsdirect-to-consumer business, maximizing efficiencies in the merchandising, product development and sourcing processes, maintaining high standards for customer service and assistance, maintaining newness, fit and comfort in its merchandise offerings, matching merchandise offerings to customer preferences and needs, customer acceptance of new store concepts, integrating new or acquired businesses, developing its newer brands, implementing the process of senior management succession, initiating and maintaining strategic alliances with vendors, controlling expenses, and generating cash to fund the Company’s expansion needs. In order to monitor the Company’sour success, the Company’s senior management monitorswe review certain key performance indicators, including:
 
 • Comparable store sales growth— In fiscal 2008, the Company’s2009 our comparable store sales (sales from stores open for at least twelve full months, including stores that have been expanded or relocated within the same general market) decreased by 15.1%. Theimproved significantly, reversing two years of decreasing comparable store sales performance was affected by numerous challenges including a difficult macro-economic environment, declining consumer confidence resulting in lower than anticipated customer traffic and particularly cautious consumer spending and merchandise offeringssales. We believe that failed, at times, to meet customer expectations, resulting in substantial markdowns and lower realized average unit retails. The Company’s current strategy is to target a general overall trend to return to comparable store sales growth; although it recognizes that it continues to be affected by many of these factors. The Company believes that itsour ability to realize such a general overall positive trenddeliver consistent increases in comparable store sales will prove to be a key factor in determining itsour future levels of success.
 
 • Positive operating cash flow and capital expenditures— In fiscal 2008, the Company generated $99 million ofWe believe consistent cash flow fromgeneration sufficient to fund operations compared with $209 million in fiscal 2007, which representsand capital expenditures is and will be a decreasekey indicator of approximately 53%. The Company currently anticipates an increase in its free cash flow (cash flow from operations net of capital


23

expenditures) in fiscal 2009 compared to fiscal 2008. The Company believes that historically,our performance. Historically, a key strength of itsthe business has been the ability to consistently generate cash flow from operations.
 • Store productivity— ManagementWe consistently monitorsmonitor various key performance indicators of store productivity including sales per square foot, store operating contribution margin and store cash flow in order to assess the Company’sour performance.
 
 • Inventory turnovermanagement— Management considersWe actively manage our inventories based on seasonal trends, store productivity results and anticipated sales volumes, which may lead to increased or decreased inventory turnoverlevels. We believe that constant monitoring of our inventories, on a significant performance indicator thatper square foot basis assists in the determination of markdowns,us in planning future inventory levelssales, determining markdowns and in assessing the customer’sour customers response to the merchandise.
• Quality and merit of merchandise offerings — To monitor and maintain the acceptance of its merchandise offerings, the Company monitors sell-through levels, gross margins and markdown rates on a classification and style level. Although the Company does not disclose these statistics for competitive reasons, this analysis helps identify comfort, fit and newness issues at an early date and helps the Company plan future product development and buying.
• Loyalty Clubs and Customer Development — Management believes that a significant indicator of the Company’s success is the extent of the ongoing spending and future growth of its loyalty programs, the “Passport Club” and “The Black Book”, and support for such loyalty programs that is provided through its personalized customer service training programs and its marketing initiatives.
 
Future Outlook
For fiscal 2010, we are currently forecasting a mid-single digit increase in comparable store sales with modest improvement expected in our gross margin rate as a percentage of net sales. Although we expect our selling, general and administrative expenses as a percentage of net sales to reflect leverage based on the forecasted comparable store sales increase, we are anticipating additional marketing costs, particularly in the first half of fiscal 2010, associated with television and print media campaigns, in the range of $18.0 million to $20.0 million. In addition, we expect to expend an additional $4.0 to $5.0 million on paid search and other customer acquisition initiatives for the DTC operations.
Our total capital expenditure plan for fiscal 2010 approximates $85.0 million. Approximately $46.0 million is allocated to new boutique stores and store-related projects, which includes store refurbishments. Approximately $24.0 million of the capital expenditure plan is directed to ongoing technology projects, including JDA systems development and implementation. The remainder of the capital expenditure plan is currently designated for DTC projects, our distribution centers, and our NSSC.


21

Results of Operations
 
Net Sales
 
The following table showsdepicts net sales by Chico’s/Soma stores, net sales by WH|BM stores, net sales bydirect-to-consumer,DTC and other net sales in dollars and as a percentage of total net sales for the fiscal years ended January 31, 2009 (fiscal(“current period”), fiscal 2008 or “current(“prior period”, which consisted of 52 weeks), February 2, 2008 (fiscal 2007 or “prior period”, which consisted of 52 weeks)), and February 3,fiscal 2007 (fiscal 2006, which consisted of 53 weeks) (dollar amounts in thousands):
 
                         
  Fiscal 2008  %  Fiscal 2007  %  Fiscal 2006  % 
 
Net sales by Chico’s/Soma stores $1,074,939   67.9% $1,223,217   71.4% $1,210,474   73.8%
Net sales by WH|BM stores  436,875   27.6   418,901   24.4   367,063   22.4 
Net sales bydirect-to-consumer
  70,591   4.5   72,093   4.2   52,959   3.2 
Other net sales  —   —   115   0.0   10,431   0.6 
                         
Net sales $1,582,405   100.0% $1,714,326   100.0% $1,640,927   100.0%
                         
                         
Net sales: Fiscal 2009  %  Fiscal 2008  %  Fiscal 2007  % 
 
Chico’s/Soma stores $1,125,192   65.7% $1,074,939   67.9% $1,223,217   71.4%
WH|BM stores  489,631   28.6   436,875   27.6   418,901   24.4 
Direct-to-consumer  98,327   5.7   70,591   4.5   72,093   4.2 
Other net sales  —   —   —   —   115   0.0 
                         
Total net sales $1,713,150   100.0% $1,582,405   100.0% $1,714,326   100.0%
                         
 
Net sales by Chico’s, WH|BM and Soma stores increased in the current period from the prior period primarily due to new store openings for the WH|BM brand and improvedpositive comparable store sales at the Soma brand, offset by a decrease in net sales by Chico’s stores and the overall decrease in the Company’s comparable store net sales.for all three brands. A summary of the factors impactingyear-over-year sales increases is provided in the table below (dollar amounts in thousands):
 
             
  Fiscal 2008  Fiscal 2007  Fiscal 2006 
 
Comparable store sales (decreases) increases $(242,407) $(123,096) $28,248 
Comparable same store sales %  (15.1)%  (8.1)%  2.1%
New store sales increases $112,103  $187,677  $191,750 
Number of new Company-owned stores opened, net  38   128*  145*
             
  Fiscal 2009  Fiscal 2008  Fiscal 2007 
 
Comparable store sales increases (decreases) $89,698  $(242,407) $(123,096)
Comparable store sales %  6.1%  (15.1)%  (8.1)%
Non-comp store sales increases $13,311  $112,103  $187,677 
Number of new stores opened, net  4   38   128*
 
 
*Does not include Fitigues stores acquired in fiscal 2006 and closed in fiscal 2007
 
The consolidated comparable store sales increase of 6.1% in fiscal 2009 was driven primarily by an approximate 8% increase in the Chico’s average unit retail price, which was partially offset by a slight decrease in units per transaction at Chico’s front-line stores. Comparable store sales results also benefited from an increase in both the average unit retail price as well as total transactions at the WH|BM brand compared to the like period last year. The Chico’s/Soma brands’ comparable store sales, increased by approximately 4% and the WH|BM brand’s comparable store sales increased by approximately 11% compared to the prior period.
The comparable store sales decrease of 15.1% in fiscal 2008 was driven partially by a decrease of 7.2% in the Chico’s average unit retail price, (the percentage change of which is believed by management to represent a reasonable approximation of the percentage change attributable to price changes, markdowns or mix) as well as


24

from a decrease in the Chico’s and WH|BM average number of transactions per store, offset in part by an increase in the WH|BM average unit retail price of 4.6%. In fiscal 2008, WH|BM same store sales represented approximately 27% of the total same store sales base compared to 23% in fiscal 2007. The Chico’s brand sameChico’s/Soma brands’ comparable store sales, decreased by approximately 19%17% and the WH|BM brand same store sales decreased by approximately 8% when comparing fiscal 2008 to fiscal 2007. Soma stores sales, which were included in the comparable store sales calculation beginning in September 2005, increased during fiscal 2008, although the impact on the consolidated comparable store sales decrease was immaterial.
The comparable store percentage reported above includes 84 stores that were expanded or relocated within the last two fiscal years by an average of 1,441 selling square feet. If the stores that were expanded and relocated had been excluded from the comparable store base, the decrease in comparable store net sales would have been 15.7% for fiscal 2008 (versus 15.1% as reported). The Company does not consider the effect to be material to the overall comparable store sales results and believes the inclusion of expanded stores in the comparable store net sales to be an acceptable practice, consistent with the practice followed by the Company in prior periods and by some other retailers.
In fiscal 2007, the Company experienced an overall comparable store sales decrease of 8.1%, which was driven partially by a decrease of 9.1% in the Chico’s average unit retail price (the percentage change of which is believed by management to represent a reasonable approximation of the percentage change attributable to price changes, markdowns or mix) as well as from a decrease in the Chico’s and WH|BM average number of transactions per store and a decline in the average transaction dollar amounts. In fact, although the WH|BM brand experienced a slight increase in its average unit retail price of 0.3%, it was entirely offset by a decline in the average transaction amount and the average number of transactions per store.
 
Net sales bydirect-to-consumer DTC for fiscal 2009 increased by $27.7 million, or 39.3%, compared to fiscal 2008 which included merchandise fromdue to enhanced functionality on our websites and improved online assortments. We targeted the Chico’s, WH|BM,DTC channel for growth in fiscal 2009 and Soma brandswe continue to believe there is room for further expansion.
In fiscal 2008, net sales by DTC decreased by $1.5 million, or 2.1%, compared to net sales bydirect-to-consumer for fiscal 2007. This overall decrease iswas attributable to lower sales of Chico’s brand merchandise. In contrast,direct-to-consumer DTC sales for the WH|BM and Soma brands increased in fiscal 2008 compared to fiscal 2007. The Company is targeting this entiredirect-to-consumer channel for future growth and believes that it is currently under-penetrated. To that end, the Company is continuing its investment in new hardware, software and personnel to increase itsdirect-to-consumer (i.e. catalog & Internet) sales penetration.


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For fiscal 2007, net sales bydirect-to-consumer for fiscal 2007, which included merchandise from the Chico’s, WH|BM, and Soma brands increased by $19.1 million, or 36.1%, compared to net sales bydirect-to-consumer for fiscal 2006. The Company believes this increase is attributable to the implementation of the Company’s improvements in its website and call center infrastructure and its current approach to merchandising on each brand’s website.
Cost of Goods Sold/Gross Margin
 
The following table showsdepicts cost of goods sold and gross margin in dollars and the related gross margin percentages for fiscal 2009, 2008 2007 and 20062007 (dollar amounts in thousands):
 
                        
 Fiscal 2008 Fiscal 2007 Fiscal 2006  Fiscal 2009 Fiscal 2008 Fiscal 2007 
Cost of goods sold $762,913  $745,265  $673,742  $753,409  $762,913  $745,265 
Gross margin $819,492  $969,061  $967,185  $959,741  $819,492  $969,061 
Gross margin percentage  51.8%  56.5%  58.9%  56.0%  51.8%  56.5%
 
Gross margin percentage increased by 420 basis points in fiscal 2009 compared to fiscal 2008. The gross margin increase was attributable to significant improvements in the merchandise margins at both the Chico’s and WH|BM brands. Both brands benefited from substantially lower markdowns and, to a lesser extent, higher initial markups. These improvements in gross margin were slightly offset by continued investment in merchandise and product development including technology initiatives.
In fiscal 2008, gross margin percentage decreased by 470 basis points in fiscal 2008 compared to fiscal 2007 resulting primarily from a decrease of approximately 360 basis points in the Chico’s brand merchandise margins in the current period2008 compared to the prior year’s2007’s margins, which decrease was attributable to lower initial markups and higher markdowns considered necessary in order to liquidate inventory and bring inventory levels more in line with the current sales trends. The gross margin percentage was also negatively impacted by continued investment in the Company’s product development and merchandising functions, coupled with the deleverage of these costs arising as a result of the negative samecomparable store sales. The overall decrease in Company gross margin was further exacerbated by a 320 basis point decline in the brand merchandise margins at WH|BM, which decrease was also due primarily to


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lower initial markups and higher markdowns considered necessary in order to liquidate inventory and bring inventory levels more in line with the current sales trends, which resulted in overall Company gross margins deteriorating further due toexacerbated by the impact of the mix effect resulting from WH|BM sales becomingconstituting a larger portion of the Company’s overall net sales.
Gross margin percentage decreased by 240 basis points in fiscal 2007 compared to fiscal 2006 resulting primarily from a 180 basis point decrease in merchandise margins at the Chico’s front-line stores primarily due to a higher markdown rate compared to the prior period and by the Company’s continued investment in its product development and merchandising functions for each of its three brands. To a lesser extent, gross margin percentage in fiscal 2007 was negatively impacted by gross margin decreases in thedirect-to-consumer and outlet channels due to higher markdown rates as a result of lower than anticipated sales at the front-line stores, as well as by the mix effect resulting from the WH|BM and Soma sales continuing to become a larger portion of the Company’s overall net sales (both WH|BM and Soma brands operate with lower gross margins than the gross margins experienced by the Chico’s brand).
 
Store Operating Expenses
 
The following table showsdepicts store operating expenses in dollars and as a percentage of total net sales for fiscal 2009, 2008 2007 and 20062007 (dollar amounts in thousands):
 
                        
 Fiscal 2008 Fiscal 2007 Fiscal 2006  Fiscal 2009 Fiscal 2008 Fiscal 2007
Store operating expenses $645,352  $633,288  $525,529  $647,040  $645,352  $633,288 
Percentage of total net sales  40.8%  36.9%  32.0%  37.8%  40.8%  36.9%
 
Store operating expenses include all direct expenses, includingand reflect such items as personnel, occupancy, depreciation and supplies, incurred to operate each of our stores and the Company’s stores.DTC channel. In addition, store operating expenses include those costs necessary to support the operation of each of the Company’s stores includingexpenditures for district and regional management expenses and other store support functions. Store operating expenses increased slightly in dollars due to higher occupancy costs but as a percentage of net sales decreased by 300 basis points due to the leverage from positive comparable store sales as well as effective implementation of on-going cost savings initiatives at the store level.
Store operating expenses as a percentage of net sales increased by 390 basis points in fiscal 2008 compared to fiscal 2007, due to increased occupancy costs at the store level and by increased personnel costs as a percentage of net sales, as selling payroll did not flex in direct proportion to the decrease in comparable store sales. The increase was also impacted by the deleverage arising as a result ofassociated with the Company’soverall negative samecomparable store sales.


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Store operating expenses as a percentage of net sales increased 490 basis points in fiscal 2007 over fiscal 2006 primarily due to increased personnel and occupancy expenses across all three brands, attributable mainly to the investment in larger sized Chico’s and WH|BM stores (including both new and expanded), the Company’s planned increased investment in store payroll to improve service levels, the mix effect of the WH|BM and Soma stores becoming a larger portion of the Company’s store base (both WH|BM and Soma brands operate with higher store operating costs as a percentage of sales than the store operating costs as a percentage of sales experienced by the Chico’s brand) and from the deleverage arising as a result of the Company’s negative same store sales.
Marketing
 
The following table showsdepicts marketing expenses in dollars and as a percentage of total net sales for fiscal 2009, 2008 2007 and 20062007 (dollar amounts in thousands):
 
                        
 Fiscal 2008 Fiscal 2007 Fiscal 2006  Fiscal 2009 Fiscal 2008 Fiscal 2007
Marketing $80,326  $95,717  $75,121  $78,075  $80,326  $95,717 
Percentage of total net sales  5.1%  5.6%  4.6%  4.6%  5.1%  5.6%
 
Marketing expenses include expenses related to the Company’s national marketing programs such as direct marketing efforts, (including direct mail ande-mail), national advertising expenses and related support costs. Marketing expenses decreased as a percentage of net sales by approximately 50 basis points in fiscal 2009 compared to fiscal 2008 mainly due to the ongoing cost reduction initiativesleverage from positive comparable store sales. In addition, marketing expenses in dollars decreased due to savings in direct mailing costs attributable to both decreased materials costs and increased efficiencies implementedcirculations, partially offset by the Company.an increase in broadcast and print advertisement.


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Marketing expenses increaseddecreased as a percentage of net sales by approximately 10050 basis points in fiscal 20072008 compared to fiscal 2006. The increase was primarily2007 due to the deleverage associated with the Company’s negative same store salescost reduction initiatives and the planned increase in marketing spend in the second half of fiscal 2007, compared to the second half of fiscal 2006, in an effort to protect and enhance the Company’s market share and to highlight its Fall and Holiday product offerings.increased direct mail efficiencies.
 
Shared ServicesNational Store Support Center
 
The following table shows shared servicesdepicts NSSC expenses in dollars and as a percentage of total net sales for fiscal 2009, 2008 2007 and 20062007 (dollar amounts in thousands):
 
                        
 Fiscal 2008 Fiscal 2007 Fiscal 2006  Fiscal 2009 Fiscal 2008 Fiscal 2007
Shared services $109,744  $118,598  $102,835 
NSSC $111,447  $109,744  $118,598 
Percentage of total net sales  6.9%  6.9%  6.3%  6.5%  6.9%  6.9%
 
Shared servicesNSSC expenses consist of the corporate level functions including executive management, human resources, management information systems and finance, among others. Shared servicesNSSC expenses decreasedincreased slightly in dollars mainly due to increased incentive compensation costs, offset by back office cost reduction initiatives. However, as a percentage of net sales, NSSC decreased by 40 basis points due to the ongoingleverage associated with the positive comparable store sales.
NSSC expenses decreased in dollars when comparing fiscal 2008 to fiscal 2007, mainly due to the cost reductionsreduction initiatives and increased efficiencies implemented by the Company yet remained flat as a percentage of net sales as a result of the Company’soverall negative samecomparable store sales.
Shared services expenses increased as a percentage of net sales by approximately 60 basis points in fiscal 2007 mainly due to increased personnel relocation, recruitment, severance and technology costs, as well as from the deleverage associated with the Company’s negative same store sales. These increases in shared services expenses as a percentage of net sales were offset by a reduction in incentive compensation mostly due to the Company’s lower than anticipated fiscal year results and lower stock-based compensation expense.
 
Impairment and Restructuring Charges
 
The following table showsdepicts impairment and restructuring charges in dollars and as a percentage of total net sales for fiscal 2009 and 2008 (dollar amounts in thousands):
 
    
 Fiscal 2008            
 Fiscal 2009 Fiscal 2008  
Impairment and restructuring charges $23,664  $15,026  $23,664    
Percentage of total net sales  1.5%  0.9%  1.5%   
The impairment charges recognized in fiscal 2009 include non-cash impairment charges incurred in the first, second and fourth quarters of the year. During the first quarter of fiscal 2009, an impairment charge totaling $8.1 million was recorded related to the write-off of development costs for software applications. During the second quarter of fiscal 2009, a non-cash charge totaling $3.8 million was incurred related to the partial write-off of a note receivable and $1.1 million in non-cash impairment charges related to the write-off of fixed assets at certain underperforming stores. During the fourth quarter, an additional non-cash impairment charge of $2.0 million was taken on the aforementioned note receivable based on a further evaluation of the underlying collateral.
 
The impairment and restructuring charges recognized in fiscal 2008 consisted of non-cash impairment charges totaling $13.7 million, related to the write-off of fixed assets at certain underperforming stores, and severance and workforce reduction costs totaling $10.0 million, related to the elimination of approximately 11% of the headquartersNSSC employee base and charges related to the separation agreement with itsour former CEO. The Company will begin makingVirtually all payments related to the severance and workforce reduction action were completed in early fiscal 2009. No impairment or restructuring charges were recognized in either fiscal 2007 or fiscal 2006.


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Gain on Sale of Investment
 
On July 26, 2007, VF Corporation announced that it had entered into a definitive agreement to acquire lucy activewear, inc. (“Lucy”), a privately held retailer of women’s activewear apparel, in which the Companywe held a cost method investment. The transaction was completed during the third quarter of fiscal 2007 and the Companywe recorded a pre-tax gain of approximately $6.8 million, which is reflected as non-operating income in the accompanying statement of operations.


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Interest Income, net
 
The following table showsdepicts interest income, net in dollars and as a percentage of total net sales for fiscal 2009, 2008 2007 and 20062007 (dollar amounts in thousands):
 
            
 Fiscal 2008 Fiscal 2007 Fiscal 2006             
 Fiscal 2009 Fiscal 2008 Fiscal 2007
Interest income, net $7,757  $10,869  $10,626  $1,693  $7,757  $10,869 
Percentage of total net sales  0.5%  0.6%  0.6%  0.1%  0.5%  0.6%
In fiscal 2009, interest income, net, decreased in total dollars and as a percentage of net sales compared to fiscal 2008 primarily due to lower interest rates on our investments and, to a lesser extent, due to the non-accrual of interest income in fiscal 2009 on our note receivable which interest amount was deemed uncollectable.
 
In fiscal 2008, interest income, net, decreased in total dollars and as a percentage of net sales compared to fiscal 2007 primarily due to a decrease in the average invested balance of marketable securities,year-over-year as well as lower interest rates.
 
In fiscal 2007, interest income, net, increased slightly in total dollars compared to fiscal 2006 primarily due to interest earned on the Company’s note receivable from its sale of land in fiscal 2007 offset by lower interest rates.
Provision for Income Taxes
 
The Company’sOur effective tax rate was 39.9%36.6%, 34.5%39.9% and 36.3%34.5%, for fiscal 2009, 2008 and 2007, respectively. The decrease in the effective tax rate for fiscal 2009 from fiscal 2008 was primarily due to the favorable settlement of certain state tax examinations and 2006, respectively.the expiration of various statutes of limitation relating to certain state tax accruals. The increase in the effective tax rate for fiscal 2008 from fiscal 2007 was primarily attributable to favorable permanent differences, mainly charitable inventory contributions and tax-free interest, offset in part by the impact of a decrease in deferred compensation plan assets which, as a net amount, represented a considerably higher portion of pre-tax loss in fiscal 2008 compared to pre-tax income in fiscal 2007. The decrease in the effective tax rate for fiscal 2007 from fiscal 2006 was primarily attributable to favorable permanent differences, mainly charitable inventory contributions and tax-free interest, representing a considerably higher portion of pre-tax income in fiscal 2007 compared to fiscal 2006.
 
Liquidity and Capital Resources
 
Overview
 
The Company’sOur ongoing capital requirements have been and are for funding capital expenditures for the continued improvement in information technology tools, for new, expanded, relocated and remodeled stores, for planned expansion of its headquarters,our distribution centercenters and other central support facilities, to fund stock repurchases under the Company’s previous stock repurchase programs, and for continued improvement in information technology tools, including the ongoing conversion that the Company is planning to the SAP software platform.planned expansion of our NSSC campus.
 
The following table shows the Company’sdepicts our capital resources at the end of fiscal year 20082009 and 20072008 (amounts in thousands):
 
        
 Fiscal 2008 Fiscal 2007         
 Fiscal 2009 Fiscal 2008 
Cash and cash equivalents $26,549  $13,801  $37,043  $26,549 
Marketable securities  242,153   260,469   386,500   242,153 
Working capital  339,639   305,540   405,274   322,728 
 
Working capital increased from fiscal 20072008 to fiscal 20082009 primarily due to an increase in cash and marketable securities resulting from higher cash flow from operations and lower capital expenditures during fiscal 2009, offset in part by the reclassification of the Company’s $25.8 million dollar note receivable held by us from a long-termcurrent asset to a current asset because the due date for the balloon payment is within one yearlong-term asset. The significant components of the Company’s most recently ended fiscal quarterworking capital are cash and to a decrease in currentcash equivalents, marketable securities, receivables and inventories, reduced by accounts payable and accrued liabilities.
 
Based on past performance and current expectations, the Company believeswe believe that itsour cash and cash equivalents, marketable securities and cash generated from operations will continue to satisfy the Company’s working capital needs, future capital expenditure needsexpenditures (see “New


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“New Store Openings and Infrastructure Investments” discussed below)), commitments, dividend payments, and other liquidity requirements associated with the Company’sour operations through at least the next 12 months. Furthermore, while it is our intention to pay a quarterly cash dividend for fiscal 2010 and beyond, any determination to pay future dividends will be made by the Board of Directors and will depend on future earnings, financial condition and other factors.


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Operating Activities
 
Net cash provided by operating activities in fiscal 2009 was $215.4 million, which was an increase of approximately $116.0 million from fiscal 2008, and resulted primarily from higher net income and increases in accounts payable.
In fiscal 2008, cash from operating activities was $99.4 million. The cash provided by operating activities for fiscal 2008million, and was due primarily to non-cash chargesadjustments which served to offset the net loss from operationsoperations. These adjustments included depreciation and amortization expense, deferred tax benefits, stock-based compensation, and an impairment of long-lived assets, as well as changes in working capital which include:
• Depreciation and amortization expense;
• Deferred tax benefits;
• Stock-based compensation expense and the related income tax effects thereof;
• Impairment of long-lived assets;
• Fluctuations in accounts receivable, inventories, prepaid and other current assets, accounts payable and accrued and deferred liabilities.
In fiscal 2007, cash from operating activities was $208.6 million,accounts receivables, payables and was due to the Company’s net income, adjusted for non-cash charges mentioned above, and to the extent the increase in current liabilities exceeded the increase in current assets.inventory.
 
Investing Activities
 
Net cash used in investing activities was $86.2$212.0 million and $235.1$86.2 million for fiscal 20082009 and 2007,2008, respectively.
 
The Company’s investment in capital expenditures during fiscal 2008 was primarily related to the planning and opening of new, relocated, remodeled and expanded Chico’s/Soma and WH|BM stores ($60.4 million), costs associated with system upgrades and new software implementations ($23.8 million), costs associated with the Company’s headquarters’ expansion ($6.7 million), and other miscellaneous capital expenditures ($13.7 million) aggregating $104.6 million compared to capital expenditures aggregating $202.2 million in the prior year. The decrease in capital expenditures was primarily due to the Company’s decision to significantly lower and more effectively manage its capital expenditure spending in fiscal 2008 in response to deteriorating economic conditions.
The CompanyWe had net proceedspurchases of $18.5$144.1 million from the sale of marketable securities in the current year. By contrast, in the prior period, the Companywe had net investmentsproceeds of $22.1$18.5 million in marketable securities.
 
On August 1, 2007,Our approximate $36.7 million decreased investment in capital expenditures when compared to the Company consummatedprior year was primarily related to significantly lower costs associated with new, relocated, remodeled and expanded Chico’s/Soma and WH|BM stores, as well as a transaction to sell a parcel of land south of Fort Myers, Florida for a sale price totaling approximately $39.7 million consisting of approximately $13.4 milliondecrease in cash proceeds, net of closingother miscellaneous capital expenditures including costs associated with our NSSC’s improvements. However, the decrease was offset by increases in system upgrades and a note receivable with a principal amount of approximately $25.8 million and secured by a purchase money mortgage, which is due August 1, 2009.
On July 26, 2007, VF Corporation announced that it had entered into a definitive agreement to acquire Lucy, a privately held retailer of women’s activewear apparel, in which the Company held a cost method investment. The transaction was completed during the third quarter of fiscal 2007new software implementations and the Company received approximately $15.1 million in cash proceeds. The Company held a receivableexpansion of approximately $2.2 million for the balance of the proceeds. This additional amount was received in early March 2009.
In addition, during fiscal 2007, the Company acquired all the territorial franchise rights to the state of Minnesota and the existing franchise locations in Minnesota for $32.9 million and acquired a franchise store in Florida for $6.4 million, while in the prior period, the Company purchased most of the assets of the Fitigues brand stores for $7.5 million and repurchased one franchise store for $0.8 million.our distribution centers.
 
Financing Activities
 
Net cash used in financing activities was $0.5 million in fiscal 2008 compared to net cash provided by financing activities of $3.0was $7.1 million in fiscal 2007 and2009 compared to net cash used in financing activities of $191.4$0.5 million in fiscal 2006.


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2008. During both fiscal 2009 and 2008, certain of the Company’s currentwe received proceeds from employee stock option exercises and former employees exercised an aggregate of 33,800 stock options at prices between $0.5139 and $8.60. Also, during this period, the Company sold 16,340 and 29,451 shares of common stock during the March and September offering periods under itsemployee participation in our employee stock purchase plan at prices of $7.91 and $4.88, respectively. The proceeds from these issuances of stock, exclusive of the tax benefit realized by the Company, amounted to approximately $0.3 million.plan.
 
In fiscal 2008, cash paid for deferred financing costs, related to the Company’s newour credit facility, with SunTrust, was $0.6 million.
 
In March 2006, the Company’s Board of Directors (the “Board”) approved the repurchase, over a twelve-month period ending in March 2007, of up to $100 million of the Company’s outstanding common stock. During fiscal 2006, the Company2009, 2008 and 2007, we repurchased 3,081,104 shares of its common stock in connection with this stock repurchase program, which represented the entire $100 million.
In May 2006, the Company announced that its Board had approved the repurchase of an additional $100 million of the Company’s common stock over a twelve month period ending in May 2007. During fiscal 2006, the Company repurchased 3,591,352 shares of its common stock in connection with this stock repurchase program, which represented the entire additional $100 million. In addition, in fiscal 2008, fiscal 200776,479, 60,168 and fiscal 2006, the Company repurchased an additional 60,168, 54,282 and 7,090 shares, respectively, of restricted stock in connection with employee tax withholding obligations under employee compensation plans, which are not purchases under any publicly announced plan.
 
New Store Openings and Infrastructure Investments
 
The Company expects itsWe expect our overall square footage in fiscal 20092010 to remain flat,increase approximately 5%, reflecting approximately 104-6 net closuresopenings of Chico’s stores, 413-15 net openings of WH|BM stores, 6approximately 30 net openings of Soma stores and 1312-14 relocations/expansions in fiscal 2009. The Company, however,2010, which does not include Soma “sister stores”. We continuously evaluatesevaluate the appropriate new store growth rate in light of current economic conditions and may adjust the growth rate as conditions require or as opportunities arise.
 
The Company believesDuring 2009, we acquired property in close proximity to our existing distribution center in Winder, Georgia comprising 39 acres of land with an approximate 300,000 square foot building for approximately $10.4 million.
We believe that the liquidity needed for its planned new stores (including the continued investment associated with itsthe Soma brand), itsour continuing store remodel/expansion program, the investments required for its headquartersour NSSC and distribution center future expansions, itscenters, our continued installation and upgrading of new and existing software packages, and maintenance of properinvestment in inventory levels associated with this growth will be funded primarily from cash flow from operations and itsour existing cash and marketable securities balances, and, if necessary, the capacity included in itsour bank credit facility.


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On August 1,In fiscal 2007, the Company consummated a transaction to sell a parcel of land with a sales price totaling $39.7 million consisting of approximately $13.4 million in cash proceeds, net of closing costs, and a note receivable with a principal amount of approximately $25.8 million and secured by a purchase money mortgage.
The Company is working with SAP, a third party vendor, to implement an enterprise resource planning system (ERP) to assist in managing its retail stores. This fully integrated system is expected to support and coordinate all aspects of product development, merchandising, finance and accounting and to be fully scalable to accommodate rapid growth. On February 4, 2007, the Companywe completed the first major phase of itsour multi-year, planned implementation of the new ERP system by converting its Soma brand to the new merchandising system as well as rolling out the new financial systems at the same time. The second major phase currently anticipates an initial roll out and utilization in mid fiscal 2009 and subsequentlywas completed in early fiscal 2010.2010 and we are currently utilizing this system in all of our brands. The third major phase contemplates ongoingincludes on-going enhancements and optimization of the new ERP across all three brands, as well as the deployment of additional functionality across various other functions within the Company. The Company expects that the costs associated withfunctions.
Also, during fiscal 2009, we purchased JDA Enterprise Planning, JDA Assortment Planning and JDA Allocation software applications instead of previously planned implementations of related SAP applications and revised our roll out plan accordingly. We completed the implementation of the ERP system will be funded fromallocation functionality during fiscal 2009 and plan to complete a substantial portion of the Company’s existing cash and marketable securities balances.remaining JDA applications in fiscal 2010.
 
Given the Company’sour existing cash and marketable securities balances and the capacity included in itsour bank credit facility, the Company doeswe do not believe that it wouldwe will need to seek other sources of financing to conduct itsour operations, pay future dividends or pursue itsour expansion plans even if cash flow from operations should prove to be less than anticipated or if there should arise a need for additional letter of credit capacity due to establishing new and expanded sources of supply, or if the Companywe were to increase the number of new stores planned to be opened in future periods.


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Contractual Obligations
 
The following table summarizes the Company’sour contractual obligations at January 31, 200930, 2010 (amounts in thousands):
 
                                        
   Less than
     After
    Less than
     After
 
 Total 1 year 1-3 years 4-5 years 5 years  Total 1 year 1-3 years 4-5 years 5 years 
Long-term debt $—  $—  $—  $—  $— 
Short-term borrowings  —   —   —   —   — 
Capital lease obligations  —   —   —   —   — 
Operating leases  800,415   128,332   234,500   185,576   252,007  $735,209   129,244   227,254   178,175   200,536 
Non-cancelable purchase commitments  213,882   213,882   —   —   —   252,652   252,652   —   —   — 
                      
Total
 $1,014,297  $342,214  $234,500  $185,576  $252,007  $987,861  $381,896  $227,254  $178,175  $200,536 
                      
 
As of January 31, 2009, the Company’s30, 2010, our contractual obligations consisted of amounts outstanding under operating leases and non-cancelable purchase commitments. Amounts due under non-cancelable purchase commitments consists of amounts to be paid under agreements to purchase inventory that are legally binding and that specify all significant terms, including commercial letters of credit outstanding. terms.
Until formal resolutions are reached between the Companyus and the relevant taxing authorities, the Company iswe are unable to estimate a final determination related to itsour uncertain tax positions and therefore, is not including these amounts inwe have excluded the uncertain tax positions, totaling $6.9 million at January 30, 2010 from the above table.
 
On November 24, 2008, Chico’s FAS, Inc.we entered into a $55 million Senior Secured Revolving Credit Facility (the “Credit Facility”) with SunTrust Bank, as administrative agent (the “Agent”) and lender and SunTrust Robinson Humphrey, Inc. as lead arranger. The Credit Facility replaces the Company’s previous $45 million credit facility with Bank of America.
 
The Credit Facility provides a $55 million revolving credit facility that matures on November 24, 2011. The Credit Facility provides for swing advances of up to $5 million and issuance of letters of credit up to $10 million. The Credit Facility also contains a feature that provides the Companyus the ability, subject to satisfaction of certain conditions, to increase the commitments available under the Credit Facility from $55 million up to $100 million through additional syndication. The proceeds of any borrowings under the Credit Facility may be used to fund future permitted acquisitions, to provide for working capital and to be used for other general corporate purposes.
 
Off-Balance Sheet Arrangements
At January 30, 2010 and January 31, 2009, and February 2, 2008, the Companywe did not have any relationship with unconsolidated entities or financial partnerships of the type which certain other companies have established for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. Therefore, the Company iswe are not materially exposed to any financing, liquidity, market or credit risk that could arise if the Companywe had engaged in such relationships.


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Critical Accounting Policies and Estimates
 
The Company’s discussion and analysis of itsour financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of consolidated financial statements requires the Companyus to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to customer product returns, inventories, income taxes, insurance reserves, contingencies and litigation. The Company bases itsWe 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.
The Company 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 following critical accounting policies affect its more significant judgmentsassumptions and estimates used in the preparationare significant to reporting our results of its consolidatedoperations and financial statements.position.


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Inventory Valuation and Shrinkage
 
The Company identifiesWe identify potentially excess and slow-moving inventories by evaluating turn rates and inventory levels in conjunction with the Company’sour overall growth rate. Excess quantities of inventory are identified through evaluation of inventory ageing,aging, review of inventory turns and historical sales experiences, as well as specific identification based on fashion trends. Further, exposure to inadequate realization of carrying value is identified through analysis of gross margins and markdowns in combination with changes in current business trends. The Company providesWe provide lower of cost or market reservesadjustments for such identified excess and slow-moving inventories. The CompanyHistorically, the variation of those estimates itsto observed results has been insignificant and, although possible, significant variation is not expected in the future. If, however, our markdown rate and cost percentage estimates varied by 10% of their values, the carrying amount of inventory would have changed by $0.7 million.
We estimate our expected shrinkage of inventories between our physical inventory counts by applying historical chain-widethe most recent average shrinkage experience rates. The historicalexperience. These rates are updated on a regular basis to reflect the most recent physical inventory shrinkage experience. Historically, the variation of those estimates to observed results has been insignificant and, although possible, significant variation is not expected in the future. If, however, our estimated shrinkage percentages varied by 10%, we would have incurred approximately $0.9 million in additional expense and the carrying amount of inventory would have changed by $0.3 million.
 
Revenue Recognition
 
Although the Company’sour recognition of revenue does not involve significant judgment, revenue recognition represents an important accounting policy of the Company.policy. Retail sales by Companyat our stores are recorded at the point of sale and are net of estimated customer returns, sales discounts under the “Passport Club” and “The Black Book” loyalty programs and Companycompany issued coupons.Direct-to-consumer retail sales are recorded when shipments are made We record DTC revenue based on the estimated receipt date of the product to customers and are net of estimated customer returns. our customers.
Under the Company’sour current program, gift certificate and gift card salescards do not have expiration dates. The Company accountsWe account for gift certificates and gift cards by recognizing a liability at the time a gift certificate orthe gift card is sold. The liability is relieved and revenue is recognized for gift certificates and gift cards upon redemption. In addition, the Company recognizeswe recognize revenue on unredeemed gift certificates and gift cards when it can determinebased on determining that the likelihood of the gift certificate or gift card being redeemed is remote and that there is no legal obligation to remit the unredeemed gift certificates or gift cards to relevant jurisdictions (commonly referred to as gift card breakage). The Company recognizesWe recognize gift card breakage under the redemptive recognition method. This method records gift card breakage as revenue on a proportional basis over the redemption period based on the Company’sour historical gift card breakage rate. The Company determinesWe determine the gift card breakage rate based on itsour historical redemption patterns. Once the breakage rate is determined, it is recognized over a60-month period based on historical redemption patterns of gift certificates and gift cards.
 
The Company’s policy is to honor customer returns in most instances. Returns after 30 daysAs part of the original purchase, ornormal sales cycle, we receive customer merchandise returns withoutrelated to store and DTC sales. To account for the original receipt, qualifyfinancial impact of this process, we estimate future returns on previously sold merchandise. Reductions in sales and gross margin are recorded for store credit only. The Company will, in certain circumstances, offer full customer refunds either after 30 days or without a receipt. The Company estimates its reserve for customerestimated merchandise returns based on the average refund experience in relation toreturn history, current sales for the related period.levels and projected future return levels.


28

Evaluation of Long-Lived Assets
 
Long-lived assets are reviewed periodically for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. If future undiscounted cash flows expected to be generated by the asset are less than its carrying amount, an asset is determined to be impaired, and a loss is recorded for the amount by which the carrying value of the asset exceeds its fair value. The Company uses itsfair value of an asset is estimated using estimated future cash flows of the asset discounted by a rate commensurate with the risk involved with such asset while incorporating marketplace assumptions. The estimate of future cash flows requires management to make certain assumptions and to apply judgment, including forecasting future sales and the useful lives of the assets. We exercise our best judgment based on the most current facts and circumstances surrounding itsour business when applying these impairment rules. ChangesWe establish our assumptions and arrive at the estimates used in these calculations based upon our historical experience, knowledge of the retail industry and by incorporating third-party data, which we believe results in a reasonably accurate approximation of fair value. Nevertheless, changes in the assumptions used could have a significantan impact on the Company’sour assessment of recoverability. For example, as it relates to the $1.1 million write-off of fixed assets for certain underperforming stores in fiscal 2009, if we had decreased our forecast of future sales by 1% throughout the forecast period or increased our discount rate by 1%, our write-off would have increased by approximately $0.1 million.
 
The Company evaluatesWe evaluate the recoverability of goodwill at least annually based on a two-step impairment test. The first step compares the fair value of the Company’sour reporting unitunits with itstheir carrying amount,amounts, including goodwill. If the carrying amount exceeds fair value, then the second step of the impairment test is performed to measure the amount of any impairment loss. Fair value is determined based on estimated future cash flows, discounted at a rate that approximates the Company’sour cost of capital.
There are several significant assumptions and estimates used in the discounted cash flow model. Included among these are the estimates used to forecast cash flows over a10-year forecast period, including an estimate for overall sales growth based on assumptions with respect to future comparable store sales growth, changes in store counts and square footage growth rates. We also estimate future gross margin and operating margin percentages. The Company evaluates itsdiscount rate is estimated based on an approximation of our weighted average cost of capital formulated by reviewing assumptions used by marketplace participants, in order to calculate the present value of forecasted future cash flows. Lastly, our discounted cash flow model estimates future cash flows where appropriate beyond the10-year forecast period for purposes of the present value computation by applying a long-term growth rate commensurate with an estimate of overall U.S. economic growth.
With regard to the goodwill impairment test completed during the fourth quarter of fiscal 2009, if we were to have assumed a weighted average cost of capital 1% higher than the rate actually used in the goodwill impairment test, the fair value of the Chico’s and WH|BM reporting units would have decreased by $173.6 million and $49.5 million, respectively. Nevertheless, even such reduced fair value amounts still would be greater than the respective carrying values of the respective reporting units and thus the second step of the goodwill impairment test still would not have been triggered.
Conversely, if we had assumed a sales growth estimate 1% lower throughout the forecast period than the rate used in our goodwill impairment test, the fair value of the Chico’s and WH|BM reporting units would have decreased by approximately $220.6 million and $84.5 million, respectively. Again, however, even such reduced fair value amounts still would be greater than the respective carrying values of the respective reporting units and thus the second step of the goodwill impairment test still would not have been triggered. Currently, we believe that neither of our reporting units is at risk of failing the first step of goodwill impairment testing.
We evaluate our other intangible assets for impairment on an annual basis by comparing the fair value of the asset with its carrying value. Such estimates are subject to change and the Companywe may be required to recognize impairment losses in the future. For example, with regards to our annual impairment test of the WH|BM trademark intangible asset, if we had assumed a sales growth estimate 1% lower throughout the forecast period than the rate used in its trademark impairment test, the fair value of the WH|BM trademark would have decreased by approximately $7.5 million. Conversely, an increase of 1% in the discount rate would have decreased the fair value by approximately $9.5 million. In either case, the fair value of the WH|BM trademark still would be greater than its carrying value and no impairment charge would have been recognized.


3229

Self-Insurance
The Company is self-insured for certain losses relating to workers’ compensation, medical and general liability claims. Self-insurance claims filed and claims incurred but not reported are accrued based upon management’s estimates of the aggregate liability for uninsured claims incurred using historical experience. Although management believes it has the ability to adequately accrue for estimated losses related to claims, it is possible that actual results could significantly differ from recorded self-insurance liabilities.
Operating Leases
 
The Company accounts for store rent expense in accordance with SFAS 13, “Accounting for Leases.” Accordingly, rentRent expense under store operating leases is recognized on a straight-line basis over the term of the leases. Landlord incentives, “rent-free” periods, rent escalation clauses and other rental expenses are also amortized on a straight-line basis over the terms of the leases, which includes the construction period and which is generally 60 — 90 days prior to the store opening date when the Companywe generally beginsbegin improvements in preparation offor our intended use. Tenant improvement allowances are recorded as a deferred lease credit within deferred liabilities and amortized as a reduction of rent expense over the term of the lease, which includes the construction period and one renewal when there is a significant economic penalty associated with non-renewal.
 
Income Taxes
 
Effective February 4, 2007,Income taxes are accounted for in accordance with authoritative guidance, which requires the Company adopteduse of the provisions of FIN 48. FIN 48 prescribes a recognition thresholdasset and measurement element forliability method. Deferred tax assets and liabilities are recognized based on the difference between the financial statement recognitioncarrying amounts of existing assets and liabilities and their respective tax bases. Inherent in the measurement of adeferred balances are certain judgments and interpretations of existing tax position taken orlaw and published guidance as applicable to our operations. No valuation allowance has been provided for deferred tax assets, since management anticipates that the full amount of these assets should be realized in the future. Our effective tax rate considers management’s judgment of expected tax liabilities within the various taxing jurisdictions in which we are subject to be taken in a tax return.tax. Due to the substantial amounts involved and judgment necessary, the Company deemswe deem this policy could be critical to itsour financial statements.
 
Interpretations and guidance surrounding income tax laws and regulations adjust over time. The Company establishes reservesWe record amounts for uncertain tax positions that management believes are supportable, but are potentially subject to successful challenge by the applicable taxing authority. Consequently, changes in our assumptions and judgments can materially affect amounts recognized related to income tax uncertainties and may affect the Company’sour results of operations or financial position. Historically, the variation of those estimates to observed results has been insignificant and, although possible, significant variation is not expected in the future. We believe our assumptions for estimates continue to be reasonable, although actual results may have a positive or negative material impact on the balances of such tax positions. At January 30, 2010 and January 31, 2009, we had approximately $6.9 million and $10.6 million reserved for uncertain tax positions, respectively. A 5% difference in the ultimate settlement amount of our uncertain tax positions versus our tax reserves recorded on January 30, 2010 would have affected net income and the related reserves by approximately $0.2 million. See Note 89 to the consolidated financial statements for further discussion regarding the impact of the Company’s adoption of FIN 48.
Accounting for Contingencies
From time to time, the Company is subject to various proceedings, lawsuits, disputes and claims (“actions”) arising from its normal business activities. Many of these actions raise complex, factual and legal issues and are subject to uncertainties. Accounting for contingencies arising from these actions requires management to use its best judgment when estimating an accrual, if any, related to such contingencies. Management may also consult with outside legal counsel to assist in the estimating process. However, the ultimate outcome of such actions could be different than management’s estimate, and adjustments may be required.our uncertain tax positions.
 
Stock-Based Compensation Expense
 
Effective January 29, 2006, the Companywe adopted thenew accounting provisions of SFAS 123Rregarding stock-based compensation, using the modified prospective transition method. Under this transition method, stock-based compensation expense recognized during fiscal 2009, 2008 fiscaland 2007 and fiscal 2006 for share-based awards includes: (a) compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of, January 29, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and (b) compensation expense for all stock-based compensation awards granted subsequent to January 29, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R.authoritative guidance.
 
The calculation of share-basedstock-based employee compensation expense involves estimates that require management’s judgments. These estimates include the fair value of each of the stock option awards granted, which is estimated on


33

the date of grant using a Black-Scholes option pricing model. There are two significant inputs into the Black-Scholes option pricing model: expected volatility and expected term. The Company estimatesWe estimate expected volatility based on the historical volatility of the Company’sour stock over a term equal to the expected term of the option granted. The expected term of stock option awards granted is derived from historical exercise experience under the Company’sour stock option plans and represents the period of time that stock option awards granted are expected to be outstanding. The assumptions used in calculating the fair value of share-basedstock-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of managementmanagement’s judgment. As a result, if factors change and the Company useswe use different assumptions, stock-based compensation expense could be materially different in the future. However, a change of 5% in the assumptions for expected volatility and expected term used to calculate the


30

fair value of stock options granted during the fiscal year ended January 30, 2010 would have affected net income by less than $0.1 million for fiscal 2009.
In addition, the Company iswe are required to estimate the expected forfeiture rate, and only recognize expense for those shares expected to vest. IfIn determining the Company’sportion of the stock-based payment award that is ultimately expected to be earned, we derive forfeiture rates based on historical data. In accordance with the authoritative guidance, we revise our forfeiture rates, when necessary, in subsequent periods if actual forfeitures differ from those originally estimated. As a result, in the event that a grant’s actual forfeiture rate is materially different from its estimate at the completion of the vesting period, the stock-based compensation expense could be significantly different from what the Company has recordedwe record in the current and prior periods. See Note 1112 to the consolidated financial statements for a further discussion on stock-based compensation.
 
Recent Accounting Pronouncements
 
In September 2006,January 2010, the FASBFinancial Accounting Standards Board issued SFAS No. 157, “Accounting Standards Update2010-06 (“ASU2010-06”) which amends Accounting Standards Codification (“ASC”) Topic 820,Fair Value MeasurementsMeasures and Disclosures” (“SFAS 157”), which establishes a framework for measuring. ASU2010-06 amends the ASC to require disclosure of transfers into and out of Level 1 and Level 2 fair value in accordance with Generally Accepted Accounting Principles (“GAAP”)measurements, and expands disclosuresalso require more detailed disclosure about the activity within Level 3 fair value measurements. This statementguidance is effective for financial assetsannual and liabilities as well as for any assets and liabilities that are carried at fair value on a recurring basis in financial statements as of the beginning of the entity’s first fiscal year that begins after November 15, 2007. In November 2007, the FASB issued a one-year deferral for non-financial assets and liabilities to comply with SFAS 157 which delayed the effective date for these items to fiscal years beginning after November 15, 2008. The Company does not expect the adoption of SFAS 157 as it relates to non-financial assets and liabilities to have a material effect on its financial position, results of operations or cash flows.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of SFAS 115” (“SFAS 159”). SFAS 159 allows entities to choose, at specific election dates, to measure eligible financial assets and liabilities at fair value that are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that item’s fair value in subsequentinterim reporting periods must be recognized in current earnings. On February 3, 2008, the Company adopted SFAS 159 and elected not apply the fair value option provided under SFAS 159.
In April 2008, the FASB issued FASB Staff PositionNo. FSP 142-3, “Determining the Useful Life of Intangible Assets”(“FSP 142-3”).FSP 142-3 amends the factors to be considered in determining the useful life of intangible assets. Its intent is to improve the consistency between the useful life of an intangible asset and the period of expected cash flows used to measure its fair value.FSP 142-3 is effective for fiscal years beginning after December 15, 2008. The Company does2009, except for requirements related to Level 3 disclosures, which are effective for annual and interim periods beginning after December 15, 2010. We do not expect that the adoption of ASUFSP 142-32010-06 will have a material impact on its consolidated financial statements.
In May 2008, the FASB issued SFAS No. 162,The Hierarchy of Generally Accepted Accounting Principles(“SFAS 162”). This standard identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles. The hierarchy set forth in SFAS 162 is directed to the entity, rather than the independent auditors, as the entity is the one responsible for selecting accounting principles for financial statements that are presented in conformity with generally accepted accounting principles. This standard is effective 60 days following SEC approval of the Public Company Accounting Oversight Board amendments to remove the hierarchy of generally accepted accounting principles from the auditing standards, with the expectation that this standard will be effective for the Company’s 2009 fiscal year. The Company does not expect SFAS 162 to have a material impact on itsour consolidated financial statements.
 
Inflation
 
The Company’sOur operations are influenced by general economic conditions. Historically, inflation has not had a material effect on the results of operations.


34

Quarterly Results and Seasonality
 
The Company’sOur quarterly results may fluctuate significantly depending on a number of factors including timing of new store openings, adverse weather conditions, the spring and fall fashion lines and shifts in the timing of certain holidays. In addition, the Company’sour periodic results can be directly and significantly impacted by the extent to which the Company’s new merchandise offerings are accepted by its customers and by the timing of the introduction of such merchandise.
 
Certain Factors That May Affect Future Results
 
ThisForm 10-K may contain certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect theour current views of the Company with respect to certain events that could have an effect on the Company’sour future financial performance, including but without limitation, statements regarding future growth rates of the established Companyour store concepts and the roll out of the Soma concept.concepts. The statements may address items such as future sales, gross margin expectations, operating margin expectations, earnings per share expectations, planned store openings, closings and expansions, future comparable store sales, future product sourcing plans, inventory levels, planned marketing expenditures, planned capital expenditures and future cash needs. In addition, from time to time, the Companywe may issue press releases and other written communications, and our representatives of the Company may make oral statements, which contain forward-looking information.
 
These statements, including those in thisForm 10-K and those in press releases or made orally, may include the words “expects,” “believes,” and similar expressions. Except for historical information, matters discussed in such oral and written statements, including thisForm 10-K, are forward-looking statements. These forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from historical results or those currently anticipated. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and in Item 1A, “Risk Factors” of the Company’sthisForm 10-K.
 
These potential risks and uncertainties include the financial strength of retailing in particular and the economy in general, the extent of financial difficulties that may be experienced by customers, theour ability of the Company to secure and


31

maintain customer acceptance of the Company’s styles and store concepts, the propriety of inventory mix and sizing, the quality of merchandise received from vendors,suppliers, the extent and nature of competition in the markets in which the Company operates,we operate, the extent of the market demand and overall level of spending for women’s private branded clothing and related accessories, the adequacy and perception of customer service, the ability to coordinate product development with buying and planning, the ability of the Company’sour suppliers to timely produce and deliver clothing and accessories, the changes in the costs of manufacturing, labor and advertising, the rate of new store openings, the buying public’s acceptance of any of the Company’sour new store concepts, the performance, implementation and integration of management information systems, the ability to hire, train, energize and retain qualified sales associates and other employees, the availability of quality store sites, the ability to expand headquarters,our NSSC, distribution centercenters and other support facilities in an efficient and effective manner, the ability to hire and train qualified managerial employees, the ability to effectively and efficiently establish and operatedirect-to-consumer DTC sales, the ability to secure and protect trademarks and other intellectual property rights, the ability to effectively and efficiently operate the Chico’s, WH|BM, and Soma merchandise divisions, risks associated with terrorist activities, risks associated with natural disasters such as hurricanes and other risks. In addition, there are potential risks and uncertainties that are peculiar to the Company’sour reliance on sourcing from foreign vendors,suppliers, including the impact of work stoppages, transportation delays and other interruptions, political or civil instability, imposition of and changes in tariffs and import and export controls such as import quotas, changes in governmental policies in or towards foreign countries, currency exchange rates and other similar factors.
 
The forward-looking statements included herein are only made as of the date of this Annual Report onForm 10-K. The Company undertakesWe undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.


35

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
The market risk of the Company’sour financial instruments as of January 31, 200930, 2010 has not significantly changed since February 2, 2008. The Company isJanuary 31, 2009. We are exposed to market risk from changes in interest rates on any future indebtedness and itsour marketable securities.
 
The Company’sOur exposure to interest rate risk relates in part to itsour revolving line of credit with itsour bank; however, as of January 31, 2009, the Company30, 2010, we did not have any outstanding borrowings on itsour line of credit and, given itsour current liquidity position, doesdo not expect to utilize itsour line of credit in the foreseeable future except for itsthe continuing use of the letter of credit facility portion thereof.
 
The Company’sOur investment portfolio is maintained in accordance with the Company’sour investment policy which identifies allowable investments, specifies credit quality standards and limits the credit exposure of any single issuer. The Company’sOur investment portfolio currently consists of cash equivalents and marketable securities, including variable rate demand notes, which are considered highly liquid, variable rate municipal debt securities, municipal bonds, asset-backed securities, corporate bonds, and municipal bonds.U.S. treasury securities. Although the variable rate municipal debt securitiesdemand notes, totaling $207.9 million, have long-term nominal maturity dates ranging from 20122011 to 2043,2049, the interest rates aregenerally reset either daily, every 7 days or every 28 days.weekly. Despite the long-term nature of the underlying securities of the variable rate demand notes, the Company haswe have the ability to quickly liquidate these securities based on various put features supplemented by standby purchase agreements or by the ability to draw down against irrevocable letters of credit issued by various financial institutions thereby creating a short-term instrument.securities. The municipal bond portionremainder of the portfolio, have averageas of January 30, 2010 consisted of $104.2 million of securities with maturity dates approximating 100 days. Accordingly, the Company’s investments are classified asless than one year and $74.4 million with maturity dates over one year and less than or equal to two years. We consider allavailable-for-sale securities.securities, including those with maturity dates beyond 12 months, as available to support current operational liquidity needs and therefore classify these securities as short-term investments within current assets on the consolidated balance sheet. As of January 31, 2009,30, 2010, an increase of 100 basis points in interest rates would reduce the fair value of the Company’sour marketable securities portfolio by approximately $0.7$1.5 million. Conversely, a reduction of 100 basis points in interest rates would increase the fair value of the Company’sour marketable securities portfolio by approximately $0.9$1.5 million.


3632

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
 
The Board of Directors and Shareholders of
Chico’s FAS, Inc.
 
We have audited the accompanying consolidated balance sheets of Chico’s FAS, Inc. and subsidiaries (the Company) as of January 30, 2010 and January 31, 2009, and February 2, 2008, and the related consolidated statements of operations, stockholders’ equity and comprehensive income, and cash flows for each of the three fiscal years in the period ended January 31, 2009.30, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Chico’s FAS, Inc. and subsidiaries at January 30, 2010 and January 31, 2009, and February 2, 2008, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended January 31, 2009,30, 2010, in conformity with U.S. generally accepted accounting principles.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Chico’s FAS, Inc. and subsidiaries’ internal control over financial reporting as of January 31, 2009,30, 2010, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 26, 200924, 2010 expressed an unqualified opinion thereon.
 
/s/  ERNST & YOUNG LLP
Certified Public Accountants
 
Tampa, Florida
March 26, 200924, 2010


3733

CHICO’S FAS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
 
CONSOLIDATED BALANCE SHEETS
(In thousands)
         
  January 31,
  February 2,
 
  2009  2008 
 
ASSETS
Current Assets:
        
Cash and cash equivalents $26,549  $13,801 
Marketable securities, at market  242,153   260,469 
Receivables  33,993   11,924 
Income tax receivable  11,706   23,973 
Inventories  132,413   144,261 
Prepaid expenses  21,702   18,999 
Deferred taxes  17,859   13,306 
         
Total current assets  486,375   486,733 
Property and Equipment:
        
Land and land improvements  18,627   17,867 
Building and building improvements  74,998   62,877 
Equipment, furniture and fixtures  376,218   347,937 
Leasehold improvements  418,691   396,650 
         
Total property and equipment  888,534   825,331 
Less accumulated depreciation and amortization  (327,989)  (257,378)
         
Property and equipment, net  560,545   567,953 
Goodwill
  96,774   96,774 
Other Intangible Assets
  38,930   38,930 
Deferred Taxes
  38,458   22,503 
Other Assets, Net
  5,101   37,233 
         
  $1,226,183  $1,250,126 
         
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
        
Accounts payable $56,542  $79,030 
Accrued liabilities  88,446   100,726 
Current portion of deferred liabilities  1,748   1,437 
         
Total current liabilities  146,736   181,193 
Noncurrent Liabilities:
        
Deferred liabilities  177,251   156,417 
         
Total noncurrent liabilities  177,251   156,417 
Commitments and Contingencies
        
Stockholders’ Equity:
        
Common stock, $.01 par value; 400,000 shares authorized and 177,130 and 176,245 shares issued and outstanding, respectively  1,771   1,762 
Additional paid-in capital  258,312   249,639 
Retained earnings  641,978   661,115 
Other accumulated comprehensive income  135   — 
         
Total stockholders’ equity  902,196   912,516 
         
  $1,226,183  $1,250,126 
         
             
  Fiscal Year Ended 
  January 30,
  January 31,
  February 2,
 
  2010  2009  2008 
 
Net sales:
            
Chico’s/Soma stores $1,125,192  $1,074,939  $1,223,217 
WH|BM stores  489,631   436,875   418,901 
Direct-to-consumer  98,327   70,591   72,093 
Other net sales  —   —   115 
             
Total net sales
  1,713,150   1,582,405   1,714,326 
Cost of goods sold  753,409   762,913   745,265 
             
Gross margin
  959,741   819,492   969,061 
Selling, general and administrative expenses:
            
Store operating expenses  647,040   645,352   633,288 
Marketing  78,075   80,326   95,717 
National Store Support Center  111,447   109,744   118,598 
Impairment and restructuring charges  15,026   23,664   — 
             
Total selling, general and administrative expenses
  851,588   859,086   847,603 
             
Income (loss) from operations
  108,153   (39,594)  121,458 
Gain on sale of investment  —   —   6,833 
Interest income, net  1,693   7,757   10,869 
             
Income (loss) before income taxes
  109,846   (31,837)  139,160 
Income tax provision (benefit)  40,200   (12,700)  48,012 
             
Income (loss) from continuing operations
  69,646   (19,137)  91,148 
Loss on discontinued operations, net of tax  —   —   2,273 
             
Net income (loss)
 $69,646  $(19,137) $88,875 
             
Per share data:
            
Income (loss) from continuing operations per common share-basic $0.39  $(0.11) $0.52 
Loss on discontinued operations per common share-basic  —   —   (0.01)
             
Net income (loss) per common share-basic $0.39  $(0.11) $0.51 
             
Income (loss) from continuing operations per common & common equivalent share-diluted $0.39  $(0.11) $0.51 
Loss on discontinued operations per common & common equivalent share-diluted  —   —   (0.01)
             
Net income (loss) per common & common equivalent share — diluted $0.39  $(0.11) $0.50 
             
Weighted average common shares outstanding — basic  177,499   176,606   176,082 
             
Weighted average common & common equivalent shares outstanding — diluted  178,858   176,606   176,735 
             
 
The accompanying notes are an integral part of these consolidated statements.


3834

CHICO’S FAS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In thousands)
 
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
             
  Fiscal Year Ended 
  January 31,
  February 2,
  February 3,
 
  2009  2008  2007 
 
Net sales by Chico’s/Soma stores $1,074,939  $1,223,217  $1,210,474 
Net sales by WH|BM stores  436,875   418,901   367,063 
Net sales bydirect-to-consumer
  70,591   72,093   52,959 
Other net sales  —   115   10,431 
             
Net sales
  1,582,405   1,714,326   1,640,927 
Cost of goods sold  762,913   745,265   673,742 
             
Gross margin
  819,492   969,061   967,185 
Selling, general and administrative expenses:
            
Store operating expenses  645,352   633,288   525,529 
Marketing  80,326   95,717   75,121 
Shared services  109,744   118,598   102,835 
Impairment and restructuring charges  23,664   —   — 
             
Total selling, general, and administrative expenses
  859,086   847,603   703,485 
             
Income (loss) from operations
  (39,594)  121,458   263,700 
Gain on sale of investment  —   6,833   — 
Interest income, net  7,757   10,869   10,626 
             
Income (loss) before income taxes
  (31,837)  139,160   274,326 
Income tax provision (benefit)  (12,700)  48,012   99,635 
             
Income (loss) from continuing operations
  (19,137)  91,148   174,691 
Loss on discontinued operations, net of tax  —   2,273   8,055 
             
Net income (loss)
 $(19,137) $88,875  $166,636 
             
Per share data:
            
Income (loss) from continuing operations per common share-basic $(0.11) $0.52  $0.99 
Loss on discontinued operations per common share-basic  —   (0.01)  ( 0.05)
             
Net income (loss) per common share-basic $(0.11) $0.51  $0.94 
             
Income (loss) from continuing operations per common & common equivalent share-diluted $(0.11) $0.51  $0.98 
Loss on discontinued operations per common & common equivalent share-diluted  —   (0.01)  ( 0.05)
             
Net income (loss) per common & common equivalent share — diluted $(0.11) $0.50  $0.93 
             
Weighted average common shares outstanding — basic  175,861   175,574   177,273 
             
Weighted average common & common equivalent shares outstanding — diluted  175,861   176,355   178,452 
             
         
  January 30,
  January 31,
 
  2010  2009 
 
ASSETS
Current Assets:
        
Cash and cash equivalents $37,043  $26,549 
Marketable securities, at fair value  386,500   242,153 
Receivables  3,922   33,993 
Income tax receivable  312   11,706 
Inventories  138,516   132,413 
Prepaid expenses  24,023   21,702 
Deferred taxes  9,664   17,859 
         
Total current assets  599,980   486,375 
Property and Equipment:
        
Land and land improvements  21,978   18,627 
Building and building improvements  82,169   74,998 
Equipment, furniture and fixtures  388,392   376,218 
Leasehold improvements  412,834   418,691 
         
Total property and equipment  905,373   888,534 
Less accumulated depreciation and amortization  (383,844)  (327,989)
         
Property and equipment, net  521,529   560,545 
Goodwill
  96,774   96,774 
Other Intangible Assets
  38,930   38,930 
Deferred Taxes
  36,321   38,458 
Other Assets, Net
  25,269   5,101 
         
  $1,318,803  $1,226,183 
         
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
        
Accounts payable $79,219  $56,542 
Accrued liabilities  95,862   88,446 
Current portion of deferred liabilities  19,625   18,659 
         
Total current liabilities  194,706   163,647 
Noncurrent Liabilities:
        
Deferred liabilities  142,179   160,340 
         
Total noncurrent liabilities  142,179   160,340 
Commitments and Contingencies
        
Stockholders’ Equity:
        
Common stock, $.01 par value; 400,000 shares authorized with 178,126 and 177,130 shares issued and outstanding, respectively  1,781   1,771 
Additional paid-in capital  268,109   258,312 
Retained earnings  711,624   641,978 
Other accumulated comprehensive income  404   135 
         
Total stockholders’ equity  981,918   902,196 
         
  $1,318,803  $1,226,183 
         
 
The accompanying notes are an integral part of these consolidated statements.


3935

CHICO’S FAS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND
COMPREHENSIVE INCOME
(In thousands)
 
                                                    
           Accumulated
            Accumulated
   
 Common Stock Additional
     Other
    Common Stock Additional
   Other
   
   Par
 Paid-in
 Unearned
 Retained
 Comprehensive
      Par
 Paid-in
 Retained
 Comprehensive
   
 Shares Value Capital Compensation Earnings (Loss) Income Total  Shares Value Capital Earnings Income Total 
BALANCE, January 28, 2006
  181,726  $1,817  $202,878  $(3,710) $605,537  $(95) $806,427 
Net income  —   —   —   —   166,636   —   166,636 
Unrealized gain on marketable securities, net  —   —   —   —   —   95   95 
   
Comprehensive income                          166,731 
Issuance of common stock  703   7   6,395   —   —   —   6,402 
Repurchase of common stock  (6,680)  (67)  (148)  —   (199,933)  —   (200,148)
Stock-based compensation  —   —   21,241   —   —   —   21,241 
Reversal of unearned compensation upon adoption of SFAS 123R  —   —   (3,710)  3,710   —   —   — 
Tax benefit of stock options exercised  —   —   3,278   —   —   —   3,278 
               
BALANCE, February 3, 2007
  175,749   1,757   229,934   —   572,240   —   803,931   175,749  $1,757  $229,934  $572,240  $—  $803,931 
Net income and comprehensive income  —   —   —   —   88,875   —   88,875   —   —   —   88,875   —   88,875 
Issuance of common stock  550   5   3,528   —   —   —   3,533   550   5   3,528   —   —   3,533 
Repurchase of common stock  (54)  —   (694)  —   —   —   (694)  (54)  —   (694)  —   —   (694)
Stock-based compensation  —   —   17,080   —   —   —   17,080   —   —   17,080   —   —   17,080 
Adjustment to excess tax benefit from stock-based compensation  —   —   (209)  —   —   —   (209)  —   —   (209)  —   —   (209)
                            
BALANCE, February 2, 2008
  176,245   1,762   249,639   —   661,115   —   912,516   176,245   1,762   249,639   661,115   —   912,516 
Net loss  —   —   —   —   (19,137)  —   (19,137)  —   —   —   (19,137)  —   (19,137)
Unrealized gain on marketable securities, net  —   —   —   —   —   135   135 
Unrealized gain on marketable securities, net of taxes  —   —   —   —   135   135 
      
Comprehensive loss                          (19,002)                      (19,002)
Issuance of common stock  945   9   297   —   —   —   306   945   9   297   —   —   306 
Repurchase of common stock  (60)  —   (311)  —       —   (311)  (60)  —   (311)  —   —   (311)
Stock-based compensation  —   —   12,590   —   —   —   12,590   —   —   12,590   —   —   12,590 
Adjustment to excess tax benefit from stock-based compensation  —   —   (3,903)  —   —   —   (3,903)  —   —   (3,903)  —   —   (3,903)
                            
BALANCE, January 31, 2009
  177,130  $1,771  $258,312  $—  $641,978  $135  $902,196   177,130  $1,771  $258,312  $641,978  $135  $902,196 
Net income  —   —   —   69,646   —   69,646 
Unrealized gain on marketable securities, net of taxes  —   —   —   —   269   269 
                  
Comprehensive income                      69,915 
Issuance of common stock  1,072   11   4,846   —   —   4,857 
Repurchase of common stock  (76)  (1)  (929)  —   —   (930)
Stock-based compensation  —   —   7,402   —   —   7,402 
Adjustment to excess tax benefit from stock-based compensation  —   —   (1,522)  —   —   (1,522)
             
BALANCE, January 30, 2010
  178,126  $1,781  $268,109  $711,624  $404  $981,918 
             
 
The accompanying notes are an integral part of these consolidated statements.


4036

CHICO’S FAS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
                        
 Fiscal Year Ended  Fiscal Year Ended 
 January 31,
 February 2,
 February 3,
  January 30,
 January 31,
 February 2,
 
 2009 2008 2007  2010 2009 2008 
CASH FLOWS FROM OPERATING ACTIVITIES:
                        
Net (loss) income $(19,137) $88,875  $166,636 
Net income (loss) $69,646  $(19,137) $88,875 
              
Adjustments to reconcile net (loss) income to net cash provided by operating activities —            
Depreciation and amortization, cost of goods sold  8,782   10,386   7,564 
Depreciation and amortization, other  88,790   81,593   61,840 
Deferred tax benefit  (20,507)  (6,635)  (22,324)
Stock-based compensation expense, cost of goods sold  2,769   4,909   6,004 
Stock-based compensation expense, other  9,821   12,171   15,237 
Adjustments to reconcile net income (loss) to net cash provided by operating activities —            
Depreciation and amortization  96,372   97,572   91,979 
Deferred tax expense (benefit)  5,647   (20,507)  (6,635)
Stock-based compensation expense  7,402   12,590   17,080 
Excess tax benefit from stock-based compensation  (100)  (209)  (2,365)  (3,194)  (100)  (209)
Deferred rent expense, net  6,060   9,508   6,867   2,338   6,060   9,508 
Goodwill impairment  −   −   6,752 
Gain on sale of investment  −   (6,833)  −   −   −   (6,833)
Impairment of long-lived assets  13,691   −   − 
Impairment charges  15,026   13,691   − 
Loss (gain) on disposal of property and equipment  761   (908)  826   1,372   761   (908)
Decrease (increase) in assets —                        
Receivables, net  3,766   (18,770)  (4,517)  4,237   3,766   (18,770)
Income tax receivable  12,267   −   −   11,394   12,267   − 
Inventories  11,847   (32,388)  (14,696)  (6,103)  11,847   (32,388)
Prepaid expenses and other  4,224   (3,958)  (3,676)  (2,489)  4,224   (3,958)
(Decrease) increase in liabilities —            
Increase (decrease) in liabilities —            
Accounts payable  (22,488)  24,119   7,532   22,677   (22,488)  24,119 
Accrued and other deferred liabilities  (1,100)  46,787   57,314   (8,955)  (1,100)  46,787 
              
Total adjustments  118,583   119,772   122,358   145,724   118,583   119,772 
              
Net cash provided by operating activities  99,446   208,647   288,994   215,370   99,446   208,647 
              
CASH FLOWS FROM INVESTING ACTIVITIES:
                        
Purchases of marketable securities  (569,358)  (1,212,894)  (162,690)  (590,223)  (569,358)  (1,212,894)
Proceeds from sale of marketable securities  587,809   1,190,761   325,894   446,146   587,809   1,190,761 
Purchase of Fitigues assets  −   −   (7,527)
Purchase of Minnesota franchise rights and stores  −   (32,896)  −   −   −   (32,896)
Acquisition of other franchise stores  −   (6,361)  (811)  −   −   (6,361)
Proceeds from sale of land  −   13,426   −   −   −   13,426 
Proceeds from sale of investment  −   15,090   −   −   −   15,090 
Purchases of property and equipment  (104,615)  (202,223)  (218,311)  (67,920)  (104,615)  (202,223)
              
Net cash used in investing activities  (86,164)  (235,097)  (63,445)  (211,997)  (86,164)  (235,097)
              
CASH FLOWS FROM FINANCING ACTIVITIES:
                        
Proceeds from issuance of common stock  306   3,533   6,402   4,857   306   3,533 
Excess tax benefit from stock-based compensation  100   209   2,365   3,194   100   209 
Cash paid for deferred financing costs  (629)  −   −   −   (629)  − 
Repurchase of common stock  (311)  (694)  (200,148)  (930)  (311)  (694)
              
Net cash (used in) provided by financing activities  (534)  3,048   (191,381)
Net cash provided by (used in) financing activities  7,121   (534)  3,048 
              
Net increase (decrease) in cash and cash equivalents  12,748   (23,402)  34,168   10,494   12,748   (23,402)
CASH AND CASH EQUIVALENTS,Beginning of period
  13,801   37,203   3,035   26,549   13,801   37,203 
              
CASH AND CASH EQUIVALENTS,End of period
 $26,549  $13,801  $37,203  $37,043  $26,549  $13,801 
              
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
                        
Cash paid for interest $159  $461  $107  $304  $159  $461 
Cash paid for income taxes, net $13,591  $74,563  $105,646  $29,530  $13,591  $74,563 
NON-CASH INVESTING AND FINANCING ACTIVITIES:
                        
Receipt of note receivable for sale of land  −  $25,834   −   −   −  $25,834 
Receivable from sale of equity investment  −  $2,161   −   −   −  $2,161 
 
The accompanying notes are an integral part of these consolidated statements.


4137

CHICO’S FAS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2009
(In thousands, except share and per share amounts and where otherwise indicated)
 
1.  Business Organization and Significant Accounting Policies:
 
Description of Business Organization
 
The accompanying consolidated financial statements include the accounts of Chico’s FAS, Inc., a Florida corporation, and its wholly-owned subsidiaries (the Company)(“the Company”, “we”, “us”, “our”). The Company operatesWe operate as a specialty retailer of private branded, sophisticated,casual-to-dressy clothing, intimates, complimentary accessories, and related accessories. The Companyother non-clothing gift items. We currently sells itssell our products through traditional retail stores, catalog, and via the Internet atwww.chicos.com,www.whitehouseblackmarket.com, andwww.soma.comwww.soma.com.. As of January 31, 2009, the Company’s retail store system consisted of 1,07630, 2010, we had 1,080 stores located throughout the United States, the U.S. Virgin Islands and Puerto Rico.
 
Fiscal Year
 
The Company’sOur fiscal years end on the Saturday closest to January 31 and are designated by the calendar year in which the fiscal year commences. The periods presented in these financial statements are the fiscal years ended January 30, 2010 (fiscal 2009), January 31, 2009 (fiscal 2008), and February 2, 2008 (fiscal 2007) and February 3, 2007 (fiscal 2006). Fiscal 2009, 2008, and 2007 all contained 52 weeks while fiscal 2006 contained 53 weeks.
 
Franchise Operations
 
In early fiscal 2007, the Companywe completed the acquisition of all outstanding franchise rights which included 12 Minnesota stores and 1 Florida store. With these acquisitions completed, the Companywe now hashave no franchise stores remaining and doesdo not intend to pursue, at this time, any franchises or to enter into any additional franchise territory development agreements for any of its brands in the territories in which it currently does business.United States.
 
Principles of Consolidation
 
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
 
Segment Information
 
The Company’sOur brands, Chico’s, WH|BM, and Soma Intimates, have been aggregated into one reportable segment due to the similarities of the economic and operating characteristics of the operations represented by the Company’s brands.
 
ManagementUse of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. Actual results could differ from those estimates. Significant estimates and assumptions made by management primarily impact the following key financial areas:
Inventory Valuation and Shrinkage
The Company identifies potentially excess and slow-moving inventories by evaluating turn rates and inventory levels in conjunction with the Company’s overall growth rate. Excess quantities are identified through evaluation of inventory ageing, review of inventory turns and historical sales experiences, as well as specific identification based on fashion trends. Further, exposure to inadequate realization of carrying value is


42

CHICO’S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
identified through analysis of gross margins and markdowns in combination with changes in current business trends. The Company provides lower of cost or market reserves for such identified excess and slow-moving inventories. The Company estimates its expected shrinkage of inventories between physical inventory counts by applying historical chain-wide average shrinkage experience rates. The historical rates are updated on a regular basis to reflect the most recent physical inventory shrinkage experience.
Sales Returns
The Company’s policy is to honor customer returns in most instances. Returns after 30 days of the original purchase, or returns without the original receipt, qualify for store credit only. The Company will, in certain circumstances, offer full customer refunds either after 30 days or without a receipt. The Company estimates its reserve for customer returns based on the average refund experience in relation to sales for the related period.
Self-Insurance
The Company is self-insured for certain losses relating to workers’ compensation, medical and general liability claims. Self-insurance claims filed and claims incurred but not reported are accrued based upon management’s estimates of the aggregate liability for uninsured claims incurred based on historical experience. Although management believes it has the ability to adequately accrue for estimated losses related to claims, it is possible that actual results could significantly differ from recorded self-insurance liabilities.
 
Reclassifications
 
Reclassifications of certain prior year balances were made in order to conform to the current year presentation.
 
Cash and Cash Equivalents
 
Cash and cash equivalents includes cash on hand and in banks and short-term highly liquid investments with original maturities of three months or less.


38

 
Sales TaxesCHICO’S FAS, INC. AND SUBSIDIARIES
 
The Company’s policy towards taxes assessed by a government authority directly imposed on revenue producing transactions between a seller and a customer is, and has been, to exclude all such taxes from revenue.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Marketable Securities
Marketable securities generally represent variable rate demand notes, which are highly liquid, variable rate municipal debt securities and municipal bonds. Although the variable rate municipal debt securities have long-term nominal maturity dates ranging from 2012 to 2043, the interest rates are reset either daily, every 7 days, or every 28 days. Despite the long-term nature of the underlying securities of the variable rate demand notes, the Company has the ability to quickly liquidate these securities based on the Company’s cash needs, thereby creating a short-term instrument. The municipal bond portion of the portfolio have average maturity dates approximating 100 days.
 
Marketable securities are classified asavailable-for-sale and are carried at marketfair value, with the unrealized holding gains and losses, net of income taxes, reflected as a separate component of stockholders’ equity until realized. For the purposes of computing realized and unrealized gains and losses, cost is determined on a specific identification basis. We consider allavailable-for-sale securities, including those with maturity dates beyond 12 months, as available to support current operational liquidity needs and therefore classify these securities within current assets on the consolidated balance sheets.
 
Inventories
 
The Company usesWe use the weighted average cost method to determine the cost of merchandise inventories. We identify potentially excess and slow-moving inventories by evaluating inventory agings, turn rates and inventory levels in conjunction with our overall growth rate. Further, exposure to inadequate realization of carrying value is identified through analysis of gross margins and markdowns in combination with changes in current business trends. We provide lower of cost or market adjustments for such identified excess and slow-moving inventories. We estimate our expected shrinkage of inventories between physical inventory counts by applying historical chain-wide average shrinkage experience rates, which are updated on a regular basis. Substantially all of our inventory consists of finished goods.
Purchasing, merchandising, distribution and product development costs are expensed as incurred, and are included in the accompanying consolidated statements of operations as a component of cost of goods sold.


43

CHICO’S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Property and Equipment
 
Property and equipment is stated at cost. Depreciation of property and equipment is provided on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of their estimated useful lives (generally 10 years or less) or the related lease term plus one anticipated renewal when there is an economic penalty associated with non-renewal. The Company’sOur property and equipment is depreciated using the following estimated useful lives:
 
   
  
Estimated Useful Lives
 
Land improvements 35 years
Building and building improvements 20 - 35 years
Equipment, furniture and fixtures 2 - 10 years
Leasehold improvements 5 - 10 years or term of lease, if shorter
 
Maintenance and repairs of property and equipment are expensed as incurred, and major improvements are capitalized. Upon retirement, sale or other disposition of property and equipment, the cost and accumulated depreciation or amortization are eliminated from the accounts, and any gain or loss is charged to operations.
 
Land Held for Sale
During the third quarter of fiscal 2006, the Company reclassified a parcel of land located south of Fort Myers, Florida with a book value of $38.1 million from a long-term asset to a current asset that was being held for sale. On August 1, 2007, the Company consummated a transaction to sell the land with a sales price totaling $39.7 million consisting of approximately $13.4 million in cash proceeds, net of closing costs, and a note receivable with a principal amount of approximately $25.8 million and secured by a purchase money mortgage. The note, which accrues interest at a fixed rate of 6.0% annually with interest payable quarterly and the principal amount payable in a balloon payment on August 1, 2009, was included within other assets on the Company’s consolidated balance sheet in fiscal 2007. As the due date for the balloon payment is within one year of the Company’s most recently ended fiscal year, the Company has reclassified the $25.8 million note receivable from a long-term asset to a current asset within receivables on the Company’s consolidated balance sheet.
Operating Leases
 
The Company leasesWe lease retail stores and office space under operating leases. The majority of the Company’sour lease agreements provide for tenant improvement allowances, rent escalation clausesand/or contingent rent provisions.
Tenant improvement allowances are recorded as a deferred lease credit within deferred liabilities and amortized as a reduction of rent expense over the term of the lease, which includes the construction period and one renewal when there is a significant economic penalty associated with non-renewal.
Landlord incentives, “rent-free” periods, rent escalation clauses and other rental expenses are amortized on a straight-line basis over the terms of the leases, which includes the construction period, and which is generally60-90 days prior to the store opening date when the Company generally beginswe begin improvements in preparation offor our intended use.


39

CHICO’S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Certain leases provide for contingent rents, in addition to a basic fixed rent, which are determined as a percentage of gross sales in excess of specified levels. The Company recordsWe record a contingent rent liability in “Accrued liabilities” on the consolidated balance sheets and the corresponding rent expense when specified levels have been achieved or when management determines that achieving the specified levels during the fiscal year is probable.
 
Goodwill and Other Intangible Assets
 
The Company accounts for its goodwill and intangible assets in accordance with Statement of Financial Accounting Standard No. 142,“Goodwill and Other Intangible Assets” (“SFAS 142”). Goodwill andother indefinite-lived intangible


44

CHICO’S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead are tested for impairment at least annually in accordance withannually. We perform our annual impairment test during the provisions of SFAS 142.fourth quarter, or more frequently should events or circumstances change that would make it more likely than not, that an impairment may have occurred. In fiscal 2007, the Companywe completed the acquisition of all outstanding franchise rights and recorded goodwill and territorial franchise rights as an indefinite-lived intangible asset. During fiscal 2003, in connection with the acquisition of The White House, Inc., the Companywe recorded goodwill and a trademark indefinite-lived intangible asset.
 
Goodwill represents the excess of the purchase price over the fair value of identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. In accordance with the provisions of SFAS 142, the Company is not amortizing the goodwill. Impairment testing for goodwill is done at a reporting unit level. Under SFAS 142,the guidance, reporting units are defined as an operating segment or one level below an operating segment, called a component. Using these criteria, the Companywe identified itsour reporting units and further concluded that the goodwill related to the territorial franchise rights for the state of Minnesota should be allocated to the Chico’s reporting unit and that the goodwill associated with the WH|BM acquisition should be assigned to the WH|BM reporting unit.
In the fourth quarter of fiscal 2009, we performed our annual impairment test and concluded that the implied fair value of the Chico’s and WH|BM reporting units exceeded their respective carrying amounts. Therefore, we did not recognize an impairment loss.
 
During the third quarter of fiscal 2008, management considered the decline in the Company’sour market capitalization since itsour annual review for impairment in fiscal 2007 as well as the decline in the business climate during fiscal 2008 and determined that an interim goodwill impairment test was appropriate. Accordingly, the Companywe performed an interim goodwill impairment test on the Company’s then-current projections of future operating results and concluded that itsour goodwill was not impaired as of November 1, 2008.
 
During the fourth quarter of fiscal 2008, the Companywe completed itsour annual test for goodwill impairment and again determined that itsour goodwill was not impaired. However, throughout the 2008 fourth quarter, there was continued deterioration in the financial and credit markets, which significantly impacted consumer confidence and caused the Company’sour market capitalization to decrease even further. Given these circumstances, the Companywe performed another interim goodwill impairment test during the latter part of the fourth quarter of fiscal 2008.
 
To completeConsistent with the impairment tests discussed above, we completed this interim goodwill impairment test the Company determinedby determining the fair values of each of itsour reporting units based on a discounted cash flow model that incorporates assumptions including management’s best estimate of projected revenue and earnings growth to calculate future cash flows which are discounted using an estimate of the Company’sour weighted average cost of capital. The CompanyWe then compared the calculated fair value of each of itsour reporting units to their respective book values as well as reconciled the fair value of itsthe reporting units to itsour market capitalization and concluded that goodwill was not impaired as of January 31, 2009.
 
As of January 31, 2009,30, 2010, the total carrying value of intangible assets ofwas $38.9 million that related to the acquired WH|BM trademark of $34.0 million and the acquired territorial franchise rights.rights of $4.9 million. The value of the trademark intangible asset was determined using a discounted cash flow method, based on the estimated future benefit to be received from the trademark. The value of the acquired territorial franchise rights was determined using a discounted cash flow method, based on a relief from royalty concept. The Company isWe are not amortizing itsour intangible assets, as each has an indefinite useful life. In the fourth quarter of fiscal 2008, the Company2009, we performed an analysis to compare the implied fair values of each of itsour intangible assets, using a discounted cash flow method, to each of their respective carrying values and concluded that the intangible assets were not impaired.


40

CHICO’S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Other Assets, Net
Other assets, net, consist primarily of a note receivable currently valued at $20.0 million. The value of the note receivable is based on the estimated fair value of the underlying collateral, a parcel of land located in Fort Myers, Florida, less estimated costs to sell. In fiscal 2009, we determined the note receivable was impaired and therefore wrote the value of the note down to $20.0 million in accordance with generally accepted accounting principles. Additionally, upon determining the note was impaired during the second quarter, we ceased recognizing any further interest income and also reversed the thenyear-to-date interest income of approximately $0.8 million. We expect to take possession of the underlying collateral in satisfaction of the note receivable sometime during fiscal 2010. See Note 2 for a discussion of the impairment charges recorded on this note receivable during fiscal 2009.
 
Accounting for the Impairment of Long-lived Assets
 
Long-lived assets are reviewed periodically for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. If future undiscounted cash flows expected to be generated by the asset are less than its carrying amount, an asset is determined to be impaired, and a loss is recorded for the amount by which the carrying value of the asset exceeds its fair value. See Note 2 for a discussion of impairment charges for long-lived assets recorded in fiscal 2009 and 2008.


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CHICO’S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Gain on Sale of Investment
 
On July 26, 2007, VF Corporation announced that it had entered into a definitive agreement to acquire lucy activewear, inc. (“Lucy”), a privately held retailer of women’s activewear apparel, in which the Companywe held a cost method investment totaling $10.4 million. Consummating theThe sale was completed during the third quarter of fiscal 2007 and the Companywe recorded a pre-tax gain of approximately $6.8 million, which is reflected as non-operating income during fiscal 2007 in the accompanying statement of operations.
 
Income Taxes
 
Effective February 4, 2007,Income taxes are accounted for in accordance with authoritative guidance, which requires the Company adopteduse of the provisionsasset and liability method. Deferred tax assets and liabilities are recognized based on the difference between the financial statement carrying amounts of Financial Accounting Standards Board (“FASB”) Interpretation No. 48,“Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 prescribesexisting assets and liabilities and their respective tax bases. Additionally, we follow a comprehensive model of how a company shouldto recognize, measure, present and disclose in itsour financial statements uncertain tax positions that the company haswe have taken or expectsexpect to take on a tax return. FIN 48This model states that a tax benefit from an uncertain tax position may be recognized if it is “more likely than not” that the position is sustainable, based upon its technical merits.
The tax benefit of a qualifying position is the largest amount of tax benefit that has greater than a 50% likelihood of being realized upon the ultimate settlement with a taxing authority having full knowledge of all relevant information.
 
Fair Value of Financial Instruments
 
The Company’sOur financial instruments consist of cash and cash equivalents, marketable securities, trade receivables and payables. The carrying values of cash and cash equivalents, marketable securities, trade receivables and trade payables approximate currenttheir fair value due to the short-term nature of the instruments.
 
Self-Insurance
We are self-insured for certain losses relating to workers’ compensation, medical and general liability claims. Self-insurance claims filed and claims incurred but not reported are accrued based upon management’s estimates of the aggregate liability for uninsured claims incurred based on historical experience. Although management believes


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CHICO’S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
it has the ability to adequately accrue for estimated losses related to claims, it is possible that actual results could significantly differ from recorded self-insurance liabilities.
Revenue Recognition
Retail sales by our stores are recorded at the point of sale and are net of estimated customer returns, sales discounts under the “Passport Club” and “The Black Book” loyalty programs and company issued coupons. For DTC sales, revenue is recognized at the time we estimate the customer receives the product, which is typically within a few days of shipment.
Under our current program, gift cards do not have expiration dates. We account for gift cards by recognizing a liability at the time a gift card is sold. The liability is relieved and revenue is recognized for gift cards upon redemption. In addition, we recognize revenue on unredeemed gift cards when it can be determined that the likelihood of the gift card being redeemed is remote and there is no legal obligation to remit the unredeemed gift cards to relevant jurisdictions (commonly referred to as gift card breakage). We recognize gift card breakage under the redemption recognition method. This method records gift card breakage as revenue on a proportional basis over the redemption period based on the historical gift card breakage rate. We determine the gift card breakage rate based on our historical redemption patterns.
Our policy towards taxes assessed by a government authority directly imposed on revenue producing transactions between a seller and a customer is, and has been, to exclude all such taxes from revenue.
Supplier Allowances
From time to time, we receive allowancesand/or credits from certain of our suppliers. The aggregate amount of such allowances and credits is immaterial to our results of operations.
Shipping and Handling Costs
Shipping and handling costs to transport goods between stores or directly to customers, net of amounts paid to us by customers, amounted to $9.6 million, $11.0 million, and $9.5 million in fiscal 2009, 2008 and 2007, respectively, and are included in store operating expenses in the accompanying consolidated statements of operations. Amounts paid by customers to cover shipping and handling costs are considered insignificant.
Store Pre-opening Costs
Operating costs (including storeset-up, rent and training expenses) incurred prior to the opening of new stores are expensed as incurred and are included in store operating expenses in the accompanying consolidated statements of operations.
Advertising Costs
Costs associated with the production of advertising, such as writing, copy, printing, and other costs are expensed as incurred. Costs associated with communicating advertising that has been produced, such as television and magazine, are expensed when the advertising event takes place. For fiscal 2009, 2008 and 2007, advertising expense was approximately $65.0 million, $67.5 million, and $82.7 million, respectively, and are reflected as marketing expenses in the accompanying consolidated statements of operations.
Catalog expenses consist of the cost to prepare, print, and distribute catalogs. Such costs are amortized over their expected period of future benefit, which is typically less than six weeks.


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CHICO’S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Stock-Based Compensation
Effective January 29, 2006, we adopted the revised provisions of stock-based compensation accounting guidance using the modified prospective transition method. Under this transition method, stock-based compensation expense recognized for share-based awards, including stock options and restricted stock, consists of: (a) compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of, January 29, 2006, based on the grant date fair value estimated in accordance with the original share-based payment guidance, and (b) compensation expense for all stock-based compensation awards granted subsequent to January 29, 2006, based on the grant date fair value estimated in accordance with the new guidance. In addition, upon adoption, we calculated our pool of income tax benefits that were previously recorded in additional paid-in capital and are available to absorb future income tax benefit deficiencies that can result from the exercise of stock options or vesting of restricted stock awards. We elected to calculate this pool under the alternative transition method provided for under accounting rules. See Note 12 for a further discussion on stock-based compensation.
Net Income per Common and Common Equivalent Share
Basic earnings per share (“EPS”) is computed by dividing net income by the weighted-average number of common shares outstanding. Diluted EPS reflects the dilutive effect of potential common shares from securities such as stock options and performance awards.
In June 2008, new accounting guidance was issued related to share-based awards that qualify as participating securities. In accordance with this 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 basic earnings per common share pursuant to the “two-class” method. Participating securities are comprised of unvested restricted stock awards. Prior to the application of this guidance, these participating securities were excluded from weighted average common shares outstanding in the calculation of basic earnings per share.
In accordance with the new guidance, the basic and diluted earnings per share amounts have been retroactively adjusted for all periods presented to include outstanding unvested restricted stock in the calculation of basic weighted average shares outstanding.
The following is a reconciliation of the denominators of the basic and diluted EPS computations shown on the face of the accompanying consolidated statements of operations:
             
  Fiscal
  Fiscal
  Fiscal
 
  2009  2008  2007 
 
Weighted average common shares outstanding — basic  177,498,862   176,606,274   176,082,322 
Dilutive effect of stock options and performance awards outstanding  1,358,678   −   653,171 
             
Weighted average common and common equivalent shares outstanding — diluted  178,857,540   176,606,274   176,735,493 
             
In fiscal 2009, 2008 and 2007, 3,132,586, 5,893,557 and 3,970,646 potential shares of common stock, respectively, were excluded from the diluted per share calculation relating to stock option awards, because the effect of including these potential shares was antidilutive.
Newly Issued Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board issued Accounting Standards Update2010-06 (“ASU2010-06”) which amends Accounting Standards Codification (“ASC”) Topic 820,Fair Value Measures and Disclosures. ASU2010-06 amends the ASC to require disclosure of transfers into and out of Level 1 and Level 2 fair


43

CHICO’S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
value measurements, and also require more detailed disclosure about the activity within Level 3 fair value measurements. This guidance is effective for annual and interim reporting periods beginning after December 15, 2009, except for requirements related to Level 3 disclosures, which are effective for annual and interim periods beginning after December 15, 2010. We do not expect that adoption of ASU2010-06 will have a material impact on our consolidated financial statements.
2.  Impairment and Restructuring Charges:
Fiscal 2009
In fiscal 2009, we incurred non-cash impairment charges totaling approximately $15.0 million which are included in the consolidated statements of operations within selling, general and administrative expenses for the fifty-two weeks ended January 30, 2010. A summary of the charges are presented in the table below (amounts in thousands):
     
Impairment of long-lived assets related to underperforming stores $1,134 
Impairment of software development costs  8,058 
Impairment of note receivable  5,834 
     
Total pre-tax impairment charges $15,026 
     
Long-lived Asset Impairments:  We review our long-lived assets periodically for impairment if events or changes in circumstances, indicate that the carrying amount of such assets may not be recoverable. In fiscal 2009, we decided to deploy alternative inventory planning and allocation software. As a result, $8.1 million of development costs already incurred related to this project were determined to be impaired. Additionally, we completed an evaluation of long-lived assets at certain underperforming stores for indicators of impairment and, as a result, determined that the carrying values of certain assets exceeded their future undiscounted cash flows. In circumstances where future undiscounted cash flows expected to be generated by an asset are less than its carrying amount, the asset is determined to be impaired, and a loss is recorded for the amount by which the carrying value of the asset exceeds its fair value. With respect to the assets identified, we then determined the fair value of these assets by discounting their future cash flows using a rate approximating our cost of capital, which resulted in an impairment charge of approximately $1.1 million.
Note Receivable Impairments:  During the second quarter of fiscal 2009, we determined that a $25.8 million note receivable was impaired, based on an independent evaluation of the fair value of the underlying collateral coupled with the debtor’s apparent inability to pay the note in full. As a result, we recorded a non-cash impairment charge of approximately $3.8 million, which was determined based on the difference between the book value of the note and the independent evaluation of the fair value of the land at that time. During the fourth quarter of fiscal 2009, based on an updated third-party valuation of the land, we determined that the fair value of the land had declined further and an additional $2.0 million impairment charge was necessary to adjust the note to its current fair value, less estimated costs to sell.
Fiscal 2008
In fiscal 2008, we incurred certain expense items that materially affected earnings results for the year. These charges were composed of non-cash impairment charges for certain underperforming stores and severance and workforce reductions, which are included in selling, general and administrative expenses under impairment and


44

CHICO’S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
restructuring charges in the accompanying statement of operations. A summary of the charges are presented in the table below (amounts in thousands):
     
Impairment of long-lived assets related to underperforming stores $13,691 
Severance and workforce reduction charges  9,973 
     
Total pre-tax impairment and restructuring charges $23,664 
     
Long-lived Asset Impairments:  As mentioned above, it is our practice to review long-lived assets periodically for impairment if events or changes in circumstances, such as the worsening macroeconomic conditions experienced in fiscal 2008, indicate that the carrying amount may not be recoverable. If future undiscounted cash flows expected to be generated by the asset are less than its carrying amount, an asset is determined to be impaired, and a loss is recorded for the amount by which the carrying value of the asset exceeds its fair value. In accordance with accounting guidance, we conducted an internal review of our long-lived assets at the store level and determined that the carrying value of certain assets exceeded their future undiscounted cash flows. We then determined the fair value of the identified long-lived assets by discounting their future cash flows using a rate approximating our cost of capital, which resulted in an impairment charge of $13.7 million.
Severance and Workforce Reduction:  During the fourth quarter of fiscal 2008, in an effort to reduce costs and enhance efficiencies, we announced a workforce reduction that included the elimination of approximately 180 positions, or approximately 11% of the NSSC employee base. In addition, we incurred charges related to the separation agreement with our former Chief Executive Officer. In connection with these actions and in accordance with the relevant accounting guidance, we recorded approximately $10.0 million of personnel separation costs. The following table summarizes the severance and workforce reduction charges incurred in fiscal 2008 as well as activity during fiscal 2009 (amounts in thousands):
                     
  Beginning
     Non-Cash
     Ending
 
  Balance  Charges  Expense  Payments  Balance 
 
Fiscal 2008 $—  $9,973  $(1,275) $—  $8,698 
                     
Fiscal 2009 $8,698  $—  $—  $8,582  $116 
                     
3.  Acquisitions of Chico’s Franchised Stores:
On February 3, 2008,4, 2007, we completed our asset purchase of Intraco, Inc. (“Intraco”) pursuant to which we acquired the Companyfranchise rights for the state of Minnesota and purchased a substantial portion of the assets of Intraco. Intraco, which held territorial franchise rights to the entire state of Minnesota for the Chico’s brand, operated 12 Chico’s brand store locations in Minnesota at that time. The acquisition included all of the existing retail store locations together with the reacquisition of the territorial franchise rights to the state of Minnesota. The total purchase price for the acquisition of the 12 stores was approximately $32.9 million. The allocation of the purchase price to the tangible and intangible assets acquired and liabilities assumed in the acquisition at their estimated fair values with the remainder allocated to goodwill was as follows: $0.9 million to current assets, $1.4 million to fixed assets, $4.9 million to intangible assets, which represents the fair value of re-acquired territory rights, $27.7 million to goodwill, net of $2.0 million to current liabilities. The consolidated statements of operations include the results of operations for these twelve stores from and after February 4, 2007, the date of acquisition of such stores.
In addition, on March 4, 2007, we completed the asset purchase of a franchise store from our last franchisee in Florida. The consolidated statements of operations include the results of operations for this particular store from and after March 4, 2007, the date of acquisition of such store.


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CHICO’S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
4.  Discontinued Operations:
In early fiscal 2006, we acquired most of the assets of Fitigues consisting primarily of 12 retail stores. As of the end of fiscal 2007, the operations of the Fitigues brand ceased and we do not expect to incur any further material costs associated with the closing down of this brand.
In accordance with accounting guidance, we segregated the operating results of Fitigues from continuing operations and classified the results as discontinued operations in the consolidated statements of operations for the period presented as shown in the following table (amounts in thousands):
     
  Fiscal Year Ended
 
  February 2, 2008 
 
Net sales $1,688 
     
Loss from operations  3,470 
Income tax benefit  (1,197)
     
Net loss on discontinued operations $2,273 
     
5.  Marketable Securities:
Marketable securities are classified asavailable-for-sale and generally consist of variable rate demand notes, which are considered highly liquid, variable rate municipal debt securities, municipal bonds, asset-backed securities, corporate bonds, and U.S. treasury securities. Although the variable rate demand notes, totaling $207.9 million, have long-term nominal maturity dates ranging from 2011 to 2049, the interest rates are generally reset weekly. Despite the long-term nature of the underlying securities of the variable rate demand notes, we have the ability to quickly liquidate these securities based on our cash needs, thereby creating a short-term instrument. The remainder of the portfolio, as of January 30, 2010 consisted of $104.2 million of securities with maturity dates less than one year and $74.4 million with maturity dates over one year and less than two years.
The following tables summarize our investments in marketable securities at January 30, 2010 and January 31, 2009 (amounts in thousands):
                 
  January 30, 2010 
     Gross
  Gross
  Estimated
 
  Amortized
  Unrealized
  Unrealized
  Fair
 
  Cost  Gains  Losses  Value 
 
Total marketable securities $386,096  $451  $47  $386,500 
                 
                 
  January 31, 2009 
     Gross
  Gross
  Estimated
 
  Amortized
  Unrealized
  Unrealized
  Fair
 
  Cost  Gains  Losses  Value 
 
Total marketable securities $242,018  $135  $—  $242,153 
                 
6.  Fair Value Measurements:
We adopted SFAS 157, exceptthe accounting guidance regarding fair value and disclosures, as it applies to FASB Staff PositionNo. FAS 157-2“Effective Date of FASB Statement No. 157”(“FSPSFAS 157-2”). FSPSFAS 157-2 allows entities to defer the effective date of SFAS 157 for one year for certainfinancial and non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (i.e. as least annually).
SFAS 157liabilities. The guidance defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This statementThe new guidance does not require any new fair value measurements; rather, it applies to other accounting pronouncements that require or permit fair value measurements. Fair value is defined under SFAS 157 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


46

CHICO’S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
date. SFAS 157The guidance also establishes 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.
 
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.
 
The Company measuresWe measure certain financial assets at fair value on a recurring basis, including itsour marketable securities, which are classified asavailable-for-sale securities, certain cash equivalents, specifically itsour money market accounts and assets held in the Company’sour deferred compensation plan. The Company’s money market funds are valued based on quoted market prices in active markets. The types of instrumentsOur marketable securities are generally valued based on other


46

CHICO’S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
observable inputs include variable rate demand notes and municipal bonds.for those securities, except for U.S. treasury holdings which are valued based on quoted market prices in active markets. The Company’s investments in itsour non-qualified Deferred Compensation Plan (the “Plan”)deferred compensation plan are valued using quoted market prices multiplied by the number of units held in the Plan and are included in other assets on the Company’sour consolidated balance sheets.
We measure certain assets at fair value on a non-recurring basis, specifically long-lived assets evaluated for impairment and our note receivable. We estimated the fair value of our long-lived assets using company-specific assumptions which would fall within Level 3 of the fair value hierarchy. The note receivable’s value is based on the value of the underlying real estate collateral as determined by an independent third party using observable market data, which results in a Level 2 classification.
In accordance with SFAS 157, the Companyprovisions of the guidance, we categorized theseour financial assets, whether valued on a recurring or non-recurring basis, based on the priority of the inputs to the valuation technique for the instruments, as follows (amounts in thousands):
 
                 
  As of January 31, 2009 
  Total  Level 1  Level 2  Level 3 
 
Current Assets
                
Cash Equivalents                
Money market accounts $25,103  $25,103  $—  $— 
Marketable Securities                
Variable rate demand notes $186,805   —   186,805   — 
Municipal bonds $55,348   —   55,348   — 
Non Current Assets
                
Plan Assets                
Deferred compensation plan assets $4,023  $4,023   —   — 
                 
Total
 $271,279  $29,126  $242,153  $— 
                 
                 
  As of January 30, 2010 
  Total  Level 1  Level 2  Level 3 
 
Current Assets
                
Cash equivalents $8,256  $8,256  $—  $— 
Marketable securities  386,500   33,383   353,117   — 
Non Current Assets
                
Note receivable  20,000   —   20,000   — 
Deferred compensation plan assets  4,050   4,050   —   — 
                 
Total
 $418,806  $45,689  $373,117  $— 
                 
 
Revenue Recognition
7.  Receivables:
Receivables consisted of the following:
 
         
  January 30,
  January 31,
 
  2010  2009 
 
Tenant improvement advances $704  $1,254 
Note receivable  —   25,834 
Other  3,218   6,905 
         
Total receivables $3,922  $33,993 
         
Retail sales by Company stores are recorded at the point of sale and are net of estimated customer returns, sales discounts under the “Passport Club” and “The Black Book” loyalty programs and Company issued coupons.Direct-to-consumer retail sales are recorded when shipments are made to customers and are net of estimated customer returns. Under the Company’s current program, gift certificate and gift card sales do not have expiration dates. The Company accounts for gift certificates and gift cards by recognizing a liability at the time a gift certificate or gift card is sold. The liability is relieved and revenue is recognized for gift certificates and gift cards upon redemption. In addition, the Company recognizes revenue on unredeemed gift certificates and gift cards when it can determine that the likelihood of the gift certificate or gift card being redeemed is remote and that there is no legal obligation to remit the unredeemed gift certificates or gift cards to relevant jurisdictions (commonly referred to as gift card breakage). The Company recognizes gift card breakage under the redemptive recognition method. This method records gift card breakage as revenue on a proportional basis over the redemption period based on the Company’s historical gift card breakage rate. The Company determines the gift card breakage rate based on its historical redemption patterns. Once the breakage rate is determined, it is recognized over a60-month period based on historical redemption patterns of gift certificates and gift cards.
Vendor Allowances
From time to time, the Company receives allowancesand/or credits from certain of its vendors. The aggregate amount of such allowances and credits is immaterial to the Company’s results of operations.
Shipping and Handling Costs
Shipping and handling costs to transport goods between stores or directly to customers, net of amounts paid to the Company by customers, amounted to $11.0 million, $9.5 million, and $8.3 million in fiscal 2008, 2007 and 2006, respectively, do not represent a significant portion of the Company’s operations and are included in store operating expenses in the accompanying consolidated statements of operations. Amounts paid by customers to cover shipping and handling costs are considered insignificant.


47

 
CHICO’S FAS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Store Pre-opening Costs
8.  Accrued Liabilities:
Accrued liabilities consisted of the following:
 
         
  January 30,
  January 31,
 
  2010  2009 
 
Allowance for estimated customer returns, gift cards and store credits outstanding $40,669  $36,411 
Accrued payroll and benefits, bonuses and severance costs  34,038   34,505 
Sales and income taxes  7,754   5,225 
Other  13,401   12,305 
         
Total accrued liabilities $95,862  $88,446 
         
Operating costs (including storeset-up, rent and training expenses) incurred prior to the opening of new stores are expensed as incurred and are included in store operating expenses in the accompanying consolidated statements of operations.
 
Advertising Costs
Costs associated with advertising are charged to expense as incurred except for catalogs, which are amortized over the life of the catalog (typically less than six weeks). For fiscal 2008, 2007 and 2006, advertising costs were approximately $67.5 million, $82.7 million, and $66.5 million, respectively, and are reflected as marketing expenses in the accompanying consolidated statements of operations.
Stock-Based Compensation
Effective January 29, 2006, the Company adopted the provisions of SFAS No. 123R,“Share-Based Payment” (“SFAS 123R”) using the modified prospective transition method. Under this transition method, stock-based compensation expense recognized for share-based awards, including stock options and restricted stock, consists of: (a) compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of, January 29, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123,“Accounting for Stock-Based Compensation” (“SFAS 123”), and (b) compensation expense for all stock-based compensation awards granted subsequent to January 29, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. In addition, upon adoption, the Company calculated its pool of income tax benefits that were previously recorded in additional paid-in capital and are available to absorb future income tax benefit deficiencies that can result from the exercise of stock options or vesting of restricted stock awards. The Company has elected to calculate this pool under the alternative transition method provided for in FASB Staff Position No. 123(R)-3,“Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards.” See Note 11 for a further discussion on stock-based compensation.
Net Income per Common and Common Equivalent Share
SFAS No. 128,“Earnings per Share” (“SFAS 128”), requires companies with complex capital structures that have publicly held common stock or common stock equivalents to present both basic and diluted earnings per share (EPS) on the face of the statement of operations. As provided by SFAS 128, basic EPS is computed by dividing net income by the weighted-average number of common shares outstanding. Restricted stock grants to employees and directors are not included in the computation of basic EPS until the securities vest. Diluted EPS reflects the dilutive effect of potential common shares from securities such as stock options and unvested restricted stock.
9.  Income Taxes:
 
The following is a reconciliationincome tax provision (benefit) consisted of the denominators of the basic and diluted EPS computations shown on the face of the accompanying consolidated statements of operations:following:
 
             
  Fiscal
  Fiscal
  Fiscal
 
  2008  2007  2006 
 
Weighted average common shares outstanding — basic  175,861,224   175,574,116   177,273,138 
Dilutive effect of stock options and unvested restricted stock outstanding  —   780,991   1,178,745 
             
Weighted average common and common equivalent shares outstanding — diluted  175,861,224   176,355,107   178,451,883 
             
             
  Fiscal
  Fiscal
  Fiscal
 
  2009  2008  2007 
 
Current:            
Federal $30,555  $4,562  $49,854 
State  3,998   5,924   7,648 
Deferred:            
Federal  5,451   (18,992)  (8,218)
State  196   (4,194)  (1,272)
             
Total income tax provision (benefit) $40,200  $(12,700) $48,012 
             
A reconciliation between the statutory federal income tax rate and the effective income tax rate follows:
             
  Fiscal
  Fiscal
  Fiscal
 
  2009  2008  2007 
 
Federal income tax rate  35.0%  (35.0)%  35.0%
State income tax, net of federal tax benefit  2.5   5.6   2.9 
Municipal interest income  (0.6)  (6.4)  (2.2)
Enhanced charitable contribution  (1.1)  (6.8)  (2.5)
Decrease in deferred compensation plan assets  —   4.2   — 
Other items, net  0.8   (1.5)  1.3 
             
Total  36.6%  (39.9)%  34.5%
             


48

 
CHICO’S FAS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In fiscal 2008, 2007 and 2006, 6,697,722, 4,299,725 and 851,945 potential shares of common stock, respectively were excluded from the diluted per share calculation relating to stock option and restricted stock awards, because the effect of including these potential shares was antidilutive.
Newly Issued Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157,“Fair Value Measurements” (“SFAS 157”), which establishes a framework for measuring fair value in accordance with Generally Accepted Accounting Principles (“GAAP”) and expands disclosures about fair value measurements. This statement is effective for financial assets and liabilities as well as for any assets and liabilities that are carried at fair value on a recurring basis in financial statements as of the beginning of the entity’s first fiscal year that begins after November 15, 2007. In November 2007, the FASB issued a one-year deferral for non-financial assets and liabilities to comply with SFAS 157 which delayed the effective date for these items to fiscal years beginning after November 15, 2008. The Company does not expect the adoption of SFAS 157 as it relates to non-financial assets and liabilities to have a material effect on its financial position, results of operations or cash flows.
In February 2007, the FASB issued SFAS No. 159,“The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of SFAS 115” (“SFAS 159”). SFAS 159 allows entities to choose, at specific election dates, to measure eligible financial assets and liabilities at fair value that are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that item’s fair value in subsequent reporting periods must be recognized in current earnings. On February 3, 2008, the Company adopted SFAS 159 and elected not apply the fair value option provided under SFAS 159.
In April 2008, the FASB issued FASB Staff PositionNo. FSP 142-3,“Determining the Useful Life of Intangible Assets”(“FSP 142-3”).FSP 142-3 amends the factors to be considered in determining the useful life of intangible assets. Its intent is to improve the consistency between the useful life of an intangible asset and the period of expected cash flows used to measure its fair value.FSP 142-3 is effective for fiscal years beginning after December 15, 2008. The Company does not expect that the adoption ofFSP 142-3 will have a material impact on its consolidated financial statements.
In May 2008, the FASB issued SFAS No. 162,“The Hierarchy of Generally Accepted Accounting Principles”(“SFAS 162”). This standard identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles. The hierarchy set forth in SFAS 162 is directed to the entity, rather than the independent auditors, as the entity is the one responsible for selecting accounting principles for financial statements that are presented in conformity with generally accepted accounting principles. The standard is effective 60 days following SEC approval of the Public Company Accounting Oversight Board amendments to remove the hierarchy of generally accepted accounting principles from the auditing standards, with the expectation that the standard will be effective for the Company’s 2009 fiscal year. The Company does not expect SFAS 162 to have a material impact on its consolidated financial statements.
2.  Impairment and Restructuring Charges:
During the fourth quarter of fiscal 2008, the Company incurred certain expense items that materially affected earnings results for the fourth quarter and for fiscal year 2008. These charges were composed of write-offs of fixed assets for certain underperforming stores, and severance and workforce reductions, which are included in selling,


49

CHICO’S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
general and administrative expenses under impairment and restructuring charges in the accompanying statement of operations. A summary of the charges are presented in the table below (amounts in thousands):
     
  Fiscal
 
  2008 
 
Impairment of long-lived assets related to Company stores $13,691 
Severance and workforce reduction charges  9,973 
     
Total pre-tax impairment and restructuring charges $23,664 
     
Asset Impairments:  It is the Company’s practice to review long-lived assets periodically for impairment if events or changes in circumstances, such as worsening macro-economic conditions in fiscal 2008, indicate that the carrying amount may not be recoverable. If future undiscounted cash flows expected to be generated by the asset are less than its carrying amount, an asset is determined to be impaired, and a loss is recorded for the amount by which the carrying value of the asset exceeds its fair value. In accordance with Statement of Financial Accounting Standard No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets”(“SFAS 144”), the Company conducted an internal review of its long-lived assets at the store level and determined that the carrying value of certain assets exceeded their future undiscounted cash flows. The Company then determined the fair value of the identified long-lived assets by discounting their future cash flows using a rate approximating the Company’s cost of capital, which resulted in an impairment charge of $13.7 million.
Severance and Workforce Reductions:  During the fourth quarter of fiscal 2008, in an effort to reduce costs and enhance efficiencies, the Company announced a workforce reduction that included the elimination of approximately 180 positions, or approximately 11% of the headquarters employee base. In addition, the Company incurred charges related to the separation agreement with its former Chief Executive Officer. These charges were accounted for in accordance with Statement of Financial Accounting Standard No. 146,“Accounting for Costs Associated with Exit or Disposal Activities.”In connection with these actions, the Company recorded approximately $10.0 million of personnel separation costs. The Company will begin making payments in early 2009. The following table summarizes the severance and workforce reduction charges incurred in fiscal 2008 as well as amounts remaining to be paid (amounts in thousands):
                 
  Fiscal 2008 
  Beginning
     Non-Cash
  Ending
 
  Balance  Charges  Expense  Balance 
 
Severance and workforce reduction charges $—  $9,973  $(1,275) $8,698 
                 
3.  Acquisitions of Chico’s Franchised Stores:
On February 4, 2007, the Company completed its asset purchase of Intraco, Inc. (“Intraco”) pursuant to which the Company acquired the franchise rights for the state of Minnesota and purchased a substantial portion of the assets of Intraco. Intraco, which held territorial franchise rights to the entire state of Minnesota for the Chico’s brand, operated 12 Chico’s brand store locations in Minnesota at that time. The acquisition included all of the existing retail store locations together with the reacquisition of the territorial franchise rights to the state of Minnesota. The total purchase price for the acquisition of the 12 stores was approximately $32.9 million. The Company’s allocation of the purchase price to the tangible and intangible assets acquired and liabilities assumed in the acquisition at their estimated fair values with the remainder allocated to goodwill was as follows: $0.9 million to current assets, $1.4 million to fixed assets, $4.9 million to intangible assets, which represents the fair value of re-acquired territory rights, $27.7 million to goodwill, net of $2.0 million to current liabilities. The Company’s consolidated statements of operations include the results of operations for these twelve stores from and after February 4, 2007, the date of acquisition of such stores.
In addition, on March 4, 2007, the Company completed its asset purchase of a franchise store from its last franchisee in Florida. The Company’s consolidated statements of operations include the results of operations for


50

CHICO’S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
this particular store from and after March 4, 2007, the date of acquisition of such store. With this acquisition completed, the Company now has no franchise stores remaining and does not intend to pursue, at this time, any franchises or to enter into any additional franchise territory development agreements for any of its brands.
4.  Discontinued Operations:
In early fiscal 2006, the Company acquired most of the assets of Fitigues consisting primarily of 12 retail stores. During the fourth quarter of fiscal 2006, the Company completed its evaluation of the Fitigues brand and decided it would close down operations of the Fitigues brand. In connection with this conclusion, in the fourth quarter of fiscal 2006, the Company recorded an aggregate $8.6 million impairment charge. The charge consisted of a loss on impairment of goodwill totaling $6.8 million, accelerated depreciation totaling approximately $1.2 million, and other impairment charges, mainly for inventory, totaling approximately $0.6 million. As of the end of fiscal 2007, the operations of the Fitigues brand have ceased and the Company does not expect to incur any further material costs associated with the closing down of this brand.
In accordance with SFAS 144, the Company has segregated the operating results of Fitigues from continuing operations and classified the results as discontinued operations in the consolidated statements of operations for all periods presented as shown in the following table:
         
  Fiscal Year Ended 
  February 2,
  February 3,
 
  2008  2007 
 
Net sales $1,688  $5,555 
         
Loss from operations  3,470   12,647 
Income tax benefit  1,197   4,592 
         
Net loss on discontinued operations $2,273  $8,055 
         
5.  Marketable Securities:
The following tables summarize the Company’s investments in marketable securities at January 31, 2009 and February 2, 2008:
                 
  January 31, 2009 
     Gross
  Gross
  Estimated
 
  Amortized
  Unrealized
  Unrealized
  Fair
 
  Cost  Gains  Losses  Value 
 
Total marketable securities $242,018  $135  $—  $242,153 
                 
                 
  February 2, 2008 
     Gross
  Gross
  Estimated
 
  Amortized
  Unrealized
  Unrealized
  Fair
 
  Cost  Gains  Losses  Value 
 
Total marketable securities $260,469  $—  $—  $260,469 
                 
There were no marketable securities in an unrealized loss position at January 31, 2009 or February 2, 2008.


51

CHICO’S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
6.  Receivables:
Receivables consisted of the following:
         
  January 31,
  February 2,
 
  2009  2008 
 
Tenant improvement advances $1,254  $6,497 
Note receivable  25,834   — 
Other  6,905   5,427 
         
Total receivables $33,993  $11,924 
         
7.  Accrued Liabilities:
Accrued liabilities consisted of the following:
         
  January 31,
  February 2,
 
  2009  2008 
 
Allowance for estimated customer returns, gift cards and store credits outstanding $36,411  $41,809 
Accrued payroll and benefits, bonuses and severance costs  34,505   23,607 
Accrued sales taxes  5,225   3,967 
Allowance for construction in progress  1,908   8,407 
Accrued marketing costs  1,467   9,104 
Other  8,930   13,832 
         
Total accrued liabilities $88,446  $100,726 
         
8.  Income Taxes:
The Company’s income tax provision (benefit) consisted of the following:
             
  Fiscal
  Fiscal
  Fiscal
 
  2008  2007  2006 
 
Current:            
Federal $4,562  $49,854  $105,172 
State  5,924   7,648   14,199 
Deferred:            
Federal  (18,992)  (8,218)  (19,119)
State  (4,194)  (1,272)  (617)
             
Total income tax provision (benefit) $(12,700) $48,012  $99,635 
             


52

CHICO’S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A reconciliation between the statutory federal income tax rate and the effective income tax rate follows:
             
  Fiscal
  Fiscal
  Fiscal
 
  2008  2007  2006 
 
Federal income tax rate  (35.0)%  35.0%  35.0%
State income tax, net of federal tax benefit  5.6   2.9   2.8 
Municipal interest income  (6.4)  (2.2)  (1.2)
Enhanced charitable contribution  (6.8)  (2.5)  (1.0)
Decrease in deferred compensation plan assets  4.2   —   — 
Other items, net  (1.5)  1.3   0.7 
             
Total  (39.9)%  34.5%  36.3%
             
 
Deferred tax assets and liabilities are recorded due to different carrying amounts for financial and income tax reporting purposes arising from cumulative temporary differences. These differences consist of the following as of January 30, 2010 and January 31, 2009 and February 2, 2008:2009:
 
                
 January 31,
 February 2,
  January 30,
 January 31,
 
 2009 2008  2010 2009 
Current deferred tax assets:                
Accrued liabilities and allowances $12,152  $9,060  $12,287  $12,152 
Inventories  2,804   1,380   —   2,804 
Other, net  2,903   2,866   1,932   2,903 
          
 $17,859  $13,306  $14,219  $17,859 
          
Noncurrent deferred tax assets:                
Property related, net $16,647  $6,935  $19,516  $16,647 
Accrued liabilities and allowances  4,658   2,527   3,480   4,658 
Accrued straight-line rent  15,239   13,019   16,381   15,239 
SFAS 123R compensation  13,003   12,878 
Stock-based compensation  9,851   13,003 
Other, net  4,632   1,551   4,060   4,632 
     
 $53,288  $54,179 
     
Current deferred tax liabilities:        
Inventories $(4,555) $— 
          
 $54,179  $36,910  $(4,555) $— 
          
Noncurrent deferred tax liabilities:                
Other intangible assets  (15,721)  (14,407) $(16,967) $(15,721)
          
 $(15,721) $(14,407) $(16,967) $(15,721)
          
 
Deferred tax assets at January 30, 2010 and January 31, 2009 and February 2, 2008 totaled $72.0$67.5 million and $50.2$72.0 million, respectively. Deferred tax liabilities at January 30, 2010 and January 31, 2009 totaled $21.5 million and February 2, 2008 totaled $15.7 million, respectively.
Effective February 4, 2007, we adopted new income tax provisions concerning uncertain tax positions, which did not result in any adjustment to retained earnings. A reconciliation of the beginning and $14.4 million, respectively.ending amounts of uncertain tax positions for each of fiscal 2008 and fiscal 2009 is as follows:
         
  Fiscal
  Fiscal
 
  2009  2008 
 
Balance at beginning of year $10,567  $6,367 
Additions for tax positions of prior years  411   5,675 
Reductions for tax positions of prior years  (937)  (642)
Additions for tax positions for the current year  173   — 
Reductions for tax positions for the current year  —   (200)
Settlements with tax authorities  (2,708)  (285)
Reductions due to lapse of applicable statutes of limitation  (620)  (348)
         
Balance at end of year $6,886  $10,567 
         


5349

 
CHICO’S FAS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Effective February 4, 2007, the Company adopted the provisions of FIN 48, which did not result in any adjustment to retained earnings of the Company. A reconciliation of the Company’s beginning and ending amounts of unrecognized tax benefit for each of fiscal 2007 and fiscal 2008 is as follows:
     
Balance at February 4, 2007 $7,971 
Additions for tax positions of prior year  329 
Reductions for tax positions of prior year  (549)
Additions for tax positions of current year  981 
Reductions for tax positions of current year  — 
Settlements with tax authorities  (1,873)
Reductions due to lapse of applicable statutes of limitation  (492)
     
Balance at February 2, 2008 $6,367 
     
Additions for tax positions of prior year  5,675 
Reductions for tax positions of prior year  (642)
Additions for tax positions of current year  — 
Reductions for tax positions of current year  (200)
Settlements with tax authorities  (285)
Reductions due to lapse of applicable statutes of limitation  (348)
     
Balance at January 31, 2009 $10,567 
     
Included in the January 30, 2010 and January 31, 2009 and February 2, 2008 balances are $6.9$4.5 million and $4.1$6.9 million, respectively, of unrecognized tax benefits that, if recognized, would favorably impact the Company’s effective tax rate in future periods.
 
The Company’sOur continuing practice is to recognize potential accrued interest and penalties relating to unrecognized tax benefits in income tax expense. During the fiscal years ended January 30, 2010 and January 31, 2009, and February 2, 2008, the Companywe accrued $2.2$0.9 million and $0.6$2.2 million, respectively, for interest and penalties. The CompanyWe had approximately $3.5$2.7 million and $1.4$3.5 million for the payment of interest and penalties accrued at January 30, 2010 and January 31, 2009, and February 2, 2008, respectively. The amounts included in the reconciliation of unrecognizeduncertain tax benefitspositions do not include accruals for interest and penalties.
 
The CompanyWe began participating in the IRS’s real time audit program, Compliance Assurance Process (“CAP”), beginning in fiscal 2006. Under the CAP program, material tax issues and initiatives are disclosed to the IRS throughout the year with the objective of reaching agreement as to the proper reporting treatment when the federal return is filed. As such, the Company’s federal returnOur fiscal 2007 year has been examined throughand a no change letter issued. Our fiscal 2008 year has been examined and a partial acceptance letter issued pending final approval of one issue relating to an accounting method change request. Due to the creation of a net operating loss in fiscal 2008 and the subsequent carryback to the fiscal 2007 year.2006 year, our fiscal 2006 year is being surveyed (limited review) as part of the approval process required by the Joint Committee on Taxation.
 
With few exceptions, the Company iswe are no longer subject to state and local examinations for years before fiscal 2005.2006. Various state examinations are currently underway for fiscal periods spanning from 19992003 through 2005;2008; however, the Company doeswe do not expect any significant change to its unrecognizedour uncertain tax benefitspositions within the next year.


54

CHICO’S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
9.10.  Deferred Liabilities:
 
Deferred liabilities consisted of the following:
 
                
 January 31,
 February 2,
  January 30,
 January 31,
 
 2009 2008  2010 2009 
Deferred rent $39,276  $33,215  $41,614  $39,276 
Deferred lease credits and other  139,723   124,639 
Deferred lease credits  107,714   122,127 
Other deferred liabilities  12,476   17,596 
          
Total deferred liabilities  178,999   157,854   161,804   178,999 
Less current portion  (1,748)  (1,437)  (19,625)  (18,659)
          
Total deferred liabilities $177,251  $156,417  $142,179  $160,340 
          
 
Deferred rent represents the difference between operating lease obligations currently due and operating lease expense, which is recorded by the Company on a straight-line basis over the terms of itsour leases.
 
Deferred lease credits represent construction allowances received from landlords and are amortized as a reduction of rent expense over the appropriate respective terms of the related leases.
 
10.11.  Commitments and Contingencies:
 
Leases
 
The Company leasesWe lease retail store space, office space and various office equipment under operating leases expiring in various years through the fiscal year ending 2019.2020. Certain of the leases provide that the Companywe may cancel the lease if the Company’sour retail sales at that location fall below an established level, and certain leases provide for additional rent payments to be made when sales exceed a base amount.


50

CHICO’S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Certain operating leases provide for renewal options for periods from three to five years at their fair rental value at the time of renewal. In the normal course of business, operating leases are generally renewed or replaced by other leases.
 
Minimum future rental payments under noncancellable operating leases (including leases with certain minimum sales cancellation clauses described below and exclusive of common area maintenance chargesand/or contingent rental payments based on sales) as of January 31, 2009,30, 2010, are approximately as follows:
 
              
FISCAL YEAR ENDING:
                
January 30, 2010 $128,332 
January 29, 2011  121,909      $129,244     
January 28, 2012  112,591       120,213     
February 3, 2013  99,742 
February 2, 2014  85,834 
February 2, 2013      107,041     
February 1, 2014      93,271     
January 31, 2015      84,904     
Thereafter  252,007       200,536     
      
Total minimum lease payments $800,415      $735,209     
      
 
A majority of the Company’s newour store operating leases contain cancellation clauses that allow the leases to be terminated at the Company’sour discretion, if certain minimum sales levels are not met within the first few years of the lease term. The Company hasWe have not historically exercised many or met these cancellation clauses and, therefore, hashave included commitments for the full lease terms of such leases in the above table. For fiscal 2009, 2008 2007 and 2006,2007, total rent expense under the Company’s operating leases was approximately $161.6 million, $154.8 million, $140.4 million, and $113.3$140.4 million, respectively, including common area maintenance charges of approximately $23.7 million, $23.6 million, $19.0 million, and $15.0$19.0 million, respectively, other rental charges of approximately $23.6 million, $21.4 million, $18.8 million, and $14.0$18.8 million, respectively, and contingent rental expense of approximately $6.5 million, $5.1 million, $8.2 million, and $10.5$8.2 million, respectively, based on sales.


55

CHICO’S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Credit Facility
 
On November 24, 2008, Chico’s FAS, Inc. entered intoWe have a $55 million Senior Secured Revolvingsenior secured revolving credit facility (the Credit Facility (the “Credit Facility”)Facility) with SunTrust Bank, as administrative agent (the “Agent”) and lender and SunTrust Robinson Humphrey, Inc. as lead arranger. The Credit Facility replaces the Company’s previous $45 million credit facility with Bank of America.
The Credit Facilitywhich provides a $55 million revolving credit facility that matures on November 24, 2011. The Credit Facility provides for swing advances of up to $5 million and issuance of letters of credit up to $10 million. The Credit Facility also contains a feature that provides the Companyus the ability, subject to satisfaction of certain conditions, to increase the commitments available under the Credit Facility from $55 million up to $100 million through additional syndication. The proceeds of any borrowings under the Credit Facility may be used to fund future permitted acquisitions, to provide for working capital and to be used for other general corporate purposes. The Credit Facility is scheduled to expire in November 2011.
The obligations under the Credit Facility are secured by (i) all credit card accounts and receivables for goods sold or services rendered and (ii) all inventory of any kind wherever located of Chico’s FAS, Inc. and its subsidiaries.
 
The interest on revolving loans under the Credit Facility will accrue, at the Company’sour election, at either (i) a Base Rate plus the Applicable Margin or (ii) a Eurodollar Rate tied to LIBOR for the selected interest rate period plus the Applicable Margin. Base Rate shall mean the highest of (i) the per annum rate which SunTrust publicly announces as its prime lending rate, (ii) the Federal Funds rate plus one-half of one percent (1/2%) per annum and (iii) the Eurodollar Rate tied to the one-month LIBOR rate determined on a daily basis. The Applicable Margin is based upon a pricing grid depending on the total unused availability under the Credit Facility. Loans under the swingline subfacility shall bear interest at a rate agreed upon from time to time by the AgentFacility and the Company. The Credit Facility also requires the payment of monthly fees based on the average daily unused portion of the Credit Facility, in an amount equal to 0.50% per annum.
The amount that is available to be borrowed from time to time under the Credit Facility is limited based upon a percentage of eligible receivables and a separate percentage of eligible inventory and, until certain conditions are satisfied, may be further limited based upon an overall availability block. The Credit Facility also contains various covenants including a fixed charge coverage ratio (as defined in the Credit Facility).
The obligations under the Credit Facility are secured by (i) all credit card accounts and receivables for goods sold or services rendered and (ii) all inventory of any kind wherever located of Chico’s FAS, Inc. and its subsidiaries.financial ratios.
 
The Credit Facility contains customary terms and conditions for credit facilities of this type, including certain restrictions on the Company’sour ability to incur additional indebtedness, create liens, enter into transactions with affiliates, transfer assets, pay dividends, repurchase stock or make distributions on junior capital, consolidate or merge with other entities, or suffer a change in control.
The Credit Facility contains customary events of default. If a default occurs and is not cured within any applicable cure period or is not waived, the Company’sour obligations under the Credit Facility may be accelerated. The Credit Facility also contains various covenants including a fixed charge coverage ratio (as


51

CHICO’S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
defined in the Credit Facility). The Credit Facility also requires the payment of monthly fees based on the average daily unused portion of the Credit Facility, in an amount equal to 0.50% per annum.
 
At January 31, 2009,30, 2010, no borrowings are outstanding under the Credit Facility other thanFacility. However, approximately $1.1$1.7 million in commercial letters of credit outstanding, which arose in the normal course of business, serve to reduce availability of the line for the like amount.
 
Other
 
At January 30, 2010 and January 31, 2009, and February 2, 2008, the Companywe had approximately $213.8$252.7 million and $211.8$213.8 million, respectively, due under non-cancelable purchase commitments consisting of amounts to be paid under agreements to purchase inventory that are legally binding and that specify all significant terms.
 
The Company was named as defendant in a putative class action filed in June 2008 in the Superior Court for the State of California, County of San Diego,Michele L. Massey Haefner v. Chico’s FAS, Inc. The Complaint alleges that the Company, in violation of California law, requested or required customers to provide personal information in conjunction with credit card transactions. The Company filed an answer denying the material allegations of the


56

CHICO’S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Complaint. The Company believes that the case is wholly without merit and, thus, does not believe that the case should have any material adverse effect on the Company’s financial condition or results of operations.
The Company isWe are not a party to any other legal proceedings, other than various claims and lawsuits arising in the normal course of business, none of which the Company believeswe believe should have a material adverse effect on itsour financial condition or results of operations.
 
11.12.  Stock Compensation Plans and Capital Stock Transactions:
 
General
 
At January 31, 2009, the Company30, 2010, we had stock-based compensation plans as described below. The total compensation expense related to stock-based awards granted under these plans during fiscal 2009, 2008 and 2007, and 2006, in accordance with SFAS 123R, was $7.4 million, $12.6 million and $17.1 million, respectively. The total tax benefit associated with stock-based compensation for fiscal 2009, 2008 and $21.22007 was $2.8 million, $4.8 million and $5.8 million, respectively. Effective January 29, 2006 and subsequent thereto, the Company recognizeswe recognize stock-based compensation costs net of a forfeiture rate for only those shares expected to vest and on a straight-line basis over the requisite service period of the award. The CompanyWe estimated the forfeiture rate for fiscal years 2009, 2008 2007 and fiscal 20062007 based on its historical experience during the preceding four fiscal years.
 
In addition to stock options, the Company haswe have historically issued restrictednonvested stock awards (restricted stock) under itsour stock-based compensation plans, pursuant to restricted stock agreements. A restricted stock award is an award of common shares that is subject to certain restrictions during a specified period. Restricted stock awards are independent of option grants and are generally subject to forfeiture if employment terminates prior to the release of the restrictions. The Company holdsWe hold the certificates for such shares in safekeeping during the vesting period, and the grantee cannot transfer the shares before the respective shares vest. Shares of nonvested restricted stock have the same voting rights as common stock, are entitled to receive dividends and other distributions thereon and are considered to be currently issued and outstanding. Substantially all outstanding restricted stock vests pro-rata over a period of three years from the date of grant, except for the restricted stock awarded to independent directors in fiscal 20082009 which vests one year from the date of grant. The Company expensesWe expense the cost of the restricted stock awards, which is determined to be the fair market value of the shares at the date of grant, straight-line over the period during which the restrictions lapse. For these purposes, the fair market value of the restricted stock is determined based on the closing price of the Company’sour common stock on the grant date.
In fiscal 2009, we granted our President and Chief Executive Officer, a performance award grant under which he is eligible to receive from 0 to 133,333 shares, with a target of 100,000 shares, contingent upon the achievement of certain Company-specific performance goals over the one-year period ending January 30, 2010. At fiscal year-end, it was determined that he had earned 133,333 shares based on the Company’s performance. These shares will vest 3 years from the date of grant. We accounted for the grant by recording compensation expense, based on the number of shares ultimately expected to vest and to be recognized on a straight-line basis over the3-year service period.


52

CHICO’S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Stock Option Plans
 
1993 Stock Option Plan
 
During fiscal year 1993, the Board approved a stock option plan, as amended in fiscal 1999 (the 1993 Plan) for eligible employees of the Company.employees. The per share exercise price of each stock option is not less than the fair market value of the stock on the date of grant or, in the case of an employee owning more than 10 percent of theour outstanding stock of the Company and to the extent incentive stock options, as opposed to nonqualified stock options, are issued, the price is not less than 110 percent of such fair market value. Also, the aggregate fair market value of the stock with respect to which incentive stock options are exercisable for the first time by an employee in any calendar year may not exceed $100,000 per IRS regulations. Options granted under the terms of the 1993 Plan generally vest evenly over three years and have a10-year term. As of January 31, 2009,30, 2010, approximately 402,00061,000 nonqualified options remain outstanding under the 1993 Plan.
 
Independent Directors’ Plan
 
In October 1998, the Board approved a stock option plan (the Independent Directors’ Plan) for eligible independent directors of the Company.directors. Options granted under the terms of the Independent Directors’ Plan vest after six months and have a10-year term. From the date of the adoption of the Independent Directors’ Plan and until the 2002 Omnibus Stock and Incentive Plan was adopted, 507,500 options were granted under the Independent Directors’ Plan. As of January 31, 2009,30, 2010, approximately 120,00090,000 options under the Independent Directors’ Plan remain outstanding.


57

CHICO’S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Omnibus Stock and Incentive Plan
 
In April 2002, the Board approved the Chico’s FAS, Inc. 2002 Omnibus Stock and Incentive Plan, which initially reserved 9,710,280 shares of common stock for future issuance. In fiscal 2008, the Company’s2009, our shareholders approved the Amended and Restated Chico’s FAS, Inc. 2002 Omnibus Stock and Incentive Plan (the Omnibus Plan), effective as of June 26, 2008. In particular, the amendments included: (i) increasing the total number of shares of our Common Stock of the Company with respect to which awards may be granted under the plan by an additional 10,000,000 shares, (ii) expanding the permissible types of awards to include stock-based and cash-based Stock Appreciation Rights (SARs) and Performance Awards, and (iii) eliminating the automatic grants of stock options for both new and continuing non-employee directors. The Company’sOur executive officers and directors are eligible to receive awards under the Omnibus Plan, including stock options, restricted stock, restricted stock units, SARs and Performance Awards, in accordance with the terms and conditions of the Omnibus Plan. No new grants can be made under the Company’sour existing 1993 Plan or Independent Directors’ Plan, and such existing plans remain in effect only for purposes of administering options that are outstanding.
 
Under the Omnibus Plan, the per share exercise price of each stock option cannot be less than the fair market value of the stock on the date of grant or, in the case of an employee owning more than 10 percent of theour outstanding stock of the Company and to the extent incentive stock options, as opposed to nonqualified stock options, are issued, the price cannot be less than 110 percent of such fair market value. Options granted under the terms of the Omnibus Plan generally vest evenly over three years and have a10-year term. In accordance with the terms of the Omnibus Plan, shares of common stock that are represented by options granted under the Company’sour previously existing plans which are forfeited, expire or are cancelled without delivery of shares of common stock are added to the amounts reserved for issuance under the Omnibus Plan. As of January 31, 2009,30, 2010, approximately 7,240,0006,137,000 nonqualified stock options are outstanding under the Omnibus Plan.
 
Employee Stock Purchase Plan
 
The Company sponsorsWe sponsor an employee stock purchase plan (the “ESPP”(“ESPP”) under which substantially all full-time employees are given the right to purchase up to 400 shares of the Company’sour common stock during each of the two specified offering periods each fiscal year, for a total of up to 800 shares in any given fiscal year, at a price equal to 85 percent of the value of


53

CHICO’S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
the stock immediately prior to the beginning of each offering period. During fiscal 2009, 2008 and 2007, approximately 60,000, 46,000, and 2006, approximately 46,000, 53,000 and 92,000 shares, respectively, were purchased under the ESPP. In accordance with theaccounting provisions, of SFAS 123R, the Company recognizeswe recognize compensation expense based on the 15% discount at purchase. For fiscal 2009, 2008 2007 and 2006,2007, ESPP compensation expense was $0.1 million, less than $0.1 million, $0.2 million, and $0.3$0.2 million, respectively.
 
Methodology Assumptions
 
The Company usesWe use the Black-Scholes option-pricing model to value the Company’sour stock options. Using this option-pricing model, the fair value of each stock option award is estimated on the date of grant. The fair value of the Company’s stock option awards, which are subject to pro-rata vesting generally over 3 years, is expensed on a straight-line basis over the vesting period of the stock options. The expected volatility assumption is based on the historical volatility of the Company’s stock over a term equal to the expected term of the option granted. The expected term of stock option awards granted is derived from historical exercise experience under the Company’s stock option plans and represents the period of time that stock option awards granted are expected to be outstanding. The expected term assumption incorporates the contractual term of an option grant, which is ten years, as well as the vesting period of an award, which is generally pro-rata vesting over three years. The risk-free interest rate is based on the implied yield on a U.S. Treasury constant maturity with a remaining term equal to the expected term of the option granted.
The weighted average assumptions relating to the valuation of our stock options for fiscal 2009, 2008 and 2007 were as follows:
             
  Fiscal 2009  Fiscal 2008  Fiscal 2007 
 
Weighted average fair value of grants $3.23  $1.69  $7.46 
Expected volatility  63%  54%  43%
Expected term (years)  4.5 years   4.5 years   4.5 years 
Risk-free interest rate  1.9%  2.0%  4.2%
Expected dividend yield  N/A   N/A   N/A 
Aggregate Stock Option Activity
As of January 30, 2010, 6,288,358 nonqualified options are outstanding at a weighted average exercise price of $12.54 per share, and 8,778,584 shares remain available for future grants of either stock options, restricted stock, restricted stock units, SARs, or performance awards. Of the options outstanding, 3,479,750 options are exercisable as of January 30, 2010.
Stock option activity for fiscal 2009 was as follows:
                 
      Weighted
 Aggregate
    Weighted
 Average
 Intrinsic
  Number of
 Average
 Remaining
 Value
  Shares Exercise Price Contractual Term (in thousands)
 
Outstanding, beginning of period  7,763,161  $14.10         
Granted  1,119,850   6.74         
Exercised  (782,609)  5.69         
Canceled or expired  (1,812,044)  18.61         
                 
Outstanding, end of period  6,288,358   12.54   6.62  $28,928 
                 
Vested and expected to vest at January 30, 2010  5,825,358   13.01   6.46   25,630 
Exercisable at January 30, 2010  3,479,750   17.94   5.36   8,111 


5854

 
CHICO’S FAS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The weighted average assumptions relating to the valuation of the Company’s stock options for fiscal 2008, 2007 and 2006 were as follows:
             
  Fiscal 2008  Fiscal 2007  Fiscal 2006 
 
Weighted average fair value of grants $1.69  $7.46  $15.12 
Expected volatility  54%  43%  46%
Expected term (years)  4.5 years   4.5 years   4.5 years 
Risk-free interest rate  2.0%  4.2%  4.6%
Expected dividend yield  N/A   N/A   N/A 
Aggregate Stock Option Activity
As of January 31, 2009, 7,763,161 nonqualified options are outstanding at a weighted average exercise price of $14.10 per share, and 8,239,432 shares remain available for future grants of either stock options, restricted stock, restricted stock units, SARs, or performance awards. Of the options outstanding, 4,502,765 options are exercisable as of January 31, 2009.
Stock option activity for fiscal 2008 was as follows:
                 
        Weighted
  Aggregate
 
     Weighted
  Average
  Intrinsic
 
  Number of
  Average
  Remaining
  Value
 
  Shares  Exercise Price  Contractual Term  (in thousands) 
 
Outstanding, beginning of period  5,488,489  $19.94         
Granted  3,123,550   3.79         
Exercised  (33,800)  0.99         
Canceled or expired  (815,078)  14.49         
                 
Outstanding, end of period  7,763,161   14.10   6.38 years  $2,671 
                 
Vested and expected to vest at January 31, 2009  7,090,072   14.75   6.09 years  $2,175 
Exercisable at January 31, 2009  4,502,765   19.80   4.15 years  $62 
The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the excess if any, of the Company’s closing stock price on the last trading day of fiscal 20082009 and the exercise price, multiplied by the number of suchin-the-money options) that would have been received by the option holders had all option holders exercised their options on January 31, 2009.30, 2010. This amount changes based on the fair market value of the Company’sour common stock. Total intrinsic value of options exercised during fiscal 2009, 2008 and 2007 (based on the difference between the Company’sour stock price on the respective exercise date and the respective exercise price, multiplied by the number of respective options exercised) was $5.9 million, $0.3 million.million and $1.3 million, respectively.
 
As of January 31, 2009,30, 2010, there was $6.6$5.0 million of total unrecognized compensation expense related to unvested stock options granted under the Company’sour share-based compensation plans. That expense is expected to be recognized over a weighted average period of 2.01.8 years.
 
Cash received from option exercises and purchases under the ESPP for fiscal 20082009 was an aggregate of $0.3$4.9 million. The actual tax benefit realized for the tax deduction from option exercises of stock option awards totaled $0.1$2.3 million for fiscal 2008.


59

CHICO’S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)2009.
 
Restricted stock awards as of January 31, 200930, 2010 and changes during fiscal 20082009 were as follows:
 
                
 Fiscal 2008  Fiscal 2009 
   Weighted
    Weighted
 
   Average
    Average
 
 Number of
 Grant Date
  Number of
 Grant Date
 
 Shares Fair Value  Shares Fair Value 
Nonvested, beginning of period  504,671  $21.21   1,112,004  $6.31 
Granted  1,048,928   3.87   258,976   9.48 
Vested  (258,433)  23.00   (424,062)  7.67 
Canceled  (183,162)  9.81   (130,241)  5.38 
      
Nonvested, end of period  1,112,004  $6.31   816,677   6.76 
      
 
Total fair value of shares of restricted stock that vested during fiscal 2009, 2008 and 2007 was $5.4 million, $1.0 million.million and $2.2 million, respectively. As of January 31, 2009,30, 2010, there was $5.0$3.6 million of unrecognized stock-based compensation expense related to nonvested restricted stock awards. That cost is expected to be recognized over a weighted average period of 2.01.5 years.
For fiscal 2008, 2007 and 2006, stock-based compensation expense was allocated as follows (in thousands):
             
  Fiscal
  Fiscal
  Fiscal
 
  2008  2007  2006 
 
Cost of goods sold $2,769  $4,909  $6,004 
Selling, general and administrative expenses  9,821   12,171   15,237 
             
Stock-based compensation expense before income taxes $12,590  $17,080  $21,241 
Income tax benefit  4,755   5,836   7,604 
             
Total stock-based compensation expense after income taxes $7,835  $11,244  $13,637 
             
Stock Repurchase Programs
In March 2006, the Company’s Board of Directors (the “Board”) approved the repurchase, over a twelve-month period ending in March 2007, of up to $100 million of the Company’s outstanding common stock. During fiscal 2006, the Company repurchased and retired 3,081,104 shares of its common stock in connection with this stock repurchase program, which represented the entire $100 million.
In May 2006, the Company announced that its Board had approved the repurchase of an additional $100 million of the Company’s common stock over the next following twelve months ending in May 2007. During fiscal 2006, the Company repurchased and retired an additional 3,591,352 shares of its common stock in connection with this stock repurchase program, which represented the entire additional $100 million.
During fiscal 2008, 2007 and 2006, the Company repurchased and retired 60,168, 54,282 and 7,090 shares, respectively, of restricted stock in connection with employee tax withholding obligations under employee compensation plans, which are not purchases under any publicly announced plan.
 
12.13.  Retirement Plans:
 
The Company hasWe have a 401(k) defined contribution employee benefit plan (the Plan)“Plan”) covering substantially all employees. Employees’ rights to Company-contributed benefits vest fully upon completing five years of service, with incremental vesting starting in service year two. Under the Plan, employees may contribute up to 100 percent of their annual compensation, subject to certain statutory limitations. The Company hasWe have elected to match employee contributions at 50 percent on the first 6 percent of the employees’ contributions and can elect to make additional contributions over and above the mandatory match. For fiscal 2009, 2008 and 2007, and 2006, the Company’sour costs under the Plan were approximately $2.4 million, $2.3 million, and $2.4 million, and $2.1 million, respectively.


60

CHICO’S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
In April 2002, the Companywe adopted the Chico’s FAS, Inc. Deferred Compensation Plan (the Deferred Plan)“Deferred Plan”) to provide supplemental retirement income benefits for a select group of management employees. Eligible participants may elect to defer up to 80 percent of their salary and 100 percent of their bonuses pursuant to the terms and conditions of the Deferred Plan. The Deferred Plan generally provides for payments upon retirement, death or termination of employment. In addition, the Companywe may make employer contributions to participants under the Deferred Plan. To date, no Company contributions have been made under the Deferred Plan. The amount of the deferred compensation liability payable to the participants is included in “deferred liabilities” in the consolidated balance sheet. A portion of thesesheets. These obligations are funded through the establishment of trust accounts held by the Companyus on behalf of the management group participating in the plan. The trust accounts are reflected in “other assets” in the accompanying consolidated balance sheet.sheets.


55

CHICO’S FAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
13.14.  Quarterly Results of Operations (Unaudited):
 
                                        
         Net Income (Loss)
          Net Income (Loss)
         Per
        Net Income (Loss)
 Per Common and
       Net Income (Loss)
 Common and
      Net
 Per
 Common
     Net
 Per
 Common
  Net
 Gross
 Income
 Common Share –
 Equivalent Share –
 Net
 Gross
 Income
 Common Share –
 Equivalent Share –
  Sales Margin (Loss) Basic Diluted
 Sales Margin (Loss) Basic Diluted 
Fiscal year ended January 30, 2010:               
First quarter $410,643  $233,388  $14,489  $0.08  $0.08 
Second quarter  419,915   231,041   14,905   0.08   0.08 
Third quarter  446,863   257,278   22,745   0.13   0.13 
Fourth quarter  435,730   238,033   17,508   0.10   0.10 
Fiscal year ended January 31, 2009:                                   
First quarter $409,564  $228,802  $12,732  $0.07  $0.07  $409,564  $228,802  $12,732  $0.07  $0.07 
Second quarter  405,218   213,361   6,680   0.04   0.04   405,218   213,361   6,680   0.04   0.04 
Third quarter  394,243   211,373   1,995   0.01   0.01   394,243   211,373   1,995   0.01   0.01 
Fourth quarter  373,379   165,956   (40,544)  (0.23)  (0.23)  373,379   165,956   (40,544)  (0.23)  (0.23)
Fiscal year ended February 2, 2008:                    
First quarter $453,088  $279,765  $47,158  $0.27  $0.27 
Second quarter  436,029   251,729   38,683   0.22   0.22 
Third quarter  415,913   242,464   23,570   0.13   0.13 
Fourth quarter  409,297   195,104   (20,537)  (0.12)  (0.12)
15.  Subsequent Event
On February 24, 2010, we announced that our Board of Directors declared an initial quarterly cash dividend of $0.04 per share on our common stock. The dividend was payable on March 22, 2010 to shareholders of record at the close of business on March 8, 2010. While it is our intention to continue to pay a quarterly cash dividend for fiscal 2010 and beyond, any decision to pay future cash dividends will be made by the Board of Directors and will depend on future earnings, financial condition and other factors.


6156

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
None.
 
ITEM 9A.  CONTROLS AND PROCEDURES
 
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 and 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 the Company’s management, including itsour Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’sour disclosure controls and procedures (as defined inRules 13a-15(e) and15d-15(e) under the Securities and 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, the Company’sour disclosure controls and procedures were effective in providing reasonable assurance in timely alerting them to material information relating to the Companyus (including itsour consolidated subsidiaries) and that information required to be disclosed in our reports is recorded, processed, summarized, and reported as required to be included in the Company’sour periodic SEC filings.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in reports filed under the Exchange Act is accumulated and communicated to the Company’s management, including the principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. There were no significant changes in the Company’sour internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.
There was no change in the Company’sour internal control over financial reporting during the Company’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’sour internal control over financial reporting.
 
Management’s Report on Internal Control over Financial Reporting
 
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined inRule 13a-15(f) of the Securities Exchange Act of 1934. Under the supervision and with the participation of the Company’sour management, including itsour Chief Executive Officer and Chief Financial Officer, the Companywe conducted an evaluation of the effectiveness of the Company’sour internal control over financial reporting as of January 31, 200930, 2010 as required by the Securities Exchange Act of 1934Rule 13a-15(c). In making this assessment, the Companywe used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)(“COSO”) inInternal Control-Integrated Framework.Based on itsour evaluation, management concluded that its internal control over financial reporting was effective as of January 31, 2009.30, 2010.
 
No system of controls, no matter how well designed and operated, can provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that the system of controls has operated effectively in all cases. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
 
The effectiveness of the Company’sour internal control over financial reporting as of January 31, 200930, 2010 has been audited by Ernst & Young LLP, an independent registered certified public accounting firm, as stated in their report which appears below.follows.


6257

Report of Independent Registered Certified Public Accounting Firm
 
The Board of Directors and Shareholders of Chico’s FAS, Inc.
 
We have audited Chico’s FAS, Inc. and subsidiaries’ internal control over financial reporting as of January 31, 2009,30, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Chico’s FAS, Inc.’s and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, Chico’s FAS, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of January 31, 2009,30, 2010, based on the COSO criteria.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the fiscal 20082009 consolidated financial statements of Chico’s FAS, Inc. and subsidiaries and our report dated March 26, 200924, 2010 expressed an unqualified opinion thereon.
 
/s/  ERNST & YOUNG LLP
Certified Public Accountants
 
Tampa, Florida
March 26, 200924, 2010
 
ITEM 9B.  OTHER INFORMATION
 
None.


6358

 
PART III
 
ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
Information about directors and nominees for director, procedures by which security holders may recommend director nominees, the code of ethics, the audit committee, audit committee membership and our audit committee financial expert of the Company and Section 16(a) beneficial ownership reporting compliance in the Company’s 2009our 2010 Annual Meeting proxy statement is incorporated herein by reference. Information about our executive officers of the Company is included in Part I of this Annual Report onForm 10-K.
 
ITEM 11.  EXECUTIVE COMPENSATION
 
Information about executive compensation and compensation committee interlocks and the Compensation and Benefits Committee report in the Company’s 2009our 2010 Annual Meeting proxy statement is incorporated herein by reference.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
The information required by this Item is included in the Company’s 2009our 2010 Annual Meeting proxy statement and is incorporated herein by reference.
 
Equity Compensation Plan Information
 
The following table shows information concerning the Company’sour equity compensation plans as of the end of the fiscal year ended January 31, 2009:30, 2010:
 
                        
     Number of
      Number of
 
     Securities
      Securities
 
 Number of
   Remaining Available
  Number of
   Remaining Available
 
 Securities to be
   for Future Issuance
  Securities to be
   for Future Issuance
 
 Issued Upon
 Weighted-Average
 Under Equity
  Issued Upon
 Weighted-Average
 Under Equity
 
 Exercise of
 Exercise Price of
 Compensation Plans
  Exercise of
 Exercise Price of
 Compensation Plans
 
 Outstanding
 Outstanding
 (Excluding
  Outstanding
 Outstanding
 (Excluding
 
 Options, Warrants
 Options, Warrants
 Securities
  Options, Warrants
 Options, Warrants
 Securities
 
Plan category
 and Rights and Rights ($) Reflected in Column (a))  and Rights and Rights ($) Reflected in Column (a)) 
 (a) (b) (c)  (a) (b) (c) 
Equity compensation plans approved by security holders(1)  7,763,161  $14.10   8,239,432   6,288,358  $12.54   8,778,584 
Equity compensation plans not approved by security holders  —   —   —   —       — 
          
Total  7,763,161  $14.10   8,239,432   6,288,358  $12.54   8,778,584 
          
 
 
(1)Includes shares authorized for issuance under the Company’s 1993 Stock Option Plan, Independent Directors’ Plan, and Amended and Restated 2002 Omnibus Stock and Incentive Plan.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
The information required by this Item is included in the Company’s 2009our 2010 Annual Meeting proxy statement and is incorporated herein by reference.
 
ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
The information required by this Item is included in the Company’s 2009our 2010 Annual Meeting proxy statement and is incorporated herein by reference.


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PART IV
 
ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
(a) Documents filed as part of this Report.
 
(1) The following financial statements are contained in Item 8:
 
     
Financial Statements
 Page in this Report
 
Report of Ernst & Young LLP, independent registered certified public accounting firm
  3733 
Consolidated Balance Sheets as of January 31, 2009 and February 2, 200838
Consolidated Statements of Operations for the fiscal years ended January 30, 2010, January 31, 2009, and February 2, 2008 and February 3, 2007
  3934 
Consolidated Balance Sheets as of January 30, 2010 and January 31, 2009
35
Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the fiscal years ended January 30, 2010, January 31, 2009, and February 2, 2008 and February 3, 2007
  4036 
Consolidated Statements of Cash Flows for the fiscal years ended January 30, 2010, January 31, 2009, and February 2, 2008 and February 3, 2007
  4137 
Notes to Consolidated Financial Statements
  4238 
(2) The following Financial Statement Schedules are included herein:
(2) The following Financial Statement Schedules are included herein:
 
Schedules are not submitted because they are not applicable or not required or because the required information is included in the financial statements or the notes thereto.
 
 (3) The following exhibits are filed as part of this report (exhibits marked with an asterisk have been previously filed with the Commission as indicated and are incorporated herein by this reference):
 
     
 3.1* Composite Articles of Incorporation of Chico’s FAS, Inc. (Filed as Exhibit 3.1 to the Company’sForm 10-Q as filed with the Commission on September 4, 2009)
 3.2 Composite Amended and Restated By-laws of Chico’s FAS, Inc.
 4.1* Composite Articles of Incorporation of Chico’s FAS, Inc. (Filed as Exhibit 3.1 to the Company’sForm 10-Q as filed with the Commission on September 4, 2009)
 4.2 Composite Amended and Restated By-laws of Chico’s FAS, Inc.
 4.3* Form of specimen Common Stock Certificate (Filed as Exhibit 4.9 to the Company’s Form 10-K for the year ended January 29, 2005, as filed with the Commission on April 8, 2005)
 10.1* Employment Agreement between the Company and Scott A. Edmonds, effective as of September 3, 2003 (Filed as Exhibit 10.13 to the Company’s Form 10-K for the year ended January 31, 2004, as filed with the Commission on April 9, 2004)
 10.2* Amendment No. 1 to Employment Agreement between the Company and Scott A. Edmonds, effective as of June 22, 2004 (Filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended July 31, 2004, as filed with the Commission on August 26, 2004)
 10.3* Amendment No. 2 to Employment Agreement between the Company and Scott A. Edmonds, dated December 18, 2008 and effective as of January 1, 2005 (Filed as Exhibit 10.1 to the Company’s Form 8-K, as filed with the Commission on December 19, 2008)
 10.4* Separation letter agreement and release between Chico’s FAS, Inc. and Scott A. Edmonds, dated as of January 7, 2009 (Filed as Exhibit 10.1 to the Company’s Form 8-K, as filed with the Commission on January 8, 2009)
 10.5* Employment Agreement for Mori C. MacKenzie (Filed as Exhibit 10.4 to the Company’s Form 10-Q for the quarter ended October 1, 1995, as filed with the Commission on November 13, 1995)
 10.6* Amendment No. 1 to Employment Agreement between the Company and Mori C. MacKenzie, effective as of August 21, 2000 (Filed as Exhibit 10.3 to the Company’s Form 10-Q for the quarter ended October 28, 2000, as filed with the Commission on December 8, 2000)


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 3.1*Articles of Restatement of the Articles of Incorporation, effective as of June 21, 2005 (Filed as Exhibit 3.1 to the Company’sForm 8-K as filed with the Commission on June 24, 2005)
3.2*Amended and Restated By-laws of Chico’s FAS, Inc. (Filed as Exhibit 3.2 to the Company’sForm 8-K/A, as filed with the Commission on May 2, 2006)
3.3*Amendment to Amended and Restated By-laws of Chico’s FAS (Filed as Exhibit 3.3 to the Company’sForm 8-K, as filed with the Commission on December 20, 2007)
4.1*Articles of Restatement of the Articles of Incorporation, effective as of June 21, 2005 (Filed as Exhibit 3.1 to the Company’sForm 8-K as filed with the Commission on June 24, 2005)
4.2*Amended and Restated By-laws of Chico’s FAS, Inc. (Filed as Exhibit 3.2 to the Company’sForm 8-K/A, as filed with the Commission on May 2, 2006)
4.3*Amendment to Amended and Restated By-laws of Chico’s FAS (Filed as Exhibit 4.3 to the Company’sForm 8-K, as filed with the Commission on December 20, 2007)
4.4*Form of specimen Common Stock Certificate (Filed as Exhibit 4.9 to the Company’sForm 10-K for the year ended January 29, 2005, as filed with the Commission on April 8, 2005)
10.1*Employment Agreement between the Company and Scott A. Edmonds, effective as of September 3, 2003 (Filed as Exhibit 10.13 to the Company’sForm 10-K for the year ended January 31, 2004, as filed with the Commission on April 9, 2004)
10.2*Amendment No. 1 to Employment Agreement between the Company and Scott A. Edmonds, effective as of June 22, 2004 (Filed as Exhibit 10.1 to the Company’sForm 10-Q for the quarter ended July 31, 2004, as filed with the Commission on August 26, 2004)
10.3*.7* Amendment No. 2 to Employment Agreement between the Company and Scott A. Edmonds,Mori C. MacKenzie, dated December 18, 2008 and effective as of January 1, 2005 (Filed as Exhibit 10.110.3 to the Company’sForm 8-K, as filed with the Commission on December 19, 2008)
 10.4*.8* SeparationEmployment Agreement between the Company and Charles L. Nesbit, Jr., effective as of August 4, 2004 (Filed as Exhibit 10.1 to the Company’s Form 10-Q as filed with the Commission on May 26, 2005)
10.9*Amendment No. 1 to Employment Agreement between the Company and Charles L. Nesbit, Jr., dated December 18, 2008 and effective as of January 1, 2005 (Filed as Exhibit 10.2 to the Company’s Form 8-K, as filed with the Commission on December 19, 2008)
10.10*Employment letter agreement between the Company and releaseDonna Noce Colaco, with employment commencing on August 6, 2007 (Filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended August 4, 2007, as filed with the Commission on August 29, 2007)
10.11*Employment letter agreement between Chico’s FAS, Inc.the Company and ScottKent A. Edmonds,Kleeberger, with employment commencing on November 1, 2007 (Filed as Exhibit 10.1 to the Company’s Form 8-K, as filed with the Commission on October 23, 2007)
10.12*Employment letter agreement between the Company and David F. Dyer, dated as of January 7, 2009 (Filed as Exhibit 10.110.2 to the Company’sForm 8-K, as filed with the Commission on January 8, 2009)
10.13*Amendment No. 1 to employment letter agreement between the Company and David F. Dyer, dated March 5, 2009 (Filed as Exhibit 10.1 to the Company’s Form 8-K, as filed with the Commission on March 12, 2009)
10.14*Employment letter agreement between the Company and Jeffrey A. Jones, dated as of February 11, 2009 (Filed as Exhibit 10.1 to the Company’s Form 8-K, as filed with the Commission on February 27, 2009)
10.15*Employment letter agreement between the Company and Cynthia S. Murray, dated as of January 29, 2009 (Filed as Exhibit 10.16 to the Company’s Form 10-K for the year ended January 31, 2009, as filed with the Commission on March 27, 2009)
10.16*1993 Stock Option Plan (Filed as Exhibit 10.14 to the Company’s Form 10-K for the year ended January 2, 1994, as filed with the Commission on April 1, 1994)
10.17*First Amendment to 1993 Stock Option Plan (Filed as Exhibit 10.9 to the Company’s Form 10-K for the year ended January 30, 1999, as filed with the Commission on April 28, 1999)
10.18*Second Amendment to 1993 Stock Option Plan (Filed as Exhibit 10.21 to the Company’s Form 10-K for the year ended February 2, 2002, as filed with the Commission on April 24, 2002)
10.19*2002 Omnibus Stock and Incentive Plan (Filed as Exhibit 10.22 to the Company’s Form 10-K for the year ended February 2, 2002, as filed with the Commission on April 24, 2002)
10.20*First Amendment to Chico’s FAS, Inc. 2002 Omnibus Stock and Incentive Plan, effective as of June 20, 2006 (Filed as Exhibit 10.1 to the Company’s Form 8-K, as filed with the Commission on June 22, 2006)
10.21*Amended and Restated 2002 Omnibus Stock and Incentive Plan (Filed as Exhibit 10.1 to the Company’s Form 8-K, as filed with the Commission on July 2, 2008)
10.22*Form of 2002 Omnibus Stock and Incentive Plan Stock Option Certificate for Employees (Filed as Exhibit 10.1 to the Company’s Form 8-K, as filed with the Commission on February 3, 2005)
10.23*Form of 2002 Omnibus Stock and Incentive Plan Stock Option Certificate for Non-Management Directors (Filed as Exhibit 10.2 to the Company’s Form 8-K, as filed with the Commission on February 3, 2005)
10.24*Form of 2002 Omnibus Stock and Incentive Plan Restricted Stock Agreement for Employees (Filed as Exhibit 10.3 to the Company’s Form 8-K, as filed with the Commission on February 3, 2005)
10.25*Revised Form of 2002 Omnibus Stock and Incentive Plan Restricted Stock Agreement for Employees (Filed as Exhibit 10.25 to the Company’s Form 10-K for the year ended January 31, 2009, as filed with the Commission on March 28, 2008)
10.26*Form of 2002 Omnibus Stock and Incentive Plan Restricted Stock Agreement for Non-Management Directors (Filed as Exhibit 10.4 to the Company’s Form 8-K, as filed with the Commission on February 3, 2005)
10.27*Revised Form of 2002 Omnibus Stock and Incentive Plan Restricted Stock Agreement for Non-Management Directors (Filed as Exhibit 10.28 to the Company’s Form 10-K for the year ended February 2, 2008, as filed with the Commission on March 27, 2009)


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 10.5* Employment Agreement for Mori C. MacKenzie (Filed as Exhibit 10.4 to the Company’sForm 10-Q for the quarter ended October 1, 1995, as filed with the Commission on November 13, 1995)
 10.6* Amendment No. 1 to Employment Agreement between the Company and Mori C. MacKenzie, effective as of August 21, 2000 (Filed as Exhibit 10.3 to the Company’sForm 10-Q for the quarter ended October 28, 2000, as filed with the Commission on December 8, 2000)
 10.7* Amendment No. 2 to Employment Agreement between the Company and Mori C. MacKenzie, dated December 18, 2008 and effective as of January 1, 2005 (Filed as Exhibit 10.3 to the Company’sForm 8-K, as filed with the Commission on December 19, 2008)
 10.8* Employment Agreement between the Company and Charles L. Nesbit, Jr., effective as of August 4, 2004 (Filed as Exhibit 10.1 to the Company’sForm 10-Q as filed with the Commission on May 26, 2005)
 10.9* Amendment No. 1 to Employment Agreement between the Company and Charles L. Nesbit, Jr., dated December 18, 2008 and effective as of January 1, 2005 (Filed as Exhibit 10.2 to the Company’s Form
    8-K, as filed with the Commission on December 19, 2008)
 10.10* Employment letter agreement between the Company and Michele M. Cloutier, with employment commencing on September 12, 2006 (Filed as Exhibit 10.1 to the Company’sForm 8-K, as filed with the Commission on September 13, 2006)
 10.11* Employment letter agreement between the Company and Donna Noce Colaco, with employment commencing on August 6, 2007 (Filed as Exhibit 10.1 to the Company’sForm 10-Q for the quarter ended August 4, 2007, as filed with the Commission on August 29, 2007)
 10.12* Employment letter agreement between the Company and Kent A. Kleeberger, with employment commencing on November 1, 2007 (Filed as Exhibit 10.1 to the Company’sForm 8-K, as filed with the Commission on October 23, 2007)
 10.13* Employment letter agreement between the Company and David F. Dyer, dated as of January 7, 2009 (Filed as Exhibit 10.2 to the Company’sForm 8-K, as filed with the Commission on January 8, 2009)
 10.14* Amendment No. 1 to employment letter agreement between the Company and David F. Dyer, dated March 5, 2009 (Filed as Exhibit 10.1 to the Company’sForm 8-K, as filed with the Commission on March 12, 2009)
 10.15* Employment letter agreement between the Company and Jeffrey A. Jones, dated as of February 11, 2009 (Filed as Exhibit 10.1 to the Company’sForm 8-K, as filed with the Commission on February 27, 2009)
 10.16 Employment letter agreement between the Company and Cynthia S. Murray, dated as of January 29, 2009
 10.17* 1993 Stock Option Plan (Filed as Exhibit 10.14 to the Company’sForm 10-K for the year ended January 2, 1994, as filed with the Commission on April 1, 1994)
 10.18* First Amendment to 1993 Stock Option Plan (Filed as Exhibit 10.9 to the Company’sForm 10-K for the year ended January 30, 1999, as filed with the Commission on April 28, 1999)
 10.19* Second Amendment to 1993 Stock Option Plan (Filed as Exhibit 10.21 to the Company’sForm 10-K for the year ended February 2, 2002, as filed with the Commission on April 24, 2002)
 10.20* 2002 Omnibus Stock and Incentive Plan (Filed as Exhibit 10.22 to the Company’sForm 10-K for the year ended February 2, 2002, as filed with the Commission on April 24, 2002)
 10.21* First Amendment to Chico’s FAS, Inc. 2002 Omnibus Stock and Incentive Plan, effective as of June 20, 2006 (Filed as Exhibit 10.1 to the Company’sForm 8-K, as filed with the Commission on June 22, 2006)
 10.22* Amended and Restated 2002 Omnibus Stock and Incentive Plan (Filed as Exhibit 10.1 to the Company’sForm 8-K, as filed with the Commission on July 2, 2008)
 10.23* Form of 2002 Omnibus Stock and Incentive Plan Stock Option Certificate for Employees (Filed as Exhibit 10.1 to the Company’sForm 8-K, as filed with the Commission on February 3, 2005)
 10.24* Form of 2002 Omnibus Stock and Incentive Plan Stock Option Certificate for Non-Management Directors (Filed as Exhibit 10.2 to the Company’sForm 8-K, as filed with the Commission on February 3, 2005)
 10.25* Form of 2002 Omnibus Stock and Incentive Plan Restricted Stock Agreement for Employees (Filed as Exhibit 10.3 to the Company’sForm 8-K, as filed with the Commission on February 3, 2005)
 10.26* Revised Form of 2002 Omnibus Stock and Incentive Plan Restricted Stock Agreement for Employees (Filed as Exhibit 10.25 to the Company’sForm 10-K for the year ended February 2, 2008, as filed with the Commission on March 28, 2008)
     
 10.28 Form of 2002 Omnibus Stock and Incentive Plan Performance Award Agreement for Restricted Stock Units
 10.29* Chico’s FAS, Inc. Amended and Restated 2002 Employee Stock Purchase Plan (Filed as Exhibit 10.29 to the Company’s Form 10-K for the year ended January 31, 2004, as filed with the Commission on April 9, 2004)
 10.30* 2005 Cash Bonus Incentive Plan (Filed as Exhibit 10.5 to the Company’s Form 8-K, as filed with the Commission on February 3, 2005)
 10.31* First Amendment to 2005 Cash Bonus Incentive Plan (Filed as Exhibit 10.1 to the Company’s Form 8-K, as filed with the Commission on April 5, 2006)
 10.32* Second Amendment to 2005 Cash Bonus Incentive Plan (Filed as Exhibit 10.1 to the Company’sForm 8-K, as filed with the Commission on April 13, 2007)
 10.33* Chico’s Amended and Restated Executive Severance Plan (Filed as Exhibit 10.32 to the Company’s Form 10-K for the year ended January 31, 2009, as filed with the Commission on March 28, 2008)
 10.34* Amendment No. 1 to Chico’s FAS, Inc. Executive Severance Plan (Filed as Exhibit 10.35 to the Company’s Form 10-K for the year ended January 31, 2009, as filed with the Commission on March 27, 2009)
 10.35* Chico’s FAS, Inc. Vice President Severance Plan (Filed as Exhibit 10.32 to the Company’s Form 10- K for the year ended February 2, 2008, as filed with the Commission on March 28, 2008)
 10.36* Amendment No. 1 to Chico’s FAS, Inc. Vice President Severance Plan (Filed as Exhibit 10.37 to the Company’s Form 10-K for the year ended January 31, 2009, as filed with the Commission on March 27, 2009)
 10.37* Participation Agreement with Kent A. Kleeberger (Filed as Exhibit 10.2 to the Company’s Form 8-K, as filed with the Commission on March 6, 2008)
 10.38* Indemnification Agreement with Scott A. Edmonds (Filed as Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended July 2, 1995, as filed with the Commission on August 14, 1995)
 10.39* Indemnification Agreement with David F. Walker (Filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended October 29, 2005, as filed with the Commission on November 29, 2005)
 10.40* Indemnification Agreements with Betsy S. Atkins, John W. Burden, III, Verna K. Gibson, and Ross E. Roeder (Filed as Exhibits 10.1-10.3 and 10.8 to the Company’s Form 8-K as filed with the Commission on December 9, 2005)
 10.41* Indemnification Agreements with Charles L. Nesbit, Jr. and A. Alexander Rhodes (Filed asExhibits 10.1-10.2 to the Company’s Form 8-K as filed with the Commission on May 2, 2006)
 10.42* Indemnification Agreements with John J. Mahoney and David F. Dyer (Filed as Exhibits 10.1-10.2 to the Company’s Form 8-K as filed with the Commission on July 25, 2008)
 10.43* Credit Agreement by and among SunTrust Bank, the Company and the subsidiaries of the Company dated as of November 24, 2008, including the schedules and exhibits (Filed as Exhibit 10.1 to the Company’s Form 8-K/A (Amendment No. 2) as filed with the Commission on September 30, 2009)
 10.44* Non-Employee Directors Stock Option Plan (Filed as Exhibit 10.49 to the Company’s Form 10-K for the year ended January 30, 1999, as filed with the Commission on April 28, 1999)
 10.45* First Amendment to Chico’s FAS, Inc. Non-Employee Directors Stock Option Plan (Filed as Exhibit 10.51 to the Company’s Form 10-K for the year ended January 29, 2000, as filed with the Commission on April 25, 2000)
 10.46* Chico’s FAS, Inc. Deferred Compensation Plan effective April 1, 2002 (Filed as Exhibit 10.53 to the Company’s Form 10-K for the year ended February 2, 2002, as filed with the Commission on April 24, 2002)
 10.47* Chico’s FAS, Inc. 2005 Deferred Compensation Plan effective January 1, 2005 (amended and restated January 1, 2008) (Filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended November 1, 2008, as filed with the Commission on December 9, 2008)
 10.48* Lease Agreement between Joint Development Authority of Winder-Barrow County and Chico’s Real Estate, LLC dated as of March 25, 2002 (Filed as Exhibit 10.54 to the Company’s Form 10-K for the year ended February 2, 2002, as filed with the Commission on April 24, 2002)
 21  Subsidiaries of the Registrant

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 10.27* Form of 2002 Omnibus Stock and Incentive Plan Restricted Stock Agreement for Non-Management Directors (Filed as Exhibit 10.4 to the Company’sForm 8-K, as filed with the Commission on February 3, 2005)
 10.28 Revised Form of 2002 Omnibus Stock and Incentive Plan Restricted Stock Agreement for Non-Management Directors
 10.29* Chico’s FAS, Inc. Amended and Restated 2002 Employee Stock Purchase Plan (Filed as Exhibit 10.29 to the Company’sForm 10-K, as filed with the Commission on April 9, 2004)
 10.30* 2005 Cash Bonus Incentive Plan (Filed as Exhibit 10.5 to the Company’sForm 8-K, as filed with the Commission on February 3, 2005)
 10.31* First Amendment to 2005 Cash Bonus Incentive Plan (Filed as Exhibit 10.1 to the Company’sForm 8-K, as filed with the Commission on April 5, 2006)
 10.32* Second Amendment to 2005 Cash Bonus Incentive Plan (Filed as Exhibit 10.1 to the Company’sForm 8-K, as filed with the Commission on April 13, 2007)
 10.33* Chico’s FAS, Inc. Executive Severance Plan effective October 1, 2007 (Filed as Exhibit 10.1 to the Company’sForm 8-K, as filed with the Commission on September 27, 2007)
 10.34* Chico’s Amended and Restated Executive Severance Plan (Filed as Exhibit 10.32 to the Company’sForm 10-K for the year ended February 2, 2008, as filed with the Commission on March 28, 2008)
 10.35 Amendment No. 1 to Chico’s FAS, Inc. Executive Severance Plan
 10.36* Chico’s FAS, Inc. Vice President Severance Plan (Filed as Exhibit 10.32 to the Company’sForm 10-K for the year ended February 2, 2008, as filed with the Commission on March 28, 2008)
 10.37 Amendment No. 1 to Chico’s FAS, Inc. Vice President Severance Plan
 10.38* Participation Agreement with Scott A. Edmonds (Filed as Exhibit 10.1 to the Company’sForm 8-K, as filed with the Commission on March 6, 2008)
 10.39* Participation Agreement with Kent A. Kleeberger (Filed as Exhibit 10.2 to the Company’sForm 8-K, as filed with the Commission on March 6, 2008)
 10.40* Indemnification Agreement with Scott A. Edmonds (Filed as Exhibit 10.2 to the Company’sForm 10-Q for the quarter ended July 2, 1995, as filed with the Commission on August 14, 1995)
 10.41* Indemnification Agreement with David F. Walker (Filed as Exhibit 10.1 to the Company’sForm 10-Q for the quarter ended October 29, 2005, as filed with the Commission on November 29, 2005)
 10.42* Indemnification Agreements with Betsy S. Atkins, John W. Burden, III, Verna K. Gibson, and Ross E. Roeder (Filed asExhibits 10.1-10.3 and 10.8 to the Company’sForm 8-K as filed with the Commission on December 9, 2005)
 10.43* Indemnification Agreements with Charles L. Nesbit, Jr. and A. Alexander Rhodes (Filed asExhibits 10.1-10.2 to the Company’sForm 8-K as filed with the Commission on May 2, 2006)
 10.44* Indemnification Agreements with John J. Mahoney and David F. Dyer (Filed asExhibits 10.1-10.2 to the Company’sForm 8-K as filed with the Commission on July 25, 2008)
 10.45* Credit Agreement by and among SunTrust Bank, the Company and the subsidiaries of the Company dated as of November 24, 2008 (Filed as Exhibit 10.1 to the Company’sForm 8-K as filed with the Commission on December 1, 2008)
 10.46* Non-Employee Directors Stock Option Plan (Filed as Exhibit 10.49 to the Company’sForm 10-K for the year ended January 30, 1999, as filed with the Commission on April 28, 1999)
 10.47* First Amendment to Chico’s FAS, Inc. Non-Employee Directors Stock Option Plan (Filed as Exhibit 10.51 to the Company’sForm 10-K for the year ended January 29, 2000, as filed with the Commission on April 25, 2000)
 10.48* Chico’s FAS, Inc. Deferred Compensation Plan effective April 1, 2002 (Filed as Exhibit 10.53 to the Company’sForm 10-K for the year ended February 2, 2002, as filed with the Commission on April 24, 2002)
 10.49* Chico’s FAS, Inc. 2005 Deferred Compensation Plan effective January 1, 2005 (amended and restated January 1, 2008) (Filed as Exhibit 10.1 to the Company’sForm 10-Q for the quarter ended November 1, 2008, as filed with the Commission on December 9, 2008)

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 10.50* Lease Agreement between Joint Development Authority of Winder-Barrow County and Chico’s Real Estate, LLC dated as of March 25, 2002 (Filed as Exhibit 10.54 to the Company’sForm 10-K for the year ended February 2, 2002, as filed with the Commission on April 24, 2002)
 10.51* Letter Agreement by and among Chico’s FAS, Inc. and Spotlight Capital Partners, L.P. and its affiliates, effective February 24, 2009 (Filed as Exhibit 10.1 to the Company’sForm 8-K as filed with the Commission on February 25, 2009)
 21  Subsidiaries of the Registrant
 23  Consent of Ernst & Young LLP
 31.1 Chico’s FAS, Inc. and Subsidiaries Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 — Chief Executive Officer
 31.2 Chico’s FAS, Inc. and Subsidiaries Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 — Chief Financial Officer
 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
 23  Consent of Ernst & Young LLP
 31.1 Chico’s FAS, Inc. and Subsidiaries Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 — Chief Executive Officer
 31.2 Chico’s FAS, Inc. and Subsidiaries Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 — Chief Financial Officer
 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) 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.
 
 By: 
/s/  David F. Dyer
David F. Dyer
President, Chief Executive Officer and Director
 
Date: March 27, 200924, 2010
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
       
Signature
 
Title
 
Date
 
     
/s/  David F. Dyer

David F. Dyer		 President, Chief Executive Officer, and Director (Principal Executive Officer) March 27, 200924, 2010
     
/s/  Kent A. Kleeberger

Kent A. Kleeberger		 Executive Vice President, — Finance,
Chief Financial Officer and Treasurer
( (Principal Financial Officer and Principal FinancialAccounting Officer)		 March 27, 200924, 2010
     
/s/  Ross E. Roeder

Ross E. Roeder		 Chairman of the Board March 27, 200924, 2010
     
/s/  Betsy S. Atkins

Betsy S. Atkins		 Director March 27, 200924, 2010
     
/s/  John W. Burden, III

John W. Burden, III		 Director March 27, 200924, 2010
     
/s/  Verna K. Gibson

Verna K. Gibson		 Director March 27, 200924, 2010
     
/s/  John J. Mahoney

John J. Mahoney		 Director March 27, 200924, 2010
     
/s/  David F. Walker

David F. Walker		 Director March 27, 200924, 2010
     
/s/  Andrea M. Weiss

Andrea M. Weiss		 Director March 27, 200924, 2010


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