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Analyst Blog

On Dec 14, 2013, Zacks Investment Research downgraded Chico’s FAS Inc. (CHS - Snapshot Report) to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

The company reported dismal third-quarter fiscal 2013 results on Nov 26, 2013, with consolidated adjusted earnings per share of 22 cents that fell short of the Zacks Consensus Estimate by a couple of cents and fell 12% from the prior-year quarter.

Net sales rose 3.0% year over year to $655.6 million in the quarter but missed the Zacks Consensus Estimate of $666.0 million. Comparable store sales (comps) in the quarter fell 1.4%, against a 9.9% increase reported in the year-ago quarter, reflecting lower traffic and strong year-ago comparisons.

In the reported quarter, Chico's/Soma Intimates comparable store sales declined 3.3% versus an 11.6% rise last year and White House| Black Market (WHBM) brands' same store sales rose 2.5% compared with a 6.4% rise last year.

The soft quarterly performance triggered a downtrend in the Zacks Consensus Estimate, as analysts became less constructive on the stock’s future performance. The Zacks Consensus Estimate fell 5.8% to 98 cents for fiscal 2013 and 4.1% to $1.18 per share for fiscal 2014 in the past 30 days.

Additionally, the company operates in a highly competitive discount retail space and faces stiff competition from bigger players like Ascena Retail Group Inc. (ASNA - Snapshot Report). Peers with a larger number of stores, greater market presence and financial resources will continue to challenge the company’s performance.

Chico’s is a women's specialty retailer of private branded, classy, casual-to-dressy outfits, innerwear, complementary accessories, and other non-clothing gift items. However, most of its brands cater to products for women over 30, which are witnessing a downward trend in its key target market. Therefore, we remain cautious over the stock’s future performance and consider it wise to stay away until things turn around for the company.

Other Stocks That Warrant a Look

Not all retail stocks are performing as disappointingly as Chico’s. Some better-ranked stocks in the retail sector include G-III Apparel Group, Ltd. (GIII - Snapshot Report) and Citi Trends, Inc. (CTRN - Analyst Report). While G-III Apparel Group has a Zacks Rank #1 (Strong Buy), Citi Trends holds a Zacks Rank #2 (Buy).

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