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Bear of the Day: Chico's (CHS)

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Chico's FAS, Inc. (CHS - Free Report) is seeing some green shoots as its digital sales have spiked during the pandemic. This Zacks Rank #5 (Strong Sell) is still expected to see negative earnings this year and next.

Chico's is a Florida-based fashion company that operates 3 women's specialty apparel brands: Chico's, White House Black Market and Soma.

As of Oct 31, 2020, the company operated 1,310 stores in the United States and sold merchandise through 68 international franchise locations in Mexico and 2 domestic franchise airport locations.

It also sells online through all of its brands as well as through third-party channels.

A Big Miss in the Third Quarter

On Nov 24, Chico's reported its fiscal third quarter 2021 earnings and missed on the Zacks Consensus by $0.23. Earnings were a loss of $0.42 versus the Zacks Consensus of a loss of $0.19.

Sales rose 14.8% quarter over quarter to $351.4 million as digital sales took off and stores reopened.

This was still a decrease of 27.5% year-over-year which reflected a decline in store sales as well as the impact of 63 net permanent store closures.

The decline was partially offset by a 67% increase in digital sales.

There was some green shoots in the comparable sales data.

Chico's same-store-sales comparables were down 32.3% after falling 3.6% in the prior year.

White House Black Market also fell 28.7%, on top of a decline of 5.7% a year ago.

But Soma had strength, with positive comparables of 10.5% on top of last year's 11.3%. That's an impressive 2-year comp of 21.8%. Soma is their hot brand.

Chico's amended and extended its $300 million credit facility and ended the quarter with $145.2 million in cash and cash equivalents.

It also saw $65 million in rent abatement and reduction commitments as part of its lease portfolio review.

Analysts Bearish About Fiscal 2021 But See Rebound in Fiscal 2022

After the earnings report, analysts cut this year's and next year's estimates but they see some positives in next year.

The Fiscal 2021 Zacks Consensus fell to a loss of $2.89 from a loss of $2.21 in the last month. It lost $0.02 last year.

For Fiscal 2022, two analysts also lowered their estimates in the last month pushing the Zacks Consensus to a loss of $0.17 from a loss of $0.13 during that time.

But that's a big improvement over this year.

In addition to the earnings rebound, analysts believe that sales will rebound 18.8% in Fiscal 2022.

Shares Remain Under $5

Shares of Chico's plunged in the March coronavirus sell-off but they remain down 57% and are trading under $2.

Some insiders bought shares in June 2020, but since then, they have been on the sidelines.

Many specialty apparel retailers are expected to see a rebound in 2021 such as Gap (GPS - Free Report) . But will it be enough?

Investors may want to proceed with caution in this industry until the pandemic is in the rearview mirror.

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