Back to top

Image: Bigstock

Bear of the Day: Chico's (CHS)

Read MoreHide Full Article

Chico's FAS, Inc. is experiencing the sales weakness that almost all women apparel retailers are experiencing. This Zacks Rank #5 (Strong Sell) expects comparable store sales to decline for the entire fiscal year 2017.

Chico's operates three brands: Chico's, White House Black Market and Soma. It operates 1,492 stores in the US and Canada and sells through franchises in Mexico. It also operates websites for each brand.

Three Cent Miss in the First Quarter

On May 24, Chico's reported its fiscal first quarter results and missed on the Zacks Consensus by 3 cents. Earnings were $0.26 versus the consensus of $0.29.

But earnings aren't the big issue with the retailers. It's really about the comparable store sales and inventories.

Inventories rose to $273.9 million from $268 million a year ago. The increase was primarily the result of a $10.5 million increase in in-transit inventories, due to shift in shipping terms with a major vendor, partially offset by a 2% decrease in on-hand inventories compared to last year's quarter.

Comparables, however, were not good. Only Soma saw a gain, as it rose 0.2%. Chico's comparable store sales sank 10% while White House Black Market fell 9.7% on lower average dollar sale and a decline in transaction count.

Women were simply buying and spending less.

Comps to Decline for the Year

In its outlook, Chico's doesn't see it getting any better the rest of the fiscal year as it guided to a mid single-digit decline in comparable sales.

In inventories, however, it expects the rest of the year to be down compared to last year as it keeps its inventory under control. The higher the inventory, the more markdowns there are.

Shares Sink to 2-Year Low

With all the negativity on the retail sector, it's not surprising that shares of Chico's sank to 2-year lows on the earnings report.



The good news is that Chico's is still profitable.

While estimates have been cut for the fiscal year, analysts still expect it to make $0.79 in 2017 compared to $0.81 last year. That's a decline of just 2.3% so it seems like the bleeding has stopped at this retailer, for now.

It has enough cash on hand that it has been buying back shares in a $300 million share repurchase program and it also pays a dividend, which is now yielding 3.5%.

Chico's is cheap, with a forward P/E of just 11.

But with no turnaround in women's apparel in sight in 2017, investors might want to focus on retailers outside this space that are thriving like Ulta (ULTA - Free Report) and Home Depot (HD - Free Report) .

[In full disclosure, the author of this article owns shares of Ulta.]

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020. Click here for the 6 trades >>


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


The Home Depot, Inc. (HD) - free report >>

Ulta Beauty Inc. (ULTA) - free report >>