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Will Dismal Sales Trend Hurt Chico's (CHS) Earnings in Q2?

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Chico's FAS, Inc. (CHS - Free Report) is slated to release second-quarter fiscal 2017 results on Aug 30. The question lingering in investors’ minds is whether this specialty retailer of designer apparel and accessories will be able to deliver a positive earnings surprise in the quarter to be reported. In the trailing four quarters, the company outperformed the Zacks Consensus Estimate by an average of 51.8%.

However, it posted a negative earnings surprise of 10.3% in the previous quarter. Let’s see how things are shaping up prior to this announcement.

Chico's FAS, Inc. Price and EPS Surprise

Chico's FAS, Inc. Price and EPS Surprise | Chico's FAS, Inc. Quote

What to Expect?

The current Zacks Consensus Estimate for the quarter under review is 21 cents, reflecting a year-over year decline of 16%. We note that the Zacks Consensus Estimate has been stable in the past 30 days. However, analysts polled by Zacks expect revenues of $580.4 million, down 8.7% from the year-ago quarter.

Factors at Play

Chico’s continues to make progress with regard to its cost control and operating efficiency endeavors which were declared in May 2016. The company expects to achieve annualized savings of $100-$110 million by mid-2018. In this regard, the company has achieved savings worth $30 million in fiscal 2016, and anticipates generating $50 million worth of savings in fiscal 2017.

In the first quarter, the company generated savings worth $15 million. Further, the company expects savings of $35 million in fiscal 2017, from redesigning the organizational policies, controlled non-merchandise expenses and efficient supply chain operations resulting in lower cost of goods of sold.

However, the company has been witnessing dismal top-line trends in the last few quarters. Notably, the company has lagged the sales estimates in four of the trailing five quarters. In the last reported quarter, the company posted negative top and bottom-line surprise, while comparable store sales (comps) dipped year over year. Moreover, the company expects comps to decline to a mid single-digit percentage in fiscal 2017.

The cumulative effect of the soft sales trends is evident on the company’s stock price, which has witnessed a 22.2% decline in the last three months. Further, the stock has underperformed the industry’s 17.2% decline.

What the Zacks Model Unveils

Our proven model does not conclusively show that Chico's to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Chico's has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 21 cents per share. While the company’s Zacks Rank #3 increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise.

Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Big Lots, Inc. (BIG - Free Report) has an Earnings ESP of +0.72% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Burlington Stores, Inc. (BURL - Free Report) has an Earnings ESP of +3.23% and a Zacks Rank #2.

Zumiez, Inc. has an Earnings ESP of +16.67% and a Zacks Rank #3.

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