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Will Soft Comps Impact Chico's (CHS) Earnings Again in Q4?

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Chico’s FAS is slated to report its fourth-quarter fiscal 2017 results on Feb 28, before the market opens. 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.

Last quarter, the company posted earnings in line with the Zacks Consensus Estimate. Also, Chico’s missed the consensus mark in two of the trailing four quarters. However, it posted an average positive surprise of 31.3%.

Chico's FAS, Inc. Price and EPS Surprise

 

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

Let’s see how things are shaping up prior to this announcement.

What to Expect?

The Zacks Consensus Estimate for the quarter under review is 8 cents, reflecting a year- over-year decline of 20%. Notably, the consensus estimate has been stable in the past 30 days. Analysts polled by Zacks expect revenues of $565.7 million, down 5.8% from the year-ago quarter.

Factors at Play

Of late, Chico’s has been gaining on strategic initiatives to better serve customers and transform business. Also, the company remains on track with its cost control and operating efficiency endeavors, which are reaping benefits. The company expects to achieve annualized savings of $100-$110 million by mid-2018. In this regard, it achieved savings worth more than $100 million as of November 2017 and sees significant opportunities in fiscal 2018. The company anticipates saving on merchandise margins in fiscal 2018 through its sourcing initiatives and SG&A savings.

Also, Chico’s anticipates benefiting from the recent tax cut as a lower tax burden is likely to help it to channelize the surplus funds in the best possible manner. For fiscal 2018, the company expects its tax rate in the range of 26-28% versus a tax rate of roughly 38%, projected earlier.

However, the company’s recently revised comparable store sales (comps) view for fourth-quarter fiscal 2017 reflecting weakness in the quarter. It now expects total comparable sales (comps) to decrease in the band of 5-7% versus earlier projection of high single-digits decline.

Meanwhile, Chico’s continues to expect gross margin of roughly flat to slightly up. SG&A expenses are now projected to be nearly flat year over year. Earlier, management anticipated SG&A expenses to decline compared with last year.

Though the company’s strategic initiatives and the benefits from tax reform are likely to aid results, we remain skeptical of the upcoming results due to the soft comps and increased expense view. Additionally, the company’s dismal top- and bottom-line trends in the past quarters keep us on the sidelines.

In the past six months, shares of Chico’s have rallied 21.1% underperforming the industry’s gain of 31.7%.

What the Zacks Model Unveils

Our proven model does not show that Chico's is likely 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 carries a Zacks Rank #2, which increases the predictive power of ESP. However, the company has an Earnings ESP of 0.00% makes surprise prediction difficult.

Other 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:

AutoZone, Inc. (AZO - Free Report) has an Earnings ESP of +3.95% and a Zacks Rank #1. 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 +0.06% and a Zacks Rank of 2.

Big Lots, Inc. has an Earnings ESP of +2.41% and a Zacks Rank #2.

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