Stock of the Day
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Chico's FAS, Inc. (CHS)
Chico's: Banking On A Trendy Holiday Season
If clothing retailers met on some secret island in the Pacific Ocean to decide on a collective statement to make to the general public, a good estimate of the wording would be: “Please, spend more money.” While this phrase does seem rather mundane and predictable (and the example somewhat outlandish), it manages to neatly wrap up the fervor that surrounds the holiday shopping season into a neat little package. Winter is certainly a high stakes time of year, with billions of dollars magically pumping into stores across the country. Companies must grab and grasp for every cent ŕ la the children's game Hungry Hungry Hippos, which probably makes Chico's CEO Scott Edmonds lose a considerable amount of sleep. The women's clothing chain just reported earnings that beat Street estimates, and is now heading into the end of the year gauntlet. How does Chico's expect to fair in December, and what New Year's resolution has the company made for 2006?
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The concept of a Black Friday emphasizes the idea that retailers somehow manage to turn profitable during one month when they struggle for the other eleven. For some companies, the holiday season is literally a life-and-death struggle similar to lions and gazelles on the African savannah. The strongest companies survive, with the weaker ones pounded on by investors. Luckily for Chico's, the company has not been relying on Christmas sales for the bulk of its profits. The company posted a quarterly net income of $53.2m, which beat analyst estimates by $.02 a share. Compared this to the same period last year, when the company posted a $37.1m profit, and it is quite apparent that higher prices are helping boost profit margins.
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Sales have also been boosted by store expansion, with Chico's now boasting 750 units across its Chico's, White House Black Market and Soma chains. And expansion is certainly not going to slow down in 2006. Plans are underway to add 70 new White House Black Market, 60 Chico's and 20 Soma stores across the country within the year, representing a 20% growth in units. This is certainly not a modest figure, and certainly does not come without a price. Despite the company's good performance this past quarter, they have made some minor blunders. For instance, Chico's Soma stores, which sell intimate apparel, have been putting pressure on the company's bottom line. CEO Scott Edmonds has openly stated that profitability calculations were underestimated, and that the company would have to increase investment in the young spin-off in order to meet profit expectations. This is not the end of the world, but certainly does not bode well with investors. Miscalculations tend to be punished, especially when they require more capital to be used than previously expected.
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Overall, the company has shown positive growth over the past five years. The stock has increased by an insane 1550% since 2001, and 97% since January 2005. These figures are certainly not paltry, especially when compared to Chico's major competitors Ann Taylor (ANN: Charts, News, Offers), Federated Department Stores (FD: Charts, News, Offers) and Talbot's (TLB: Charts, News, Offers). All three have bounced back in November in anticipation of the holiday season, but only Chico's showed truly explosive earnings. Talbot's was struggling at -10% growth on the year before the break, and Federated was just barely positive at 0.38%. Ann Taylor represented the stiffest competition, and has kept at the same breakneck pace as Chico's this month by surging from $23.20 to $29.69 (an additional 30% on the year) in a matter of weeks. Regardless, Ann Taylor is just beginning to pull away from the industry average, while Chico's has been outdistancing the pack all year. Chico's trumps Ann Taylor again and again. It holds a 5-year earnings growth of 41.97%, while Ann Taylor rests at .48%. Net profit margin of 13.6% compared to 1.3%. All signs point to Chico's outdistancing the competition.
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By no means is great past performance an indicator that the company should rest on its laurels, but it certainly is an indicator that performance should continue in the near future. If Chico's continues to position itself as a trendy choice to the 35-55 year-old market, it could very well continue to position itself at the top of the industry.
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Profile |
The Company's principal activity is the retailing of exclusively designed, private-label women's clothing and related accessories. The products include handbags, belts, shoes, and jewelry, including earrings, watches, necklaces and bracelets. The Company sells its products through traditional retail stores, catalog and through franchise network. As on 02-May-2005, the Company operates 687 women's specialty stores, including stores in 47 states, the District of Columbia, the U.S. Virgin Islands and Puerto Rico operating under the Chico's, White House | Black Market and Soma by Chico's names. The Company owns 461 Chico's front-line stores, 26 Chico's outlet stores, 173 White House | Black Market front-line stores, 5 White House | Black Market outlet stores and 10 Soma by Chico's stores; franchisees own and operate 12 Chico's stores.
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