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Bear Of The Day: Chico's (CHS)

Daniel Laboe

The retail apocalypse is running rampant amid this global pandemic, and no brick-and-mortar business is safe. Chico’s (CHS) is one such business that has not been immune to the COVID driven economic downturn. CHS has lost over 92% of its value in the past 5 years, and it continues to disappoint investors with a 66% break down so far this year. Sell-side analysts are becoming more pessimistic about this stock and continue to lower expectations pushing this stock down to a Zacks Rank #5 (Strong Sell).

Chicos FAS, Inc. Price, Consensus and EPS Surprise

Chicos FAS, Inc. Price, Consensus and EPS Surprise
Chicos FAS, Inc. Price, Consensus and EPS Surprise

Chicos FAS, Inc. price-consensus-eps-surprise-chart | Chicos FAS, Inc. Quote

The Business

Chico’s is a women’s fashion brand that began out of Sanibel, Florida 36 years ago. The company operates three separate retailers, branded Chico’s, White House Black Market, and Soma.

The peak of this retailer’s performance was back in 2014 but has since fallen prey to the changing digital commerce landscape. Amazon and the other large online retailers have left less versatile firms like Chico’s in the dust. Chico’s operated 1,547 stores in 2014 and has since closed 129 stores and expects to close another 250 over the next three years.

This once women’s fashion icon’s inability to adapt to the digitalizing world has led to a sales decline in the past 18 out of 19 quarters and shareholders have suffered. Chico’s revenue decline is expected to continue in the years to come.

Chico’s bottom line has flipped negative, and its losses are accelerating seemingly every quarter. The business is quickly running out money, and this pandemic may be the straw that broke the camel’s back for Chico’s.

The best thing that could happen to Chico’s at this point is an acquisition. Otherwise, I see this archaic enterprise fizzling into bankruptcy, and that is what investors & traders have priced in.

CHS is soon to be a penny stock trading at $1.25. This low share price causes accentuated volatility, adding more risk to any investor holding these shares.

Take Away

The retail apocalypse is real, and the COVID-crisis is pushing brick-and-mortar retailers that haven’t adapted to the evolving consumer out of the market. Chico’s is just another domino teetering, ready to fall. There are significant systemic issues with this company, and I would not put any position on this stock at this time.

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