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Chico's Down to Strong Sell

Zacks Equity Research

On Mar 1, 2014, Zacks Investment Research downgraded women’s specialty retailer, Chico’s FAS Inc. (CHS) to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Chico’s has witnessed sharp downward estimate revisions over the last 7 days. The primary reason behind this was the company's lackluster fourth-quarter fiscal 2013 performance. Notably, over the past few quarters, this store chain retailer has not been performing up to the mark. The company delivered negative earnings surprises in the trailing four quarters with an average miss of 27.5%.

The company reported dismal fourth-quarter fiscal 2013 results on Feb 27, 2014, with adjusted earnings per share of 4 cents that fell short of the Zacks Consensus Estimate of 16 cents and declined 80% from the prior-year quarter. The year-over-year decline in bottom-results was mainly due to decreased sales and higher operating expenses.

Net sales fell 6.4% year over year to $610.2 million and lagged the Zacks Consensus Estimate of $655.0 million. The top line was negatively impacted by cautious consumer spending behavior and unfavorable weather conditions.

Comparable-store sales in the quarter fell 3.4% against a 3.7% increase reported in the year-ago quarter, reflecting decreased traffic as well as lower average dollar sale and transaction count.

The soft quarterly performance triggered a downtrend in the Zacks Consensus Estimate, as analysts became less constructive on the stock’s future performance. The Zacks Consensus Estimate fell 6.8% to $1.09 for fiscal 2014 and 7.6% to $1.22 per share for fiscal 2015 in the past 7 days.

Additionally, the company operates in a highly competitive discount retail space with major players like Ascena Retail Group Inc. (ASNA). Peers with a larger number of stores, greater market presence and financial resources will likely continue to challenge the company’s performance.

Chico’s is a women's specialty retailer of private branded, classy, casual as well as dressy outfits, innerwear, complementary accessories and other non-clothing gift items. However, most of its brands targeting women over 30 years of age are witnessing a downward trend in its key target market. Therefore, we remain cautious over the stock’s future performance and consider it wise to stay away until things turn around for the company.

Other Stocks That Warrant a Look

Not all apparel/shoe retail stocks are performing as disappointingly as Chico’s. Some better-ranked stocks in the sector include Christopher & Banks Corp. (CBK) and Iconix Brand Group Inc. (ICON). Both of these have a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on CHS
Read the Full Research Report on CBK
Read the Full Research Report on ICON
Read the Full Research Report on ASNA

Zacks Investment Research