While Chico’s FAS Inc. bested Wall Street’s earnings per share estimate by 6 cents and revenue projections by $5.2 million, the fourth quarter still represented the sixth consecutive quarter of year-over-year sales declines.
On the morning of Feb. 22, the women’s specialty chain reported net income of $13.5 million on total net sales of $600.8 million for the three months that ended on Jan. 28. That compares with a net loss of $21.1 million on total net sales of $631.6 million a year ago. The company attributed the decline in sales partly to its sale of its Boston Proper business last year. Comparable-store sales slipped 2.5 percent for the quarter.
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Given the beat on Wall Street’s consensus estimates, investors sent shares of Chico’s up 4.7 percent to close at $14.96 in Big Board trading.
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Shelley Broader, chief executive officer, said on a call to Wall Street analysts that the company continues to work on its cost reduction and operating efficiency initiatives and is “on track to achieve our target of $100 million to $110 million in annual savings.”
Of its Chico’s, White House|Black Market and Soma concepts, Soma was its best-performing business. Comparable-store sales were up “40 basis points” for the quarter, which was the brand’s 30th increase over the last 31 quarters.
Analysts for the most part viewed the results favorably, even though all noted that top line growth continues to be challenged.
Mizuho Securities analyst Betty Chen said, “While traffic continues to pressure transaction growth, as expected, we were impressed with both Chico’s and Soma’s ability to demonstrate sequential comp acceleration in [the fourth quarter], likely led by higher average dollar sales.” Chen raised her target price for shares of Chico’s to $17.
Stifel analyst Richard Jaffe said that while the company is making progress in cutting costs and reducing inventory levels, “sales continue to hold back results.” He noted that was due to “uninspiring assortments at both Chico’s and White House|Black Market. We believe a better merchandise assortment is necessary for longer-term growth at the company.”
Jefferies analyst Randal J. Konik said he favored the retailer’s formation of an advanced analytics team to “leverage retail science and their own internal databases to enhance operational performance.” And while the positives were gross margin at 35.5 percent and operating margin at 3.6 percent — compared with consensus estimates of 34.3 percent and 1.5 percent, respectively — Konik said he still expects the top line to continue to weigh on the business, “given limited visibility going forward for the brand.” He has maintained his “hold” rating for the stock, with a price target of $14.