Anita Scales is a self-proclaimed shopaholic. But you won't
find her checking out just any store.
One of her favorite haunts is apparel retailer Chico's. Scales
shops at her local Chico's store at least twice a month to check
out the fresh crop of goods and rarely leaves without making a
purchase.
"I am an avid fan of Chico's," said the 62-year-old Scales of
Germantown, Tenn. "What's great about their clothes is they fit
the body of mature women as well as younger women. That makes us
older women feel that we're not frumpy and we've got it
together."
Such accolades would likely be music to the ears of officials
at women's clothing retailerChico's FAS (
CHS
) . After getting stung by merchandising mistakes -- and further
walloped by the recession -- the company has staged a strong
turnaround, thanks to the efforts of Chief Executive David
Dyer.
Dyer took the company's helm in early 2009 and quickly brought
in talent to spruce up merchandising and help get Chico's back on
a more solid financial footing.
Dyer and his team have done that in spades. Chico's is back on
the fast track, with nine straight quarters of double-digit sales
and earnings growth. And if watchers are on target, it should
maintain the pace when it reports second-quarter results Aug. 22
before the bell.
Earnings Estimates
Analysts polled by Thomson Reuters expect earnings to rise 20%
to 30 cents a share. They see a 16% pop in revenue to $641.25
million.
The Fort Myers, Fla.-based retailer operates exclusively
designed, private branded clothing chains under the names Chico's
and White House/Black Market.
The company also runs the Soma Intimates chain, which sells
private branded lingerie and loungewear; and Boston Proper, an
online and catalog-based retailer of women's high-end apparel and
accessories.
"I think it's been a tough quarter for retail in general, but
I feel very comfortable with Chico's business," said Roth Capital
Partners analyst Liz Pierce. "I don't think they have been overly
promotional, but appropriately promotional. The inventory looks
clean and they've been doing a good job transitioning to the
fall."
Pierce says that during channel checks at the Chico's brand
stores, sales of new items have been good and products haven't
been sitting on the shelves very long.
"That's why I feel good about the quarter," she added. "I
think customers are responding to the products."
Stephens analyst Travis Williams believes Chico's FAS had a
relatively good second quarter.
"White House/Black Market and Soma have continued to be pretty
strong," he said. "But we're a little cautious about the Chico's
brand business in the second quarter."
The reason for his caution? Historically, he says, the Chico's
brand has catered to the customer with an annual income of
$100,000 and up.
"That customer historically has tightened spending at times of
stock market volatility and uncertainty, which is what we saw in
May and June," he said. "That's one thing that's given us caution
on the Chico's brand. But there's definitely a market for
higher-quality, higher-priced apparel."
And the Chico's brand seems to be striking a chord with
consumers in that market.
"While other companies are struggling to find their groove
with merchandise, the Chico's brand has done a good job staying
on trend," Williams said. "Only a small handful of retailers are
doing well in its space, and Chico's is one of them."
The space he refers to is the "missy" apparel retail segment
that caters to mature women. Both Chico's and White House/Black
Market sell to women 30 and up. Pierce pegs the average age of
Chico's customer at the mid-50s, and the White House/Black Market
Customer at the mid 30s.
Some of Chico's most direct competitors in the missy space
have been long struggling. That includes women's specialty
retailerTalbots (
TLB
), which agreed this week to be acquired by private equity firm
Sycamore Partners.
Another direct rival is women's apparel chainColdwater Creek (
CWTR
), which has lost money in three of the past four years.
Chico's success in this space boils down to having the right
merchandise, says Williams. Its clothing is unique, as is the
styling. The bright colors and patterns that the Chico's brand is
known for is "resonating well with customers right now," he
added.
That success showed up in the first quarter, when the
company's profit popped 23% to 32 cents a share. Sales rose 21%
to $650.8 million. Consolidated same-store sales rose a healthy
9.6% vs. the prior year. Chico's and Soma combined same-store
sales were up 8.8% while White House/Black Market saw an 11.3%
jump.
Chico's closed on the $205 million purchase of Boston Proper
last year.
Williams estimates Boston Proper had total sales of $124
million in fiscal 2011. Chico's acquired the company in September
2011, and it contributed $39.5 million to Chico's in just a
little over a quarter, Williams says.
New Store Sales
He expects Boston Proper's sales to hit $136.7 million in
2012, or 5.3% of Chico's total revenue.
At the end of the first quarter, Chico's had 606 boutiques and
86 outlets throughout the U.S.
White House/Black Market had 376 boutiques and 31 outlets.
Soma had 180 boutiques and 15 outlets.
While Boston Proper has no physical stores right now,
management plans to begin testing stores under the Boston Proper
name next year. Sterne, Agee & Leach analyst Margaret
Whitfield says the test will start in Florida in the 2013 first
quarter, with the first store planned to open in Boca Raton. The
firm expects to have a total of five Boston Proper stores in the
Sunshine State next year, she adds, with continued testing in
2014 and a rollout planned for 2015.
Analysts surveyed by Thomson Reuters expect Chico's full-year
profit to rise 24% to $1.04 a share, which would bring it close
to its peak annual earnings of $1.06 a share in 2006. They see a
17% increase in 2013.
Pierce says while the company is well positioned for the fall,
it may not all be smooth sailing.
"My biggest concern about their customer is in the past she
was highly sensitive to market volatility," she said. "My biggest
concern is as we head into the heat of the presidential election,
we could see even more volatility in the market."