Chico's Downgraded to Strong Sell - Analyst Blog

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On Jun 17, 2014, Zacks Investment Research downgraded Florida-based specialty retailer, Chico's FAS, Inc. ( CHS ) to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Chico's has witnessed substantial downward estimate revisions over the last 30 days. The primary reason behind this was the company's disappointing first-quarter fiscal 2014 results. The company's earnings per share of 26 cents for the first quarter were 18.8% lower than the year-ago comparable period adjusted earnings of 32 cents per share. Moreover, the company's earnings for the quarter missed the Zacks Consensus Estimate of 29 cents per share.

Decline in the bottom line was mainly due to higher costs and expenses, which more than offset the benefit from an improved top line.

Net sales increased slightly to $681.6 million from the year-ago sales of $670.7 million. However, it lagged the Zacks Consensus Estimate of $693.0 million. The year-over-year improvement in top line was mainly driven by the opening of 99 new stores over the last 12 months, partially offset by decline in comparable-store sales (comps).

Comps fell 2.6% against flat comps in the year-ago quarter. The decline was due to decreased traffic at the stores resulting from inclement weather conditions as well as lower average dollar sale owing to a highly promotional retail environment.

In the reported quarter, Chico's/Soma Intimates comps grew 0.4% against a 2.8% decline in the prior-year quarter. White House | Black Market (WHBM) brands' same-store sales fell 8.6% compared with a 6.4% rise last year.

The company's soft results triggered a downtrend in the Zacks Consensus Estimate, as analysts became less constructive on the stock's future performance. The Zacks Consensus Estimate fell 6.9% to 27 cents per share for second-quarter fiscal 2014, 9.6% to 85 cents per share for fiscal 2014 and 8.3% to $1.00 per share for fiscal 2015 in the past 30 days.

Other Stocks That Warrant a Look

Not all apparel stocks are performing as disappointingly as Chico's. Some better-ranked stocks in the sector include Citi Trends Inc. ( CTRN ) that has a Zacks Rank #1 (Strong Buy), along with Foot Locker Inc. ( FL ) and Zumiez Inc. ( ZUMZ ), both carrying a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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