Chico's FAS In Fashion With Women Shoppers

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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."

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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