Chico's Misses on Q3 Earnings & Revs

Zacks Equity Research

Fort Myers, Florida based specialty retailer, Chico's FAS, Inc. (CHS) reported third-quarter fiscal 2013 adjusted earnings per share of 22 cents, down 12.0% from the year-ago quarter and short of the Zacks Consensus Estimate of 24 cents.

After incorporating the effects of the non-cash goodwill of Boston Proper and trade name impairment expenses, Chico’s reported a net loss of 18 cents a share for the quarter compared to earnings of 25 cents per share in the year-ago quarter.

Quarter in Detail

Net sales rose 3.0% year over year to $655.6 million in the quarter but missed the Zacks Consensus Estimate of $666.0 million. The top line in the quarter mainly benefited from the opening of 115 net new stores, which led to square footage growth of 8.6%.

Comparable store sales (comps) in the quarter fell 1.4% against a 9.9% increase reported in the year-ago quarter, reflecting both decreased traffic and strong year-ago comparisons.

In the reported quarter, Chico's/Soma Intimates comparable store sales declined 3.3% as against an 11.6% rise last year and White House| Black Market (:WHBM) brands' same store sales rose 2.5% compared with a 6.4% rise last year.

Gross profit for this Zacks Rank #3 (Hold) company dropped 0.1% to $364.0 million, while gross margin contracted 170 basis points (bps) from the year-ago quarter to 55.5%. The decline in gross margin was primarily due to increased promotion to drive traffic to stores, slightly offset by lower incentives as a percentage of sales.

Operating loss was roughly $17 million compared to an operating income of $66.6 million in the year-ago quarter. This was primarily due to increased SG&A and impairment expenses.

Selling, general and administrative (SG&A) expenses in the reported quarter were $308.5 million, up 3.8% from the year-ago level. As a percentage of sales, SG&A expenses expanded 40 bps from the prior-year quarter to 47.1%, primarily due to increased occupancy expenses, along with the effect of investing in strategic initiatives. These were offset by lower incentive expenses as a percentage of net sales.

Financial Update

Chico ended the quarter with cash and marketable securities of $249.8 million, compared with $371.5 million in the year ago quarter, and shareholders’ equity of $1,036.4 million..

The company spent $35 million during the quarter to buy back 2.1 million shares under its ongoing $300 million share repurchase program that was authorized in Feb 2013. Currently, the company has shares worth nearly $180 million remaining under its share repurchase program.

Store Update

During the quarter, this retailer of women’s clothing and accessories opened 44 outlets and closed one, taking the total store count to 1470.

Outlook and Dividend Update

The company is optimistic about its long-term outlook, given its strong financial status and capability to generate substantial cash flow consistently. Taking cue from this, the company’s board declared a cash dividend of 7.5 cents for the quarter, up 2 cents from third quarter 2013. On annualized basis, the dividend hike reflects a 36% jump. This dividend will be paid on Dec 23, 2013, to stockholders of record as on Dec 9, 2013.

Chico’s dividend has approximately doubled since 2010, during which it returned $553 million to its stockholders through dividends and share buybacks, reflecting its focus on boosting shareholder value.

Other Stocks to Consider

Some other better-ranked apparel/shoe retailers include DSW Inc. (DSW), ANTA Sports Products Limited (ANPDF) and Deckers Outdoor Corp. (DECK), each holding a Zacks Rank #2 (Buy).

Read the Full Research Report on DECK
Read the Full Research Report on DSW
Read the Full Research Report on CHS
Read the Full Research Report on ANPDF

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