Chico's FAS: An Attractive Long-Term Candidate
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Over the past three years Chico’s FAS (NYSE: CHS) went from a loss of $0.03 per share in 2008 to income of $0.84 per share in fiscal 2011. According to the company’s chief financial officer, Pam Knous, Chico’s growth “…has generated positive cash flow, which we then used to self-fund investments in our business.” While progress has been anything but smooth, this specialty women’s retailer has zero debt and plans to maintain “…at least $200 million in cash and marketable securities,” according to Knous. She added that Chico’s priorities are first to grow its business and second to return excess cash flow to shareholders.
Chico’s fourth-quarter 2011 results trounced analysts’ expectations, with sales up 20% from the same period one year ago. Earnings per share for the period rose 25% to $0.15, significantly ahead of Wall Street’s estimates of $0.11. Early this year Chico’s increased its quarterly dividend to $0.0525 from $0.05 per share, for an annual yield of 1.40%. The stock closed recently just over $15 a share, near the top of its 52-week range of $9.57-$16.50. Following its acquisition in 2011 of Boston Proper for $205 million in cash, and in light of its active advertising campaigns for its four proprietary brands, Chico’s seems to be on a growth trajectory.
Mild weather and a recovering economy early this year were kind to the bottom line of other retailers too. Luxury department store chain Nordstrom (NYSE: JWN), posted earnings growth of 6.7%, reaching $1.11 per share for the fourth quarter, and it recently increased its quarterly dividend to $0.27 from $0.23 per share. At about $54 a share, Nordstrom is at the top of its 52-week price range of $37.28 - $54.68 a share. Giant specialty retailer Limited Brands (NYSE: LTD) – parent company of Victoria’s Secret – raked in $10.4 million in sales for the quarter, up 7.8% from the same period a year ago. (Victoria’s Secret’s sales rose 14%.) Limited recently raised its quarterly dividend to $0.25 per share, up from $0.20. It closed at over $46 a share, near the top of its 52-week range of $29.55 - $47.15. All three companies have been actively buying back their shares and are in various stages of expansion outside of the United States. As the youngest of the three and one of the most creative, Chico’s potential for growth is commensurately greater.
It should be noted that the path has not been strewn with primrose petals for all women’s fashion icons recently. The Talbots (NYSE: TLB) has been sinking fast. Like Chico’s, this women’s specialty retailer targets women aged 35 and up, but it opted to stay with its classically styled clothing and accessories. Talbot’s 2011 earnings per share were negative and the stock hit an all-time low of $1.45 a share late last year. After recently rejecting an offer of $3 per share from a private buyer, Talbots is once again a takeover target. The stock closed recently slightly over $3 a share, near the lower end of its 52-week range ($1.45 - $10.40). The company is also seeking a new CEO, so speculators may be well advised to wait until the new top person has been vetted.
Still a shrub in the forest of ladies fashion retailers, Chico’s growth accelerated in the past decade to over 600 boutiques nationwide, augmented with over 80 outlet stores. In 2003 Chico’s acquired White House | Black Market, which today operates more than 360 boutiques and nearly 30 outlets around the country. In 2004 the company launched Soma Intimates, now with over 150 boutiques and nearly 20 outlets. And in September of 2011 Chico’s closed on its acquisition of Boston Proper, a direct-to-consumer retailer of women’s apparel and accessories. All four of its stand-alone brands target middle-class to affluent, adult women. Each brand has its own website and publishes its own catalog, and each aims to increase sales in all of the company’s channels.
Chico’s growth strategy is to focus on building its store base, improving productivity and growing its direct-to-consumer channels, as well as by building loyalty across each brand. Unlike many of its competitors, the company focuses on smaller, more intimate venues and on relationship building with its customers. Chico’s has been successful in turning itself around since Dave Dyer took over as CEO three years ago. In that time the company has invested $273 million for new stores, marketing and distribution programs, not including the Boston Proper acquisition. According to Knous, “…we find our investments in any of our channels have resulted in sales increases in all channels.” Future plans include opening 120 stores a year domestically and probing international markets under the guidance of a newly hired vice president of international operations. Additional advertising and expansion of online operations are also in the offing for each of Chico’s brands.
Women’s apparel is a highly competitive business, but as a younger, financially strong and innovative player with four complementary brands, Chico’s offers a combination of market savvy and creativity that bodes well for growth-oriented investors over the long term.
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