Chico’s FAS (CHS, Financial) is an omni-channel based specialty retailer of women’s private branded, casual-to-dressy clothing, intimates, accessories, and other items. The apparel retailer posted first-quarter fiscal 2015 results, which missed revenue estimates, but matched earnings estimates.
First-quarter highlights
Consolidated revenues grew 1.7% year-over-year to $693.3 million, missing consensus estimate of $718 million. The top-line growth was due to 56 new stores, partly offset by 0.1% year-over-year decline in comparable-store sales, or comps. The decline in comps was as a result of flat transaction count and average dollar sale per transaction.
Total inventories as a percentage of per square foot selling space declined 2.8% year-over-year on the back of better inventory management. As a result of improved inventory management, and lower promotional expenses, gross margin improved by 90 basis points, or bps, to 58% versus 57.1% in the year-ago quarter. Gross profit surged 3.4% year-over-year to $395.8 million.
On the back of top-line growth and margin expansion, earnings per share climbed 7.7% year-over-year to $0.28 and was in line with consensus estimate. Chico’s exited the quarter with cash and cash equivalents of $97.7 million and shareholders’ equity stood at $712.4 million.
Growth drivers
A new store opening is one of the ways for driving growth. During the quarter, Chico’s opened 56 net new stores, representing square footage increase of 3.3% year over year. Going forward, Chico’s plans to shut down 135 to 140 underperforming stores over a period of next three years, out of which it intends to close about 45–50 stores in fiscal 2015.
The company started implementing a new point-of-sale, or POS, system earlier this quarter and it is on schedule to be rolled-out to all stores by end of this year. Once operational, this will enable mobile checkout capabilities, providing even more efficient and seamless customer service.
In addition, the latest version of the customer book iPad application is fully operational across all Chico's store and store teams can access customer shopping patterns and preferences, enabling them to extend amazing personalized customer service. The same is being rolled out to other brands and is slated to be completed in six month.
These digital initiatives are aimed at better customer experience for driving sales.
The company also approved an accelerated stock repurchase agreement to buy back shares worth $250 million by October 2015. This will drive bottom-line growth, as a result of reduced share count, and deliver value to shareholders.
Looking ahead
For fiscal 2015, the specialty retailer expects moderate comps growth as a result of shuttering underperforming stores and also improving customer experience through digital initiates. Consolidated sales and comps growth is expected to be in the range of 1% to 2% year over year.
Final take
During the quarter, comps were negatively hit by 1% due to West Coast port strike. The company is managing inventories very well and promotional activity is also restrained to drive profitability.
P/S ratio of 0.93 and forward P/E of 17.30 also look attractive from valuation point of view. The company has zero debt on the balance sheet, and next five years growth is pegged at a CAGR of 14.77% versus a decline of 4.51% in the preceding five years.
Therefore, this stock is a good buy.
