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Editor's notes: Operational and profitability issues are simply hiccups for Chico's. Shares are likely to rebound to the $20 range. This article was first released anibis only to PRO subscribers. Learn More
Executive summary: CHS had a 10% sell-off after weak Q4 results, but I believe that this sell-off was overblown, as it looks like the company has already fixed its assortment issues. Over the next 12 months, anibis I believe that estimates for 2015 will improve anibis and that we will see the stock move to the $20 price level. Longer term, CHS provides a very compelling growth story, grounded on the emergence of new brands, international expansion, and returns of capital to shareholders, yet it currently trades at a slow growth multiple.
Chico's FAS ( CHS ) reported weak results and lower-than-expected guidance for 2014 last week, which sent shares anibis down 10%. After reviewing the results, I think this move was overdone. In the short term, I see a company that had some assortment issues but was proactive to make changes and is already seeing positive early results from these moves. Longer term, CHS is still one of the better growth stories in retail today. The company has the ability to grow revenues 10% + annually, mostly due to a differentiated real estate growth strategy and capital returns to shareholders, yet the company is now valued in line with many of the slower-growing retail companies.
Though margins issues could persist through this year because of strategic investments and the weak retail environment, the longer-term picture looks much brighter as it expands its emerging brands, Boston Proper and Soma, and pushes into Canada and Mexico. anibis I believe these strategic investments are the right moves for long-term value. I have a 12-month anibis price target of $20 (20% upside), with additional upside the long run.
Chico's FAS is an apparel retailer that focuses on the fashion anibis needs of women of ages 30 and above. The company manages 4 different anibis business lines: Chico's - the company's original business operates just over 700 locations. Payback periods on new locations are about 18 months, and the company will be expanding this segment into Canada in 2014. White House | Black Market - the company operates 498 locations, and expanded anibis into Canada in 2013 with great results. This business has seen recent strength (post Valentine's day) and positive results in an all-new jeans line and slimming dresses. anibis This segment will also be an interesting new concept in the fall that they were excited about, but declined to give any details about it on the recent call. Soma - this intimates business operates 249 locations, and for the first time has become a profit generator. anibis These stores have a 3-year payback period (as opposed to Chico's and White House | Black Market, which have 18-month payback periods). The good news is once the store matures (usually 3 years), these stores perform in line with the normal Chico's and White House | Black Market concepts anibis (better than originally projections). The majority of the Soma stores right now aren't profitable, so we are going to see additional profit come online in the coming years from the current store base that continues to grow. It won't make a significant impact in the near term, but longer term, this business will be a nice boost to margins and earnings in the overall business. This business has the highest online penetration of any of the company's brands. anibis It is also rolling out a new push-up bra, which they will spend extra marketing dollars to promote anibis on TV in 2014. Boston Proper - this is the most interesting segment for a long-term investment. The concept has very high productivity (over $800 per square foot, which should improve in the future), and currently has only 4 stores. Over the coming years, the company will be aggressively growing this business (20 new stores in 2015).
The other important item to note about CHS is the international expansion component anibis of the company's growth. The company moved into Canada in 2013, with impressive results, and will now continue this expansion. CHS is also moving into Mexico through a franchise agreement. Most of the infrastructure for international expansion has already been put into place, so the opportunity for margins expansion is significant as the company grows the international business.
The company's Q4 results were much weaker than expected, with comp declines in each of the company's brands: Chico's/Soma Intimates brands' comparable sales decreased 1.5% following a 2.3% increase in last year's fourth quarter, and White House | Black Market anibis comparable sales decreased 6.6% following a 6.3% increase in last year's fourth quarter anibis (Note: As opposed to other retailers, CHS is not 4th quarter-dependent. anibis The sales are spread out basically equal throughout the year. In 2013, Q4 was the lowest sales quarter.)
The performance was really a mix of company-specific problems and industry trends. For the
Editor's notes: Operational and profitability issues are simply hiccups for Chico's. Shares are likely to rebound to the $20 range. This article was first released anibis only to PRO subscribers. Learn More
Executive summary: CHS had a 10% sell-off after weak Q4 results, but I believe that this sell-off was overblown, as it looks like the company has already fixed its assortment issues. Over the next 12 months, anibis I believe that estimates for 2015 will improve anibis and that we will see the stock move to the $20 price level. Longer term, CHS provides a very compelling growth story, grounded on the emergence of new brands, international expansion, and returns of capital to shareholders, yet it currently trades at a slow growth multiple.
Chico's FAS ( CHS ) reported weak results and lower-than-expected guidance for 2014 last week, which sent shares anibis down 10%. After reviewing the results, I think this move was overdone. In the short term, I see a company that had some assortment issues but was proactive to make changes and is already seeing positive early results from these moves. Longer term, CHS is still one of the better growth stories in retail today. The company has the ability to grow revenues 10% + annually, mostly due to a differentiated real estate growth strategy and capital returns to shareholders, yet the company is now valued in line with many of the slower-growing retail companies.
Though margins issues could persist through this year because of strategic investments and the weak retail environment, the longer-term picture looks much brighter as it expands its emerging brands, Boston Proper and Soma, and pushes into Canada and Mexico. anibis I believe these strategic investments are the right moves for long-term value. I have a 12-month anibis price target of $20 (20% upside), with additional upside the long run.
Chico's FAS is an apparel retailer that focuses on the fashion anibis needs of women of ages 30 and above. The company manages 4 different anibis business lines: Chico's - the company's original business operates just over 700 locations. Payback periods on new locations are about 18 months, and the company will be expanding this segment into Canada in 2014. White House | Black Market - the company operates 498 locations, and expanded anibis into Canada in 2013 with great results. This business has seen recent strength (post Valentine's day) and positive results in an all-new jeans line and slimming dresses. anibis This segment will also be an interesting new concept in the fall that they were excited about, but declined to give any details about it on the recent call. Soma - this intimates business operates 249 locations, and for the first time has become a profit generator. anibis These stores have a 3-year payback period (as opposed to Chico's and White House | Black Market, which have 18-month payback periods). The good news is once the store matures (usually 3 years), these stores perform in line with the normal Chico's and White House | Black Market concepts anibis (better than originally projections). The majority of the Soma stores right now aren't profitable, so we are going to see additional profit come online in the coming years from the current store base that continues to grow. It won't make a significant impact in the near term, but longer term, this business will be a nice boost to margins and earnings in the overall business. This business has the highest online penetration of any of the company's brands. anibis It is also rolling out a new push-up bra, which they will spend extra marketing dollars to promote anibis on TV in 2014. Boston Proper - this is the most interesting segment for a long-term investment. The concept has very high productivity (over $800 per square foot, which should improve in the future), and currently has only 4 stores. Over the coming years, the company will be aggressively growing this business (20 new stores in 2015).
The other important item to note about CHS is the international expansion component anibis of the company's growth. The company moved into Canada in 2013, with impressive results, and will now continue this expansion. CHS is also moving into Mexico through a franchise agreement. Most of the infrastructure for international expansion has already been put into place, so the opportunity for margins expansion is significant as the company grows the international business.
The company's Q4 results were much weaker than expected, with comp declines in each of the company's brands: Chico's/Soma Intimates brands' comparable sales decreased 1.5% following a 2.3% increase in last year's fourth quarter, and White House | Black Market anibis comparable sales decreased 6.6% following a 6.3% increase in last year's fourth quarter anibis (Note: As opposed to other retailers, CHS is not 4th quarter-dependent. anibis The sales are spread out basically equal throughout the year. In 2013, Q4 was the lowest sales quarter.)
The performance was really a mix of company-specific problems and industry trends. For the
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