Yahoo Finance Why Brean's Liz Pierce Is Still Buying Chico's Stock
In a report issued Friday, Brean Capital analyst Liz Pierce looks into small-cap women’s apparel retailer Chico's FAS, Inc. (NYSE: CHS) and reiterates a Buy rating and $22.00 price target on the stock, as strategic initiatives start to pay off and the “exit of Boston Proper re-allocates resources.”
The firm continues to think that Chico’s is Best in Class in the specialty retail industry given its “diversified portfolio of brands and a comparatively underserved niche in the Missy space.” Furthermore, an improved offering coupled with recent cost reduction and capital allocation initiatives, lead the experts to believe the company remains on course to meet its longer-term objective of mid-teen earnings growth and double-digit operating margins.
The research note goes over four main points of discussion:
Second quarter results came in ahead of estimates
Margins are improving on the back of inventory management and cost control. This is a particularly impressive to see in the second quarter, as the period tends to be one of transition and/or clearance.
Although the Boston Proper brand still has value, relevance and beautiful stores, Chico’s exit allows it to reallocate resources “to their best and highest use (...), to more proven aspects of its business.” Pierce assures
While quarter-to-date comps for the third quarter are down about 4 percent, management still expects to see positive comps for each brand in the period. Nonetheless, although Brean believes the issues responsible for the bad performance “- market volatility and the delay of a major promotional event at Chico’s due to a shipping accident- are transitory and that product across both apparel brands is very compelling, it is worth noting that this customer has gone into hiding during previous market volatility periods.” Consequently, the experts trimmed their third and fourth quarter EPS estimates to $0.19 and $0.07, from $0.20 and $0.08, respectively.
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