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Lessons from a Winner

By Seth Jayson (TMF Bent)
January 6, 2005

If there was ever a stock to make an investor go "Woo-hoo!" Chico's FAS (NYSE: CHS) is one. On a day when many companies are reporting decent holiday sales -- contrary to some of the headlines out there -- Chico's has come back and completely crushed analyst estimates. Street: 6. Chico's: 18. Percent, that is.

Yes, Chico's put up triple the sales gain the Street's experts expected. Oh, wait. I'm sorry, that's just the comps number. Analysts looked for a same-store sales gain of 6.1%, while the company turned in an 18.6% increase for company-owned stores. Overall, sales for December were up an astounding 41.3%. For the year so far, revenues are up 40%, and comps are clipping along at 13%. I'm not sure the sub-$50 stock really needs the 2-for-1 split announced today, but hey, there's no harm in it, either.

Chico's amazing performance may not surprise some Fools. Many of us have written about the way Chico's has walloped the tar out of peers -- let's not even call them competitors -- such as Ann Taylor (NYSE: ANN) and J. Jill (Nasdaq: JILL), let alone department stores such as May (NYSE: MAY) and Federated (NYSE: FD). Chico's was a favorite even before it was singled out in our annual stock-picking guide, Stocks 2004. Amazingly enough, the firm was one of laggards of the bunch, meaning that it only outperformed the S&P by a coupla' points. (Get the full breakdown of how we bested the market here.)

There are two lessons worth pondering. One is that you shouldn't let arbitrary endpoints cloud your investment evaluation. If a couple of point outperformance doesn't seem like much to you, consider that if you held Chico's only a couple more months, today you'd be sitting on a solid 30% gainer.

Here's another lesson: Great companies can continue to run, even though they don't ever look cheap. In that respect, Chico's has long been like Starbucks (Nasdaq: SBUX) -- a real heartbreaker for those who have thought, "just let it drop to a P/E of (fill in this black) and I'll buy some." Chico's has rarely looked cheap.

Final lesson: In the market, even the world's best talent goes on sale once in a while. That's right, a jittery market sent Chico's into a late-September nosedive, and impressively dressed experts everywhere were predicting the end of the firm's run. Some chowderhead -- whose name I've forgotten for obvious reasons -- even remarked that he didn't think management had what it would take to bring the firm to the next level. That was my signal to load up a pile of shares, which have brought a quick 45% return in three short months, and I didn't even get in at the bottom.

That's the beauty of the market, folks. There are plenty of ways to make money by trusting in the brains and hard work of the good folks at places like Chico's. All you need to do is acquire the wits to find them, the courage to buy, hold, and buy more when the herds get scared. You can do it yourself -- yes, you can -- or you can get a little help from us. Either way, you'll reap the rewards.

For related Foolishness:

Seth Jayson loves the stock market, if you hadn't noticed. At the time of publication, he had shares of Chico's FAS, but no other firm mentioned. View his stock holdings and Fool profile here. Fool rules are here.