Chico's: Look Out Below!

Chico’s (NYSE: CHS  ) has been working to turn its business around for quite a long time. There’s no sign of improvement, as far as I can tell, but investors have been bidding its shares up. The stock has more than doubled in six months! Despite -- or maybe because of -- that, I’d like to warn you to “look out below.”

For years, Chico’s was a hot stock with a fast-growing business peddling clothes to mature female shoppers. However, it lost its way several years ago, during the year ended January 2006 -- the last time it increased its profit on an annual basis. Since then, profits have dwindled, and at the end of the most recent fiscal year, Chico’s reported a loss. Its same-store sales, an important indicator of retail strength, have been negative for the past two years, too, including last year's plunge of 15.1%.

Its merchandise clearly hasn’t been resonating with the older female shopper, which has been a problem for another long-struggling peer, Talbots (NYSE: TLB  ) . There’s also plenty of competition from other specialty retailers such as Ann Taylor (NYSE: ANN  ) and Coldwater Creek (Nasdaq: CWTR  ) , as well as from department store retailers such as Macy’s (NYSE: M  ) .

Competition and business missteps make it difficult enough to stage a retail turnaround, but now we’re in the midst of a vicious recession, too. I’ve long thought the baby boomer females who are targeted by retailers like Chico’s are easily the most likely to rein in their purses. Consumers overall are keeping a close hand on their pocketbooks, and why many investors have jumped into Chico’s is beyond me.

Meanwhile, judging whether Chico’s is "cheap" or not is a little difficult, since you can’t look at a simple metric like a price-to-earnings ratio; remember, it’s not even profitable at the moment. However, it’s trading at a nosebleed 43 times forward earnings. The only really good thing I can say about Chico’s is that it has about $269 million in cash on its balance sheet and no debt.

There’s scant evidence that Chico’s business is really improving, and the challenges it faces in the current economic environment are great. There are other, far more solid retail stocks out there to ponder. For example, The Buckle (NYSE: BKE  ) , a teen retailer that has been performing well both before and after the recession (its profit has been steadily growing for years now). It's trading at just 13 times forward earnings, and even better, The Buckle has no debt.

Sometimes investors seem to have a bit of a reality disconnect when it comes to certain “hot” stocks, and Chico’s strikes me as a good example these days. Feel free to share your opinion on Chico’s in the comment boxes below, but I can’t help but think … investors should look out below on Chico’s.

Here’s some related Foolishness:

Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy. Try any of our Foolish newsletters today, free for 30 days.

Read/Post Comments (3) | Recommend This Article (18)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 21, 2009, at 4:19 PM, Sidelines079 wrote:

    For weeks I have been perplexed as to why this stock continues to rise. There is as the writer points out no logical reason for it. I was ready to short at $3. Shorting at $7 seems like a no brainer - get some profit when the others start to take theirs.

  • Report this Comment On April 29, 2009, at 1:31 PM, zimco4 wrote:


  • Report this Comment On May 14, 2009, at 1:02 PM, GatorGene wrote:

    With both a Chico's and Coldwater Creek nearby to comparison shop in, Chico's is still missing the mark, but CWTR has come out with a fresh new line aimed for casual and dressy casual customers. Look for those stores to start increasing sales this summer.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 878770, ~/Articles/ArticleHandler.aspx, 10/23/2016 12:51:34 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:02 PM
CHS $11.96 Up +0.07 +0.59%
Chico's FAS CAPS Rating: **
ANN.DL $0.00 Down +0.00 +0.00%
ANN CAPS Rating: **
BKE $21.00 Down -0.10 -0.47%
The Buckle CAPS Rating: *****
CWTRQ $0.00 Down +0.00 +0.00%
Coldwater Creek, I… CAPS Rating: *
M $36.51 Up +0.64 +1.78%
Macy's CAPS Rating: **
TLB.DL $0.00 Down +0.00 +0.00%
The Talbots, Inc. CAPS Rating: *