How Chic Is Chico's?

Last night, shares of women's apparel retailer Chico's FAS (NYSE: CHS  ) , by far my mom's favorite place to shop for clothing, were active in evening trading as the company's fiscal Q4 (ended Jan. 29) financial results disappointed the market. Net income and earnings per share, at $0.18, rose substantially from year-ago levels but missed Wall Street's consensus estimate by a couple of pennies.

I'll leave it up to the individual investor to decide whether to be disappointed in the company's performance. Net revenues rose nearly 39% to $1.1 billion, growing at a pace ahead of inventory growth, even as the company added 100 stores to total 668. Same-store sales were ahead 13%, and net income turned in an impressive rise of nearly 41% to end at $141 million. Margins improved across the board. (These figures include a $0.02-per-share charge that has something to do with lease accounting, a charge that several companies have reported this quarter as they update their books.)

The company's strong EPS growth is especially impressive, given that its share count to end the year is actually higher than it was at the end of 2003. Meanwhile, Chico's balance sheet is stronger now, with substantially more cash on hand.

Apart from U2 albums growing increasingly repetitive, past performance never guarantees future results -- and certainly not in women's fashions. Plenty of reliable companies have trouble sustaining results. The well-regarded Ann Taylor (NYSE: ANN  ) springs to mind. (Read Alyce Lomax's February take for more on Ann.) But Chico's continues to perform admirably, growing sales and profits while continuously driving strong store traffic.

The question is, how long can it continue? And that's why savvy retail investors like to buy financially strong companies on their way back into fashion rather than sprawling ones with bloated valuations. Chico's is healthy and has room to grow, but investors no doubt noted that February "comps" rose 9.2% -- nice, but well off last February's remarkable 28% pop. Numbers like those shouldn't necessarily scare long-term investors into panic selling, but investors thinking about buying in should watch carefully.

Fool contributor Dave Marino-Nachison doesn't own any of the companies mentioned.