Please ensure Javascript is enabled for purposes of website accessibility

Here's Why Chico's FAS, Inc. Shares Are Surging Now

By Bradley Seth McNew – Nov 22, 2016 at 12:45PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The multibrand clothing company has reported better-than-expected Q3 earnings, and a niche that looks like a winning combination.

Image source: Chico's FAS.

What happened

Shares of Chico's FAS, Inc. (NYSE: CHS) are up more than 11% as of 11:30 a.m. EST today, following the company's third-quarter results showing a substantial jump in earnings, far better than analysts expected. Shares are now up more than 45% year to date.

So what

Chico's FAS reported Q3 earnings for the period ended Oct. 29, and sales during the quarter actually fell about 7.5% year over year. But earnings, which were negative this time last year at -$0.09 per share, grew to $0.18 per share (based on GAAP, or generally accepted accounting principles).

The surge in earnings despite slow sales came from the company's ability in the quarter to cut costs and decrease selling, general, and administrative expenses. Additionally, Chico's FAS repurchased 1.7 million shares during the quarter, decreasing total shares outstanding about 5%. That share repurchase makes up just a small portion of the overall approved $300.0 million share-repurchase program announced in November 2015, with $183.7 million remaining under the program.

Now what

This multibrand clothier has found a niche in serving the higher-fashion needs of women 30 and older, including the brands Chico's, White House Black Market, and Soma. It operates 1,518 boutiques and outlets throughout the U.S. and Canada, as well as an e-commerce presence. The company is currently undergoing a small restructuring, in which it will continue to focus on cost reduction and operating-efficiency initiatives.

For the upcoming fourth quarter, the company expects continued low-single-digit sales decline year over year, but also less cost savings recognized in the quarter. While earnings are likely to continue to be positive, that could mean that Q4 earnings growth will not be quite as impressive as it was this quarter.

Seth McNew has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.