Shares of Chico's FAS (CHS -0.66%) jumped more than 10% on Tuesday after the women's apparel retailer reported better-than-expected third-quarter results. The company's shares have been in a free fall, down nearly 70% over the past three years, but management sees the latest quarterly results as a sign that its turnaround plan is beginning to gain traction.
Chico's on Tuesday morning reported an adjusted loss of $0.04 per share, ahead of the estimate of a $0.06-per-share loss, on revenue of $484.7 million, which was $11 million above expectations and up 3% year over year. Comparable sales improved by 10% sequentially at White House Black Market, and by 2% at Chico's, thanks to product assortment adjustments and better presentation.
"Our third quarter results demonstrate that we are gaining traction on our strategic priorities," CEO Bonnie Brooks said in a statement. "I firmly believe the Company's turnaround is on the right track, and we have updated our full-year financial outlook to reflect the positive momentum of our business."
The news wasn't all positive. Third-quarter gross margin was 35.3% of net sales, down from 36.2% during the prior-year period, in part due to one-time issues, including accelerated depreciation as part of the company's restructuring plan and severance charges. Absent those one-time items, gross margin would have decreased by 30 basis points, which the company attributed to clearance of seasonal merchandise and the impact of tariffs.
Chico's FAS is attempting to streamline operations, improve its store footprint, and make its products stand out better in a highly competitive retail marketplace. That's a tall order, but the third quarter at least provided some reason to hope the company is moving in the right direction.
The company expects a low-single-digit decline in total net sales in the fourth quarter and a gross margin reduction of 100 to 150 basis points due to tariff costs. Chico's can make all the right moves and still end up in a difficult competitive situation. Investors would be wise to tread carefully.