What happened
Chico's (CHS) investors trounced the market this week. Shares were up 24% through Thursday trading, according to data provided by S&P Global Market Intelligence. The S&P 500 gained 0.3% in that time.
The rally added to solid gains for owners of the fashion retailer, whose shares are up 20% in the past full year. It was sparked by a warm reception to Chico's fiscal fourth-quarter earnings update.
So what
Sales in Q4, which ended in late January, rose 6%, beating management's goal for the quarter. Growth in Chico's apparel segment was especially strong, executives said, as new releases sparked higher demand. "Customers responded to our elevated fashion and product offerings," CEO Molly Langenstein said in a press release.
Success here allowed Chico's to avoid deep discounting, too, which helped profitability throughout fiscal 2022. Gross profit margin ticked higher in the period despite rising costs. Inventory declined, too, suggesting no challenge in keeping merchandise moving through Chico's system. The retailer generated $162 million of operating cash flow in the year, more than doubling its result from 2021.
Now what
All those wins gave management confidence to issue a bullish short-term outlook. Chico's expects sales to rise to roughly $2.3 billion in fiscal 2023 compared to $2.1 billion last year and $1.8 billion in fiscal 2021. Gross profit margin will remain elevated, executives said, at around 40% of sales.
A recession would threaten that bright outlook, and a lot can change over the course of a fiscal year. But Chico's is entering 2023 with solid momentum in its apparel division that's lifting sales and earnings for the wider business. If the company can extend those wins beyond the spring selling season, then the stock might continue beating the market from here.
