What happened

Shares of Chico's FAS (CHS) were rallying this week after the women's apparel retailer posted first-quarter earnings results, beating estimates on the bottom line.

Chico's delivered improving profitability and solid growth at its namesake brand, which was enough to please the market in a difficult macroeconomic environment. The stock also seemed to benefit from its low valuation, as investor expectations were modest coming into the report.

According to data from S&P Global Market Intelligence, the stock was up 13.1% for the week as of Friday at 12:20 p.m. ET.

So what

Overall comparable sales were down 0.6% at the retailer, which owns Chico's, White House Black Market, and Soma, but rose 4.9% at the namesake Chico's brand. Revenue in the period was down 1.1% to $534.7 million, which missed estimates at $546 million.

However, investors were impressed with the margin improvement, as CEO Molly Langenstein said, "Full-priced sales remained healthy, spend per customer and average unit retail increased year over year, and we gained market share across all brands."

Gross margin in the period expanded by 210 basis points to 42.1% due to higher average retail prices, lower freight costs, and savings at the corporate level. Operating margin jumped 160 basis points to 10%, impressive gains considering that revenue actually declined.

On the bottom line, earnings per share improved from $0.28 to $0.32, topping estimates at $0.27, and the company credited the increase to the gross margin improvement.

Langenstein added:

Chico's, our largest brand, celebrating its 40th anniversary, demonstrated outstanding performance, posting comparable sales growth of 4.9% on top of 52% last year. We believe Chico's is positioned for continued outsized growth, as it is the fastest-growing apparel brand for customers over 45 with household incomes over $100,000, according to Circana.

Now what

In its guidance for the second quarter, the company called for revenue of $545 million to $565 million, which is down 0.7% from the quarter a year ago at the midpoint, and it sees earnings per share of $0.25 to $0.30, which compares to $0.34 in the quarter a year ago.

For the full year, the company expects revenue of $2.175 billion to $2.205 billion, up 2.3% at the midpoint, and earnings per share of $0.70 to $0.82, which is down from $0.88.

While the forecasted decline in earnings is concerning, it likely reflects the macro challenges that much of the apparel industry is facing. Meanwhile, the stock trades at a forward P/E of less than 8, making it look like a good value if you expect the business to return to growth in a healthier economy.