In more than just a few ways, I could pass for Fool buddy Seth Jayson's investment doppelganger. No, we don't look anything alike, and I'm quite a bit more acerbic, but we seem to have a very similar outlook on investing and corporate morality. Oh, and we both managed to sell Chico's (NYSE:CHS) way too soon.
After seeing the company's second-quarter results, my love-hate relationship continues. See, I really respect what Chico's has done (and can continue to do), but I'd dearly love to see it stumble and skin its knees so I can get back in at a reasonable price.
Sales for the quarter rose nearly 35% on the back of a company-wide same-store-sales increase of 15.7%. The flagship Chico's line continues to perform well, while the newer White House/Black Market concept is off and running. And, oh, by the way -- this was the ninth consecutive year that Chico's posted double-digit comps growth for the second quarter. Frankly, that streak may be even longer -- it's just that my data ended at nine years.
While analysts won't be grousing about back-to-school trends with Chico's, they might get riled up about margins. See, gross margins fell by about 130 basis points this quarter, and operating margin dropped by about 10 points. Topping that off, management said margins would continue to trail off a bit as the company rolls out more of its Soma by Chico's stores.
Gasp! Horror!
Is this the end of days for Chico's? Hardly. What might get lost in the shuffle is that Chico's is far and away the top dog in retailing margins -- and is darn near the top in inventory management as well. According to the data I have before me, Chico's net margin is more than a full point ahead of second-best, and more than double that of the average clothier. Keep that in mind when you decide whether to freak out about a bit of margin erosion for the sake of growth.
Better yet, Chico's offers appealing merchandise. Not many retailers have targeted the 35- to 55-year-old female crowd with attractive and reasonably priced clothing. As a result, many women once had to either choose clothing designed to make them look like undersized linebackers or boarding-school headmistresses, or else head upmarket to stores like Nordstrom (NYSE:JWN).
I still really like the opportunities that Chico's has for growth. Unlike recently uber-hot retailers like American Eagle Outfitters (NASDAQ:AEOS) or Abercrombie & Fitch (NYSE:ANF), Chico's doesn't sell to the teenybopper crowd, and that should mean a bit more stability. That said, I just can't pay today's price -- no matter how much I admire the company.
For more tog Takes:
- Deb's Latest Coming-Out Party
- Jill's Urban Excursion?
- American Eagle Still Flying
- Abercrombie & Fitch, Kick Me
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
