Chico 's (NYSE:CHS) shares took a rare dive in Thursday's trading after the company released an earnings report that disappointed investors. Does Chico's belong on the remainders rack? Well, heck, no, and furthermore, there's a good argument that maybe investors should consider the stock's drop a rare opportunity to buy into this powerhouse retailer.
The earnings report that got everybody's granny panties in a bunch consisted of a whopping 35% increase in fourth-quarter net income to $44 million, or $0.24 per diluted share. Net sales increased 32% to $376 million, while same-store sales for the quarter increased 15%. (It's worthwhile to mention that 2005 marks the ninth year of double-digit same-store sales from Chico's.) These are the kind of figures that make retail investors weep for joy, so what was the problem?
Chico's missed Wall Street's expectations by a penny, and that's ostensibly a big component of its shares' tumble today. (Most retailing stocks have been off today, though, because of mixed February sales results.) Many of you probably know that some of the priciest stocks have a lot of confidence built in to their stock prices, and any small deviation from expectations can send investors into a tailspin. That's one of the risks inherent in buying in to pricey performers like Chico's.
Regardless, though, I think this represents an opportunity for people who have been eyeing Chico's for a while. It's just not often that Chico's tumbles. In the company's conference call, President and CEO Scott Edmonds said of the missed expectations, "We will never force short-term earnings at the expense of longer-term strategic positions and performance to meet analyst expectations. On the contrary, we adhere to an emphasis on long-term value."
Coming from some companies, such a statement might be taken as so much hot air, but in Chico's case, the proof is in the numbers. As one Fool recently recognized, Chico's ranks high on the list of the 10 best-performing stocks of the past decade. Its performance puts other names that target the same demographic, like Talbots (NYSE:TLB), J. Jill (NASDAQ:JILL), and Ann Taylor (NYSE:ANN), utterly to shame.
In the conference call, Chico's management said that increased emphasis on some of its newer brands will cause downward pressure on margins in the short term. (Bear in mind that one of Chico's claims to fame has been its remarkably high margins over the years.) The company's position is that the pressure on margins is necessary for it to fire up growth of its newer brands. (White House/Black Market, one of those brands that has been around for quite some time, has been evolving into a significant contributor to Chico's excellent growth.)
The market may be down on Chico's today, but weighing the strengths of this business and its incredible success wooing the affluent baby boomer shopper, I, for one, certainly wouldn't want to bet against Chico's for the long term.
For more on Chico's and its recent history, check out the following Foolish articles:
- Just a reminder: Chico's recently bought Fitigues.
- Check out the market's 10 best stocks.
- Refresh your memory of Chico's third quarter.
Alyce Lomax does not own shares of any of the companies mentioned.
