You've got to hand it to the marketing folks. It's hard to imagine a more endearingly named company than Charming Shoppes (NASDAQ:CHRS). But the name aside, should investors like this chain of plus-sized women's clothing stores? Tomorrow, we'll see the company's numbers for fiscal Q4 and full-year 2006 (yes, I said "6" -- that's just how they do the books) and make our decision. In the time we have left before the news comes out, let's try the numbers on for size.

Wall Street Wisdom:

  • General consensus. Six analysts know Charming. It's beguiled two of them into offering buy ratings. The other four are playing hard to get and holding.
  • Revenues. Big dress sizes appear to be big business. Analysts predict 34% quarterly revenue growth, year over year, to $788.5 million.
  • Earnings. And the profits! Consensus estimates of the company's success in Q4 posit a 250% year-over-year increase to $0.14 per share. Charming, indeed.

Margin watch:
Fashionable to a fault, Charming's got the perfect accessories to go with its rising sales: expanding margins in gross, operating, and net styles. Gross margins are up nearly 200 basis points over the past 18 months, and both operating and net margins look about 20% better at the right hand of the chart than they did starting out on the left.

Margins %

7/04

10/04

1/05

4/05

7/05

10/05

Gross

28.8

29.3

29.7

29.9

30.7

30.7

Op.

4.8

5

4.9

5.2

5.7

5.7

Net

2.7

2.9

2.8

2.9

3.3

3.3
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Foolish lookout:
Charming's not your typical retailer, depending on Christmas sales to put its books in the black. Quite the contrary. Although the firm does experience seasonality, its most profitable quarters are those ending in April and July. Not to detract from the growth in profits we're expecting to see tomorrow, but just so you know -- the best quarters (historically speaking, at least) are yet to come.

Of course, every company has its faults. Searching for Charming's flaw, my eyes were drawn to the inventory levels, which over the past two quarters increased 28% and 25% against their year-ago equivalents. If the company was consistently managing the kind of 34% sales growth that analysts project for tomorrow, that wouldn't be a problem. But quarters 2 and 3 of this year saw sales grow only 12% and 22%, respectively. If the company keeps that up -- piling up goods faster than it can sell them, sooner or later the stockpile will need to be discounted and sold down, hurting profits. Beware.

Competitors:
Charming Shoppes competes with the likes of Dress Barn (NASDAQ:DBRN), MaidenformBrands (NYSE:MFB), and Mothers Work (NASDAQ:MWRK).

Fool contributor Rich Smith does not own shares of any company named above.