The retailer’s fourth-quarter loss widened considerably, coming in at a loss of $40.5 million, or $0.23 per share, versus a net loss of $20.5 million, or $0.12 per share, in the same period last year. Revenue dropped 8.8% to $373.4 million. Same-store sales plunged a dismal 13%.
Gross margin dropped to 44.4% of sales from 47.7% of sales this time last year, as the company slashed prices to move merchandise out the door.
Chico’s results included two significant charges. It wrote off $0.05 per share related to fixed assets at certain underperforming stores, and $0.04 per share in charges related to severance and workforce reduction costs and obligations related to its separation agreement with former CEO Scott Edmonds.
I can admit there’s one good thing about Chico’s, and that is that it has $268.7 million in cash and cash equivalents on its balance sheet and no debt. I’ve often expressed negativity on retailers that needed to turn around their businesses in this terrible economic climate and had a lot of debt to boot, such as Talbots
Still, I have a hard time seeing exactly why some investors appear to be fired up about Chico’s. This retailer has been struggling to turn its business around for quite some time. And yet lately, its stock has been on fire -- in the last three months, Chico’s shares are up nearly 80%. Huh? Sure, the stock did get tremendously beaten down, but still, it didn’t even manage to report a profit for the last fiscal year.
Some retailers have shown remarkable resilience despite the poor economy. The Buckle
Investors who are betting Chico’s can turn things around when the economic headwinds are so fierce -- and making this bet on so little evidence of real progress in the business -- may find themselves learning a lesson on why a stock can look like a value but end up being a value trap.
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