For years, Chico’s was a hot stock with a fast-growing business peddling clothes to mature female shoppers. However, it lost its way several years ago, during the year ended January 2006 -- the last time it increased its profit on an annual basis. Since then, profits have dwindled, and at the end of the most recent fiscal year, Chico’s reported a loss. Its same-store sales, an important indicator of retail strength, have been negative for the past two years, too, including last year's plunge of 15.1%.
Its merchandise clearly hasn’t been resonating with the older female shopper, which has been a problem for another long-struggling peer, Talbots
Competition and business missteps make it difficult enough to stage a retail turnaround, but now we’re in the midst of a vicious recession, too. I’ve long thought the baby boomer females who are targeted by retailers like Chico’s are easily the most likely to rein in their purses. Consumers overall are keeping a close hand on their pocketbooks, and why many investors have jumped into Chico’s is beyond me.
Meanwhile, judging whether Chico’s is "cheap" or not is a little difficult, since you can’t look at a simple metric like a price-to-earnings ratio; remember, it’s not even profitable at the moment. However, it’s trading at a nosebleed 43 times forward earnings. The only really good thing I can say about Chico’s is that it has about $269 million in cash on its balance sheet and no debt.
There’s scant evidence that Chico’s business is really improving, and the challenges it faces in the current economic environment are great. There are other, far more solid retail stocks out there to ponder. For example, The Buckle
Sometimes investors seem to have a bit of a reality disconnect when it comes to certain “hot” stocks, and Chico’s strikes me as a good example these days. Feel free to share your opinion on Chico’s in the comment boxes below, but I can’t help but think … investors should look out below on Chico’s.
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