What: Shares of apparel retailer Chico's FAS (NYSE:CHS) jumped on Monday after Bloomberg reported that the company was considering a sale to a private equity buyer. At 12:45 p.m., the stock was up about 9%.
So what: Chico's is reportedly weighing a sale of the company after it was approached by private equity firm Sycamore Partners, which has made an offer for the company, according to Bloomberg. This is the second time this year that shares of Chico's have spiked on rumors of a buyout. Back in February, Sycamore Partners made an attempt to acquire the retailer, but that effort was ultimately abandoned.
Now what: Chico's has been going through a difficult period over the past few years. Revenue has been growing, but the company's operating margin has collapsed, falling to 4.3% during 2014, down from over 11% in 2012. During the first six months of Chico's current fiscal year, comparable-store sales at its namesake stores, which account for a little more than half of sales, declined by 0.8%.
Taking the company private may be the best option, allowing costs to be cut and the business to be restructured without quarterly expectations from investors. That said, buying a stock based solely on the hope of a buyout is rarely a good idea, and there's no guarantee that a deal will be reached.
Timothy Green has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.