Chico's Surges on Earnings Report, Facing Activists

Tuesday, June 8, 2021 | Steve Anderson
Chicos Surges on Earnings Report, Facing Activists

Chico's FAS (NYSE:CHI), a women's apparel and accessories retailer, surged 6.6% in premarket trading after turning in a solid earnings report and addressing critique from an activist investor. Chico's has kept its momentum going into this morning's trading session as well, though the current word from financial analysts is calling for a degree of caution.

Chico's Earnings Report Proves Better than Expected

On the surface, the news might seem bad for Chico's. The company turned in a loss of $0.08 per share, though given that Wall Street analysts were expecting a loss of better than twice that at $0.17 per share, it turned out to be a win.

Revenue also came in above estimates, with the $388 million in revenue Chico's turned in proving a little better than 18% higher than estimates called for.

The company even released guidance for the complete 2021 fiscal year; Chico's looks for sales to rise between 28% and 34% for the full year, and also looks for gross margins to improve between 18% and 20% for the year.

The earnings news comes at an excellent time for Chico's, as recently, activist investor Barington Capital Group called for Chico's to bring in new board members to give its stock price a boost. Barrington specifically called on Chico's to bring in board members with experience in women's fashion specialty retail as well as merchandising and digital commerce operations. Barington's founder, James Mitarotonda, noted that Barington believes that Chico's has been “...highly deficient in these two areas for years.”

Chico's, meanwhile, responded to this by noting that it was “...committed to taking all appropriate actions to improve performance and drive shareholder value.”

How Do Financial Analysts Feel About CHS Stock?

Barington's concerns about Chico's aren't unique; the word from the broader financial analyst pool—as based on our latest research—calls for caution as well. The picture has grown somewhat more bullish in recent weeks, but the current consensus rating of “hold” has been in place for the last six months.

Six months ago, the company had one “sell” rating and three “hold” ratings to its credit. Three months ago, the “sell” rating left altogether, leaving us with three “hold” ratings. One of the “hold” ratings then left as well, leaving us with two “hold” ratings a month ago, which is exactly where we are today.

The consensus price target for Chico's has seen very narrow shifts in that six months as well. Six months ago, the target stood at $2.10 per share. That increased to $2.25 three months ago, then $2.50 a month ago, before hitting $3.75 today. With Chico's currently trading at $6.08 per share as of this writing, it's clear that Chico's has quite a bit of downside potential.

There has been very little recent movement for Chico's as well. About a week ago, Telsey Advisory Group increased Chico's price target from $2 to $5, and before that, back in March, B. Riley increased its own price target from $2 to $2.50. That was the first bit of activity seen since March 2020, when Morgan Stanley lowered its price target on Chico's from $3 to $2. However, one new development did crop up, as Miller Value Partners included Chico's in its first quarter of 2021 Investor Letter. Miller Value Partners has long been a Chico's supporter, with a bullish thesis on the company going back to November of 2020. Chico's stock has been up 64% over the last three months, which serves as sound reason for Miller's ongoing support of the company.

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7 Stocks to Watch When Student Debt Forgiveness Gets Passed

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Putting aside personal thoughts on the wisdom of pursuing this path, it has the potential to unleash a substantial stimulus into the economy.

And as an investor, it’s fair to ask where that money would go. After all, there’s no harm in having investors profit from this stimulus as well.

A counter-argument is that the absence of one monthly payment may not provide enough money to make an impact. However, Senator Elizabeth Warren referred to the effect student loans have in preventing many in the millennial and Gen-Z generations from pursuing big picture life goals such as buying a house, starting a business, or starting a family.

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View the "7 Stocks to Watch When Student Debt Forgiveness Gets Passed".

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