Chico’s FAS, Inc. (CHS) is one of the leading fashion retailers in North America, comprising three unique brands - Chico's, White House Black Market, and Soma. As of January 29, 2022, it had 1,266 outlets in the United States, Puerto Rico, and the United States Virgin Islands, 59 international franchise locations in Mexico, and two domestic airport locations.
The company’s shares are up 21.7% over the past six months to close its last trading session at $5.50. CHS' marketing continues to improve, emphasizing digital storytelling and influencers. Strategic marketing is bringing more consumers to the company's brands, with the overall customer count up almost 15% over last year's first quarter and the average age of new customers continuing to trend younger.
Also, earlier this year, CHS unveiled new mobile shopping applications for all three of its brands. The new mobile apps are each brand's latest digital commerce channel. They were designed to drive loyalty and sales through deeper customer connections and inspired customer experiences that provide additional opportunities to fulfill the demands.
Here's what could shape CHS' performance in the near term:
Robust Financials
During the first quarter ended April 30, 2022, CHS' total net sales increased marginally year-over-year to $107.42 million. Its operating income came in at $45.41 million, compared to an operating loss of $7.52 million in the prior year.
The company reported a net income of $34.93 million, compared to a net loss of $8.92 million in the first quarter of 2021. Its EPS amounted to $0.28. In addition, its cash and cash equivalents came in at $104.13 million, representing a year-over-year increase of 24.2%.
Strong Profitability
CHS' trailing-12-month gross profit margin of 38.4% is 4.1% higher than the industry average of 36.9%. Also, its ROC, ROE, and ROA are 14%, 153.9%, and 37.9% higher than their respective industry averages. Furthermore, its asset turnover ratio of 1.64% is 60.5% higher than the industry average of 1.02%.
Impressive Growth Prospects
Street expects CHS' revenues and EPS to rise 18.7% and 91.9% year-over-year to $2.15 billion and $0.71, respectively, in fiscal 2022. In addition, CHS' EPS is expected to rise at a 10% CAGR over the next five years.
Moreover, the company has an impressive earnings surprise history, as it topped Street EPS estimates in all of the trailing four quarters.
Discounted Valuation
In terms of forward Non-GAAP P/E, the stock is currently trading at 7.50x, 32.7% lower than the industry average of 11.14x. Also, its forward EV/Sales of 0.53x is 50.8% lower than the industry average of 1.08x. Moreover, CHS' forward Price/Sales of 0.31x is 62.9% lower than the industry average of 0.84x.
POWR Ratings Reflect Solid Prospects
CHS has an overall grade of B, equating to a Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. CHS has an A grade for Quality and a B for Growth and Value. CHS' strong profitability is consistent with the Quality grade. Its solid earnings and revenue growth potential justify the Growth grade. In addition, the stock's lower-than-industry valuation is in sync with the Value grade.
Of the 68 stocks in the B-rated Fashion & Luxury industry, CHS is ranked #5.
Beyond what I stated above, we have graded CHS for Sentiment, Stability, and Momentum. Get all CHS ratings here.
Bottom Line
CHS successfully surpassed the consensus revenue and earnings estimates in the last quarter, raising investors’ confidence about the stock’s prospects. In addition, the stock is currently trading above its 50-day and 200-day moving averages of $5.04 and $5.07, respectively. So, we believe the stock could be a great buy now.
How Does Chico’s FAS Inc. (CHS) Stack Up Against its Peers?
CHS has an overall POWR Rating of B, which equates to a Buy rating. Check out these other stocks within the same industry with A (Strong Buy) ratings: J. Jill Inc. (JILL), Hugo Boss AG (BOSSY), and Caleres Inc. (CAL).
CHS shares were trading at $5.55 per share on Wednesday morning, up $0.05 (+0.91%). Year-to-date, CHS has gained 3.16%, versus a -16.35% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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