Chico’s stock in red despite better Q4 results

Shares of the specialty retailer Chico’s FAS (NYSE: CHS) were down 6% after the markets opened as the retailer provided weak comp-store sales outlook. However, Q4 results surpassed analyst estimates. The retailer’s ongoing focus on improving brand performance and optimizing the retail fleet is expected to benefit the firm in the next fiscal year.

Comparable-store sales, one of the key metrics tracked by the investors, fell 3.8% due to a decrease in the transactions and reduction in average dollar sale. However, this is better than last year’s 5.2% drop. It’s worth noting that last quarter Chico’s reported a 6.8% dip in same-store sales. The retailer’s ongoing initiatives seem to be bearing fruit when compared sequentially and over the prior year period.

Revenue decreased by 10.7% to $524.7 million compared to the prior year period. Last year, the retailer had a $29 million benefit due to the 53rd week in the fourth quarter. The decrease in revenue was also impacted by a dip in same-store sales and selling square footage. Chico’s adjusted loss per share came in at $0.07 compared to $0.09 loss per share forecasted by the street. Despite the headwinds, Q4 results surpassed analyst estimates.

Brand Improvement Plan

Chico’s has been focusing on improving its brand positioning in order to cater to changing consumer trends. The retailer has been taking various initiatives like revamping the merchandise based on the customer demand and taste, launched Client Book to offer customized solutions, improving customer touchpoints, leverage customer data to focus on targeted marketing,  and strengthen its omnichannel offerings. As this is an ongoing process, the retailer would be benefitting from this from the next fiscal year.

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As part of the ongoing brand revamp, the specialty retailer today announced that it has appointed Karen McKibbin as the brand President for Chico’s. McKibbin is joining the retailer from Nordstrom (JWN).

Chico’s also has started working with consultants to improve process efficiency and reduce expenses across the board. It’s currently evaluating the supply chain, sourcing, marketing, and customer touchpoints to improve its performance. Investors need to wait at least next quarter to see how these initiatives are helping the firm.

During the fourth quarter, Chico’s repurchased $50.2 million worth of shares as part of its $300 million repurchase program authorized by the board in 2015. For the fiscal 2018 period, 12.2 million shares were repurchased costing $81.1 million.

Outlook

Looking ahead, Chico’s expects Q1 2019 comp-store sales to decline in the mid to high-single-digit range due to softer sales in February. Gross margins are forecasted to decrease 300 to 400 basis points over last year due to additional costs incurred for omnichannel initiatives and expenses would be flat due to ongoing cost-saving measures.

For fiscal 2019 period, same-store sales are expected to be down low-single-digits. Capital expenditure would be nearly $55 million as the company is investing in updating the technology and improving store experience.

Chico’s stock has been volatile and lost about 35% in the last 12 months, but has recovered 7% in 2019.

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