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Chico's Shares Rise More Than 5%, Despite Sharp Drop In Profit

Apparel maker and retailer Chico's FAS said on Tuesday that quarterly net profit fell nearly 60 percent, missing Wall Street estimates, and that more work was needed to offer more fashionable merchandise to lure back once-loyal customers.

The operator of the Chico's and White House Black Market chains also said current Wall Street fiscal 2007 earnings estimates collected by First Call were "reasonable," sending shares up more than 5 percent.

Needham & Co. analyst Christine Chen said that, while investors might be relieved the forecast was not lower, the $1.10 in earnings expected for fiscal 2007 by analysts polled by First Call -- and now backed by Chico's -- was well short of a range of $1.28 to $1.36 the company provided last August.

Chico's, which caters to women over 40, said the Wall Street estimate was reasonable if the company achieves a rise in sales at established stores in the low single digits on a consolidated basis for fiscal 2007.

For the fourth quarter, Chico's said net profit was $18.2 million, or 10 cents a share, compared with $44.5 million, or 24 cents a share, a year earlier, the company said.

Analysts, on average, had been expecting the retailer to post earnings of 13 cents a share, according to Reuters Estimates. The company had been expecting earnings in a range of 12 cents to 15 cents.

Chico's recorded 3 cents a share in store closing costs related to its Fitigues brand during the quarter, while an aggressive store opening plan for its Soma line of intimate apparel hurt operating profit margin and reduced earnings by about 3 cents a share.

More markdowns to clear out merchandise also hurt results during the quarter.

Total sales rose 19% to $446.3 million, above Wall Street estimates, but sales at established stores, a key gauge of financial performance, fell 2% during the quarter, the company said.

Analysts on average expected sales of $441.7 million, according to Reuters Estimates.

Chico's has recorded declining same-store sales in every month since August, when the company acknowledged that store traffic had fallen due to a lack of must-have merchandise and uninspiring marketing.

Chief Executive Scott Edmonds said in a statement that the company has not "fully realized the corrective measures" needed to offer consumers more compelling, fashionable merchandise.

Analysts believe many Chico's customers gravitated to department stores such as Macy's, operated by Federated Department Stores Inc. , during the holidays, lured by their selection and aggressive discounts.

Edmonds said the Soma brand growth will slow "somewhat" in order to focus on strengthening the management team and improve profitability.

Going forward, investment in Soma will reduce fiscal 2007 earnings between 6 cents to 10 cents a share, the company said.

Chico's said it would no longer provide specific quarterly and annual sales and earnings guidance, but added it would from time to time comment on Wall Street consensus estimates.