(CHS) Chico’s Earnings Preview

Earnings Preview: Chico’s

Chico’s FAS Inc. (CHS), a leading operator in specialty apparel market, is all set to release its second-quarter 2012 financial results on Wednesday, August 22, 2012.

The current Zacks Estimate for second-quarter earnings stands at 30 cents compared with reported earnings of 25 cents in the prior-year quarter, reflecting year-over-year increase of 20%. Revenue, as per Zacks Estimate is pegged at $641 million.

Review of the Last Quarter

Chico’s reported robust first-quarter 2012 earnings per share of 32 cents, surpassing the Zacks Consensus Estimate by 2 cents. Moreover, quarterly earnings surged 23% from the prior-year quarter’s earnings of 26 cents per share.

Net sales in the first quarter were $650.8 million, up 21.2% year over year from $537.2 million in the prior-year quarter. The increase in its top line reflected a comparable sales increase of 9.6%, square footage growth of 8% and $33.7 million in sales for Boston Proper. Moreover, first-quarter net sales also beat the Zacks Consensus Estimate of $627 million.

Guidance

Bolstered by better-than-expected first-quarter results, Chico’s raised its net sales expectation for fiscal 2012. Including Boston Proper, the company now anticipates net sales to increase in the mid-to-high teens percentage rate to roughly $2.5 – $2.6 billion, instead of $2.5 billion forecasted earlier.

Moreover, the company still projects comparable store sales for the year to increase in the mid-single-digit rate, with store square footage growing nearly 9% and an additional sale of $30 million coming from the 53rd week included in fiscal 2012.

Further, Chico’s reiterates its gross margin expectation for fiscal 2012 to decline by 50 basis points, with the same rate of decline expected for SG&A expense, as a percentage of sales. Effective tax rate for the year is projected to be about 38%. Inventories at the end of fiscal 2012 are estimated to be in line with sales growth, while capital expenditures for the year is expected to be approximately $150 million.

Agreement of Estimate Revision

For to-be-reported quarter, most of the estimates remain unchanged due to lack of any positive or negative news. As a result, only one estimate was trimmed out of 17, in the last 30 days. No changes were observed in the last 7 days.

For the fiscal year 2012, again, no major changes were seen. Out of 17 estimates, one estimate moved up and one was revised downwards during the past month.

Magnitude of Estimate Revision

For the second-quarter 2012, earnings estimate remain stagnant at 30 cents over the last 7 and 30 days.

Mixed Earnings Surprise History

With respect to surprise history, Chico’s has topped the Zacks Estimate in three quarters out of the last four quarters, with an average of 9.3%.

Zacks #3 Rank

Chico’s which faces stiff competition from Nordstrom Inc. (JWN) carries a Zacks #3 Rank, which translates into short-term Hold rating for the next 1-3 months. Moreover, we maintain our long-term ‘Neutral’ recommendation on the stock.

Zacks Investment Research

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