Buying opportunity

After a bleak earnings report released in late August, shares of Fort Myers-based women's retailer Chico's FAS hit not only lows for the year, but for the past eight years.

Chico's reported net income of $22.7 million in the second quarter, or 18 cents a share. That's down slightly from the same quarter in 2016, and off 3 cents a share from Wall Street analysts' projections. Shares briefly dropped to $6.96 the day the report came out, Aug. 30, down from $14.25 a share four months ago. A pummeling like that is standard procedure on Wall Street, where missed expectations almost always lead to a share price beating.

But not everyone is giving up on the company.

In two separate reports on Seeking Alpha, a user-generated Wall Street analysis website, Chico's comes off as a golden buying opportunity. “This is a case of shoot first and ask questions later,” writes research analyst Quad 7 Capital in an Aug. 30 post, in the immediate aftermath of the rapid decline in share value. (The post was titled “Chico's and the death of retail.”) “We believe this is the case given how poor the headline earnings are, but with the realization that the company is pulling out all of the stops to maintain its ability to keep customers and grow sales. Chico's is simply another retailer caught up in a world where shopping is transitioning, while dealing with intense competition.”

Adds Quad 7: “Is performance really all that bad? Honestly, it is not great, but the company is still turning out a profit. Frankly, it is doing much better than we thought it would when we saw the share price.”

Writing in a Sept. 1 post, Paul Price, an analyst with Arrow Loop Partners, says the shares “sell-off seems way overdone.”

Chico's, he adds, “is now an amazing bargain. It's absolute price and relative valuation hasn't been this favorable since 2009. To take advantage of that fact I'm now a buyer of shares and a seller of long-term put options.”

The architect of the Chico's strategy to survive the rapid changes in retail, CEO and President Shelley Broader, is likewise not in quit mode.

“Second quarter sales were disappointing, and we are taking decisive actions to adjust our assortments and enhance omni-channel capabilities in bellwether categories such as Jackets at Chico's and Dresses at White House Black Market,” Broader says in the Aug. 30 earnings statement, in part. “Our leadership team also continues to be keenly focused on driving our strategic priorities to transform Chico's FAS into a more nimble, efficient and innovative retailer that continues to drive strong free cash flow in the long term.”