Despite rosy long-term outlook, women’s retailer’s stock gets punished

Executives with women’s retailer Chico’s FAS were touting some celebratory vibes during a Jan. 9 call with investors. Wall Street crushed those happy feelings in mere hours. 

In a presentation at the ICR Conference in Orlando, both Chico’s President and CEO Molly Langenstein and CFO PJ Guido talked up what they consider the company’s robust outlook. Much of that optimism stems from a three-year plan at the company to transform from a store-focused retailer to a digital-first, fashion brand, with some big goals in tow. Launched in early 2022 at the conclusion of another three-year plan that was more turnaround than transformative, the goals in the new plan include hitting $2.5 billion in revenue by 2025. That would be up 38% from $1.8 million in fiscal 2021. The new plan also includes reaching $1 billion in digital sales and an operating margin of 7.5%, more than double 2021. 

“Our first report card in our three-year plan is shaping up to be a good one,” Guido says. “In a short time frame we have definitively changed the narrative from recovery to proactive growth.” 

But during the conference call, Chico’s also dropped a not-so-rosy nugget: sales dipped a bit in late 2022 and for that and other reasons the company softened its overall sales expectations for the 2022 fourth quarter.  Specifically, it now projects sales of $505 million to $515 million and diluted earnings per share of -$0.02 to zero. That’s down from previous fourth quarter projections of $535 to $555 million in sales and earnings per share of $0.07 to $0.10. 

“Coming out of the third quarter and moving into November, performance remained strong through Cyber Monday,” Guido says. “As we moved into December, we did start to see a tick down in store traffic that impacted sales relative to our forecast.”

Guido adds that the company’s high-end brand, White House Black Market, was particularly soft in December, with party dresses and heavy sweaters not moving like executives thought. That led to price discounts to clear inventory. 

The projected drop in earnings and revenue triggered a Wall Street sell-off. Shares fell more than 12% in pre-market trading Jan. 9. As of Jan. 10, shares, under the symbol CHS, were trading at $4.60 — less than $1 over its 52-week low of $3.80.  

To be sure, Chico’s, founded in 1983 on Sanibel Island, isn’t the first company to report on some positive news — even with its own spin — only then to be gut-punched by Wall Street. 

Yet the company’s metrics validate at least some of the optimism executives shared on the conference call. Take sales. Even with the White House Black Market dip, total sales grew 4.9% and comparable sales grew 5.3% over last year for the nine-week holiday period ending Dec. 31. The other brands in the company’s portfolio are Chico’s, its flagship brand, and Soma, which concentrates on intimate apparel. 

More strong numbers came from cash liquidity, which, at $329 million, is strong for a retailer. In addition, Chico’s posted cash flow of $49 million in 2021, according to the investor presentation, and $32 million in the trailing 12-month period. That’s a sizable improvement from fiscal 2020, when it had negative cash flow of $109 million. 

Langenstein, named CEO in June 2020 after a 30-year career at Macy’s, highlighted some other points in the call, in addition to the metrics. “We have transformed ourselves into a digital-first organization,” she says, “with digital sales growing by double digits in each of the last three quarters.”

The digital-first initiative doesn’t just mean e-commerce, Langenstein adds. It also means new ways to think about and track inventory and supply chain issues, which helps reduce overhead.  “Today we are a merchant-led, customer-driven, digital-first company,” she says. “We are also a leaner, flexible and more efficient company.”

Another reason Wall Street might have soured on Chico’s after the report, meanwhile, is that several other retailers presenting at the ICR conference had notable issues. Athletic wear maker and lifestyle brand Lululemon Athletica warned investors of a shrinking profit margin, while Macy’s cautioned that fourth quarter sales would be at the low to midpoint of its projections. Shares of both those firms also dropped in trading after the conference. 

By the numbers: Chico's FAS store count

Source: Chico's FAS

Guido, who joined Chicos in September 2021 after 20 years of financial and operations experience at other firms — including a two-year stint as CFO of Lululemon — remains optimistic about the company’s future. Another positive factor he cites for Chico’s, beyond the financial metrics, is the company’s trio of brands.  

“We have seen the benefits of diversification of our multi-brand platform that does not rely on any single brand in any single quarter to keep the growth music going,” Guido says. “With a powerful portfolio, strong cash flow and a rock-solid balance sheet, our go forward strategy and growth plan is on track.”