Goldman Sachs Adds Chico’s to Conviction Sell List (CHS)

Goldman Sachs is out with a research report this morning, where it adds Chico’s FAS Inc.

to its Conviction Sell list; it has an $8.00 price target on the stock. The GS analysts said, “We are adding CHS to the Conviction Sell list as we skew our exposure towards defensive/late cycle and remove KMB. Our current apparel Sell calls focus on names with company specific drivers of above-trend results that we believe are now fading. We see these stories as more vulnerable to a combination of macro slowdown and company specific mean reversion.” Goldman analysts cited two key catalysts: (1) “High expectations – consensus implies CHS will sustain mid-single digit comp sales through 2H10-FY2011 and post c. 400bps of EBIT margin expansion vs. less than 100bps expected for peers. (2) A sharper than expected deceleration in momentum – Though still very good on an absolute basis, CHS already reported surprisingly weak relative results in 1Q10 as the first stages of its turnaround were lapped. While 1Q comps outpaced peers, gross margin was up only 160bps vs. the sector average of 330bps, and EBIT expansion fell short of peers. As CHS anniversaries a more significant leg of its turnaround with much tougher compares in July, we see signs that momentum is slowing further. Chico’s ran 6 different offers this July vs. 3 last year. Most notably, the key July VIP event started early this year and ran from Monday-Sunday vs. Thursday-Sunday last year.”