Brean: Chico's Is Still Best In Class

• Shares of Chico's FAS, Inc CHS have been treading a southward path in 2015 and are down 25 percent year-to-date.
• Brean Capital’s Liz Pierce maintained a Buy rating on the company, while reducing the price target from $22 to $18.
• Disciplined inventory and expense management should prevent earnings downside, Pierce believes.

Analyst Liz Pierce mentioned that Chico’s is a Best-of-Breed retailer, with 90 percent of its sales coming from customers in loyalty programs. The company’s disciplined operating philosophy and the expected positive impact of its recent technology initiatives set it apart from other players.

Chico’s reported 3Q non-GAAP earnings of $0.13, short of the Street estimate of $0.19-$0.20, which excludes $0.22 per share of onetime charges related to intangible asset impairment, restructuring charges and operating loss at BP. The shortfall was largely due to a 3.3 percent decline in net sales.

Chico’s disappointing 3Q performance and the weak trends in the current quarter can be attributed to macro factors rather than company-specific issues. “Traffic and warmer weather were the primary pressure points during the quarter as increased promotional activity drove AUR lower,” Pierce pointed out.

Chico’s disciplined inventory and expense management will provide downside earnings protection, Pierce stated, while adding that the company is on track to meeting its long-term goal of mid-teen earnings growth and double-digit operating margins.

Chico’s announced a new $300 million share repurchase program, a dividend of $0.775 per share and an intention to sell its BP DTC business.

The non-GAAP EPS estimates for FY15 and FY16 have been reduced from $0.79 to $0.67 and from $0.96 to $0.83, respectively.