RBC Says Chico's FAS Is An Under-Owned Name

Chico's FAS, Inc. (NYSE: CHS) reported a Q2 beat, with sales and margins ahead of expectations. The company represents an “under-owned name” with low expectations, RBC Capital Markets’ Brian Tunick said in a report. He reiterated an Outperform rating on the company, while raising the price target from $13 to $14.

Quarterly Beat

Chico’s FAS reported its adjusted EPS at $0.25, higher than the consensus estimate of $0.22. Sales declined 3.6 percent to $636 million, but came in ahead of the Street’s $632 million. The company’s EBIT margin came in at 8.5 percent, down from last year’s 9.2 percent, but beating the Street’s 7.4 percent, analyst Tunick mentioned.

Related Link: Investors Cheer Chico's FAS Q2 Earnings

Cushion For Meeting EBIT Margin Target

Chico’s FAS is creating a cost-cutting cushion to achieve its low-double-digit EBIT margin target, versus the 6.6 percent achieved in 2015, Tunick noted. CEO Broader announced another $25 million in cost savings, apart from the $65-$85 million announced in the prior quarter.

Positives

The EPS estimate for 2016 has been raised from $0.66 to $0.68. The analyst commented that Chico’s FAS was an “under-owned name w/lower expectations into 2Q16 print.” He enumerated the catalysts for the company as:

• Lower expectations for 2H16 comp and GM
• Cleaner inventory
• Self-help for 2H16-2017 margin
• September 28 analyst day

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