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Chico’s (CHS) Handily Beats Street


In Spanish, the word “chico” literally means small.  But there was nothing small about retailer Chico’s FAS (CHS) huge earnings beat.  The recently revamped and made-over women’s clothing chain put an end to its recent string of declining quarters by posting a sales increase of 13.3%, or $446.9 million for the third quarter. Those revenue figures were well north of the $414.7 million analysts were expecting in Q3.

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But it wasn’t just the top-line numbers that impressed traders today.  Chico’s bottom-line numbers also shined, as the company posted a net profit that was $22.7 million, or 13 cents per share, up from $2 million, or 1 cent per share, a year earlier.  Consensus Street estimates called for earnings of just 7 cents per share.

The company has been focusing on new and updated fashion choices.  This is true not only of Chico’s stores, but also of their White House/Black Market and Soma Intimates chains.  If the public responds, Chico’s stellar earnings beat will prove a harbinger of things to come, especially if fashion-conscious 40-somethings begin to regard the company’s stores as the “in” place to shop.

In a call with analysts after the stellar earnings release, Chico’s chief executive David Dyer said, “Having the right assortment for our customer is our No. 1 job.”

So far in 2009, many of the biggest retailers have beaten consensus Street forecasts.  So many, in fact, that one begins to question the competence of those analyzing these companies.  But in the vast majority of those earnings beats, revenues have still been declining. The only thing keeping these companies from missing on the bottom line has been cost cutting.

This is not the case with Chico’s.  The company beat estimates the old fashioned way, with a mix of strong sales due to a better product offering.

If Chico’s can keep up the great work, the stock will have more room to run.  Yes, the CHS shares did spike nearly 9% in today’s trade, but that spike could turn out to be the first salvo in an aggressive assault on new 52-week highs.

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