Consider Making It a Chico's Day

I admit it. Off and on since the middle of 2012, Chico's (CHS) has been a favorite of mine -- as a shorting candidate. But when I clicked on the women's specialty retailer this week, I was pleasantly surprised. For the first time in some months (excluding its quick run-up this May), Chico's looks appealing to me -- as a buying candidate. The stock appears ready to break out of its current trading range between $15.25 and $17.50. Chico's FAS was founded in 1983 as a boutique selling Mexican folk art and cotton sweaters from a store on Florida's Sanibel Island. For the curious, the FAS in Chico's name stands for Folk Art Specialties. Today, Chico's primarily sells private branded clothing to fashion-savvy women. It operates from 1,250 boutiques and outlets in the U.S., Puerto Rico, U.S. Virgin Islands, and Canada, which include Chico's, White House/Black Market, Soma Intimates and Boston Proper (an online and catalogue-based retailer). When I checked Chico's current fundamentals, I had another positive surprise. The company's revenue growth has trailed the industry group, increasing only 1.2% in this quarter vs. the same quarter last year -- thus, the less-than-sterling stock performance. Still, it shows virtually no debt, so its debt-to-equity ratio is zero. The retailer's return-on-equity this year is 15.35%, as compared to the S&P 500's, which is 13.75%. Next year's earnings are estimated to grow by 18.29%, with a reasonable forward price-to-earnings ratio (P/E) of 14x those earnings. Chico's pays an annual dividend of $0.20 per share, now yielding a respectable 1.27%. Now let's look at Chico's daily chart. As you can see, the stock opened at $18.82 on Jan. 2 and formed a triangle until mid-February. At that time, price broke to the downside of the triangle and continued to fall to a Feb. 26 low, to $16.11. Chico's reversed from there, and by May 22, the stock had soared to an intraday high of $19.95. That too-high/too-fast run proved unsustainable, and the retailer was soon humbled, sliding to a June 24 low of $15.68. Still, that low may have been the start of a silver lining for Chico's. If the price rises above current resistance at $17.60, it will confirm the inverse head-and-shoulders pattern -- a bottom reversal pattern -- that I see forming. Should that positive pattern play out, Chico's could climb back to $19.50-$20 levels. Chico's is set to report earnings on Nov. 26. (It's wise to confirm earnings dates a few days ahead of those dates.) If the market cooperates, the stock could rise into the anticipation of those earnings. On Thursday, Chico's closed at $17.24. I will consider opening a position if the stock closes above $17.60. If the price rises into earnings, I will sell half to two-thirds of my position before earnings are announced. My initial stop (trail) will be placed at $16.80, and my profit target is set at $19.50. On Oct. 14, Chico's announced the company's international expansion with White House Black Market's first Canadian boutique opening at Yorkdale Shopping Centre, Toronto on Oct. 24. The women's retailer will open its second international location at Square One, Mississauga on Oct. 29, followed by Upper Canada Mall, Newmarket on Nov. 12. If Chico's continues to expand, it could regain its top-shelf position in the league of women's specialty apparel retailers.

Consider Making It a Chico's Day

This retailer could rally into earnings.

Columnist Conversation

Monday Morning Fibocall for 11/29/2021

We Added to a Position in the Stocks Under $10 Portfolio

S&P Futures

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.