Following last week's retail "rout", I had the opportunity to check out one of the names firsthand, Chico's FAS (CHS) , which suffered great damage after reporting worse than expected third quarter earnings last week. The stock fell 35% on Wednesday to levels not seen since 2009. It recovered slightly the following two days, regaining about 13% by Friday.
As I wrote on Wednesday, following all of the retail exposure I had following the summer of 2017's "retail Armageddon", I've become less inclined to take a flier these days on down and out retailers. While I believe there may be some decent short-term opportunities from time to time, the sector is still in the midst of a transformation, one that has brought with it a great deal of volatility, and I'm not sure I have the stomach for it these days despite solid returns last year from Fossil (FOSL) , Cato Corp (CATO) , and Hibbett Sports (HIBB) .
Still, I can't help but continue to follow the ups and downs of the sector. That leads me back to Chico's FAS, a chain that I was not all that familiar with last week when the stock cratered. On Saturday, I happened to be outlet shopping with my favorite shopper (my wife), when we happened to walk by a Chico's store. Despite being within the store's target demographic, I had to drag her inside.
"Channel checks" such as this are never the be all and end all in terms of an investment decision (I ended up taking a position in Vera Bradley (VRA) despite my "favorite shopper's" aversion to the merchandise at the time; that has since changed), but it is helpful for me to see stores for myself, as well as get the opinion of someone that is supposed to want to shop there.
In this case it was simply an odd experience. Looking around a bit, I could not tell what exactly Chico's was trying to accomplish. It seemed to be a hodgepodge of apparel and accessories, but honestly, in this realm, what do I know? I am not even a novice when it comes to women's fashion, so I turned to my better half, and she concurred, feeling as though the fashions were not versatile, and the designs generally unappealing, at least to her.
Now, that is one person's opinion, after visiting just one of the company's 1431 stores, and one of its three brands (the company runs more than 600 Chico's, 400 White House Black Market (WHBM), and 300 Soma stores). Evidently however, others must concur, given the company's 6.8% drop in same store sales for the quarter, most prominently Chico's -10.2% comps (Soma's comps were +2.4%, while WHBM's were -5.1%).
Credit where credit is due, the company's balance sheet is actually pretty good. CHS ended the quarter with about $1.87 per share in cash and short-term investments (that's about 1/3 of market cap) and $61 million in debt, so it appears to have a runway in order to try and get back in consumer's good graces. The company, which currently yields 6.3%, has also bought back stock over the years. If management is confident that they can turn this ship around, perhaps now is the time to show that to the markets by stepping up the buybacks.
Ultimately, however, they need to appeal to their demographic, and turn sales around which is easier said than done.