Women's specialty retailer Chico's (NYSE:CHS) announced strong second quarter earnings August 22, pushing its stock to a five-year high. Approximately 45 months ago it was trading for less than $2 as Chico's had hit a brick wall, losing $40 million, its first operating loss in over a decade. Some likely thought its days were numbered. Current CEO David Dyer took over from the retiring Scott Edmonds in January 2009; and the rest, as they say, is history.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

Those lucky enough to have bought its stock at its all-time low of $1.72 in November 2008 and still holding are sitting on a total return of 1,000%. A lot of hard work has gone into its transformation, including the timely acquisition of Boston Proper for $205 million almost one year ago to the day. The question for shareholders is whether the good news will continue. Let's explore the possibilities.

Key Numbers

Probably the most impressive result in Chico's Q2 report is that earnings per share grew 28% year-over-year (YOY) to 32 cents, its 14th consecutive quarter of double-digit growth. Delivering almost four years of consistent earnings growth in a tough economic environment is nothing short of phenomenal. The second figure that jumps out is a 5.6% increase in same-store sales growth on top of a 12.8% increase over Q2 2011. Thirdly, on an annualized basis, free cash flow increased 122% YOY to $293 million. If it continues to produce profitable growth, its free cash flow in fiscal 2012 will be as high as it's ever been. Considering the company upped its revenue guidance for the rest of the year, it's a likely scenario.

Lastly, although Boston Proper's sales were a little soft in the quarter, Dyer did say in the conference call that it's been a net positive contributor to each quarter's results. According to Internet Retailer, Chico's 2011 online sales were $333 million with Boston Proper contributing $40 million in the one full quarter it was part of Chico's. Overall, Boston Proper's 2011 revenues were approximately $123 million. In 2012, look for Chico's online sales to hit 17% of overall revenue or approximately $446 million, which is better than many of its peers.

Portfolio of Brands

Dyer's comments regarding a question from analyst Margaret Whitfield during the conference call really struck a chord with me. The CEO was adding to the answer of CFO Pamela Knous as to why Boston Proper's revenues were a little soft in the quarter. Dyer suggested that it's really hard in fashion to be continuously "on", and sometimes no matter how successful you are, there will be times when you miss on the trends and take a breather. It's at that point that it pays to have a portfolio of brands where one or two pick up the slack. In that regard, Chico's is very similar to Ascena Retail Group (Nasdaq:ASNA), which consists of four main brands: Dress Barn, Maurices, Justice and Lane Bryant. Like a good sports team, there's always someone to deliver the goods. I like that approach to business.

Bottom Line

Chico's hasn't traded above $20 since July 2007. Its all-time high was around $47 in February 2006. Assuming it continues to deliver double-digit earnings growth or close enough, I don't see why it couldn't test that all-time high sometime in the next 12-18 months. The downside here seems minimal. If you're still holding, I'd keep doing it. Good things lie ahead.

At the time of writing, Will Ashworth did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Investing

    Time to Bring Active Back into a Portfolio?

    While stocks have rallied since the economic recovery in 2009, many active portfolio managers have struggled to deliver investor returns in excess.
  2. Economics

    Investing Opportunities as Central Banks Diverge

    After the Paris attacks investors are focusing on central bank policy and its potential for divergence: tightened by the Fed while the ECB pursues easing.
  3. Stock Analysis

    The Biggest Risks of Investing in Pfizer Stock

    Learn the biggest potential risks that may affect the price of Pfizer's stock, complete with a fundamental analysis and review of other external factors.
  4. Stock Analysis

    Why did Wal-Mart's Stock Take a Fall in 2015?

    Wal-Mart is the largest company in the world, with a sterling track-record of profits and dividends. So why has its stock fallen sharply in 2015?
  5. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  6. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  7. Markets

    PEG Ratio Nails Down Value Stocks

    Learn how this simple calculation can help you determine a stock's earnings potential.
  8. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  9. Investing

    Retailers Rebel Against Black Friday: Bad Move?

    The Black Friday creep may have hit a wall as some stores are shutting their doors on Thanksgiving and even Black Friday to give employees the day off.
  10. Investing

    What’s the Difference Between Duration & Maturity?

    We look at the meaning of two terms that often get confused, duration and maturity, to set the record straight.
  1. What does low working capital say about a company's financial prospects?

    When a company has low working capital, it can mean one of two things. In most cases, low working capital means the business ... Read Full Answer >>
  2. Do nonprofit organizations have working capital?

    Nonprofit organizations continuously face debate over how much money they bring in that is kept in reserve. These financial ... Read Full Answer >>
  3. Can a company's working capital turnover ratio be negative?

    A company's working capital turnover ratio can be negative when a company's current liabilities exceed its current assets. ... Read Full Answer >>
  4. Does working capital measure liquidity?

    Working capital is a commonly used metric, not only for a company’s liquidity but also for its operational efficiency and ... Read Full Answer >>
  5. How do I read and analyze an income statement?

    The income statement, also known as the profit and loss (P&L) statement, is the financial statement that depicts the ... Read Full Answer >>
  6. Can working capital be too high?

    A company's working capital ratio can be too high in the sense that an excessively high ratio is generally considered an ... Read Full Answer >>

You May Also Like

Trading Center