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. Stock Analysis

    Fortinet: A Great Play on Cybersecurity

    Discover how a healthy product mix, large-business deal growth and the boom of the cybersecurity industry are all driving Fortinet profits.
  2. Stock Analysis

    2 Catalysts Driving Intrexon to All-Time Highs

    Examine some of the main reasons for Intrexon stock tripling in price between 2014 and 2015, and consider the company's future prospects.
  3. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  4. Charts & Patterns

    Understand How Square Works before the IPO

    Square is reported to have filed for an IPO. For interested investors wondering how the company makes money, Investopedia takes a look at its business.
  5. Technical Indicators

    4 Ways to Find a Penny Stock Worth Millions

    Thinking of trading in risky penny stocks? Use this checklist to find bargains, not scams.
  6. Professionals

    Chinese Slowdown Affects Iron Ore Market

    The Chinese economy's ongoing slowdown is having a major impact on iron ore demand.
  7. Investing Basics

    Why do Debt to Equity Ratios Vary From Industry to Industry?

    Obtain a better understanding of the debt/equity ratio, and learn why this fundamental financial metric varies significantly between industries.
  8. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  9. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares Morningstar Small-Cap Value

    Find out about the Shares Morningstar Small-Cap Value ETF, and learn detailed information about this exchange-traded fund that focuses on small-cap equities.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  4. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  5. Fast Fashion

    Definition of "fast fashion."
  6. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
RELATED FAQS
  1. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>
  6. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!