Monday, January 09, 2006

Chico (CHS) Analysis

Chico's has been mentioned as a buy for 2006 by both Cramer in his mad money show as well as the fools. ( ). According to the fools, CHS has returned 17,600% since 1996. The market cap of Chico is currently at 7.78 billion and it has a P/E of 42.

Let us briefly look at Chicos business. We will then look into its balance sheets and analyze it for possible investment in 2006.

Chicos is in the specialty retailer business including women's clothing, apparel, gifts and under garments. Chicos caters primarily to baby boomer women who are thirty five or older. Chicos operates under the Chico's, White House, Black Market and Soma brands. Chicos operated 743 retail stores as of October 29, 2005 and plans to expand the retail space by 20% in 2005 and between 20-30% in 2006. The company grew same store sales by 16% year over year while opening new stores.

Chicos has consistently grown revenues year over year for the past several years. The revenues have grown from 64 million in 1997 to over a billion in 2005. The revenue growth quarter over quarter is about 4 - 6% with a yearly run rate of about 20-30%. The profit margins are in the 61-62% range. The margins have remained the same or improved inspite of investment in new stores because of improved mark up in the stores. Interestingly enough, the company said in its most recent 10-Q statement that inflation has not been a huge concern for the company.

The company is expected to increase its earnings by 37% in 2006 to 1.07/share. From the price to earnings growth point of view, the stock is not overpriced at its current price. Although retailing in general is tough and seasonal, Chicos earnings is not seasonal. Stock holder's equity increased nicely by 31% year over year. The income from operations is 23% prior to income taxes. This is very good - the comparable number for internet high flier is 2.75%. Amazon also has a P/E of 39 compared to 41 for Chicos.

The numbers look good for Chicos and it has a good growth story. Chicos, although not underpriced looks like a buy for 2006.

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