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Chico’s (CHS) Q4 Earnings: Will the Stock Manage a Beat?

Zacks

Chico's FAS Inc. CHS is slated to report fourth-quarter fiscal 2016 results on Feb 22, before the market opens. The big question facing investors is, whether this omni-channel specialty retailer will be able to deliver a positive earnings surprise in the quarter to be reported.

Last quarter, the company posted a positive earnings surprise of 53.9%. Further, it has outperformed the Zacks Consensus Estimate by an average of 16.1% in the trailing four quarters. Let’s see how things are shaping up prior to this announcement.

Chico's FAS, Inc. Price and EPS Surprise


Chico's FAS, Inc. Price and EPS Surprise | Chico's FAS, Inc. Quote

Factors Influencing This Quarter

Chico's remains focused on cost control and operating efficiency endeavors, which were declared in May 2016. Moving ahead, the company expects to improve profitability backed by its cost savings initiatives, as it is about to enter the third phase of its strategic plan. It expects to build solid growth platforms for its iconic brands which will be implemented in fiscal 2017.

Further, developments across the organization, new merchandising endeavors, recent hires, along with other brand-specific initiatives, are likely to help the company deliver robust top-line and bottom-line growth going forward. Moreover, these factors highlight that the company is well on track to achieve its double-digit operating margin target.

In sync with these strategies, the company announced new plans to enhance supply chain and optimize marketing costs, alongside lowering non-merchandise purchasing costs. These are aimed at curtailing complexities and standardizing business processes, enabling the company to cater to the evolving customer demand.

While shares of Chico’s have dipped 1.8% in the last three months, it has significantly outperformed the Zacks categorized Retail–Apparel/Shoe industry that declined 15.5% in the same period.



However, owing to a tough retail environment and sluggish traffic, the company had projected comparable store sales to decline in the low single-digit range for the fiscal fourth quarter. Gross margin is estimated to decline as occupancy deleverage is anticipated to more than offset favorable merchandise margins.

Nonetheless, the company expects savings from the aforementioned cost reduction and operating efficiency plans to help lower SG&A expenses. Consequently, management expects operating margin to remain flat year over year.

A look at Chico’s earnings estimates revisions shows that the Zacks Consensus Estimate for the fourth quarter and fiscal 2016 has remained stable for over 30 days. The current Zacks Consensus Estimate for the fiscal fourth quarter is 4 cents per share, which reflects a year-over-year decline of 16%. Analysts polled by Zacks expect revenue of $597.1 million, down about 4.8% from the year-ago quarter.

Given these mixed factors, it’s better to wait and see if Chico’s can deliver an earnings beat this time around too.

Earnings Whispers

Our proven model does not conclusively show that Chico's is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:

Zacks ESP: Chico's currently has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 4 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Chico's Zacks Rank #3 (Hold) increases the predictive power of ESP. However, the company’s ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks that Warrant a Look

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Dean Foods Co. DF, scheduled to report earnings on Feb 16, currently has an Earnings ESP of +2.44% and a Zacks Rank #3.

Costco Wholesale Corp. COST, slated to report earnings on Mar 2, currently has an Earnings ESP of +0.74% and a Zacks Rank #3.

Dollar Tree Inc. DLTR, expected to release earnings on Mar 7, has an Earnings ESP of +0.75% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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