Sometimes stock prices during any given day take on a life of their own. Today was that kind of day for CHS from what I could tell. Chico's FAS Inc. (CHS) is a women's retailer of clothes and intimates which owns the Chico's, White House|Black Market, and Soma Intimates brands. The company has a market capitalization of about $2.1B and a PE of about 30.
What first caught my eye with CHS was the gap down pre-open and so I took a look to see what was causing the sell-off. It was no surprise that earnings were just released as stocks often gap down when earnings don't meet or especially when future guidance appears to be weak.
The surest path to a large gap down is when the top line misses and the future guidance misses. I started to read the SEC filing 8K about earnings and started wondering if I was missing something because I could not find anything to cause the gap I was seeing. I understand retail is under pressure but I would have guessed the market could find a better whipping boy as CHS is executing very well. Granted CHS could perhaps get the gross margins closer to the historic numbers and get all its marketplaces working closer together with purchasing and control of input costs based on the conference call. Even so a drop of 15% for the day just does not appear to be based on earnings but rather early selling pressure followed by momentum traders pushing the price lower causing others to dump the shares to avoid any further loss pain.
CHS by just about any measurement that I looked at had a great quarter and would normally expect a price to gap higher or at least trade higher as the day went on. Looking at the SEC filing, here is what I found are possible reason(s) for the sell off that may be of interest:
- Could the debt load be a worry causing the sell off? Highly doubtful as there is no long term debt
- Could the amount of working capital be a worry that may cause a sell off? Highly doubtful as working capital is building up and based on the conference call CHS may be shopping to find an acquisition to maintain their growth.
- Could the growth rate be a reason for the sell off? When you have multiple double digit growth what is there not to like?
The management team could have handled the conference call in my opinion but that appeared to be more about being polished in working with questions and having a higher level of transparency of results. Moving back to the 8K and to the company website there is a lot to like and this would include a growing balance sheet value, a dividend to be paid to holders of record on June 7th (need to buy it by June 4th) giving a yield of over 1% while still growing the cash per share held by the company, and a revenue growth rate of almost 10% per year during the last five years.
So the numbers all look fabulous and that makes CHS a stock worth looking at but there is more that really sends this stock over the top. CHS is planning on opening 20 more stores and the stores they currently operate experienced an increase in sales.
This demonstrates to me that management is profitable, improving upon what they already have and positioning for steady calculated growth that stock holders love. While a stock can go up or down on any given day for any given reason a stock generally will rise in value in line with the overall success of the company and CHS appears to be on the right track for success.
It was the gap down in price that brought my attention to CHS but it was the actual company performance that gave me reason to ignore what appeared to be unreasonable panic selling and buy CHS. In my opinion CHS is at a clearance price that will not be on sale long.
Disclosure: Long: CHS