At Tuesday's close, the stock of women's apparel retailer Chico's FAS (CHS 7.37, -0.46, -5.9%) was down 46% in 2017 and down roughly 85% from the all-time high it reached... in 2006!
The stock trades in the single digits and it is getting marked even lower today in the wake of the company's second quarter earnings report, demonstrating that a low stock price doesn't necessarily equate to a stock being a good value. In this particular instance, shares of CHS have a stronger semblance of being a value trap.
Entering today's trade, CHS traded at 10.9x trailing twelve month earnings and roughly 9.0x forward twelve-month earnings -- both seemingly low P/E multiples that reflect a lack of willingness on the part of investors to pay up for earnings from this company.
Their reluctance is understandable and the results and guidance shared by Chico's FAS this morning demonstrate why.
The retailer's net sales slumped 9.0% in the second quarter to $578.6 million. That downturn was driven by an 8.4% decline in comparable sales, which was driven by lower average dollar sale and a decline in transaction count. Comparable sales were down, too, for all three divisions, which faced some relatively easy comparisons.
To wit, comparable sales for Chico's declined 9.0% on top of a 5.0% decline in the year-ago period; comparable sales for White House Black Market dropped 10.6% versus a 1.3% decrease last year; and comparable sales for Soma fell 1.8% versus a 0.7% increase in the same period a year-ago.
Gross margin in the second quarter was 36.1% of net sales compared to 37.9% of net sales in the second quarter a year ago. The contraction there was a byproduct of increased promotional activity and an offshoot of weak sales leverage for store occupancy expenses.
Nevertheless, Chico's FAS reported a net profit of $0.18 per diluted share, up from $0.17 per diluted share last year as it benefited from an absence of restructuring and strategic charges in the period and share buyback activity. Earnings per share for the quarter, however, fell below analysts' depressed expectations.
For fiscal 2017, Chico's FAS is expecting comparable sales to be down high single-digits, versus prior guidance of down mid single-digits, and its gross margin rate to decrease approximately 75 to 100 basis points, compared to prior guidance of flat to up 30 basis points.
The company announced it will have a new president of its Soma division and that some of its bellwether categories are showing encouraging progress in the third quarter.
Investors aren't buying into any upbeat assessments just yet, however, because the overall fiscal year guidance has suggested there is reason to contain one's excitement at this juncture and that one should let the value accrue in actual operating results rather than falling into a potential value trap.