Chico's Earnings Analysis: Is Our Retail Warning Ringing True?

Chico’s (CHS) disappointing earnings this morning mirrored our warning from the Retail sector alert we sent earlier this week. In that article Amenity Viewer’s earnings sentiment analysis noted supply chain pressures affecting key industry players heading into the holiday season.

Please note: This in no way represents investment advice. All transcript text provided by S&P Global Market Intelligence.

Is Chico's a Cautionary Tale for Retail?

This morning retailer Chico’s provided the first commentary on the start of the Holiday Season in its Q3 earnings call.  Results for the October quarter were disappointing, sending the stock down more than 30%.  Not surprisingly, the high-level sentiment analysis in the Amenity Viewer showed a significant decline from Q2, with deterioration across Key Drivers including Guidance, Cost-Price, Market Position, and Financial.

For the broader read-through to other retailers, we highlight a few key comments from our earnings analysis. Although Chico's is a niche retailer facing other secular pressures, the following comments could have implications for other retailers if shipping costs and supply chain pressures offset a Black Friday demand uptick.

Black Friday Commentary Positive, Not Enough for Q4 Guidance:

  • Chico's (11/28):

"Our collaboration with Amazon continues to build, and our performance is trending inline with expectations. We are pleased with the results of our first Black Friday and Cyber Monday as we showcased a broader selection of our tried and true winners."

"For the fourth quarter, we anticipate a mid-teen decline in net sales, which includes the negative impact of $29 million from last year’s 53rd week and a high single-digit decline in comparable sales. The decline in net sales and comparable sales are driven primarily by the Chico’s brand."

Shipping Costs Strike Again:
  • Chico's (11/28):

"We had substantially positive merchandise margin, up 130 basis points but ended gross margin down that 80 basis points. Most of that decline is really driven shipping costs and other costs related to the omni-channel programs. So the shipping costs have been significant. And that has been, as we’ve gotten going on the program, we are already in the process of optimizing how we’re doing those shipments."

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Transcript text provided by S&P Global Market Intelligence.

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