Citi Comments On Chico's Challenging Holiday Season

Chico's CHS is not immune from a more difficult December and Citi expects comps to come in closer to flat versus guidance for a +LSD increase. That's driven by a rockier quarter at White House Black Market, which appears to have had some weaker trends and incremental markdown pressure. Trends at core Chico's have remained strong though, which should offset a lower WHBM comp. Citi is lowering its 4Q estimate to $0.12 versus consensus of $0.13. Citi would be buyers on significant weakness as it views the events at WHBM as a blip versus a more significant issue. Citi believes CHS is capable of achieving a mid-teen margin in 2012 versus the projection for a 9.5% margin to end 2010. Drivers include improved technology to better manage inventory, the expansion of higher margin outlets across the divisions and the continued buildout of scale for Soma. Importantly, Citi sees little risk to the above consensus estimates for 2011, particularly across the first half of the year. Citi maintains its estimates of $0.24 and FY estimate is $0.90 versus consensus of $0.83. CHS closed Tuesday at $10.90