CHS: Merchandising Blunders Proving Costly

Analysts at Piper Jaffray reiterate their "underweight" rating on Chico's FAS CHS, while reducing their estimates for the company. The target price for CHS has been reduced from $15 to $10. Piper Jaffray says, “Same-store sales were up 6.4% in FQ2, which was below our estimate of +8% and the Street consensus of +9.2%. EPS of $0.17 compares to our estimate of $0.20. What is most concerning about this shortfall is that it is due to a significant drop off in sales in July, and the weak trend appears to have continued.” “Management indicated that merchandise margins declined in Q2 for Chico's front-line stores, driven by increased markdowns y/y as the company was forced to be aggressively promotional in July. A lack of summer product and an early transition to fall product left customers with few choices during an exceptionally hot July. We prefer to monitor sell thrus as we round into fall to assess a change, if any, to this trend,” the analysts mention. Piper Jaffray has lowered its EPS estimates for FY11 and FY12 from $0.79 to $0.67 and from $1.00 to $0.82, respectively. More Analyst Ratings here