Chico's for the Man (CHS)
Well, thankfully my guesses worked out correctly, at least so far, and I had a chance to buy Chico's for my hoped-for price.
Bought Chico's (CHS) on August 26, 2005 at $35.05
The astute among you will note that that's nowhere near the bottom for today's trading -- it went down close to $33.50 at one point and may hit a lower point in the days ahead, which I think was a pretty wild swing given the earnings release and guidance provided by management. I bought as soon as it hit a price I was comfortable with in morning trading, because I honestly thought any drop was an overreaction to the news and I was expecting the price to bounce back pretty quickly (I am quite terrible at predicting these short term movements, as anyone who has read more than a few of my posts will have noticed).
I'm happy that they warned they'll be seeing somewhat tighter margins for a little while because of their rollout of Soma and some fairly minor problems at their outlets, because otherwise I expect we'd be back to the $40's and I'd still be sitting on the sidelines.
I wrote about Chico's just a couple days ago and provided much of my rationale for wanting to own the stock here. And I've noted before that my interest in buying growing companies on dips has led me to often try to catch a falling knife, to very mixed results. We'll see how it works out this time -- I really see a lot of expansion for Chico's, including significant growth for White House/Black Market as they apply their unique management style and skill to this growing retailer focused on the young professional woman, and I'm willing to give them the benefit of the doubt as they roll out the "Soma by Chico's" line as well. With such a pristine balance sheet even during such a spectacular growth period, I don't see much not to like.
As I wrote earlier, I think the days of being able to buy Chico's at a real bargain price are probably past us -- though if they decide to enter yet another niche by launching a new concept or buying an existing company, all bets are off. Chico's might possibly see some margin compression going forward when their growth tails off as some analysts fear might be coming soon, but I think they're still a pretty long way from saturating their markets and they have a good amount of growth to go.
The fact that they're sacrificing a little bit of margin in order to fuel this growth is not a signficant concern, especially since they have the best margin management in the business. This too shall pass, and I think they'll continue finding ways to separate women happily from their money. An analysts wrote in one of his reports on Chico's that "Retail is detail", and Chico's handles the details of the supply chain and the customer relationship as well as anyone I've ever seen. This type of customer service breeds loyal customers, and I think the Baby Boomer and rising Gen-X women with their active, traveling lifestyles will be loyal customers to Chico's for many years. There was a good article at the Fool today that focused on the margin issue, here.
I plan to hold this one for a very long time. I think if they do slow down their growth, we will see not an implosion but a gradual evolution into a massive and stable cash-generating machine. There may be hiccups along the way, of course, and I'll reserve the right to sell if this spectacular management team leaves the company or appears to be the victim of a brain transplant, but I expect to be profiting from my family's Chico's store purchases for many years.
Bought Chico's (CHS) on August 26, 2005 at $35.05
The astute among you will note that that's nowhere near the bottom for today's trading -- it went down close to $33.50 at one point and may hit a lower point in the days ahead, which I think was a pretty wild swing given the earnings release and guidance provided by management. I bought as soon as it hit a price I was comfortable with in morning trading, because I honestly thought any drop was an overreaction to the news and I was expecting the price to bounce back pretty quickly (I am quite terrible at predicting these short term movements, as anyone who has read more than a few of my posts will have noticed).
I'm happy that they warned they'll be seeing somewhat tighter margins for a little while because of their rollout of Soma and some fairly minor problems at their outlets, because otherwise I expect we'd be back to the $40's and I'd still be sitting on the sidelines.
I wrote about Chico's just a couple days ago and provided much of my rationale for wanting to own the stock here. And I've noted before that my interest in buying growing companies on dips has led me to often try to catch a falling knife, to very mixed results. We'll see how it works out this time -- I really see a lot of expansion for Chico's, including significant growth for White House/Black Market as they apply their unique management style and skill to this growing retailer focused on the young professional woman, and I'm willing to give them the benefit of the doubt as they roll out the "Soma by Chico's" line as well. With such a pristine balance sheet even during such a spectacular growth period, I don't see much not to like.
As I wrote earlier, I think the days of being able to buy Chico's at a real bargain price are probably past us -- though if they decide to enter yet another niche by launching a new concept or buying an existing company, all bets are off. Chico's might possibly see some margin compression going forward when their growth tails off as some analysts fear might be coming soon, but I think they're still a pretty long way from saturating their markets and they have a good amount of growth to go.
The fact that they're sacrificing a little bit of margin in order to fuel this growth is not a signficant concern, especially since they have the best margin management in the business. This too shall pass, and I think they'll continue finding ways to separate women happily from their money. An analysts wrote in one of his reports on Chico's that "Retail is detail", and Chico's handles the details of the supply chain and the customer relationship as well as anyone I've ever seen. This type of customer service breeds loyal customers, and I think the Baby Boomer and rising Gen-X women with their active, traveling lifestyles will be loyal customers to Chico's for many years. There was a good article at the Fool today that focused on the margin issue, here.
I plan to hold this one for a very long time. I think if they do slow down their growth, we will see not an implosion but a gradual evolution into a massive and stable cash-generating machine. There may be hiccups along the way, of course, and I'll reserve the right to sell if this spectacular management team leaves the company or appears to be the victim of a brain transplant, but I expect to be profiting from my family's Chico's store purchases for many years.
This article posted by One Guy @ 8/26/2005 02:45:00 PM 0 comments
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