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Chico's FAS Inc. (CHS) Company Business Chico's FAS is a specialty retailer of private branded casual-to-dressy clothing under the Chico's, White House|Black Market ("WH|BM"), and Soma Intimates ("Soma") brand names. As of January 2011, they has 1,151 stores across 48 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands, along with e-commerce websites for each brand. Brands: Chico Brand: Targets women 35+ with a moderate to high income level Launched in 1983
White House|Black Market Acquired in 2003 Targets women who are 25 years old with a moderate to high income
Additional Notes: Quarterly Dividends of $0.04/share in Fiscal 2010, and none in 2009 o Quarterly dividend has been increased to $0.05/share Share repurchase program announced in August 2010 o Fiscal 2010 - repurchased $18.3 million o $181.7 million of common shares may be repurchased until the repurchase program expiration on January 2013 Brand Segments - Sales
Net sales: Fiscal 2010 % Fiscal 2009 % Fiscal 2008 %
$1,314,649 69.0% $1,196,729 69.9% $1,127,988 71.3% 590,305 31.0 516,421 30.1 454,417 28.7 $1,904,954 100.0% $1,713,150 100.0% $1,582,405 100.0%
Positive increase in all brands since the recession which is very good when comparing it to other companies within the industry
Objective Fiscal 2011 - Earnings per share of $1.00 Potential Risks: Foreign Exchange Risk o Rely significantly on foreign sources of production
Historical Ratio Analysis **If the value is green than the number is believed to be better than the previous number, vice versa if the value is
red
Profitability Ratios
ROE ROA ROIC CROIC
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Historically ratios have been decreasing over time although they have been spectacular over the long-term Current profitability ratios still look attractive and could achieve higher results in my opinion
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Solvency Ratios
Quick Ratio Current Ratio Total Debt/Equity Ratio Long Term Debt/Equity Ratio Short Term Debt/Equity Ratio
Efficiency Ratios
Asset Turnover Cash % of Revenue Receivables % of Revenue SG&A % of Revenue R&D % of Revenue
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
SG&A as % of Sales has increased since prior 2008 levels and it may decrease further but I do not believe it will reach 2002-2006 levels
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Liquidity Ratios
Receivables Turnover Days Sales Outstanding Days Payable Outstanding Inventory Turnover Average Age of Inventory (Days) Intangibles % of Book Value Inventory % of Revenue
Relative Ratio Comparison CHS does not classify some of its competitors in their latest's annual statement. However, I believe there direct competitors to consist of Talbots (TLB), The Gap (GPS), Coldwater Creek (CWTR), Macy's (M), and Nordstrom (JWN).
CWTR Stock Price Mkt Cap ($M) EV 52 Wk High 52 Wk Low % off 52Wk Low $ $ $ $ $ 1.14 138.64 133.30 3.07 0.80 42.5% 0.0 0.2 1.2 0.0 0.0 -3.9 0.0% 0.0% 0.0% 0.0% -11.0% 0.2% -6.0% 73.7% -117.4% 0.0% 0.5 1.4 0.23 0.36 29.7% 33.7% -12.4% -4.9% -12.9% -4.6% -21.7% -8.0% -64.4% -18.6% 133.0 3.8 1.7 CHS $ 15.20 $ 2,550.00 $ 2,230.00 $ 16.50 $ 9.57 58.8% 18.6 1.2 4.0 10.6 28.5 6.8 1.4% 0.7% 0.0% 24.8% 19.8% 1.2% 6.0% 31.8% 26.7% -3.5% 1.3 2.1 0.00 0.00 55.8% 55.4% 10.1% 6.5% 6.4% 4.4% 9.9% 6.2% 13.4% 8.3% 0.0 5.5 1.6 M $ 39.77 $ 16,470.00 $ 21,460.00 $ 39.95 $ 22.50 76.8% 13.7 0.6 10.4 7.1 14.0 6.2 2.0% 0.0% -4.6% 13.4% 5.5% 0.6% -0.4% 12.2% 48.0% 10.1% 0.6 1.4 1.12 1.31 40.4% 40.4% 9.1% 2.2% 4.8% -1.1% 5.9% -1.2% 21.9% -4.2% 74.8 3.2 1.2 JWN $ 55.05 $ 11,430.00 $ 13,120.00 $ 55.12 $ 37.28 47.7% 17.4 1.0 6.4 10.8 24.2 8.1 2.0% 0.0% 17.0% 28.7% 12.0% 1.0% 4.7% 6.8% 14.3% 4.2% 1.7 2.2 1.61 1.86 39.4% 38.6% 11.5% 11.2% 6.3% 6.1% 8.6% 8.9% 34.4% 35.8% 5.5 6.2 1.4 $ $ $ $ $ GPS 25.64 12,520.00 12,190.00 26.00 15.08 70.0% 16.2 0.9 4.5 9.3 21.5 6.3 2.0% 2.1% 7.1% 28.0% -1.9% 0.9% -1.8% -25.7% -16.9% 10.1% 1.3 2.0 0.58 0.60 36.3% 38.0% 9.9% 11.0% 5.7% 6.8% 11.5% 12.9% 24.4% 23.0% 0.0 5.7 2.0 TLB $ $ $ $ $ 3.09 217.87 365.79 10.40 1.46 111.6% 0.0 0.2 11.8 0.0 0.0 30.7 0.0% 2.9% 0.0% 0.0% -6.6% 0.2% -7.7% -235.5% -951.7% -42.3% 0.5 1.1 0.00 0.96 30.5% 33.7% -4.3% 1.0% -5.4% -1.3% -8.3% -1.7% -39.1% -8.9% 6.9 4.0 1.6
Multiples
P/E(TTM) P/S(TTM) P/Tang BV(MRQ) P/CF P/FCF(TTM) EV/EBITDA(TTM)
Dividends
Div Yld Div Yld - 5yr avg Div 5yr Grth Payout Ratio(TTM)
Growth Rates
Sales(MRQ) v 1yr ago Sales(TTM) v 1yr ago Sales 5yr Grth EPS(MRQ) v 1yr ago EPS(TTM) v 1yr ago EPS 5yr Grth
Balance Sheet
Quick Ratio(MRQ) Current Ratio(MRQ) LTD/Eq(MRQ) Tot D/Eq(MRQ)
Margins
Gross %(TTM) Gross % 5yr Op %(TTM) Op % 5yr avg Net %(TTM) Net % 5yr avg
Returns
ROA(TTM) ROA 5yr avg ROE(TTM) ROE 5yr avg
Efficiency
Rec Turnover(TTM) Inv Turnover(TTM) Asset Turnover(TTM)
On a relative basis, CHS looks to be fairly valued to partially overvalued in relation to the multiples Growth rates are absolutely spectacular compared to competitors For the most part, all financial ratios out perform its competitors
Investment Valuations Reverse DCF Starting with a reverse DCF valuation, I will assume a discount rate of 12% and a terminal growth rate of 2.5%. (The terminal growth rate of any company should never be higher than the growth rate of the economy.) A reverse DCF valuation should be used just to see a rough picture of where the market has currently priced CMRG based on fundamentals. Based on my assumptions the market has currently priced CHS to have a owners earnings FCF growth rate of around a 15% - 24% year after year for the next 10 years with it gradually decreasing over the years, where then it will grow at its terminal growth rate. The range of the FCF growth is given due to the difference between TTM, annual, and average owners earning FCF input. This is a rough estimate number, however this is massively below its 5 year and 10 year historical averages. FCF growth is best to be looked at over multi-year periods as it is very volatile on a year to year basis. Actual Owners Earnings DCF This is the heart of my valuation of a company. I believe that a more reasonable estimate of around 5%7% for the next 10 years with it slowing down in the later years. It has over the years not been able to successfully deliver owners earnings FCF growth to the shareholders. Under my assumptions, I believe the intrinsic value to be around $6.51 on the safe side and on the more optimistic side $10.73.
50 45 40 35 30 25 20 15 10 5 0 05/07/2005
05/07/2007
Historical Price
05/07/2009
Intrinsic Value
05/07/2011
Buy Price
FCFE Valuation The growth rate for this model is built around fundamentals, where it is equal to the non-cash return on equity multiplied by the equity reinvestment rate which gives us a net income growth rate of 42.57%. Reason being that we do not want to just guess a growth rate and it is better to get one from fundamentals, obviously the option to adjust these ratios can occur if needed. This growth rate in my opinion is significantly too high and I have adjusted it to no growth period and only a terminal period of 2.5% growth. According to this model, the intrinsic value is roughly around $10.27. Technical Analysis There is not much at all to do with technical analysis on this stock in my opinion.
Overview Although I am very impressed with their financial data, over the last 5 years they have really failed to generate FCF for shareholders. Also, even though their net income has been increasing over time, they have struggles to increase their actual earnings over the last 5 years. I believe this stock to be overvalued. My target price is the approximately $10.50 level. Best Regards, Matthew