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Discount and location data says Chico's should have taken the buyout offer

7 months ago by Jon Marino in Markets

Will they, or won't they? It is starting to looks like they should've. 

Florida-based women's clothing retailer Chico's ($NYSE:CHS) will have its Q1 2019 earnings call on June 11, which will also be the first time the company goes before analysts after it didn't take the money and run when LBO shop Sycamore Partners put in an offer to pull it from public markets. 

Across sevearl alternative data metrics, Chico's isn't looking too hot after it rejected Sycamore's buyout, which would have been at a premium over where the stock closed on June 7. 

The increase in discounts suggests Chico's is looking to make more sales right now. Which brings the question: why didn't it sell out when it had the chance?

Slowing Engagement Growth

At Chico’s locations nationwide, Facebook ($NASDAQ:FB) Were Here Count, which tracks voluntary and involuntary geotagged posts and checkins, is up just over 3% so far this year, which represents a slowdown in foot traffic growth. While this data may not be fully comprehensive, it can be used to gauge performance factors like staffing and sales, especially given how widespread Facebook is on mobile devices.

Taking it Off

Late last year, as Chico's was closing in on the holiday season, it began cutting out discounts. It then appeared to do the exact same thing this April, right after CEO Shelley Broader was replaced with interim leader Bonnie Brooks, formerly president and CEO of Hudson's Bay ($TSX:HBC). 

It's unclear if that worked, and the increase in discounts suggests Chico's is looking to make more sales right now.

Which brings the question: why didn't it sell out when it had the chance? 

Sliding Store Count, Shrinking Staff Headcount

According to data from its 2016 and 2019 earnings reports,Chico's cut 100 locations — 6.6% of its portfolio — over three years. While a sharp decline, even for retail apocalypse standards, headcount —which counts full- and part-time employees together — has fallen even more; from 22,700 to 18,500 employees, or an 18.5% decline.

Earnings season covering the first 2019 has been an outright bloodbath for retailers big and small, with scant silver linings to be seen in a marketplace that is facing digital disruption, pricing fluctuations on tariffs and the growing possibility of a US recession in the next few years. A group of analysts tracked by Zacks Investment Research is expecting earnings of $0.03, a big decline from this time a year ago, and shares have plummeted about 60% from $5.87 at the beginning of this year to $3.41 at the close of trading Friday. 

If Chico's has the same kind of quarter many other retailers had, its leadership may be forced to reconsider the decision to not sell. But the question is, will there be anyone left to buy the Florida retailer? 

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Jon Marino

Jon Marino is Thinknum's finance editor, covering the impacts of alternative data on public companies and investors. Prior to joining Thinknum, Jon worked in the ...

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