Option Trade 
Chico's FAS, Inc. (NYSE:CHS) Puts 
Tuesday, 30th August, 2016

** OPTION TRADE: Buy the CHS NOV 18 2016 12.000 put at approximately $1.10. Place a pre-determined sell at $2.20.

Note: No protective stop losses added -- but if you wish to do so make it $0.45.

by Ian Harvey

August 30, 2016

Chico's FAS, Inc. (NYSE: CHS), a specialty retailer of women’s private branded, casual-to-dressy clothing, intimates, complementary accessories and other non-clothing items operating under the Chico’s, White House Black Market (WHBM) and Soma brand names, is scheduled to post its second-quarter numbers before the market open on August 31. Analysts forecast earnings of $0.22 per share, down from $0.25 during the same period last year.

That would represent a -12 per cent year-over-year decrease. Revenue for the same quarter is predicted to arrive at $632.06M.

In the last fiscal quarter alone, Chico’s FAS Inc. delivered a negative earnings surprise of 19.4%, generating nearly $642.98M in sales and net income of $0.25/share. That compares with the mean forecast $667.86M and $0.31/share, respectively. For the prior quarter, revenue for the stock hit $627.4M, with an EPS of $0.05.

The stock has appreciated 10.8% during the year.

Chico’s FAS Inc. will open at $11.83 on Tuesday. The company’s 50 day moving average price is $11.66 and its 200 day moving average price is $11.77. The stock’s market cap is $1.56 billion. Chico’s FAS Inc. has a 52-week low of $9.61 and a 52-week high of $17.09.

Why Chico’s?

Chico’s expects the ongoing trends of weak traffic and soft sales to linger in fiscal 2016. Consequently, the company expects fiscal 2016 to witness a low-single digit decline in comps over the remaining period. Gross margin deleverage is now expected in fiscal 2016, compared with the previous flat guidance. This is because the company now anticipates SG&A deleverage owing to the tough sales environment.

As well, Deutsche Bank's Paul Trussell commented on Chico’s soon-to-be-released earnings report. The analyst remained cautious given elevated inventories heading into Q2 and a competitive women's apparel environment. The analyst, however, admitted Chico's would "pick up steam" later in the year.

Chico's inventories would work against its margins, and Trussell has a Hold rating on Chico's.

Also, corporate insiders look pessimistic about the outlook of the company stock that they seem to offloaded a great deal of shares recently. A Brand President WH|BM at Chico’s FAS Inc. (CHS) sold shares in a trading activity completed on Monday April 04, 2016. Noce Colaco Donna offloaded 40,000 shares in the company at a per-share price of $13.02 and ended up generating $520,800 in proceeds. A Director in the company, Dyer David, on Wednesday March 30, 2016 collected $1,194,700 from the sale of 92,184 shares at a per-share price of $13.02. Insiders are expected to have better knowledge about the health and prospects of their company, which is why insiders’ moves deserves attention.

Analyst Input

TheStreet Ratings has this to say about the Chico’s:

The team rates Chico's as a Hold with a ratings score of C. The primary factors that have impacted the rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, expanding profit margins and growth in earnings per share. However, as a counter to these strengths, the team also found weaknesses including disappointing return on equity, weak operating cash flow and deteriorating net income.

Also, Jefferies Group restated a “hold” rating on shares of Chico’s FAS in a research note on Monday, August 1st.

Ten investment analysts have rated the stock with a hold rating and nine have assigned a buy rating to the company’s stock. Chico’s FAS has an average rating of “Hold” and a consensus price target of $13.28.

Harvey’s Options Volatility Indicator


Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the CHS NOV 18 2016 12.000 put at approximately $1.10. Place a pre-determined sell at $2.20.

Note: No protective stop losses added -- but if you wish to do so make it $0.45.

”Success is simple. Do what's right, the right way, at the right time.”

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Options traders win because they are successful.

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