This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Chico's FAS: M&A Transactions, Activist Investing Are Good Signs

Stocks in this article: aro CHS JNY TRLG YHOO

By Alex Gavrish, Etalon Investment Research; author of "Wall Street Back To Basics"

2013 was an active year for apparel retail M&A transactions. rue21 was acquired by private equity group Apax Partners; True Religion Apparel, Inc. (TRLG) was acquired by private equity firm TowerBrook Capital Partners; The Jones Group Inc. (JNY) announced recently that it will be acquired by private equity firm Sycamore Partners which focuses on retail investments. Sycamore also acquired an 8% stake in teen retailer Aeropostale Inc (ARO - Get Report).

In a September 2013 SEC filing, the private equity firm said it believes the shares to be an attractive investment and may discuss with company's management, board of directors, and other shareholders company's plans and strategy. Hanesbrands Inc. (HBI) acquired underwear maker Maidenform Brands, Inc. (MFB), and of course the still ongoing takeover battle between Jos. A. Bank Clothiers Inc (JOSB) and The Men’s Wearhouse, Inc. (MW). Despite outperformance of the sector versus the S&P 500 INDEXSP:.INX if judged by SPDR S&P Retail ETF NYSEARCA:XRT, retail is considered by many to be in a weak state due to decreasing consumer spending. Such a tremendous M&A activity makes one wonder if there is any remaining value out there.

Another important trend that characterized equity markets over the last two years was the rise of shareholder activist efforts. Targets you probably heard about are Apple Inc. (AAPL) with Carl Icahn dining recently with company's CEO Tim Cook and pressing for an increase of the buyback program, Daniel Loeb of Third Point pushing for corporate changes at Sothebys (BID) and Sony Corporation (SNE) TYO:6758, Bill Ackman and his huge position in struggling retailer J.C. Penney Company, Inc. (JCP) which did not work out so well or could even be considered a total disaster as an investment, Jana Partners’ position in grocery operator Safeway Inc. (SWY) which recently adopted a "poison pill" that blocks an investor from acquiring more than 10% of shares…the list goes on.

One of the most successful activist investments recently, in my view, was a high-profile activist campaign at Yahoo! Inc. (YHOO - Get Report) by Daniel Loeb of Third Point. Since the disclosure of his stake back in September 2011, the stock price had risen 180% – in a period of about two years only. A few factors contributed to such great performance: "standalone" Yahoo was valued at a conservative price; significant restructuring and business improvement opportunities existed, and aggressive activist campaign helped to enact reforms. However, two important additional stars were shining bright: a weakening of the Yen in 2012-2013 contributed to a significant rise in Japanese equities and Yahoo! Inc. (YHOO - Get Report) Japan, while more clarity started to appear regarding the increasingly valuable Alibaba stake.

It seems that a few bright starts are also aligning for Chico's FAS, Inc. (CHS - Get Report). Chico's is a specialty retailer of women's private branded, sophisticated, casual-to-dressy clothing, intimates, complementary accessories, and other items. The company operates through Chico’s FAS, Inc. (CHS - Get Report), White House Black Market, Soma Intimates and Boston Proper brand names. On the valuation side, Chico's trades at an EV/EBITDA multiple of x6.8 2012, has no debt, and recently increased its dividend, which after increase represents a 1.6% annual yield.

The company is also actively returning capital to shareholders: it executed a $125 million share buyback in the last quarter, and approved a new $300 million share repurchase authorization. In September 2013, Blue Harbour Group disclosed a 5.6% stake in the company. Blue Harbour is known for its activist investments, while working in a collaborative and supportive manner with companies and management as opposed to more "active" activist investors who might engage in proxy fights, etc.. Clifton Robbins, CEO of Blue Harbour Group called Chico’s FAS, Inc. (CHS - Get Report) a "growth stock being valued as a value stock". Based on media reports, Chico's is also seen as a potential buyout candidate because it has no debt and provides attractive growth prospects. Recent M&A wave in the apparel retail sector clearly makes this a reasonably probable scenario. So far, all stars are aligned for Chico’s FAS, Inc. (CHS - Get Report).

-By Alex Gavrish

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,165.01 -251.84 -1.45%
S&P 500 1,996.80 -24.45 -1.21%
NASDAQ 4,639.0120 -44.3950 -0.95%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs