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Sales Weakness Frays Chico's

The women's apparel retailer misses earnings estimates as profit plunges.
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SAN FRANCISCO --

Chico's

(CHS) - Get Chico's FAS, Inc. Report

profit took a tumble in the second quarter, falling 28% and missing analysts' estimates.

The women's apparel chain made $39 million, or 22 cents a share, down from $54 million, or 31 cents a share, in the prior-year period.

Sales increased to $436 million from $403 million the year before. But same-store sales, or sales at stores open at least a year, sank 5.6%.

Analysts, on average, expected earnings of 26 cents a share and revenue of $448.1 million, according to Thomson Financial.

Same-stores sales at the company's namesake chain declined 6%, while the WH|BM brand's same-store sales dropped 3%.

"No one at Chico's is pleased with our performance so far this year, but we continue to take aggressive steps to improve this performance, including making significant investments in design and merchandising talent, new, innovative, and compelling products, larger Chico's and WH|BM stores, our direct-to-consumer business, marketing initiatives, and SAP and other infrastructure improvements," said Scott Edmonds, president and CEO of Chico's, in a statement.

Chico's has been suffering alongside competitors like

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, which have been losing their loyal customer base of older women who once led them to huge success in the past. For its part, Coldwater Creek reported a 28% drop in second-quarter profits Wednesday, also missing Wall Street's targets.

Chico's gross margins slid in the second quarter as the company increased promotions to move merchandise. At WH|BM stores, margins fell 360 basis points from a year ago due to a higher markdown rate. At Chico's, margins declined by 120 basis points, also because of a higher markdown rate as well as slightly lower initial pricing on new products, the company said.

Edmonds said he expected continued softness in the current quarter.

As a result of its weak results, Chico's now plans to cut back on its store growth. It also will substantially increase its marketing spending in the second half of the year.

"We believe this initiative will help to protect and enhance our market share and should also serve to highlight our new fall and holiday offerings," Edmonds said.

Shares of Chico's were down 86 cents, or 4.9%, in after-hours trading.