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Chico's Matches Estimates

The fast-growing retailer continues to post strong sales, but shares fall on margin worries.
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(CHS) - Get Chico's FAS, Inc. Report

posted a 38% jump in second-quarter earnings, meeting Wall Street's lofty expectations. But the stock was punished late Thursday as investors worried about the retailer's profit margins.

The retailer earned $49 million, or 27 cents a share, compared with $35 million, or 20 cents a share in the same quarter last year. The results were in line with consensus estimates reported by Thomson First Call, as the fast-growing specialty chain's fashions geared toward middle-aged women continued to drive strong sales.

"Looking at the potential third-quarter results, we are pleased with our same-store sales trends thus far in August," Chico's said. "Overall, we are experiencing same-store sales in the low double-digit range, with the Chico's brand in the high single-digits range and the White House-Black Market brand again experiencing much stronger same-store sales up in the mid-40% range."

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During the second quarter, sales jumped 35% to a record $343 million. Same-store sales, or sales at stores open at least a year, rose 15.6%.

Despite the positive sales trends, management told analysts during its conference call that increased promotional activities in linens and sweaters could hurt gross margins in coming quarters. The company did not provide specific earnings guidance.

Analysts are expecting third-quarter earnings of 27 cents a share.

Chico's also said that it's planning to increase square footage at its Chico's and White House-Black Market brands by 20% in 2006, and that it will open 20 new Soma by Chico's stores during that span.

After rising 47 cents to $37.07 in regular action Thursday, Chico's dropped $1.32 to $35.75 in after-hours trading.