Updated from 5:13 p.m. EST Chico's ( CHS) reported a 35% increase in fourth-quarter earnings Wednesday, missing Wall Street's EPS estimates by a penny. The company also posted weaker-than-expected February sales. The specialty retailer, which has become a favorite for women of the baby boomer generation, said earnings reached $44 million, or 24 cents a share, in its holiday quarter. That compares to a profit of $33 million, or 18 cents a share, a year earlier. Analysts had an average estimate for earnings of 25 cents a share, according to Thomson First Call. The company's fourth-quarter net sales rose nearly 32% to $376 million, while same-store sales jumped 14.6%. For February, Chico's said its sales rose 18% to $98.7 million, with a same-store sales gain of 5.7%. Its same-store sales growth, measuring sales at stores open at least a year, fell short of Wall Street's expectations for an increase of 8.7%. Chico's shares recently were down $3.21, or 6.7%, to $44.55 in after-hours trading. The retailer's margins have been hit by higher costs and growth in its lower-margin White House/Black Market and Soma brands. While Chico's fourth-quarter operating margin expanded to a record 21.2% from last year's 21%, its gross margin declined by 40 basis points. "Considering the impact of the increase in fourth-quarter marketing costs that we planned and implemented, we are pleased with the quarter's consolidated profitability and with the quarter's merchandise margins that improved in each of our brands over the fourth quarter margins last year," Chico's said. "Our recent investment in the Fitigues brand, our accelerated rollout of the Soma brand and the continued emphasis on store growth for our particularly successful White House/Black Market brand, are positioning the company for what we envision to be sustained long-term growth for our shareholders." The retailer said it expects these investments to cause continued pressure on its gross margin for each quarter of 2006. The company projected margin declines between 10 and 50 basis points with the first half of the year, with less of an impact in the second half.