NEW YORK (TheStreet) -- Chico's (CHS) stock is gaining Tuesday on reports the company is exploring a potential sale to private equity firms. According to Financial Times, the retailer has in talks with "several private equity groups," citing sources familiar with the situation. However, any discussions are currently in the preliminary stages.
In morning trading, shares are up 10.3% to $16.96.
The retailer's stock prices have recently been hit by softer-than-expected sales amid a challenging retail environment. Year to date, shares are down 10.1%.
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TheStreet Ratings team rates CHICOS FAS INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:
"We rate CHICOS FAS INC (CHS) a HOLD. The primary factors that have impacted our 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 revenue growth, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- CHS's revenue growth has slightly outpaced the industry average of 2.0%. Since the same quarter one year prior, revenues slightly increased by 1.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- CHS has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign.
- The gross profit margin for CHICOS FAS INC is rather high; currently it is at 60.59%. Regardless of CHS's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 5.85% trails the industry average.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. In comparison to the other companies in the Specialty Retail industry and the overall market, CHICOS FAS INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, CHS has underperformed the S&P 500 Index, declining 14.73% from its price level of one year ago. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
- You can view the full analysis from the report here: CHS Ratings Report