Chico's Shares Dropped: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of women's apparel company Chico's FAS (NYS: CHS) sank 16% on Tuesday after its third-quarter results disappointed Wall Street.  

So what: Chico's sales have been helped recently by bargain-hungry shoppers, but today's miss -- EPS of $0.16 versus the consensus of $0.20 -- shows that those discounts are cutting much deeper into margins than analysts had expected. In fact, the shares are hitting a new 52-week low on the news and are down 40% over the past four months alone.

Now what: I'd look into this plunge as a possible buying opportunity. Management also said on Tuesday that it plans to repurchase up to $200 million worth of its shares, suggesting that they represent pretty good value. The margin trend is certainly worrisome, but with Chico's shares trading at a forward P/E discount to rivals like Macy's (NYS: M) and Nordstrom (NYS: JWN) , much of the bad news might already be baked into the price.

Interested in more info onChico's?Add it to your watchlist.

At the time this article was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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