UPDATE 4-Chico's profit beats estimates, shares jump

Wed May 28, 2008 2:41pm EDT

(Recasts lead to work in estimates, share rise)

By Aarthi Sivaraman

NEW YORK May 28 (Reuters) - Chico's FAS Inc (CHS.N) posted better-than-expected quarterly profit on Wednesday and left its first-half forecast unchanged, reassuring investors who sent shares of the women's apparel retailer up 11 percent.

The company, which operates the White House/Black Market and SOMA Intimates stores in addition to its namesake chain, also said it would stay focused on managing its inventory and controlling expenses.

It also pointed to the possibility of better results in the second half of the year.

"Our current expectations are to gradually improve and return to positive comparable-store sales increases sometime in the second half of 2008 if we can expect some level of improvement in the economic environment resulting in overall earnings growth during this time frame," Chief Executive Scott Edmonds said during a conference call.

Net profit was $12.7 million, or 7 cents per share, in the first quarter ended May 3, compared with $47.2 million, or 27 cents per share, a year earlier.

Analysts, on average, expected earnings of 6 cents a share, according to Reuters Estimates.

Sales fell 9.6 percent to $409.6 million as same-store sales -- a key gauge of retail strength that tracks sales at established stores -- declined 17.5 percent.

The women's apparel sector targeting women over 40 who choose traditional clothing styles has been struggling for over a year. Chico's rivals such as Coldwater Creek Inc CWTR.O and Talbots Inc TLB.N have also posted sliding sales even as the industry has attempted to update its looks and image.

One analyst warned that Chico's inventory was not conservative enough for current economic conditions and that its expectations for the year's second half appeared "misguided."

"We believe expectations for a back half turn are too optimistic," Liz Dunn of Thomas Weisel Partners said in a client note, rating Chico's stock as "underweight."

Chico's has posted a long string of declines in same-store sales -- down 15.5 percent in April, 20.7 percent in March and 14.9 percent in February.

The company repeated its forecast for lower earnings and same-store sales for the first half of 2008.

Chico's said it expects to open between 17 and 19 stores in the second quarter but company executives said during the call that the company would slow down the pace of store opening through the rest of the year.

Chico's shares were up 79 cents at $7.96 on the New York Stock Exchange after rising as high as $8.18 earlier. Its shares have lost about 71 percent of their value since they touched a year-high of $27.70 last year. (Reporting by Aarthi Sivaraman; Editing by Mark Porter and Dave Zimmerman)

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