Feeling Strong, Chico's Goes for Growth

Apparel retailer Chico's FAS (CHS) looks like it bounced back from the recession, and management is ready to resume new-store growth. Only we won't see too many more new locations of its namesake stores. Instead, the company will focus on growing its smaller, offshoot concepts--a decision that puts Chico's at odds with the general trend.

The industry has recently seen a number of high-profile closings of smaller apparel concepts. Last year Abercrombie & Fitch (ANF) announced the closure of its REUHL chain, a 29-store brand that launched in 2004 and targeted consumers in their 20s. Also in 2009, Aerpostale (ARO) closed its 11 Jimmy'Z stores, which sold to 18-to-25-year-olds of both sexes. And rumor has it that American Eagle Outfitters (AEO) might close its 28-store Martin + Osa chain, which launched in 2006 and is geared toward 25 to 40 year olds.

Chico's, though, is planning to expand its two smaller chains, White House/Black Market and Soma. Chico's acquired White House/Black Market, which targets women in their 30s and 40s, in 2003 and grew it from 107 stores to its current 333 units. Management revealed during a recent investor meeting that it will open 16 to 20 of those stores this year, including outlets, and sees potential for 550 to 600 locations. Meanwhile, Chico's launched Soma, its intimate-apparel line in 2004 with 10 stores; there are now 90, and the company wants to open more than 40 this year. The final goal is ambitious: 575 to 620 Somas.

Why is it deciding to do this now? For one thing, management believes that, with 650 stores, Chico's is near its natural limits. For another, it's looking strong. In the fourth quarter, Chico's posted a net income of $17.5 million, up from a $40.5-million loss a year ago. Sales at stores open at least a year shot up 14.6 percent, compared to a 13-percent plunge in the same year-ago period.

"Now is the time to begin some store growth," concluded CFO Kent Kleeberger, who emphasized that the retailer will be careful about it. Chico's doesn't want to join the wreckage of some of their short-lived counterparts on the retail landscape.

Store image by Flickr user liangjinjian's photostream.