Shares of Chico's FAS, Inc. (NYSE: CHS) were heading lower after Bank of America downgraded the upscale women's fashion retailer to "underperform" from "neutral." Analyst Lorraine Hutchinson said the company's earnings multiple was unwarranted.
The stock finished the day down 7.2%.
Hutchinson noted the general malaise in the apparel retail industry, especially for mall-based outfits such as Chico's, and said the promotional activity was picking up ahead of the holiday season.
Like other apparel retailers, Chico's has struggled to overcome declining mall traffic and the broader shift in consumer shopping toward e-commerce. In its second-quarter report, the company said overall revenue declined 9% on an 8.4% drop in comparable sales. Still, the company is managing that decline better than many of its peers, as earnings per share rose modestly in the period.
It's not often that an analyst downgrade pushes a stock down 7%, but Hutchinson's downgrade seems to echo broader investor sentiment. Shares are down 45% this year, as the stock collapsed in the run-up to and following its first-quarter earnings report in May.
In the August report, CEO Shelley Broader said trends were improving in the third quarter, so investors may want to give the company another chance. At a P/E of just 11, the stock is affordably priced. However, there's no question that the challenges the industry is facing won't be easy to overcome.
10 stocks we like better than Chico's FASWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Chico's FAS wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of October 9, 2017