Chico's FAS: Chic Retailer

Competition is fierce among fashion retailers selling apparel to affluent female baby-boomers. Women of this generation are a "forgotten majority in a business that’s slavishly obsessed with youthful style," says a recent report from retail analysts at Turner Investment Partners. Companies such as Coldwater Creek, Talbot's and J. Jill are all clamoring to serve boomer women with classic, upscale styles that are miles away from the teen-focused fashion popping up in shopping malls.

Pauline Reader of Thomas Weisel Partners says the standout in this sector is Chico's FAS (symbol CHS). The Fort Myers, Fla., company, which caters to women age 35 and older with fashionable-but-comfortable clothing, is growing rapidly. Sales have increased an average of 40% annually over the past five years. "Chico's remains one of our best names, with significant growth opportunity in all concepts," says Reader, who calls the company a "best-in-class retailer."

The company operates 789 stores in 27 states under a variety of names, including Chico’s, White House | Black Market, Soma, and Fitigues. Plans are in the works to build 150 new stores this year. Although competition for boomer women is strong, Chico's apparel is "significantly more fashion forward" than any of its competitors, says Reader. Another advantage Chico's has over rivals: Rather than pay external designers, the company holds down costs by using an in-house team to design nearly all of its clothing and accessories.

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The company sizzled last year. In the fiscal year that ended January 28, Chico's revenues rose 32%, to $1.4 billion, driven by both new-store openings and higher same-store sales (stores open at least one year). The stock, currently trading at $39, is up nearly 40% over the past year.

Reader says Chico's future growth opportunities primarily lie in the White House | Black Market stores, which target women in their mid 20s with sophisticated apparel and evening wear, and Soma stores, which sell lingerie.

The stock sells at 31 times analysts' earnings estimates of $1.25 per share for the fiscal year that ends in January 2007. Reader says this lofty valuation is warranted because of the company's "historically consistent execution and its future growth potential." She believes the stock is worth between $42 and $54 a share.

--Katy Marquardt