Chico´s shares in 2-year high after Leonard Green´s investment

ANALYSIS_ Chico’s FAS Inc. (CHS) stock rose the most in more than two years after Leonard Green & Partners LP disclosed a 1.3 percent stake in the company. Leonard Green, based in Los Angeles, purchased 2.05 million shares of the company, according to a filing

Wednesday. The stake makes the private-equity firm the retailer’s 22nd largest investor, as per the records published which Bloomberg had access to.

Wells

Fargo Wednesday maintained a ‘Market Perform’ rating on Chico's FAS with a price target of 14-16 dollars. Analyst Paul Lejuez, from the American bank, continues to expect challenges at the company.

"With the filing of Leonard Green’s (LG) ownership of 2.05MM shares of CHS (1 percent of shares o/s), many are wondering what the PE community might see in CHS. Importantly, LG’s position is not a new one. Though just made public on 4/3/14 (it had confidential treatment prior to that), they have owned CHS before 9/30/13. This is different than the situation at ANN, where Golden Gate filed a 4.4MM share position, which was likely accumulated from 12/31/13-3/20/14. Fundamentally, we believe each of the CHS concepts faces challenges," said Lejuez in a note Wednesday.

Chico´s gains the most since February 2012 after new investment

Chico´s shares climbed 8.4 percent to 16.97 dollars at the close in New York, the biggest-one day gain since Feb, 22, 2012, according to data compiled by Bloomberg. However, that was not enough to offset the 9.9 percent that the stock has lost so far in the year.

"Near-term trends have been choppy, and WH has experienced significant deceleration, and we do not see a near-term catalyst to move the stock higher. We believe the highly promotional environment is unlikely to abate, placing CHS' relatively high merchandise margins at risk," added Lejuez.

Leonard Green owns stakes in other speciality retailers, including J. Crew Group Inc. and Sports Authority Inc. Last year, the firm agreed to buy Lucky Brand Jeans for 225 million dollars and was in a venture that bought Juicy Couture’s intellectual property for195 million dollars in cash.

It is worth a note that Chico’s has lagged analysts’ estimates for earnings per share for five straight quarters, according to the market.

Angela González Rodríguez