The specialty retailer's shares hit a 52-week high of $39 in early September. Following the terrorist attacks, Chico's stock retreated before climbing back to the mid-$30s in early December. Until Sept. 11, the company had posted same-store sales growth of more than 12% for 17 consecutive quarters. In October, Forbes magazine named Chico's the "best small company" in the country.
It hasn't always been so rosy. Founded in 1983 by Marvin and Helene Gralnick, the company was originally named Chico's Folk Art Specialties. The name was shortened to Chico's FAS in 1990 after the company shifted its focus to women's casual wear. In 1993, Chico's went public amid great fanfare. Within months of its initial public offering, the stock shot up from $14 to the high $30s. The Gralnicks sold a big chunk
of their holdings in a secondary offering for $40 million and retired. Marvin stayed on as chairman of the board. CEO Jeff Zwick decided to depart from the chain's original mission of selling all-cotton casual resort wear for middle-aged women. Chico's eventually became known as a store for larger-sized women. Sales fell. And so too did the stock.
Next, Chico's former president, Melissa Payner-Gregor, tried to target younger customers by offering miniskirts and a range of different fabrics and designs. It didn't work.
By 1997, the Gralnicks returned at the urging of Chico's longtime chief financial officer, Charles Kleman. Marvin Gralnick returned to what he knew best: A slightly bigger fit for the aging bodies of Baby Boomers. But this time around he incorporated the fabrics introduced by Payner-Gregor. The result: More sophisticated, yet casual, clothes that can be worn to work or play. "It's all about product," says Kleman. "We know the Baby Boomer. We over-cut, leaving a little more room for her."
Chico's designs all of its outfits and places orders directly with manufacturers around the world. Labor intensive embroidery work, for example, is done in factories in India. Cotton clothes are made in Turkey and Guatemala. The target customer is between ages 30 and 60 with a household income of about $100,000. According to the 2000 Census, it's a market that is 12 million strong.
"The niche is monstrous," Kleman says. Best of all, aside from Chico's and Talbot's, there aren't any specialty retailers targeting the market.
Chico's is now trying to build stronger brand name awareness by advertising in national magazines. TV ads are running in select markets. At the end of 2001, the company had 310 stores and plans to open between 60 and 65 this year.
All in all, the company seems well-positioned, with a big, uncrowded market, appealing products and strong management. But not everybody is betting on Chico's to succeed. As of Nov. 8, 6.45 million shares were short -- more than 29% of all the shares available to the public.
Kleman's speculation: Short sellers appear to be betting that Chico's five straight years of strong same-store sales increases can't continue. If, for whatever reason, Chico's reports a drop in quarterly same-store sales instead of a gain, its stock most likely will fall. If that happens, short sellers stand to benefit. "Either they're right, or we're right," Kleman says.