Chico's under Review

Chico's CHS solid second-quarter results affirmed our view that the retailer's new merchandising initiatives, coupled with its well-known brand name, will attract shoppers back to its stores. However, contrary to our belief that the firm's turnaround will be delayed by the economic downturn, we are starting to see signs of improvements sooner than we expected. The firm posted better-than-expected margin improvements, thanks to better product mix as well as the ability to minimize markdown activities by keeping a tight lid on inventory. We are placing Chico's under review as we incorporate these results into our analysis. Total revenue for the quarter increased 0.9% to $420 million, largely driven by a 1.3% rise in same-store sales, which represented a significant turnaround from consecutive same-store sales decline over the past few quarters. While some of these improvements can be attributed to weak comparisons, we also believe that new merchandise and better assortments have brought consumers back to its stores. Not surprisingly, the White House | Black Market concept, which targets younger customers, continued to outperform its namesake brand during the quarter, posting a 3.7% same-store sales increase, compared with the 0.4% growth in the Chico's segment. Excluding charges, the operating margin improved substantially to 6.9%, up from 1.9% in the prior-year quarter, thanks to better merchandise margins, cost reduction initiatives, and the spreading of fixed costs such as rent and labor over a larger revenue base.

CRH Reports Half-Year 2009 Results

CRH's CRH interim results were within the ballpark of our top-line expectations, but profitability suffered worse than we anticipated. Revenue fell 14.6%, driven by sustained weak levels of new residential construction activity across the company's American and European regions. Operating margins fell 440 basis points from the year-ago period, to 2.9% from 7.3%, impacted by lower sales volumes and a EUR 74 million restructuring charge related to the firm's cost-cutting initiatives, which have included idling and consolidating of facilities and workforce reductions and furloughs. Although the near term will continue to provide a challenging demand environment, our long-term thesis remains intact, since we think CRH remains well-positioned to benefit from an eventual recovery in its end markets and should be able to take advantage of projects related to U.S infrastructure improvements. No segment or geographic region was spared from weak performance during the first half of the year. Both European and American operations were pressured by poor weather conditions and continuing soft demand from the residential sector, and further declines in commercial construction will provide an additional head wind during the second half of the year. However, we believe CRH should begin to reap the rewards of the U.S. stimulus plan as we move through 2009 and into 2010.