Christopher & Banks Corporation (CBK), Chico’s FAS, Inc. (CHS): After a Triple Digit Gain, Can This Retailer Continue its Momentum?

Midwestern women’s retailer Christopher & Banks Corporation (NYSE:CBK) has a new CEO, a new product strategy, and plans for new stores, all of which have stoked investors’ enthusiasm and resulted in a strong stock price gain versus the retail industry average over the past year.  After poor inventory management led to sub-30% gross margins in 2010 and 2011, management finally took drastic measures. The company closed unprofitable stores and returned its product mix to the simple styles and value price points that resonated with its core customer base.  The result has been higher customer traffic and better comparable store sales that led to more productive stores.  However, with tough competition in the sector, is Christopher & Banks Corporation (NYSE:CBK) currently a good bet?

Chart forChristopher & Banks Corporation (CBK)

What’s the value?
Christopher & Banks Corporation (NYSE:CBK) is a value-priced retailer of casual and wear-to-work apparel and accessories for women. The company targets the 45-to-60 age demographic with a core selection of knit tops, sweaters, and pants.  As management has acknowledged, the company tried to get too fashionable and varied with its clothing styles at prices not conducive to its customer base, leading to sharp markdowns and a gross margin that hit an annual low of 24.4% in 2011.  Fortunately, management saw the writing on the wall and subsequently launched an improvement plan that included shrinking both its retail store footprint and its number of distinct clothing styles, as well as dropping the average prices of its products.

Christopher & Banks Corporation (NYSE:CBK)

In FY2013, the fruits of management’s labor have started to find lasting traction, with comparable store sales up 7.7% and a return to operating profitability.  Counter-intuitively, Christopher & Banks Corporation (NYSE:CBK)’s product price reductions have led to greater customer traffic and lower overall inventory markdowns, which ultimately produced a higher gross margin.  More importantly, rationalizing product lines has created cost savings in the supply chain, resulting in positive operating cash flow and the ability to pursue growth, and the company plans for roughly twenty store openings per year.

Chasing the competition
Of course, Christopher & Banks Corporation (NYSE:CBK) has some work to do to catch its more profitable, growth-minded competitors, like Chico’s FAS, Inc. (NYSE:CHS).  The company has a namesake chain that is of comparable size to Christopher & Banks Corporation (NYSE:CBK), with roughly 616 stores, and it targets a similar customer base of middle class working women.  Chico’s FAS, Inc. (NYSE:CHS) is also trying to keep the upwardly mobile members of its customer base within the corporate fold through its newer, premium priced retail concepts, including White House/Black Market and Boston Proper.