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TORONTO (GlobeinvestorGOLD)—Shares of Charming Shoppes Inc. are in fashion these days.
A leading multi-channel specialty apparel retailer specializing in women's plus size apparel, it surged to a 52-week high of $12.25 (U.S.) on July 14, a day after the company participated in the CIBC 5th Annual Consumer Growth Conference. Shares of the plus size specialty retailer better known by its Lane Bryant, Fashion Bug and Catherines' Plus Sizes brand names, had been rising since July 7 when the company announced June same-store sales jumped 8 per cent, boosted by a 23-per-cent same-store sales increase at the company's Catherines' stores.
Will the trend last? Company officials seem to think so and raised earnings forecasts for the second quarter and full year.
On a technical basis, the share price had been trading sideways, unable to break out of the $2.70 to $9.50 range since mid-1996. Though there were profitable opportunities to be had during the last nine and a half years, the share price finally made a decisive breakaway move up on July 7 when it vaulted above its previous major resistance level of $9.80 and hasn't looked back, yet.
At the present level of $11.80, the stock is in overbought territory. Although it could attempt to retest and vault to its recent new high, expect a failure there with a subsequent pull-back to about the 10-week moving average at $10.20, which should offer a buying opportunity before its rally efforts resume.
In March 2003, the stock staged a "V" type, bottom reversal and this month's vault above the major resistance line completes the pattern. As such the stock should continue to rally to its pattern's technical target measurement of about $15.22 over the next five months. Based on the company's projected full year earnings expectations the stock would then be trading at a 22 price-to-earnings ratio (P/E), just as it is at today's price level.
Rather than setting trends, Limited Brands Inc., which operates under the Express, Lerner New York and Limited Stores brands and owns controlling interest in Intimate Brands Inc., sold through more than 2,400 stores under the Victoria's Secret, Bath & Body Works and White Barn Candle Co. brands, has been lagging behind, as its June same-store sales were flat.
That's good news, though, since it appears that the same-store sales hemorrhaging may have stopped. However, the fall/holiday season could vault sales to the plus side as Limited Brands brings back denim fashions to its Express stores in an effort to regain its youthful customer.
The share price has also been recovering since hitting a low and previous support level at about $19.50 in May after the previous month-long decline. With the stock now trading at $23.50, it is near a temporary overbought resistance area at about $24.65. However, it has been trading above the 200-day MA and on the weekly chart, the 10-week MA is approaching a crossover to the upside over the 20-week MA. The crossover would signify further strength and act as buying confirmation. In addition, the moving average convergence/divergence oscillator has issued a preliminary buy on the stock.
The long-term chart outlines a double bottom pattern, which has developed over the past four and a half years. Once the stock is able to close above $27.90, the pattern will be complete and the stock should continue to rally to search out the pattern's technical target measurement of about $41.70 over the next 18 months.
On a fundamental basis, after several downgrades there now appears to be a consensus that the company could expect to earn $1.41 a share for full-year 2005. If we apply its current P/E ratio of 17.55, then the stock should be priced at $24.75 by year-end. However, the current industry average P/E for U.S. apparel retailers is 18.55, which leads to a $26.15 target over the next five months. Anyway you look at it, it appears to be a buy.
Yola Edwards is a contributing writer and technical analyst for Bell Globemedia Interactive, providing options and technical analysis research on a variety of North American equities.