Express: Zacks’ Bull of the Day Play

The fourth quarter is always vital for retailers, and Express (EXPRSnapshot Report) is no exception. More than half of its operating income came from the holiday quarter last year, for instance. The company came through and delivered better-than-expected Q4 results on March 11, as both sales and EPS topped the Zacks Consensus Estimates.

Additionally, management issued encouraging guidance for 2015, prompted a flurry of positive estimate revisions from analysts. This sent the stock to a Zacks Rank #1 (Strong Buy).

Express, Inc. is a specialty apparel and accessories retailer, targeting 20-30 year old men and women. It currently operates approximately 640 stores, located primarily in shopping malls, lifestyle centers, and street locations across the United States, Canada, and Puerto Rico.

Fourth Quarter Results

Express delivered better-than-expected results for the all-important fourth quarter on March 11. Earnings per share came in at $0.49, beating the Zacks Consensus Estimate by 3 cents.

Net sales rose 1% year-over-year to $725.8 million, ahead of the consensus of $714.0 million. Same-store sales (including e-commerce) declined by 2% but beat management’s guidance.

Merchandise margins increased 70 basis points as Express benefited from more targeted promotional activity. Operating income declined 10% year-over-year, however, as operating margins fell from 11.9% to 10.5% of net sales. But this was due in part to higher incremental marketing activities, which should pay off through higher future sales.

Estimates Soaring

Following its Q4 results, management provided an encouraging outlook for 2015. The company expects same-store sales growth in the low-single digits and adjusted EPS of $0.93-$1.07. This was above consensus at the time and prompted analysts to not only revise their estimates higher for 2015 but for 2016 as well.

These large positive estimate revisions sent Express to a Zacks Rank #1 (Strong Buy).

The 2015 Zacks Consensus Estimate is now $1.06, up from $0.92 just 60 days ago. The 2016 consensus estimate is currently $1.17, up from $1.00 over the same period.

Valuation

Shares have risen for Express following the strong Q4 report, but the valuation picture still looks reasonable. Shares trade around 15x 12-month forward earnings, a discount to the industry median of 19x. Its enterprise value to cash flow ratio of 9 is also well below the industry median of 12.

Its price to sales ratio of 0.6 is also a significant discount to the peer group multiple of 1.1.

The Bottom Line

With strong earnings momentum and reasonable valuation, Express offers investors attractive upside potential near term.

Todd Bunton, CFA is a Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor and Surprise Trader services.

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