Express: Zacks’ Bull of the Day Play

Express (EXPRSnapshot Report) continues to hit the right fashion trends, driving strong sales growth and boosting profit margins as it avoids heavy discounting. This has also prompted analysts to revise their estimates significantly higher, sending the stock to a Zacks Rank #1 (Strong Buy).

While shares have risen sharply so far this year, the valuation picture still looks attractive. Express boasts a Zacks Value Style Score of ‘A’.

Express, Inc. is a specialty apparel and accessories retailer, targeting 20-30 year old men and women. It currently operates approximately 630 stores, located primarily in shopping malls, lifestyle centers, and street locations across the United States, Canada, and Puerto Rico.

Shares of Express have gained more than 15% since I last wrote about the stock in late March.

First Quarter Results

Express delivered strong first quarter results before the bell on May 28. Earnings per share came in at $0.22, well above the Zacks Consensus Estimate of $0.14. It was also significantly higher than EPS of $0.06 in the same quarter last year.

Sales rose 9% to $502.4 million, beating the consensus of $487 million. This was driven by a 7% increase in same-store sales.

Also note that Express didn’t just succeed in boosting sales, it boosted its profit margins too. The merchandise margin expanded 200 basis points due in large part to “a more restrained use of promotions”. In other words, Express doesn’t have to discount heavily because demand for its products is that strong. Overall, the gross profit margin expanded 330 basis points to 33.1%.

Meanwhile, the operating margin more than doubled from 3.3% to 6.8% of net sales.

Estimates Soaring

Management also provided bullish guidance for Q2 and full year 2015. The company expects low single-digit same-store sales growth for both Q2 and full year 2015. It also expects 2015 adjusted EPS between $1.04 and $1.15, which was above consensus at the time. This prompted analysts to revise their estimates significantly higher, sending the stock to a Zacks Rank #1 (Strong Buy).

The 2015 Zacks Consensus Estimate is now $1.20, near the upper end of guidance. The 2016 consensus has also jumped higher, rising from $1.17 to $1.33 over the last 30 days.

Reasonable Valuation

Shares of Express have been soaring since the Q1 report, but the valuation picture still looks very reasonable. The stock trades at 15x 12-month forward earnings and sports an enterprise value to cash flow ratio of 9. Both metrics are well below the industry median.

The Zacks Value Style Score for EXPR is an ‘A’.

The Bottom Line

With solid top-line growth, expanding margins, rising earnings momentum and attractive valuation, Express continues to offer investors a lot to like.

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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