Express: Zacks’ Bear of the Day Play

It has been a very challenging environment for mall based retailers due to declining traffic, rising trend for online shopping and increasing competition from off-price fashion chains. Many of them have seen declining sales of late, despite improving labor market and still low gas prices.

About the Company

Express (EXPR) is a retailer of specialty apparel and accessories for women and men. The company targets the 20 to 30 year old customer. They currently operate over 600 retail stores, located primarily in shopping malls, lifestyle centers, and street locations across the US, in Canada and in Puerto Rico.

Their merchandise is also available at franchise stores in the Middle East and Latin America. Further, the company also markets and sells its products through its e-commerce website.

Weak Results and Lower Guidance

The apparel chain reported weak results for the second quarter and also slashed its guidance for the year, leading to a sharp decline in shares after the report.

Net sales decreased 6% during the quarter to $504.8 million while same store sales (including e-commerce sales) declined 8%, compared to a 7% increase in the same quarter a year ago. E-commerce sales were down 7% to $70.1 million.

Net income was $10.1 million, or $0.13 per share compared $21.0 million or $0.25 per share in the previous year quarter. Earnings were way short of the Zacks Consensus Estimate of $0.17 per share. This was the second consecutive quarterly miss for the retailer.

The management now expects adjusted earnings of $1 to $1.14 per share for the full year, down from previous guidance for $1.41 to $1.54 per share.

Falling Estimates

Analysts have slashed their estimates for the company after weak results and downbeat guidance.  Zacks Consensus Estimates for the current and next fiscal year have plunged to $1.05 per share and $1.21 per share from $1.47 and $1.59 respectively, before the report.

Declining estimates sent the stock to a Zacks Rank #5 (Strong Sell).

The Bottom Line

In addition to disappointing consumer spending and mall traffic, the retail space is going through a shift toward online shopping. With tightening labor markets, “wage pressure’ has also started hurting retailers.

However some retailers have been able to deliver positive surprises in the latest quarter, with significant cost cutting measures and some changes in their business model. Investors could look at a better ranked retailer Nordstrom (JCP), which currently has a Zacks Rank #1 (Strong Buy). The company reported a huge beat and shares surged after the results.

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