Is Express Inc. a Buy After Beating Q3 Earnings Estimates?

Apparel and accessories manufacturer Express, Inc. (EXPR) in Columbus, Ohio, outperformed consensus estimates in its fiscal third quarter ended October 31, 2021. And following its earnings release on December 2, shares of EXPR gained 21.3% in price to hit an intraday high of $4.38. However, the stock has declined 3.5% since due to a broader market pullback amid the resurgence of COVID-19 cases.

The stock benefited substantially from the meme stock craze earlier this year; it gained 193.2% over the past year and 276.9% year-to-date. The company’s upbeat growth outlook and favorable analyst sentiment attracted meme investor attention. 

However, with social media attention turning to other stocks, meme interest in the stock is ebbing, as evidenced by EXPR’s 34.5% decline over the past six months and 19.9% decline over the past month.

Here is what could shape EXPR’s performance in the near term:

Impressive Quarterly Results

For its fiscal third quarter, ended October 31, 2021, EXPR’s revenues increased 46.6% year-over-year to $471.98 million. This can be attributed to a 52% rise in comparable retail sales (including Express stores and eCommerce) and a 33% rise in comparable outlet store sales. The company’s same-store sales rose 46% year-over-year, beating FactSet’s 30.2% growth estimate.

EXPR’s gross profit improved 1024.4% from the same period last year to $156.81 million. Its net income came in at $13.09 million, reflecting a substantial improvement from the negative year-ago values. Its EPS stood at $0.19, which is 850% higher than the $0.02 consensus estimate.

Supply Constraints

Express CEO Tim Baxter maintains a positive outlook on the retail sales trends because the demand for occasion-based clothing has been rising. He said, “We are off to a very, very strong start in the holiday season...I think we are absolutely seeing our customer base anxious to get out, and celebrate, and look good while they're doing it.”

In his interview with Yahoo Finance, Baxter also stated that EXPR had been strategically mitigating supply chain challenges, allowing it to improve its  inventory margins without utilizing airfreight or increasing supply and transportation expenses tremendously. EXPR’s inventories rose 9% year-over-year to $383.59 million.

However, he also stated that EXPR is packing up and holding several best-selling products, such as sweaters, due to shipping delays. With the winter season here, holding its sweater sales might reduce EXPR’s revenue and earnings growth potential.

Furthermore, with the COVID-19 omicron variant now detected in 17 states in the U.S., the government might reimpose some form of travel restrictions to control the spread. As a result, the demand for EXPR’s outdoor wear products has the potential to decline, impacting EXPR’s revenues in the near term.

POWR Ratings Reflect Uncertainty

EXPR has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

EXPR has a C grade for Quality and Value. Its 48.34% trailing-12-month gross profit margin is 35% higher than the 35.82% industry average. However, the company’s trailing-12-month net income margin is negative, justifying the Quality grade.

The stock’s 0.12 forward Price/Sales ratio is 89.6% lower than the 1.18 industry average. Nevertheless, EXPR is trading 14.24 times its forward EV/EBITDA, which is 40.7% higher than the industry average and in sync with the Value grade.

Of the 63 stocks in the A-rated Fashion & Luxury industry, EXPR is ranked #54.

Click here to view additional EXPR ratings for Growth, Sentiment, Momentum, and Stability.

Bottom Line

EXPR’s financials and growth outlook have been improving due to rising demand for outdoor apparel and surging consumer spending. However, EXPR is a high-risk stock with a 1.75 beta and fluctuating meme investor interest. Thus, EXPR might witness a sharp pullback soon, given the surging market volatility, as evident in the CBOE Volatility Index’s 30.1% rise over the past five days. In fact, the stock declined 3.5% in price after double-digit intraday gains on December 2. Thus, investors should wait until the markets stabilize before investing in EXPR.

How Express Inc. (EXPR) Stack Up Against its Peers?

While EXPR has a C rating in our proprietary rating system, one  might want to consider taking a look at its industry peers, Hugo Boss AG (BOSSY), Shoe Carnival, Inc. (SCVL), and Genesco Inc. (GCO), which have an A (Strong Buy) rating.

EXPR shares were trading at $3.41 per share on Monday morning, down $0.02 (-0.58%). Year-to-date, EXPR has gained 274.73%, versus a 23.18% rise in the benchmark S&P 500 index during the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

More...