Should You Jump into the Express Lane?

There seems to be an ongoing theme for individual stores in women's retail lately. Either a chain is doing fantastic or it's doing terrible. It's rarely somewhere in the middle. Express (NYSE: EXPR  ) is one of those chains that is kicking butt while rivals such as Guess? (NYSE: GES  ) and American Eagle Outfitters (NYSE: AEO  ) haven't been as lucky.

Express' results
Express reported third-quarter results on Dec. 4. Net sales jumped 7% to $503 million. Same-store sales climbed 5%. E-commerce sales rocketed 29% to $71.2 million. Earnings per share leaped 15% to $0.23.

CEO Michael Weiss pointed out that this success came despite the "backdrop of an extremely challenging and promotional retail environment." He credited Express' success with its ability to carefully select the right offerings. The company test-marketed different style and trend ideas, created a mix for the varying weather patterns, and successfully appealed to its target customers. In other words, it was old-fashioned great execution by management.

Although Weiss did warn that Thanksgiving week didn't meet his own expectations, sales were still ahead of last year. Weiss expects "promotions to reach heightened levels" from some of its weaker competitors since many of them aren't doing nearly as well as Express.

Conference call
During the call, Weiss said that Express is intensifying its market efforts. The company knows it's pushing fashion that the consumer has responded quite well to. Weiss stated that the company was ahead of the latest trends instead of trying to keep up with them as Express stocked products for trends that were just emerging. The company was proactive instead of reactive. It's paying off. E-commerce is now expected to be 15% of sales for the full year, which Weiss says is "a level reached far more quickly than we had originally anticipated." He sees the number passing 20% over time.

CFO Dominic Paul Dascoli expects the holiday quarter to again show solid same-store sales gains at a low-single-digit percentage. He expects net income of $56 million-$60 million or earnings per share of $0.66-$0.71. Dascoli anticipates that overall gross profit margin in the quarter will improve despite all of the promotional activity.

Dascoli pointed out that conversion -- the ratio of customers who enter an Express that decide to make a purchase -- rose significantly. This provides further evidence of excellent company execution on merchandising and marketing. Express' loyalty program has exploded from 6 million to 9 million members.

I'm sure you can Guess?
Guess? has been going in the opposite direction than Express. Last quarter, it seems like just about everything dropped for Guess?. Net revenue fell 2.4% to $613.5 million. Same-store sales in constant currency fell 4%, 6.6%, and 5.5% in North America, Europe, and Asia, respectively. Adjusted earnings fell 3.4% to $35.4 million or $0.42 per share.

CEO Paul Marciano was pleased with the results considering the expectations Guess? had, but he blamed the economic climate in Southern Europe and the "uncertain environment" everywhere else for the declines. The strategy from Guess? has been and continues to be simply to "focus on delivering a better product assortment." That's also the main strategy for Express, but Express is apparently doing a better job at it.

Is the eagle too sore to soar?
Meanwhile, American Eagle Outfitters looks like it was shot out of flight. Last quarter, revenue dropped 6% to $857 million. Same-store sales spiraled down 5%. Adjusted earnings per share got slaughtered, down 54% to $0.19. American Eagle Outfitters blamed the poor performance on the promotional and challenging environment. While that's a common theme among retailers, Express was able to overcome. Maybe American Eagle Outfitters should take a bird's-eye view and watch what Express is doing.

Foolish final thoughts
The environment is tough but not too tough to make consumers open their purses if they see something that tempts and appeals to them. Express seems to have figured out just how to do that. While American Eagle Outfitters appears lost in space, and Guess? is in the process of figuring it out, Express is already there. Fools looking for a retailer with less turnaround speculation and more "now" success should take a look at Express.

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