Express' Woes: A Long-Term Opportunity?

Last week, specialty apparel retailer Express (NYSE: EXPR  ) became yet another clothes-and-accessories seller to take a hit due to low demand for its products. The company saw its bottom line slashed by 25% from the year-ago period, and went on to give investors and analysts more chest pain with weak guidance for the current quarter. Express and the majority of its mall-based retail brethren have suffered lately from the damaging combination of shifting consumer preferences and harsh winter weather, in particular. In response, the industry has reacted by using heavy promotions -- a mixed bag of a strategy. With the stock trading near its lows, does Express' short-term woes create opportunity in the long run?

Downhill
With extreme snow conditions this season in many parts of the United States, Express was hurt by fewer shoppers at the mall. On top of that, the consumer-spending environment remains timid, at best, despite an ongoing recovery in the economy.

The company actually posted same-store sales that ticked up 1% from the year-ago quarter, as the deep discounts and sales were enough to keep the interest of bargain hunters. The low prices, though, meant a lower top and bottom line for the company as a whole. Revenue dropped 2%, to $716 million, while net income plummeted 25%, to $0.57 per share. The rough fourth quarter led to a full-year earnings decline of 16%.

Perhaps the most troubling news was the current quarter's guidance. Management sees continued declines in traffic and sales figures. Express sees first-quarter earnings in the range of $0.12 to $0.18 per share. Analysts had been expecting more than $0.40 per share.

Seasonal?
While much of this can be attributed to the terrible weather around the country, there's an overall trend of retailers (especially mall-based specialty apparel stores) simply not communicating with the consumer. Some find success by offering unique items, like Foot Locker and its exclusives with Nike. But for a company that sells widely available, zero-switching-cost product like Express, it's crucial to maintain a forward brand image. The formats worked beautifully in the '90s and early '00s, but they feel dated these days compared to the retail greats.

Investors who are compelled by the low prices in Express' stock should wait. With more bad data likely on the horizon, the stock isn't going to move too far up anytime soon. At 11 times forward earnings, the business is appealingly valued under great, or even normal, performance scenarios. In the coming months, management's comments regarding the spring and summer seasons will be of great importance. With the inclement weather out of the way, the organic demand for Express' products will take center stage. Then, investors will have a clearer picture as to how Express is faring in today's brutal retail environment.

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