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Is Express Stock a Buy?

By Lawrence Rothman, CFA - Mar 11, 2021 at 9:30AM

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Is this year's strong stock momentum signaling an earnings rebound?

Express' (EXPR -3.40%) share price has lost 82% of its value over the last five years. In fact, the price was so low, Express did not meet the New York Stock Exchange listing requirement. But this year's rally allowed it to become compliant again.

The stock caught the eye of the Reddit group WallStreetBets, and the shares soared this year, starting 2021 below $1 before reaching about $14 at the end of January.

Of course, there are reasons investors had sent the stock to that low level, so it is important to distance yourself from the day traders and rationally assess Express' business prospects. Only then can you can make an informed decision.

An empty retail space with mannequins and couches.

Image source: Getty Images.

A struggling business

Express makes apparel and accessories under its namesake brand that it sells at its regular and outlet stores, and on its website. However, its more than 590 stores are mostly located in malls, which have seen a decline in traffic predating the pandemic as online shopping proliferated. Aside from its mall-based locations, Express' fashion-oriented merchandise is not striking a chord with shoppers.

Heading into 2020, its same-store sales (comps) were negative each year from 2016 through 2019. During that time, Express' operating income under U.S. generally accepted accounting principles (GAAP) went from $105.1 million to a $217.9 million loss.

A tough turnaround

At the start of 2020, management launched its new strategy, EXPRESSway Forward, which concentrates on the product, brand, customer, and execution. This involves launching more relevant merchandise, engaging the customer (including relaunching a loyalty program), and getting products to the market faster.

While management concedes it will take time to turn things around, this is easier said than done. The steps have yet to improve results. Comps, which includes e-commerce sales, fell by 30% in Express' fiscal third quarter ending Oct. 31, 2020. The company blamed poorly performing work-to-wear and occasion-based clothing (e.g., dresses, suits, and dress shirts), attributing it to lower demand caused by COVID-19.

Things didn't get better in the fourth quarter, with comps down by 27%. Management plans to make e-commerce into a $1 billion business in 2024, but it hasn't released plans on how it plans to do so yet. Express doesn't break out digital sales, but the total top line was $1.2 billion last year, down from $2 billion.

Comps were down 29% for 2020, and its operating loss widened to $455.2 million from $217.9 million, both on a GAAP basis.

While it is a difficult environment, there's nothing in recent results that provides encouragement. It is particularly tough for a fashion-oriented brand to regain its momentum after customers flee.

Decision time

It is difficult to see a stock shoot up, knowing that you missed out on the profit. But all you can do is analyze the situation. While short-term movements garner headlines, a company's ability to generate sales and earnings growth is what creates long-term shareholder value.

Right now, it is difficult to see how Express will reverse its slide. The stock may seem like it is in the bargain bin, but I'd advise passing on it.

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