Express' Earnings: What Wall Street's Saying

NEW YORK (TheStreet) - Express (EXPR) shares were surging 14% to $16.57 Wednesday following better-than-expected second-quarter earnings and sales. The specialty retail chain also increased earnings guidance for 2014, offering solace to investors who had watched the stock drop 22% this year before today.

The Columbus, Ohio-based company reported net income declined 60% to $6.9 million, or 8 cents a share, compared the second quarter of 2013. Net sales slipped 2% to $481.4 million. Analysts were expecting the company to break even on revenue of $457.1 million. Comparable sales for the period declined 5% compared to an expected 7.7% by analysts

Express reiterated its full-year comp guidance, but raised its EPS forecast for the year to a range of 85 cents to 95 cents a share compared to 74 cents to 90 cents a share previously forecasted. Analysts on average, according to Thomson Reuters, expect full year EPS of 81 cents a share.

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"With 17 of our 20 Express Factory Outlet stores open for approximately four months, we are delighted to see them continuing to exceed our expectations from both a revenue and a margin contribution perspective," CEO Michael Weiss said in the earnings release. "In our full priced retail stores, we managed promotions in a manner that enabled us to deliver merchandise margins that were better than we initially expected. As new receipts flowed in during the second quarter, certain categories reversed their declines and others grew nicely.

"Looking ahead to the back half of the year, the opportunity remains to drive further sequential improvements in both sales and profits, while simultaneously continuing our disciplined approach to inventory units and input costs," Weiss continued.

Here's what analysts are saying about Express on Wednesday.

Roxanne Meyer, UBS (Neutral; $13 PT)

Despite what appeared to be very aggressive clearance levels in 2Q and into early 3Q, 2Q EPS beat on better metrics across the board with inventory levels healthy into 3Q. Implied 2H guidance remains unchanged and there is no update on Sycamore, which limits management in its ability to generate incremental shareholder value from financial engineering. In the meantime, better 2Q results should drive the stock higher today.

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Richard Jaffe, Stifel (Hold)

We believe the company's outlet store strategy is a strong positive. Outlet stores are typically more productive, predictable and profitable than regular price stores (driven by well-tested, made-for-outlet merchandise and lower overhead costs). This year, the company will open 18 outlet stores and convert 19 regularly priced stores to outlet stores, resulting in 37 outlet stores by then end of 2014.

Originally management expected outlets to drive approximately $30 million of incremental revenue this year. However, given the success of the outlets year to date (strong comps in converted outlet stores and new outlet stores exceeding expectation), management has increased the expected incremental revenue range to between $55 million-$60 million this year. Management is aggressively searching for new locations for 2015 with the goal of 70 outlet stores by the end of the year.

While in the early stages of this initiative, we believe that the company could have up to 150 outlet locations long term, representing a profitable square footage driver. Management expects outlet to drive $650-$750 million in incremental annual revenue LT. With minimal overhead and an assortment that is 100% tested prior to being delivered to stores (outlet merchandise is made up of previous seasons winners from full priced stores) we believe outlet stores will be more productive and profitable than regular price stores LT [long term].

John Morris, BMO Capital Markets (Outperform; $20 PT)

EXPR 3Q high-end guidance tops Street on EPS with a forecast range for EPS of $0.13 to $0.18, versus consensus for EPS of $0.16. The tone sounds much improved to us entering 3Q with progress during the second quarter, as certain categories grew nicely and others reversed declines, which build confidence moving into the back half. We expect management to continue to strategically manage promotions enabling continued merchandise margin improvement.

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TheStreet Ratings team rates EXPRESS INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate EXPRESS INC (EXPR) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and poor profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The current debt-to-equity ratio, 0.41, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.02, which illustrates the ability to avoid short-term cash problems.
  • EXPR, with its decline in revenue, slightly underperformed the industry average of 0.6%. Since the same quarter one year prior, revenues slightly dropped by 9.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The gross profit margin for EXPRESS INC is currently lower than what is desirable, coming in at 34.05%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 1.10% trails that of the industry average.
  • Net operating cash flow has significantly decreased to -$31.19 million or 681.73% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

--Written by Laurie Kulikowski in New York.

Follow @LKulikowski

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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