Express (EXPR, Financial) is a specialty apparel and accessories retailer of women's and men's merchandise, targeting 20- to 30-year-old customers. It has more than 30 years of experience offering a distinct combination of fashion and quality for multiple lifestyle occasions at an attractive value addressing fashion needs across work, casual, jeanswear and formal occasions. The company currently operates over 600 retail stores, located primarily in high-traffic shopping malls, lifestyle centers and street locations across the United States, in Canada and in Puerto Rico. Express merchandise is also available at franchise stores in the Middle East and Latin America. The company also markets and sells its products through the company's ecommerce website, www.express.com.
This article discusses the strong second-quarter results that the company posted very recently. It's on the right track as it is hitting the right ongoing fashion trends. It had successful sales and operating margins in the last quarter and is poised to grow. Presently, it has strong momentum and soaring shares. This company is a buy.
The company delivered record second quarter sales, operating income and diluted earnings per share. Strong fashion supported by brand focused marketing and an elevation of customer experience drove a 7% increase in comparable sales. Disciplined inventory management, combined with the appeal of product assortment, enabled it to reach this spot. Growth continued across all distribution channels of retail stores, ecommerce and factory outlets. The various components of business were managed consistently with balanced approach to growth, and each contributed to diluted earnings per share results, which rose 213% to $0.25
Strong second quarter
Net sales during the quarter increased by 11% and were $535.6 million (compared to $481.4 million in the prior year quarter).
Comparable sales (including e-commerce sales) increased by 7% (which was a 5% decrease in the second quarter of 2014).
Ecommerce sales increased by 21% and were $75.0 million.
Merchandise margin grew by 240 basis points. These led to a gross margin improvement of 480 basis points, with gross margin of 33.1% (which was 28.3% during the prior year quarter).
Selling, general, and administrative (SG&A) expenses were $140.6 million (which was $121.9 million in the prior year quarter).
As a percentage of net sales, SG&A expenses increased by 90 basis points to 26.2% (which was 25.3% in the prior year quarter).
Operating income was $35.9 million, or 6.7% of net sales (which was $14.6 million, or 3.0% of net sales in the prior year quarter).
Income tax expense was $13.2 million, at an effective tax rate of 38.5%, (which was $1.8 million, at an effective tax rate of 20.6% in the prior year quarter). The tax rate for the second quarter of 2014 reflected the release of uncertain tax positions following the conclusion of a multi-year Internal Revenue Service tax examination.
Net income during the current quarter was $21.0 million, or $0.25 per diluted share, which was $6.9 million, or 8 cents per diluted share, in the prior year quarter.
Cash and cash equivalents totaled at $155.6 million during the quarter (which was $253.3 million in the prior year quarter).The lower cash balance reflects the use of approximately $215 million of cash during the first quarter of 2015 to redeem the remaining Senior Notes due 2018. This redemption eliminates approximately $19 million of interest expense annually.
Capital expenditures totalled $50.9 million for the 26 weeks ended Aug. 1, compared to $59.5 million for the 26 weeks ended Aug. 2, 2014.
Inventory was $272.0 million compared to $239.9 million at the end of the prior year's second quarter and includes approximately $42.4 million related to Express Factory Outlet stores this year compared to approximately $13.6 million in the prior year's second quarter.
Full-year guidance
The company expects the following:
- Comparable sales to be in mid-single digits.
- Effective tax rate to be around 39%.
- Net income to be in the range of $105-$111 million.
- Adjusted net income to be in the range of $111-$117 million.
- Diluted EPS to be in the range of $1.23 to $1.30.
- Capital Expenditures to be around $114 to $119 million.
Third-quarter guidance
The company expects the following:
- Comparable sales to be in mid-single digits.
- Effective tax rate to be around 39%.
- Net income to be in the range of $22-$25 million.
- Diluted EPS to be in the range of 26 cents to 29 cents.
Management
The company recently announced that Perry Pericleous, previously vice president, finance has been promoted to senior vice president, chief financial officer and treasurer reporting to Matthew Moellering, executive vice president and chief operating officer.
David Kornberg, the company's president and chief executive officer, stated, "Perry is a natural choice for the chief financial officer position at Express given his deep knowledge of our business and financials, his strong leadership skills and proven track record of performance during his 15-year tenure at our company. Perry's business acumen and financial discipline will be highly valuable to us as we continue to execute our growth strategies and work to profitably grow our business in the near and long term. I also want to thank Paul for his many contributions since joining Express in the fall of 2011.”
(Source: Company's Website)
Focus at the moment
- Successfully reinvigorating the brand
- Going international
- Increasing outlets
- Rationalizing domestic retail store base
- Driving sales through enhanced search and checkout capabilities
- Improving analytics and customer targeting
- Increasing digital marketing spend and customer engagement activities
- Driving mobile sales.
Positive attributes
- Taking steps to return to positive comparable store sales
- Disciplined execution of Go to Market strategy to drive improved assortment
- Tightly controlled inventory management including faster turns
- More effective marketing to drive traffic and expand brand awareness
- Introduction of new categories to drive add-on sales
On a concluding note
Express reported decent Q2 results and is poised to grow with its marketing skills and sustained performance. The incline toward stylish and comfortable clothing, rise in disposable levels of income and a sudden increase in fitness-conscious people will boost the company’s growing popularity. The next few years may see the company shifting its focus toward other stylish accessories. Innovation has always played a key role in this company’s success.
Overall Express is a rock-solid company. Its vertically integrated business model (strong business model, omni channel guest centric approach, decentralized leadership) and other strengths such as its revenue growth, increase in net income and expanding profit margins, and solid financial position will attract more and more customers as well as investors in the near future. The company is a decent long-term investment.
