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 U.S., 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.
With the strong fourth-quarter results that the company posted, 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. It has strong momentum and soaring shares. This company is a buy.
The company delivered record fourth quarter sales, operating income and diluted earnings per share. Strong fashion is supported by brand-focused marketing and an elevation of customer experience. 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. It reported strong sales and profit growth with diluted EPS increasing 37% to 67 cents.
Strong fourth quarter
Net sales increased by 5% and were $765.6 million (which was $725.8 million during the prior-year quarter). Comparable sales (including ecommerce sales) increased by 4%.
Ecommerce sales increased by 8% and were $156.3 million.
Merchandise margin grew by 180 basis points, due to carefully managed promotions and inventory levels. Buying and occupancy as a percentage of net sales improved by 50 basis points as costs were leveraged against higher sales. Together, these led to a gross margin improvement of 230 basis points with a gross margin of 34.0% compared to 31.7% in last year’s fourth quarter.
Selling, general and administrative (SG&A) expenses were $167.4 million (which was $152.7 million during the prior-year quarter). As a percentage of net sales, SG&A expenses increased by 90 basis points to 21.9%.
Operating income was $92.9 million, or 12.1% of net sales (which was $76.5 million, or 10.5% of net sales during the prior-year quarter).
Income tax expense was $35.1 million, at an effective tax rate of 38.5% (which was $27.7 million, at an effective tax rate of 39.8% during the prior-year quarter).
Net income was $56.1 million, or 67 cents per diluted share (which was $41.8 million, or 49 cents per diluted share, during the prior-year quarter).
Cash and cash equivalents totaled $187 million (which was $346 million during the prior-year quarter).
Capital expenditures totaled $115 million for both 2015 and 2014.
Inventory was $255 million (which was $241 million during the prior-year quarter).
(Source: Company’s website)
Expectations for 2016
The company expects the following:
- Effective tax rate to be 39%.
- Net interest expense to be $4.7 million.
- Net Income to be in the range of $118 million to $130 million.
- Adjusted net income to be in the range of $125 million to $137 million.
- Diluted EPS to be in the range of $1.47 to $1.62.
- Adjusted diluted EPS to be in the range of $1.56 to $1.71.
- Capex to be in the range of $110 to $115 million.
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 fourth-quarter 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.
It delivered improved product and customer experiences, while strengthening processes and systems throughout the company. During the year, it successfully delivered balanced growth attributable to robust comparable sales, margin gains and expense discipline.
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.
Disclosure: I do not hold any position in the company.
