Zacks Investment Research downgraded
) to a Zacks Rank #5 (Strong Sell) on Mar 13, a day after the
company reported weaker-than-expected fourth quarter and fiscal
2013 results on Mar 12.
Express Inc. had slashed its earnings guidance for the fourth
quarter and full year 2013 in Jan 2014 in view of the poor
performance during the holiday season, including muted
Thanksgiving sales. However, the actual result could not even
meet the lowered expectations.
Why the Downgrade?
Fourth quarter earnings of this specialty apparel and
accessories retailer declined 19.7% to 57 cents per share from
the prior-year earnings of 71 cents (excluding extra week in
2012) and fell 3.4% short of the Zacks Consensus Estimate of 59
cents. However, earnings came in line with the lower end of the
company's guidance range of 57-61 cents.
Soft comps, higher-than-expected promotional activity during
the holiday period and in January impacted both the top line and
margins, which in turn led to soft earnings. Stiff competition
from retailers like
Abercrombie & Fitch Co
) during the holiday season also led to the lower-than-expected
Sales of $715.9 million increased 1.6% from the prior year
quarter (adjusted for the extra week), but lagged the Zacks
Consensus Estimate of $729 million by 1.8%. Sales were impacted
by the highly volatile environment, harsh weather and lower
consumer spending. Sales in the Thanksgiving week also did not
meet the company's internal expectations, which led to a weak
top-line in the fourth quarter.
Gross margin declined 300 basis points from last year to
32.0%, due to a decline in merchandise margin, owing to increased
promotional activity. Buying and occupancy cost ratio also
increased by 80 basis points in the quarter, aggravating the
gross margin decline.
For full year 2013, Express Inc.'s earnings of $1.37 per share
lagged the Zacks Consensus Estimate by 2.1%, whereas sales of
$2.219 million lagged the consensus mark by 0.4%.
Retailers like Express remained extremely focused this holiday
season in order to make the most of small opportunities. Be it
the early-hour store openings, promotional events, free shipping
on online purchases or heavy discounts, retailers tried all
tricks to boost sales. The company also spent heavily on
promotions and offered deeper discounts to entice cautious and
budget-constrained consumers. However, the weak response from the
consumers led to lower-than-expected sales during the entire
holiday season including Thanksgiving.
For the first quarter of fiscal 2014, the company projects a
year-over-year decline in comp sales and earnings due to the
continued decline in traffic, poor weather conditions and the
negative impact of higher-than-expected promotional spending in
the fourth quarter. The company expects its comparable store
sales to grow in negative low double-digit to negative high
single-digit, lower than the flat comp sales growth in the
prior-year quarter. The company expects its earnings to be in the
range of 12 cents to 18 cents per share, much lower than 38 cents
per share reported in the last year quarter.
Based on the first quarter guidance, the company expects 2014
comparable store sales to be in negative low single-digit to flat
compared with 3% growth in fiscal 2013. The company expects its
earnings to be in the range of $1.03 - $1.23 per share, much
lower than $1.37 per share reported in 2013.
Another Stock to Consider
Not all stocks are performing as poorly as Express Inc.
Finish Line Inc.
) is a better-ranked retailer with a Zacks Rank #1 (Strong
ABERCROMBIE (ANF): Free Stock Analysis Report
ANN INC (ANN): Free Stock Analysis Report
EXPRESS INC (EXPR): Free Stock Analysis
FINISH LINE-CLA (FINL): Free Stock Analysis
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