Market Overview

So Yeah, Express is Now a Dog Worth Following for These Reasons

I personally have never had coverage on Express, only used the company's financials for building peer comparable tables and for comments to gauge appetite for pricier, cheaply made specialty apparel. With the stock plunging in response to a massive profit warning, the search was on for clues as to whether this was an Express issue or a budding problem for mall-based retail that Mr. Market has overlooked (he has loved plenty of consumer discretionary names since the summer). The conclusion: 80% company specific 20% there is reason comments offered by the company should warrant a review of sector exposure (disclosure: we went to negative on retail two weeks, see that call in live action at www.decodingwallst.com)

CEO Says:

“While our sales in August were in line with the expectations we provided when we introduced third quarter guidance, trends became increasingly difficult in September driven by an abrupt change in traffic.”

Company-specific issue: In line sales in a generally stronger than expected month for chain-store sales indicates areas of the assortment that did not work, likely due to the price/value equation being out of whack (Express asks its customer to pay a premium price even adjusting for continued promotions, it's hard to land that transaction if the assortment is not 100% correct; in my view the store has shifted too much to wear to work in terms of inventory and marketing for men, causing a perception issue; as for women, the alternatives at lower prices from Zara and H&M are tough to ignore).

Industry-specific piece: Suggests that post back to school, the consumer has pulled back in their spending (saw this called out at JC Penney analyst day). This makes sense in light of employment and government retail sales figures, and is in line with the expectation I conveyed in August (slowdown September/October, hopeful ramp for holidays).

CEO Says:

“We have seen traffic trends improve in the final week of September, as we conveyed a clearer pricing message to our customers.”

Company-specific issues: Not only indicates a likely venture to more frequent promotions during the latter stages of back to school, but there is a chance new promotions have been baked in for the holidays to drive sales/move inventory. In Twitter land, I would call that #MarginRisk

Industry-specific piece: The mall now has a decent sized player perhaps erring on the side of irrational (though not slash and burn by any means) which could cause specialty apparel chains already not doing well to promote more, in turn leading to pressure and margin surprise risk on the chains doing well.

And no, you are not buying Express today on the chart gash.

 

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