Express Is Now A 'Show-Me Story,' Says MKM Partners

Express, Inc. EXPR reported disappointing Q2 results while issuing disappointing guidance for H2, with the Q5 guidance indicating a deterioration in trends from Q2.

MKM Partners’ Roxanne Meyer maintains a Neutral rating on the company while lowering the price target from $15 to $13.

Reasons For Weak Performance

“A combination of over-assortment, a reduction of direct mail/coupon offers and an assortment/marketing that skewed too young hurt sales and drove markdowns,” Meyer mentioned.

Related Link: Express Management Lays Out 4 Initiatives To Increase Store Traffic Going Forward

While stating that it was encouraging that the customer edit point of the assortment/marketing and direct mail have been corrected for September, the analyst said it was unclear whether this would be sufficient to drive a bounce-back in traffic.

Meyer believes it could take until 1Q for the over-assortment problem to be fully rectified.

Disappointing Outlook

In addition, the Q3 guidance implies a deterioration in comp and margin trends from the Q2 levels, “which is prudent given low visibility for improvement but could prove to be conservative assuming strength builds in key categories such as sweaters, as well as on line,” the analyst noted.

According to the MKM Partners report, the e-commerce trends have also been disappointing, especially given the channel strength for Express’ demographic and the investments to grow the business.

“Moving to 2017, we see less visibility and a wide range of earnings outcomes, with incremental cost savings, benefits from new systems, and the expected corrections to the assortment as potential catalysts,” Meyer added.

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