Express Needs More Full-Priced Selling, Reduced Storewide Promotions

Express, Inc. EXPR reported disappointing Q3 figures and announced its Q4 guidance significantly short of expectations.

Sluggish sales and higher promotions pushed the guidance down, Wedbush’s Morry Brown said in a report. He reiterated a Neutral rating on the company, while reducing the price target from $12 to $10.

“[W]e look to see more full-price selling and reduced storewide promotions before considering a more positive stance,” Brown commented.

Q3 Results

Express reported its quarterly EPS at $0.15, higher than the consensus expectation of $0.13. Brown noted, however, that the EPS would have been at $0.11 had it not been for a tax benefit of $2.9 million. Merchandise margins contracted 350bps “due to incremental promotions (run in response to traffic challenges).”

Guide Down

The company reduced its Q4 guidance from $0.53-$0.61 to $0.26-$0.30, well below the prior consensus estimate of $0.54. The Black Friday weekend was challenging, and the same-store sales guidance for Q4 reflects a continuation of this weakness, the analyst stated.

Brown reduced the EPS estimates for 2016, 2017 and 2018 have been reduced from $1.03 to $0.83, from $1.05 to $0.82 and from $1.14 to $0.99, respectively, saying that the reductions not only reflected lower sales and margins, but also reduced capacity for share repurchase.