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Uncertainty For Express Investors Remains

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Uncertainty For Express Investors Remains

Express, Inc. (NYSE: EXPR) guided FY2017 earnings below expectations, with the high end of the range 16 percent below consensus, driven largely by lower margin rates.

Wedbush’s Morry Brown maintained a Neutral rating on the stock, while lowering the price target from $11 to $9.

Skewed To The Downside

The analyst believes that despite the earnings being meaningfully below expectations, “earnings risk from here likely skews to the downside, as it bakes in flat to slightly positive SSS (same store sales).”

Brown explained that returning to positive same-store sales at this time, despite a backdrop of easy comparisons, seems to be a “risky proposition.”

While management is targeting executional improvements and the Spring merchandise appears better than the second half of 2016 assortment, the analyst believes these improvements are unlikely to help overcome traffic challenges completely.

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Challenges Persist

Express’ FY2017 EPS guidance implies a 10 percent year-on-year decline in the EPS, driven by headwinds such as increased labor costs, return to incentive compensation, etc.

“Given these headwinds in 2017, combined with what appears like a somewhat aggressive sales assumption given current mall traffic trends and 1Q17’s guidance for –HSD (high single digit) comps, we believe earnings risk likely skews to the downside from here for FY17,” Brown stated.

Explaining the improvement expected in performance as 2017 progresses, Express highlighted various initiatives, such as improved merchandise execution, lower SKU (stock keeping unit) count leading to greater clarity within the assortment and the addition of a collaboration line at the end of March.

“While we believe these initiatives could help at the margins, we are skeptical that they will be enough to offset sluggish mall traffic, if YOY declines persist throughout the year (which we expect),” the analyst added.

Latest Ratings for EXPR

DateFirmActionFromTo
Aug 2019MaintainsNeutral
May 2019ReiteratesNeutral
Mar 2019MaintainsHoldHold

View More Analyst Ratings for EXPR
View the Latest Analyst Ratings

Posted-In: Morry Brown WedbushAnalyst Color Price Target Analyst Ratings Best of Benzinga

 

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