Express' Women's Recovery Is Encouraging, But Turnaround In Early Innings, Says Analyst

Telsey Advisory Group analyst Dana Telsey reiterated a High Risk rating on the shares of Express Inc EXPR with a price target of $20.

The company reported Q2 FY23 sales decline of 6% Y/Y to $435.34 million, missing the consensus estimate of $440.72 million. Adjusted loss per share of $(9.05) beat the consensus estimate of $(11.06).

The Express brand has been re-assorting its women's business to present a better balance across occasions, price points, and categories, following merchandising missteps in 2022, said the analyst.

Every category is posting positive comparable sales, with strength across denim, knits, and sweaters, however, much of the rebound is currently being driven by strategic promotions.

The analyst noted that EXPR anticipates continued pressure in its men's business through Q3 as it laps record performance.

Overall, EXPR's Q2 EPS came in better than expected, driven primarily by cost control efforts, as sales and gross margin were weaker than market expectations.

The sequential improvement through the quarter driven by a trend change in the company's women's and eCommerce businesses is seen by the analyst as encouraging as making progress on the women's assortment is a critical initiative within the company's turnaround.

While the topline environment remains choppy, the company is taking aggressive actions to reduce costs, anticipating $80 million of savings in FY23, and further savings in FY24 and FY25, noted the analyst.

However, the analyst added that the topline visibility remains difficult and margins look to remain pressured given guaranteed minimum royalty payments to WHP Global for the Express brand licensing, along with a competitive pricing environment.

Price Action: EXPR shares are trading lower by 3.83% at $8.53 on the last check Thursday.