Express: Turnaround Gains Traction

05/12/2016 8:00 am EST


Benjamin Shepherd

Analyst, Breakthrough Tech Profits, Global Income Edge and Personal Finance

Teen fashion is so fickle that some retailers wisely have shifted away from this market to focus on the more-stable tastes of 20- and 30-somethings, observes Benjamin Shepherd, editor of Growth Stock Strategist.

David Kornberg was made CEO at Express (EXPR) in January 2015, and the company is now reaping the rewards of a change in strategy.

When you walk into an Express store today, you'll still see some teens, but you'll find the typical customer is now a young professional.

And even though you'll find some flashy out-on-the-town clothes and plenty of casualwear, the stores' fashions also tend to skew more toward dressier, office-appropriate clothing for woman and men.

Express also has been bringing brand ambassadors onboard-young celebrities and athletes-to help promote its brands.

You'll find pictures of ambassadors wearing Express gear peppered across social media and in company ads, all designed to make the brand appear to be the height of fashion.

Ambassadors emeritus include Steph Curry of the Golden State Warriors and model and actress, Kate Upton. The current ambassador is Kris Bryant, third baseman for the Chicago Cubs.

The turnaround strategy is gaining traction. After steadily falling for the better part of four years, inventory turnover at Express also has been ticking up as clothes have been selling faster.

Earnings for full-year 2016 are expected to fall between $1.56 and $1.71, as compared to $1.45 last year. That's impressive growth for a company that had seen earnings fall for three years running.

It could also be a conservative estimate: Management has bumped the guidance twice in the last six months, and Wall Street analysts have followed suit.

That's a good indication that there's still plenty of growth left for Express, and we think the market will reward the company's investors.

Right now, the shares trade at just 13.5 times trailing earnings and just 11 times the company's projected earnings. The industry on average trades at 25.9 times trailing earnings, so we expect Express's multiple to widen as its turnaround continues.

We also like that Express has effectively retired its debt and repurchased about 3.8 million shares of its common stock in the quarter, yet still has $187 million in cash on its balance sheet. That gives the company a great deal of flexibility.

A solid balance sheet virtually ensures that the company stays in fashion with investors, so buy Express under our $40 target price.

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By Benjamin Shepherd, Editor of Growth Stock Strategist

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