1) Lately they seem to have more merchandise on sales than last year. That qualifies the peak-margin some analysts argued. However, on a 2013 forward 7.8, the weakness seems to have way factored in most bad news.
2) "test-to-market" strategy: One other retailer has adopted this strategy, Body central, seems to dig a deep hole on themselves with comp sales in three quarters continuing revised down. In theory, "test-to-market" should be a good strategy to ensure a good coherence to the fashion trend. In turn, by adhering to the fashion trend, it rewards the retailer better margin. But by being successful in this strategy, some would argue that its margin has already peaked and cannot afford misstep especially the things happening at BODY. I do think EXPRESS being a bigger retailer should have a more emcompassed test-to-market process to avoid the hiccup happened at BODY.
3) Flagship stores in NYC and SF delayed which pulled the 2013 expenses into 2012. Well, what can you say for a stock selling at 7.8 PE?
4) International expansion for an non-logo retailer? Unlike Guess?, A&F, True Religion, the loyalty on brandname is easier to be established on recognition of its logo. Express doesn't have a vivid logo. Consequently, it relies the image of front-running fashion trend to pronounciate the distinction. To maintain the fashion trend leader is quite a artistic task for any retailer. That's how some Express's observers might have doubt on them.
5) Counter-argument on peak-margin's pessimism.
a. You can still find growth on new items such as watches or accessories. b. The on-line sales is still a reliable growth engine. c. Who says peak-margin? Express only sells a bit over $350 per square foot. That is considerably lower than peers' average of $450-650.
I don't have a good grip on what will be revealed in ER. But I see it as pivotal. Hopefully, the stock reaction may occur like SHOO. That's over-pessimism cures itself when ER reveals no major weakness.
Thanks for your input!! I think you've hit a lot of broad emotion over EXPR but I'll harp the Devil's Advocate for discussion's sake.
1) I shop at Express fairly frequently and haven't noticed any increase in "Sales" that would affect margin. They have pumped their image hard lately but Express does a great job of cycling their "psych-sales"; run the math and you'll find everything red-tagged works out to the same price its always been. Whether you buy 1 and get this or break the $150 threshold for 30% off you can never break Express' magical minimum price for their items.
2) Here's where I think Express has a unique model on other retailers because half of the store's inventory doesn't change (shirts & suits). I'd agree that fashion trends would have the greatest affect on EXPR's margin, but its magnitude should be less than other trend dependent retailers. You can have more or less "trend" shoppers in a quarter but EXPR always has the shirt & suit core to stabilize income.
3) Business as usual, positive to know EXPR is expanding.
4) Again I disagree on trends, Express to me has never had to compete fashion-wise; since I can remember EXPR always had the same semi-formal/urban hipster look. They've also never been the fashion leader; branding isn't so much important as I believe their core demographic is focused. The type of shoppers that shop at Express are they type that want that "look", these people will always make up x% of the population. The only true competition Express faces is the rapidly growing Urban Outfitters. But again, the cuts in margin will be less because of Express's shirt & suit half. When U.O. gets into that market then EXPR is in trouble. International expansion I don't see happening, they're angle has always been selling the "Euro" look to North America. Not good for growth, but...better for margins.
5) Counter-counter argument on peak-margin is I personally think EXPR has already reached it. Assuming accessories & online sales are maxed, what more could they possibly add to their mix? Notwithstanding I'm still watching EXPR carefully, their net income hasn't slowed. Since going public they've managed to grow the company's bank accounts by 9%/yr. Here's a retailer with a business that makes money and a customer core that I don't see fluctuating.
So, I peg EXPR to the middle of the "Value" box. I think they're growth is limited, but they've established themselves within a fashion niche. So long as the 1MX shirt comes in white I'll continue to buy it. If that profit is at a yoy 9% of the company's worth...let's see the dividend!!!