Citadel Investment Group, a large hedge fund managed by billionaire Ken Griffin, has reported a position of 4.8 million shares in Express, Inc. (NYSE:EXPR), a $1.6 billion market cap retailer of apparel and accessories. Citadel owns 5.6% of the outstanding shares after increasing its stake from the 1.4 million shares that it owned at the end of September (see more of Citadel’s stock picks).
Express’s last fiscal quarter ended in October with the company’s sales actually down slightly from the same period in the previous fiscal year. The company reported that sales per store and sales per square foot had been down, with these figures partially offset by an increase in store count and a 21% increase in e-commerce revenue (stores were responsible for 87% of sales). With revenue falling despite opening new stores, it’s no surprise that margins contracted and as a result Express experienced a 47% drop in net income. Earnings per share in the first nine months of the fiscal year came out to 86 cents, down slightly from 90 cents a year earlier. The stock price dropped 26% in October, presumably as the company disclosed that it was performing poorly, but has rebounded 60% since that time including a 22% rise year to date. As a result we would guess that the share price is already considerably higher than where Citadel started buying.
Even before the recent increase in the size of its position, Citadel was the largest hedge fund holder of the stock at the end of September according to our database of 13F filings. Renaissance Technologies, founded by billionaire Jim Simons, increased its own stake in Express, Inc. during the third quarter of 2012 to over 880,000 shares (find more stocks Renaissance was buying). The retailer was also one of Joel Greenblatt’s top ten stock picks; Greenblatt is a well-known value investor and author of books including You Can Be A Stock Market Genius. Check out Greenblatt’s favorite stocks.
Are other apparel retailers good values?
Express’s peers include Abercrombie & Fitch Co. (NYSE:ANF), The Gap Inc. (NYSE:GPS), Guess?, Inc. (NYSE:GES), and Urban Outfitters, Inc. (NASDAQ:URBN). Abercrombie & Fitch and Urban Outfitters carry trailing earnings multiples of more than 30; each of these retailers, however, reported double-digit earnings growth rates in their most recent quarter versus a year earlier. Abercrombie & Fitch in particular has a reasonable forward P/E, at 14. Guess is actually in a very similar situation to Express: at first glance it looks cheap with a trailing price-to-earnings multiple of 12, but sales were down slightly in the fiscal quarter ending in October from their levels a year ago and as a result earnings dropped 45%.
The darling of the industry is Gap, which is up 74% in the last year- and this figure is just a bit higher than the company’s reported earnings growth rate (though sales have shown considerably lower growth). Gap trades at 16 times trailing earnings, and so while its extremely high growth rates are not sustainable even moderate improvements on the bottom line would make it a good buy. Eddie Lampert and Stephen Mandel are two billionaires whose funds have a sizable position in Gap.
While Express’s earnings multiples look attractive, and we now have Citadel buying, the business’s recent performance has not been good and so we would be careful in evaluating the company. Gap, which trades at a moderate premium but is a larger company with more impressive numbers in the past few quarters, may be a better candidate for value status.
Disclosure: I own no shares of any stocks mentioned in this article.
