Now, let’s discuss a few of these points in detail.
Online sales will drive growth with clearly specified price points
Express, Inc. (NYSE:EXPR)’s sales growth was helped significantly by its higher online sales last quarter. Its online sales increased by a thumping 48% in the first quarter of fiscal 2013. The company has launched apps and used its digital channels to reach out to the customers. Its online orders and free shipping has also helped it to drive stores sales growth. It has focused on value promotions through simple low price point message to customers rather than Buy One Get One free (BOGO) offers or any other offers.
NBC’s Fashion Star promotion has helped it to increase customer awareness with 1 million visitors to its website. Express Inc’ (NYSE:EXPR)s online channel will continue to be the largest growth driver for it in the future.
Store expansion and Outlet strategy offer long term growth opportunity
The company’s Canada expansion has delivered positive results and Express, Inc. (NYSE:EXPR) has reported double-digit first quarter comparables. The company has plans to continue the stores’ growth and it has identified 13-16 locations for new openings in the U.S. and Canada. It will also look to move into new markets with franchise operations.
Express, Inc. (NYSE:EXPR) is also moving ahead with new Outlet strategy and it has appointed a dedicated vice president for Outlet stores. Express, Inc. (NYSE:EXPR) has five Outlet locations at present which are used to sell distressed products but they will be used as factory stores in future. These stores will sell made-for-factory products which are high margin products and they will be a big opportunity to explore.
Product development and product line extensions drive sales growth
The company has developed new product lines to drive its sales growth in the second half of this year. Its new categories are a casual lounge product category and active/athletic capsule in women’s apparel. Its men’s suits and women dresses categories benefited from web exclusive products and it will continue to use the online channel for new product launches.
Its Portofino shirts were key growth drivers for it and it has also launched sleeveless Portofino to capitalize on this soft fabric. It will also look forward to gain from recently added personal care, watches and footwear categories.
Peer Analysis
In the Specialty Apparels segment of the retail industry, the other two major players are Urban Outfitters, Inc. (NASDAQ:URBN) and The Gap Inc. (NYSE:GPS).
Urban Outfitters, Inc. (NASDAQ:URBN) has been able to manage its sales growth with its direct-to-customers channel and the re-positioned Anthroloplogie brand. It has focused on a better online experience and long term relationships with customers and has invested in online technology, people and processes. It also follows a structured expansion strategy with a specialized site selection software package. It will continue to expand its stores across the brands with international expansion in China and Japan. Its DTC channel along with brands expansion in new markets will drive its sales growth.
The Gap Inc. (NYSE:GPS) has long-term growth plans with expansion in emerging economies. It has taken steps to increase its overall productivity level with store closures in North America. It has closed down under-performing stores and extended new brands in the market to increase its market share. Its online sales has increased by 27%last quarter and it will look ahead to increase its online sales by technology enhancements. This will be a very big opportunity with increased internet penetration and usage in the US economy.
| Companies | P/S ratio | Op. margin | 1 Yr. Fwd. P/E |
|---|---|---|---|
| Express | 0.96 | 11.54% | 12.77 |
| The Gap | 1.40 | 14.21% | 14.84 |
| Urban Outfitters | 2.43 | 11.26% | 19.27 |
Source: Google Finance and Yahoo Finance
Express Inc. has reported operating margin of 11.54% with the highest 1 year forward Price/Earnings (P/E) multiple of 12.77 among the three mentioned peers. The Gap Inc. (NYSE:GPS) has the highest operating margin of 14.21% and Price/Sales (P/S) ratio of 1.40. Urban Outfitters, Inc. (NASDAQ:URBN) has the highest P/S ratio of 2.43 but also with the highest forward P/E of 19.27 among its peers.
Conclusion
Express, Inc. (NYSE:EXPR) has shown better than consensus EPS results but gross margin has declined in first quarter results. It has increased its promotional activities and invested in online channel to drive comps growth.
Its store expansion strategy along with new store outlets will drive its long term growth. It has also added new products and they will drive sales growth in future. So, I recommend “buy.”
Ash Sharma has no position in any stocks mentioned. The Motley Fool recommends Urban Outfitters. Ash is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article What’s Driving Growth at This Retailer? originally appeared on Fool.com is written by Ash Sharma.
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