Shares of Express (NYSE:EXPR) are rocketing higher after the Q3 release, and we think they will continue to move higher well into next year. The story here is more than just a reopening play and simply wowing the market.
Express has been engaged in a massive turnaround plan that began well before the pandemic started, delivering results. While revenue fell short of expectations, the company was able to widen margins and produce a Q3 profit for the first time since 2018, and the outlook is positive.
Express Moves Higher On Mixed Results
Express reported mixed results but delivered where it counts, growth and earnings. The company's $472.00 million in revenue missed the Marketbeat.com consensus by 620 basis points but is up 46.5% and accompanied by wider margins, so we aren't worried. Besides, only 1 analyst is covering the stock, and they haven't made any updates in several months.
On a comp basis, sales are up 46% from last year and boosted by eCommerce, up 26%. In the two-year stack, the more critical comparison this earnings cycle, sales are up 3% and on track to continue growing.
The company's gross margin improved to 33.2% over last year's 4% and are up 500 basis points versus 2019. SG&A declined nearly 1000 basis points as a percentage of sales at the operating level and is expected to remain strong going forward. As for earnings, the GAAP EPS of $0.19 reverses a loss in the previous two years while the adjusted $0.17 beat the consensus by $0.15, and the good news doesn't end there.
The company is expecting the momentum to build as the turnaround gains traction and has raised the guidance for the year. Execs are expecting comps to run in the mid-single-digit range versus 2019 with widening marketing and positive FCF to boot.
A 5% increase would put Q4 income at the highest level since 2017, and we see upside risk in the numbers. Express has the combination of branding and eCommerce that we like, so there is every reason to expect outperformance during the holiday season.
Tim Baxter, Chief Executive Officer said,
“Our strong third-quarter results reflect the second consecutive quarter of profitable growth and positive comparable sales versus 2019, and demonstrate the power of our EXPRESSway Forward strategy. Our results provide tangible evidence that the versatility, quality, and value of our product is resonating with consumers. I am confident that we will continue to deliver positive comparable sales and gross margin expansion versus 2019 in the fourth quarter.”
The Technical Outlook: Express Pops, Gains Capped By EMA
Express's price action popped more than 10% at the open and then moved strongly higher during the early portion of the session. However, the stock hit resistance at the short-term EMA before midday, and it capped gains.
The EMA may continue to provide resistance in the near term, but we expect to see it wear down fairly quickly if so. Longer-term, we see this stock making a reversal at the $4.00 level and moving back up into the $7.00 to $8.00 range by early to mid-2022.
