Despite high consumer confidence levels and tumbling unemployment, it hasn’t exactly been a great time to be a clothing retailer. The space has seen cutthroat competition eat into bottom lines, while changing trends have crushed several big names as well.
While this trend has hit a number of companies in the retail world as of late, it has been especially devastating for Express (EXPR). This company was a pretty fashionable pick earlier in the year, but thanks to a horrendous earnings report and a sluggish outlook, Express may be a company to avoid heading into 2014.
Recent Earnings in Focus
In Express’ most recent earnings report, the company saw earnings of 23 cents a share compared to expected earnings of 25 cents a share. This 8% miss, coupled with a sluggish outlook for EXPR, was ill received by the market.
Guidance for the all-important holiday quarter came in at 66 cents a share-71 cents a share, far below the consensus estimate of 78 cents a share. Express also lowered its full year outlook to $1.46/share-$1.51/share from an analyst estimate of $1.61/share.
Thanks to this guidance cut, and general investor disdain for retail stocks in today’s environment, EXPR crashed. In fact, the stock lost almost one-fourth of its value following the report of the slashed guidance, and shares haven’t been able to make back any ground since the release.
Outlook
Due to the guidance cut, analysts have had no choice but to slash their estimates for EXPR in the coming quarters. Seven estimates have gone lower in the past 30 days for the current quarter, while for the current year, 10 estimates have tumbled and not a single has moved higher.
With these reduced estimates, the consensus earnings estimate (for the current year) for EXPR has tumbled from $1.61/share 30 days ago to just $1.50/share today. And worst of all, this slide in EPS expectations has pushed the company to a negative growth rate for this year’s earnings, suggesting a very sluggish environment for this company in the near term.
Trends like this have pushed EXPR to a Zacks Rank #5 (Strong Sell), meaning we are looking for this underperformance to continue heading into 2014. And with the heavy level of competition and investors abandoning retail stocks across the board, there is plenty of reason to avoid this company for the time being.
Other Picks
While the broad retail environment isn’t great—the current industry rank comes in the bottom 10% for the apparel & shoe retail industry—there are at least a few picks out there that are seeing better earnings estimates, such as in the home furnishings space. This segment has an industry rank in the top 30 (out of 260) and thus could be a better choice right now.
In particular in this segment, Kirklands (KIRK) and Williams-Sonoma (WSM) are looking as prime buys. Both companies have seen their Zacks Ranks move higher in the past week (both are in buy territory too) and beat estimates at their latest report.
So if you are looking to stay in the broad retail segment, consider switching industries and moving to the home furnishing space instead. This segment has held up better than the clothing retail world, and given some strong earnings estimate revisions, could be a better way to go heading into the New Year.
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