Now that we’re starting to reopen brick and mortar across the nation and the first news of second wave is finally starting to emerge across Europe and Asia, I’m finally confident enough to release my research.
Express Inc. the store you always walked by in the mall that triggered PTSD of a time you were able to get into a slim fit v neck and slug Red Bull vodkas down while listening to DJ Paully D. I think it’s finally time to put the nail in this one.
Sales: We’re all smart enough to see the writing on the wall. With 300+ stores closed across the nation, the primary driver of sales for Express has been decimated (similar to all retail chains who’s primary focus are not online). Second wave will be touch and go around states causing uncertainty in projected sales as foot traffic will be uncertain as states continue to figure out their return to normal. With the kind of clothing they sell, most people try before they buy, this could also increase cost of inventory for constantly having to sanitize products in store, or increase inventory costs from constant back and forth from online returns.
Secondly, let’s look at the target market for Express clothes. Their product is mainly focused around businesses and casual wear. Considering there’s a large movement towards WFH, I don’t see many people buying dress shirts, pants etc. On the casual side, bars and restaurants will be the last to open. As less people will be dressing for a night out, I see another major dent in sales.
Express have turned to online sales to generate revenue. However, they’re a discretionary product. They state in the risks portion of the 10-K they’re facing heavy competition from online retailers and lower priced product (like an H&M). Substitute goods.
Also, net sales have been flat or going down since 2015.
Product: Express relies 100% on manufacturing from both Asia and South America. This means that they could face major supply interruptions as COVID starts to spread in South America and continues to persist in Asia. To top this, Express’ distribution, manufacturing and shipping are 100% outsourced. You may think well, less overhead, which is a fair point, but to be at the mercy of the supply chain may result in reputation damage and lost sales.
There’s a fair bit more on their product side exposure if you have a look at the 10-K.
Assets: As the company leases most store space, it doesn’t have hard assets like brick and mortar to sell off and raise cash.
60% of its total assets are a “Right of Use Asset” which funnily just popped up on the Balance Sheet this year and is a lessees right to use an asset over the life of the asset. Not much in the financials about what it is, but I’m calling BS on that having much value when brick and mortar isn’t attractive and no business are looking to pick up leases. Get ready for that to be impaired into the ground.
Other assets are small cash and clothes … which lord only knows who’s buying a 60 dollar button down with 30M unemployed.
Liabilities: Obviously major liability is leases which ST is about equal to all their ST assets. Sure they’ll manage to negotiate, but again, that costs money. Also long term lease liabilities, which oh funny enough is the same amount as the Right of Use Asset. So they’re balance sheet less that one accounting for leases is 800M half of which is going to ST liabilities.
Stock Price: Okay I’m getting tired but I think we’re starting to get the point. It’s been going down like your girlfriend for the past 5 years. In one of their recent disclosures they issued preferred shares, which I think means further dilution.
The CEO in the 8-k filed recently mentioned they’re furloughed employees and trying to reduce expenses, but let’s be real, they were headed to penny stock land or bankruptcy long before COVID. This is just the last nail in the coffin.
Earnings for Q2 are going to be terrible, which surely in the limbo stick analyst world will screw me short term as “it wasn’t as bad as expected” is apparently a new acceptable normal. I’m a believer this one is done long term, even if the second wave isn’t as bad as I predict.
Options noob, but I can’t short. Do your own research, this is NOT investment advice.
EXPR $3p 10/16
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.