They say timing is everything. Specialty retailer Express, Inc. (NYSE:EXPR) upped its fourth-quarter and year-end guidance on Jan. 14, three days before its presentation at the 15th Annual ICR XChange Conference in Miami. Owing to better-than-expected holiday sales, its 2012 financial performance won't be so bad after all. Investors jumped all over the news, sending its stock up 24% on the day on seven times the normal trading. Any time a stock jumps 24% in a day, it's always a good idea to let cooler heads prevail. Was it an overreaction to the upside? I'll have a look.

SEE: 4 Basic Elements Of Stock Value

What's Changed?
Express updated its third-quarter outlook on Oct. 2, exactly 25 days before the end of the quarter. At that point it expected a decline in same-store sales of mid single-digits, which is exactly where it came in, down 5% year-over-year. In terms of earnings, it projected somewhere between 16 cents and 20 cents per share. The real number hit exactly at the top end of the range, up 20 cents compared to 37 cents in third-quarter of 2011. So, really, not much changed between the beginning and the end of October.

As part of its third-quarter press release on Nov. 28, Express let investors know that same-store sales in the fourth quarter would drop low single digits compared to a 5% increase in the fourth quarter of 2011. In addition, earnings per share would be between 62 cents and 68 cents, a decline of as much as 11% compared to a year earlier. On a full-year basis, it projected a low single-digit decline compared to a 6% gain in 2011. On the earnings front, it projected as much as $1.53 per diluted share compared to adjusted earnings per share of $1.66 in 2011. That $1.53 projection included as many as four cents due to a 53-week year in 2012.

Forty-seven days later, Express management revised expectations for the fourth quarter and year-end thanks to better-than-expected holiday sales. How much better will they be? Well, if you're like me, a low single-digit decline means a drop year-over-year of no more than one or two percentage points. Now it's calling for flat comps or possibly a 1% increase, which is at most a 3% positive reversal in direction, a good result for sure, but hardly worth a 24% gain. Earnings, on the other hand, seem substantially more encouraging. At the end of November, Express expected no better than 68 cents per share; it now see 72 cents per share or slightly higher. That's about a 6% change to the upside in less than seven weeks. On a full-year basis, it went from a drop of 13 cents or 7.8% in 2012 to a seven-cent decline or 4.2%. While a 360 basis point change is significant, I'm still not sold that it warrants a 24% jump in price.

SEE: 4 Factors That Shape Market Trends

Valuation
Express' stock closed trading Nov. 28 at $14.15. That's a price-to-earnings ratio of 9.5 times 2012 earnings of $1.49, which excludes the extra four cents from this past year's extra week of shopping. That's a considerably lower multiple than some similarly sized apparel stores such as Genesco (NYSE:GCO) and Jos. A. Bank Clothiers (Nasdaq:JOSB). There's only one problem: that's before the 24% bounce. Using the new year-end projections from its Jan. 15 guidance update, the multiple increases to 10.9 times earnings based on $1.59 per share. Therefore, at the end of the day, a 10 cent increase (6.7%) in its projected 2012 earnings per share from $1.49 to $1.59 resulted in a one-day, 24% increase in its stock price. It was quite a day for those holding prior to its announcement.

SEE: Can Earnings Guidance Accurately Predict The Future?

The Bottom Line
While I'm still not convinced that Express has a total handle on its business, from a valuation standpoint I have to admit that the 24% increase doesn't seem terribly out of line based on its latest projections and given where it started from. Retail sales were so mediocre this Christmas that any kind of victory, no matter how small, was cause for celebration. Investors feasted on the news - deservedly so.

At the time of writing, Will Ashworth did not own any shares in any company mentioned in this article.

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  2. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  3. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  4. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  5. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  6. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
  7. Stock Analysis

    The Safest Stocks You Can Invest in Right Now

    These stocks are likely to hold up better than others in a bear market, but there's a twist.
  8. Investing Basics

    5 Reasons to Expect Lower Stock Returns

    Lower stock returns are likely here to stay for some time. Here are five reasons why.
  9. Investing Basics

    What to Cut From Your Portfolio Right Now

    Owning stocks may shortly become too scary for your portfolio. Here's why, and here are some alternatives.
  10. Personal Finance

    Careers: Equity Research Vs. Investment Banking

    Equity research is sometimes viewed as the unglamorous, lower-paid cousin to investment banking. In this article, we compare the two careers.
RELATED TERMS
  1. Fast Fashion

    Definition of "fast fashion."
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!