Chico's FAS, Inc. (CHS) operates as an omnichannel specialty retailer of women's private branded casual-to-dressy clothing, intimates, and complementary accessories. It operates under the Chico's, White House Black Market, and Soma brands. On the other hand, Express, Inc. (EXPR) provides apparel and accessories for women and men under the Express brand for various occasions. The company sells its products through its e-commerce website, express.com; mobile app; and franchisees Express locations in Latin America.
Despite surging energy prices and related costs caused by Russia’s attack on Ukraine, consumer spending rebalanced to pre-pandemic levels in March, as overall retail sales excluding auto increased 8.4% year-over-year, according to a Mastercard Inc (MA) report. In addition, consumer confidence rebounded in March due to improving business and labor market conditions which position retailers well for solid sales growth. Moreover, the increasing in-store retail sales as consumer mobility increases and continued online buying trends should help retailers thrive in the upcoming months. According to a Research and Markets report, the global retail market is expected to grow at a CAGR of 7.7% by 2025. Therefore, both CHS and EXPR should benefit.
EXPR has gained 3.9% year-to-date, while CHS has negative returns. However, CHS’ 5.2% gains over the past six months are significantly higher than EXPR’s negative returns. Moreover, CHS is the clear winner with 40.3% gains versus EXPR’s negative returns in terms of the past year’s performance.
But which of these two stocks is a better buy now? Let’s find out.
Latest Developments
On March 22, 2022, CHS announced new mobile shopping apps across all three of the company's brands – Chico's, White House Black Market, and Soma – unifying customers' omnichannel shopping. Stacey Blicker, VP of Digital Commerce, said, "Launching these new mobile apps is another step forward in our work to leverage premier digital capabilities to drive loyalty and sales conversion."
On March 9, 2022, EXPR’s CEO Tim Baxter said, "Our transformation has been driven by significant progress in each of the four foundational pillars of the EXPRESSway Forward strategy: Outstanding product, a relevant and compelling brand purpose, a customer loyalty program driving higher engagement, and solid execution. The momentum of our business is tangible evidence that the strategy is working."
Recent Financial Results
CHS’ net sales increased 28.5% year-over-year to $496.26 million for the fiscal fourth quarter ended January 29, 2022. The company’s net income came in at $10.73 million compared to a loss of $79.14 million in the prior-year quarter. Also, its EPS came in at $0.09 compared to a loss of $0.68 in the year-ago period.
EXPR’s revenues increased 43.8% year-over-year to $594.93 million for the fiscal fourth quarter ended January 29, 2022. The company’s net income came in at $7.56 million compared to a loss of $53.28 million in the prior-year quarter. Also, its EPS came in at $0.11 compared to a loss per share of $0.82 in the year-ago period.
Past and Expected Financial Performance
CHS’ total assets grew at a CAGR of 5.9% over the past three years. Analysts expect CHS’ revenue to increase 15.5% in fiscal 2023 and 5% in fiscal 2024. The company’s EPS is expected to grow 24.3% in fiscal 2023 and 30.4% in fiscal 2024. Moreover, its EPS is expected to grow at a rate of 10% per annum over the next five years.
On the other hand, EXPR’s total assets grew at a CAGR of 5% over the past three years. The company’s revenue is expected to increase 6.2% in fiscal 2023 and 4.4% in fiscal 2024. Its EPS is expected to grow 169.6% in fiscal 2023 and 112.5% in fiscal 2024. EXPR’s EPS is expected to decline at a rate of 57.1% per annum over the next five years.
Profitability
EXPR’s trailing-12-month revenue is 1.03 times what CHS generates. However, CHS is more profitable, with an EBITDA margin and a levered FCF margin of 6.52% and 4.37% compared to EXPR’s 3.66% and 4.23%, respectively.
Furthermore, CHS’ ROA and ROTC of 3.37% and 4.38% are higher than EXPR’s 0.04% and 0.06%, respectively.
Valuation
In terms of forward non-GAAP P/E, EXPR is currently trading at 20.08x, 93.5% higher than CHS’ 11.74x. Moreover, EXPR’s forward EV/EBITDA ratio of 11x is 38.2% higher than CHS’ 7.96x.
So, CHS is relatively affordable here.
POWR Ratings
CHS has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. On the other hand, EXPR has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
CHS has an A grade for Growth, consistent with analysts’ expectations that its EPS and revenue will increase in the upcoming months. On the other hand, EXPR has a B grade for Growth.
Also, CHS has an A grade for Value, consistent with its forward P/S of 0.28x, 69.8% lower than the industry average of 0.91x. However, EXPR has a B grade for Value.
Moreover, CHS has a grade of B for Quality. This is justified given CHS's 23.71% trailing-12-month ROCE, 37.9% higher than the industry average of 17.20%. On the other hand, EXPR has a Quality grade of C, in sync with its negative trailing-12-month ROCE, compared to the industry average of 17.20%.
Of the 66 stocks in the A-rated Fashion & Luxury industry, CHS is ranked #9. In comparison, EXPR is ranked #46.
Beyond what I’ve stated above, we have also rated the stocks for Momentum, Stability, and Sentiment. Click here to view all the CHS ratings. Also, get all the EXPR ratings here.
The Winner
The retail industry is expected to grow significantly with the rapid shift to online platforms and increasing consumer footfall. While both CHS and EXPR are expected to gain, it is better to bet on CHS now because of its lower valuation and higher profit margin.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Fashion & Luxury industry here.
EXPR shares rose $0.04 (+1.27%) in after-hours trading Thursday. Year-to-date, EXPR has gained 2.60%, versus a -5.22% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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