The Gap, Inc. (GPS) is a San Francisco-based international retail apparel company that offers casual apparel, accessories, and personal care products for men, women, and children under the Gap, Banana Republic, Old Navy, Athleta, and Intermix brands. The company offers its products through company-operated stores, franchise stores, websites, third-party arrangements, and catalogs. As of March 04, 2021, GPS had 3,100 company-operated stores and 615 franchise stores.
Express, Inc. (EXPR), in Columbus, Ohio, is a specialty apparel and accessories retailer that offers merchandise for women and men under the Express brand. The company sells its products, which are created by its in-house design team, through its brick & mortar retail and outlet stores, e-commerce operations and franchise operations. As of January 30, 2021, it operated 570 stores in 46 states across the United States and Puerto Rico.
After suffering a severe impact from COVID-19 pandemic related restrictions, most apparel retailers focused on creating or expanding their digital presence to stay afloat. But now that the economy is reopening at a fast pace and people are looking to buy outdoor apparel, the industry is seeing a surge in demand. Along with strong e-commerce purchases, brick & mortar apparel stores are witnessing increasing foot traffic. Indeed, the global outdoor clothing market is expected to grow at a 3.7% CAGR between 2021 - 2027. So, both GPS and EXPR should benefit from the industry tailwinds.
While GPS gained 1.2% over the past month, EXPR surged 43%. And in terms of their past year’s performance, EXPR is again a clear winner with 373.6% gains versus GPS’ 168.8%. But, which of these stocks is a better pick now? Let’s find out.
Click here to checkout our Retail Industry Report for 2021
Latest Movements
On May 26, GPS and Walmart Inc. (WMT) announced a strategic partnership to introduce Gap Home, a new brand of home essentials available exclusively at WMT. WMT’s scale and GPS’ brand heritage, brought together through this launch, should encourage customers to shop for quality designs and timeless home essentials for their everyday lives. The partnership is expected to generate good sales in the near-term because it allows GPS to introduce this new home brand category in a smart, scalable way.
GPS entered a new, long-term credit card program agreement with Barclays and Mastercard on April 13. Barclays will become the exclusive issuer of GPS' co-branded and private label credit card program in the U.S. beginning May 2022, and Mastercard will be the exclusive payment network across GPS’ brands. Through these partnerships, GPS’ iconic brands will continue to offer a suite of industry-leading credit card products, anchored in a digital and physical shopping experience, as part of a reimagined rewards program.
Last month, Rosen Law Firm filed class action lawsuits on behalf of those who were unable to execute trades, sold, or purchase certain securities including EXPR and other stocks (collectively called the Affected Securities) on the Robinhood Trading Platform on or around January 28, 2021. The lawsuits variously seek to recover damages for those affected by Robinhood's alleged market manipulation by restricting trading of some or all the Affected Securities.
On June 3, EXPR filed a prospectus supplement with the SEC, under which it may offer and sell up to 15 million shares of its common stock from time to time through an ‘at-the-market' (ATM) equity offering program. The company intends to use the net proceeds from any sales of its common stock under the ATM offering for working capital, or capital expenditures, acceleration of investments to grow and enhance its eCommerce channel and omni-channel assets, repayment of indebtedness, and other investments.
Recent Financial Results
GPS’ net sales for its fiscal first quarter, ended May 1, 2021, increased 89.4% year-over-year to $3.99 million. The company’s gross profit came in at $1.63 billion, up 508.2% from the prior-year period. Its operating income is reported at $240 million, compared to a $1.24 billion loss in the prior-year period. GPS’ net income came in at $166 million for the quarter, compared to a $932 million loss in the year-ago period. Its EPS is reported at $0.43, compared to a $2.51 loss per share in the prior-year period. The company had $2.10 billion in cash, cash equivalents and restricted cash as of May 1, 2021.
For the first quarter ended March 31, 2021, EXPR’s revenue increased 64.4% year-over-year to $345.76 million. The company’s gross profit came in at $78.80 million, compared to a $46.21 million loss a year ago. EXPR’s non-GAAP operating loss was $40.56 million, which represents a 68.9% year-over-year decline. While its non-GAAP net loss decreased 64% year-over-year to $35.75 million, its non-GAAP loss per share decreased 64.5% year-over-year to $0.55. The company had $84.07 million in total cash and cash equivalents as of May 1, 2021.
Past and Expected Financial Performance
GPS’ total assets grew at a 21.5% CAGR over the past three years. Analysts expect GPS’ revenue to increase 24% year-over-year in its current fiscal year (ending January 2022) and 3.2% next year. Its EPS is expected to increase 182.9% in its current fiscal year and 23.3% next year. The stock’s EPS is expected to grow at 4.9% rate per annum over the next five years.
In comparison, EXPR’s total assets grew at a 7.2% CAGR over the past three years. Analysts expect EXPR’s revenue to increase 55.7% year-over-year in its current fiscal year (ending January 2022) and 7.3% next year. Its EPS is expected to remain negative in its current fiscal year. However, analysts expect the stock’s EPS to decline at a 57.1% rate per annum over the next five years.
Profitability
GPS’ trailing-12-month revenue is 11.7 times EXPR’s. GPS is also more profitable with a 6.5% EBITDA margin versus EXPR’s negative returns.
GPS' ROE, ROA and ROTC values of 16.9%, 2.5% and 3.2% respectively, compare favorably with EXPR’ negative values.
Valuation
In terms of non-GAAP forward P/E, GPS is currently trading at 18.99x, versus EXPR’s negative value.
In terms of forward EV/EBITDA, EXPR’s 50.14x is 370.8% higher than GPS’ 10.65x.
Thus, GPS is more affordable here.
POWR Ratings
While EXPR has an overall D grade, which translates to Sell in our proprietary POWR Ratings system, GPS has an overall B grade, which equates to Buy. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.
The POWR Ratings also assess stocks based on different categories. GPS has a B grade for Quality, which is consistent with its higher-than-industry profitability ratios. The company’s 16.9% trailing-12-month ROE is 42.4% higher than the 11.9% industry average. In comparison, EXPR’s D grade for Quality is in sync with its negative ROE value.
In terms of Sentiment, GPS has been graded a B because analysts expect the company’s EPS to increase 182.9% year-over-year in the current year. In comparison, EXPR’s D grade for Sentiment reflects analysts' expectation of negative EPS for the current year.
Of 65 stocks in the A-rated Fashion & Luxury industry, GPS is ranked #11, while EXPR is ranked #63.
Beyond what we’ve stated above, our POWR Ratings system has also rated both GPS and EXPR for Growth, Momentum, Stability, and Value. Get all EXPR ratings here. Also, click here to see the additional POWR Ratings for GPS.
The Winner
Based on the changing economic conditions, both GPS and EXPR should benefit in the coming months. However, GPS’ higher profitability and better financials makes it a better buy here.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Fashion & Luxury industry.
Click here to checkout our Retail Industry Report for 2021
GPS shares were trading at $33.35 per share on Friday afternoon, down $0.17 (-0.51%). Year-to-date, GPS has gained 66.52%, versus a 16.66% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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