Express Inc, (EXPR) shares tumbled -25.51% yesterday from $16.03 a share to $11.94 after reporting second quarter earnings. Same-Store Sales declined 8.0% and gross margin declined to 29.9% from 31.1% a year ago. The company also guided Same-Store Sales in the third quarter negative high single to low double digit digits. Full year 2016 earnings per share guidance was lowered to $1.00-1.14.
Adjusted earnings per share came in at $0.13, 4 cents lower than analyst’s survey of $0.17. Sales came in at $505 million, a slight miss with the analysts’ expectation of $522 million. Traders particularly focused on headline earnings miss and the low guidance. The clothing retailer’s CEO noted, “I am disappointed with our second quarter performance as sales and earnings were below our guidance, reflecting challenging store traffic. This was compounded by a lack of clarity across the assortment. We believe we have identified the necessary actions to position Express to regain momentum and we are moving on them. Our fall assortment is more cohesive across our wearing occasions, clearly identifying the important trends, and we are aggressively pursuing several marketing initiatives focused on driving new customer acquisition and retention.”
Price action on the EXPR daily chart shows that the initial drop may have formed a breakaway gap. If momentum continues, key support may come from the once the $11.32 level. It is around that area that price could form a bullish ABCD pattern. Point D is targeted with the 161.8% Fibonacci expansion level of the B to C leg. If valid, we could see a tentative bounce towards the $12.50 region. If the pattern is invalidated, further pressure may target the $10.50 level.The Trade: Sell EXPR at $12.50, with a stop loss at $12.75 and a take profit at $11.50. The Risk/Reward Ratio is 1:4