Consumer

Sarah Halzack is a Bloomberg Gadfly columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.

For a long time now, it's been hard to find any excuse for optimism about the future of apparel retailer Express Inc.

Like so many of its competitors in the clothing business, it'd been hit hard by waning mall traffic and punishing competition from fast-fashion rivals and e-commerce upstarts. But with its latest earnings report, the clothier finally gave investors a glimmer of hope that it might be able to get itself back in fashion.

Comparable sales were down 4 percent compared to the same period a year earlier, the company reported Wednesday. While that is still a weak performance, it's a notable improvement over what had been seen on this measure over the previous four quarters:

Not Good, But Better
Express's comparable sales were down this quarter, but were sequentially better
Source: Bloomberg

The company also delivered a 28 percent increase in e-commerce sales. This result -- coupled with its healthy online sales growth in the prior quarter -- represent a critical leap forward from 2016, when it recorded a measly 5 percent uptick in online sales for the full year. That lackluster pace of growth loomed ominously over the company, and not just because some of its peers routinely deliver double-digit increases in the digital realm. Express now counts on e-commerce for roughly one-fifth of its total sales, so it was difficult to see a path forward for the chain if it didn't majorly pump up sales in that channel.

Another sign of progress at Express is its not-quite-as-bad merchandise margins. They still decreased in the quarter, but were sequentially better than what we've seen recently out of the company.

Help on the Margins
Express didn't see quite as big a dent in its merchandise margins this quarter
Source: Company Filings

For several quarters, Express had been bemoaning that margins were being squeezed when it had to resort to promotions or markdowns to make sales. But this was a concerning excuse, because shoppers had been demanding a steady stream of these discounts for years now. If Express hadn't reconsidered its pricing strategy accordingly, that suggested the retailer wasn't doing a good job of adapting to consumers' new habits.

Express is still struggling to get the promotional balance right, but it is encouraging that it trimmed the declines on merchandise margins. It is also noteworthy that the company bumped up its full-year earnings guidance, suggesting it sees near-term opportunity to keep improving on this and other measures of profitability. All of these factors helped send Express's stock soaring in early-morning trading.

This was a good time for Express to signal it is getting its act together. Gap Inc. recently posted its third consecutive quarter of positive comparable sales, stoking talk that it might finally be building a lasting turnaround. Urban Outfitters Inc. surprised investors last week with results that weren't as lousy as expected. Express's perked-up results offered signs that it isn't being left behind by those and other competitors.

Let's be clear: There are still many reasons to doubt that Express can ever reclaim the retailing prominence it once had. It hasn't been especially aggressive about closing its roughly 635 stores, a move that could come back to haunt it. It is far behind much of the rest of the industry on digital initiatives such as ship-from-store, which can allow it to get orders to online customers more quickly.

Out of the Express Lane
Despite these recent improvements, investor confidence in Express has been slipping over the long haul
Source: Bloomberg

But the company showed this quarter it still has some fight in it. Now it just has to keep swinging.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Sarah Halzack in Washington at shalzack@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net