The Toys R Us Owner Just Made a Big Bet on Express (EXPR) Stock
Every investor knows energy stocks are doing well, but many may not have noticed the strong rally in retail stocks. Nowhere is that more clear than with Express (NYSE:EXPR) — at least on Thursday. That’s as shares of EXPR stock are up about 40% on the day.
Shares opened higher by 58% on the day and rallied as much as 67%. Triggering the rally was the company’s third-quarter earnings report, which was delivered before the open.
Oddly enough, the company missed on earnings and revenue expectations.
A loss of 50 cents per share missed analysts’ expectations by 21 cents a share. Revenue of $434.1 million fell 8% year-over-year and missed estimates by $17.6 million. Additionally, comparable store sales fell 8%, while gross margins dropped 540 basis points. Worse, management expects a deeper full-year loss than analysts were forecasting.
So why in the world is EXPR stock up so much?
EXPR Stock Surges on New Partnership With WHP Global
The retailer is entering a strategic partnership with WHP Global in an effort to revitalize the brand. WHP Global will invest $25 million to acquire 5.4 million shares of EXPR stock at $4.60 a share. It equates to a 7.4% stake in the firm.
It’s worth mentioning Express stock closed at $1.30 a share on Wednesday. Coming into today, EXPR stock had roughly 10% of its stock sold short, as well.
Express CEO Tim Baxter had this to say on the deal:
“Our partnership with WHP will drive greater scale and profitability of the Express brand through their category licensing and international expertise and strengthen our balance sheet … We expect to accelerate our growth by acquiring multiple brands in partnership with WHP and operating them on our platform. Both of these are expected to drive shareholder value.”
The two companies will form an intellectual property joint venture, valued at roughly $400 million. WHP Global — the owner of brands like Toys R Us and Anne Klein — will have a 60% stake in the new JV, while Express will have a 40% stake.
For its 60% stake, WHP Global will invest $235 million. The companies are hoping that this “mutually transformative strategic partnership” will “advance an omnichannel platform which is expected to drive accelerated, long-term growth.”
While EXPR stock is enjoying its gains on the day, it’s still down significantly on the year. Shares are still down 44.3% this year and 50% over the past 12 months.
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On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.
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