Express: Traffic Down, Promotions up, Expectations?

Lately, it seems as though in order to drive traffic, retailers like Express , Guess? , and Urban Outfitters must offer consistent promotions. These three companies have something else in common, which is that they're all cautious going into the holiday season. For Express and Urban Outfitters, this relates to competition and the likelihood of increased promotions in order to drive more traffic to their stores. For Guess?, it primarily relates to a challenging economic environment in Southern Europe.

What's interesting about these three companies is that despite cautious outlooks, they're all healthy companies at the moment. The looming question is, though, will their health remain in good standing in the quarters to come?

Impressive numbers in a difficult environment for Express
Express recently reported its third-quarter results, with net sales improving 7% year over year, net income increasing 5%, and earnings per share jumping 15%. Most importantly, comps grew 5% (based on stores open at least 13 months).

Positive comps are difficult to come by in today's retail environment. If you come across a retailer showing positive comps for a quarter on a year-over-year basis, then you should dig deeper. It might be one of the few retailers offering a quality investment opportunity, as a comps improvement often indicates strong demand for a retailer's merchandise and/or a loyal customer base.

Express attributes its recent success to improved product offerings, more appealing visual presentations, and better customer interaction. It has also performed well on the e-commerce side, which saw sales jump 29% year over year. Express attributes this success to an improved website with better product assortment, exclusive online offerings, and incentives, such as free shipping on orders of at least $125.

According to Alexa.com (global leader in online analytics), Express.com has moved up 1,552 spots in its global traffic ranking over the past three months, now standing at 4,785. It has a domestic traffic ranking of 727. This gives Express more online exposure than Guess.com, which sports a global traffic ranking of 17,537 and a domestic traffic ranking of 3,427. However, UrbanOutfitters.com offers the most online exposure of the three internationally, with a global traffic ranking of 2,910. On the domestic side, UrbanOutfitters.com falls short of Express.com, sporting a ranking of 767.

Future expectations trump past performance
While third-quarter results were strong, Express disappointed in its Thanksgiving week sales, even though results were higher than last year. Based on this missed expectation, Express announced that it expects to be more promotional during the holiday season. This might lead to improved top-line growth, but it may also negatively impact margins and then earnings. This announcement led to the stock selling off.

Urban Outfitters is in a similar situation. In its third quarter, net sales increased 12%, and comps grew at a very impressive 7%, yet the stock continues to sell off due to the company announcing the likelihood of a highly promotional holiday season.

Guess?'s situation is a bit different, yet also similar. In its third quarter, revenue slipped 2%, with comps declining 5%. On the positive side, Guess? anticipates future strength in North America -- a rarity. On the negative side, its exposure to Southern Europe has led to a cautious outlook.

What are investors to make of all this?

Conclusion
Express and its peers are likely to offer more promotions in the near future, which should lead to negative investor sentiment. At the same time, as the holidays near and expectations are low, it might present bargain-hunting opportunities.

While Guess? is a solid company, Express and Urban Outfitters have been more consistent on the top line recently. Additionally, Express has been performing well online, and Urban Outfitters' broad retail-brand diversification should limit downside potential.

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The article Express: Traffic Down, Promotions up, Expectations? originally appeared on Fool.com.

Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Guess? and Urban Outfitters. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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