Late last week, the fashion brand Express received a notice of non-compliance from the New York Stock Exchange due to its share price falling to $0.63 per share in its last quarterly earnings report.
The NYSE requires that all listed stocks maintain a minimum $1 per share price in order to remain listed on the exchange. Express now risks being delisted from the NYSE if it can’t get its share price over $1 in the next six months.
In a statement from the company, Express said it plans to “formally notify the NYSE of its intent to cure the deficiency, which may include, if necessary, effecting a reverse stock split, subject to Board and stockholder approval.”
A reverse stock split is when a company consolidates the amount of shares in existence into fewer but higher-priced units. For example, if 1,000 shares of a company existed at $1 each, a reverse stock split could reduce the total number of shares down to 500 at a cost of $2 each, keeping the overall value the same but increasing the value of each individual share. This is a strategy almost always reserved for desperate situations like this where a company is at risk of being delisted. Citibank notably did this in the depths of the 2008 financial crisis, instantly turning its $5 stock into a $40 stock overnight.
“It’s usually multiple forces that come together to go against a brand like this,” said Marie Driscoll, managing director of luxury and retail at Coresight Research. “When your sales drop 15%, that can take away all your profit. Then if you’re levered, it becomes an issue.”
Express CEO Tim Baxter blamed the poor performance of the share price on macroeconomic factors. The brand’s fortunes have fallen quickly. In August last year, Express had just finished its fifth straight quarter of positive growth and was gearing up to open six new stores through the end of 2022. But Baxter said things changed rapidly at the end of last year.
“Our comparable sales were flat for the year with negative comps in the back half of 2022 offsetting gains we had made in the first half,” Baxter said in a statement on the brand’s most recent earnings call on March 24. “Our strategy to elevate our brand with higher average unit retails and reduced promotions — which had driven steady growth for five consecutive quarters through the second quarter of 2022 — bumped up against reduced consumer spending and increased price sensitivity in discretionary categories.”
Express has been hit hard by the reduced spending across the consumer retail market this year. Its net sales fell 14% in the last quarter ending in January, losing around $80 million for the quarter compared to the year before. As revenue has fallen, costs have remained high. Express spent around $162 million last quarter and $163 million the quarter before, investing heavily in new stores, but the expenses went from 27% of revenue to 31% of revenue.
“We recalibrated with urgency to address imbalances in the assortment architecture late in the third quarter of 2022, improve the composition of our inventory and advance product deliveries,” Baxter said. “Our outlook for 2023 reflects improved sales trends as we move through the year.”
The news comes just a few months after Express completed a deal with the investment company WHP Global in which WHP invested $260 million in Express and acquired 7% of the brand. WHP also owns brands like Toys ‘R’ Us. The infusion of cash was announced at the time in January to be used toward growing Express’s omnichannel capabilities, particularly its stores.
“The economic environment has changed everything,” Driscoll said. “It would make sense for Express to look at their fleet and their opportunities for smaller leases, getting out of some other leases. But I’ve been in three different Express stores in just the last month, and I think they’re doing everything right with the store experience. They’re tailored to the neighborhood, they’re doing events. They just need to think more holistically about all their leases.”