Equity research: Express: Speculation Gone Wild

 Jan. 24, 2021

Here is the article.

I tried to figure out why EXPR stock went up from $1.1 to $2.7. As an investor, I like to take risk from whatever I have earned in investing, mostly from index fund - passive investment. That amount is around $3000 dollars. I did purchase EXPR stock from Dec. 2020, and then I had gains $2600 US dollars. 

EXPR stock

I need to learn how to read more often about EXPR financial reports, and then analyze by myself. 

Summary

• Express shares went on an epic ride on Friday, starting at 3 PM, driven by a Will Meade tweet suggesting Express was worth $10 per share.
• Will cited that Express has $1.63 per share in cash yet he fails to mention net cash was negative $58 million as of October 31, 2020.
• Express has been hemorrhaging cash flow through FY 2020 (Q1-Q3) to the tune of negative $134.5 million (adjusting for seasonal inventory changes).
• On January 14, 2021, Express announced 'additional' financing from Sycamore at LIBOR +800 BPS (a new $90 million term loan).

So a Will Meade tweet started the party of pump and dump on Jan. 22, 2021. 

However, towards the end of November 2020, the market felt like a casino. This frothiness has continued virtually unabated from November 9th to Friday, January 22, 2021. I continue to read these wild theories of 'V' shaped recoveries in 2021.

Speaking of casinos, in today's piece, I write to highlight a textbook case that showcases this speculative insanity - Express, Inc. (EXPR). And before we go there, I want to add, at least anecdotally, November 9, 2020-January 22, 2021 is starting to feel like more of a bubble than Q4 1999-March 10, 2020 time period for the NASDAQ.

After the 4 PM closing bell, the casino and party like atmosphere spilled into after-hours trading, where Express traded 37.4 million shares. Keep in mind that there are only 4 hours of after hours trading and this was a Friday night. I guess people have nothing better to do with their time, on a Friday night, than speculate on a mall based apparel penny stock. Cumulatively, Express traded north of 77 million shares on Friday and yet there are only 65 million total shares outstanding!

I like to learn how to write better on this topic:

About that $1.63 per share in cash claim

1. Express $1.63 in cash. 
2. Feb. 1, 2020 , 207 million in cash, no finance debt  - exclude store operating leases
3. EXPR's cash balance increased YoY by $35 million, its inventory declined by $47.5
4. Express FY 2019 10-K
5. Cash 207 million - 2020 Feb -> 107.3 million Oct. 31, 2020, debt $165 million long term debt, 264.8 million swing in wrong direction
6. Q4 2020 130 million increase inventory
7. Burned upwards of 134.5 million of cash in nine months!
8. Q1 FY 2020 - horrible - gross margin - negative $46 million, Express lost $154 million (or 2.4 per share)
9. Q1 FY 2020 - cash flow burn of $131.2 million 
10. Q2 FY 2020 - loss 107.8 million - Q2 loss of 1.67 per share 
11. Q3 FY 2020 - loss 90.3 million - negative $1.99 per share, gross margin is 4.3%; seasonality standpoint - 99.8 million 
12. Build inventory for seasonal change - Q3 - cashflow operation - negative 251.6 million 
13. 2021 140 million financial loan - 90 million FILO term loan with maturity date of May 24, 2024, and a $50 million delayed Draw Term loan 
14. Loan 8.00% to 8.25% - LIBOR - pricing margin 

It is not $1.63/ share in cash, but it is debt $2.54/ per share in debt, as of Oct. 31, 2020. Express had $58 million of net debt at the end of Q3 FY2020 and not $1.63 per share in net cash.