Dive Brief:

• After Express' stock price nearly quadrupled from Friday to Monday, analysts at Wedbush threw cold water on the fervor in an emailed research note that said the company is "hemorrhaging cash."
• The analysts, led by Jen Redding, stated Express has burned through $134.5 million as "the pandemic drives demand for more casual work-at-home apparel, hitting gross margin and comp at the traditionally dressier apparel retailer particularly hard."
• Earlier this month, the brand and retailer boosted its liquidity through a $140 million term loan led by private equity firm Sycamore Partners, which owns a handful of apparel retailers including Belk, Talbots and Hot Topic.  

Dive Insight:

Almost the entire field of apparel retailers was upended by COVID-19. The pandemic brought a double gut-punch, depressing foot traffic as consumers avoided enclosed malls while also lowering demand for apparel as consumers worked from home and avoided social outings. Over the past two months, apparel retailers Francesca's and Christopher & Banks have filed for bankruptcy amid the protracted crisis in the sector. 

In December, Express, which runs more than 500 stores, cuts its corporate workforce by 10%, its second round of layoffs for the year. The announcement followed a third quarter wherein sales were down 34% year over year and operating losses amounted to $110.9 million.

The company racked up $352.2 million in net losses and $251.6 million in negative cash flows through October as COVID-19 continued to pressure its business. 

In that context, the loan from Sycamore was a lifeline. CL King analyst Steve Marotta called it a "bridge through the pandemic." CEO Tim Baxter said in a statement at the time that he expected "this additional capital will support the Company through the duration of the pandemic, and allow us to continue the important and transformational work" of executing on its go-forward strategy.  

But Express has a long way to go from bridge loan to fully completed turnaround, especially in an environment where the pandemic continues to weigh on the economy and 42% of retail CFOs expect their companies to go through some kind of restructuring. 

So why are investors buying up Express? Even after the deal with Sycamore, its price was relatively unchanged. And then, on Friday, investor Will Meade tweeted the company was "a retail brand name that could turn around" and described its stock as "identical" to that of GameStop. The latter's shares have gone through massive convulsions as investors pile in, largely driven by discussions on Reddit and other online forums. 

Wedbush's Redding viewed Express' spike with caution, calling the "stampede" into the stock a "squeeze play" to hurt short sellers of Express.

"Over the longer-term, we believe federal stimulation and a return to social activities likely offer CEO Tim Baxter and company a unique opportunity ahead," Redding said. "At this point, we think it's far too early in a conceptual turnaround for shares to run 150% in two business days given low visibility on timing, and critical details surrounding vaccination and variants, essential need-to-know factors for an Express recovery, in our view." 

Since the note, Express shares have soared even further, growing over six times from Friday to its opening on Wednesday.