XpresSpa Group (XSPA) Stock: Gaining On Earnings And Partnership

XpresSpa Group Inc (NASDAQ: XSPA) is having an incredibly strong start to the trading session this morning, and for good reason. The company announced its financial results as well as a strategic partnership that seem to be leading to excitement among investors. Today, we’ll talk about the news, what we’re seeing from the stock, and what we’ll be watching for with regard to XSPA ahead.

XSPA Announces Earnings And Partnership

As mentioned above, XpresSpa is having an incredibly strong start to the trading session this morning after announcing earnings and partnership news. On the partnership side, the company said that Calm, a leading app for sleep, meditation and relaxation has made an investment in the company.

The investment was around $3 million in preferred equity that is convertible at $0.62 per share, which represents a significant premium over the price of XSPA. Moreover, Calm has funded $2 million of this $3 million deal and the remaining $1 million will be funded on December 31, 2018, subject to the satisfaction of certain conditions.  In the release, the company said that the funds from the agreement will be used to improve the customer experience.

Of course, the partnership goes far further than the investment. Through the partnership, both Calm and XSPA will have the ability to leverage one another’s subscribers, users, and loyalty programs. Also, Calm’s meditation app will be included in the company’s services.

From an earnings standpoint, the company also released some positive news:

  • Revenue – Revenue for the quarter came to $12.9 million. That’s a 0.5% year over year increase. Retail sales made up about 20% of this revenue, compared to 17% in the previous quarter.
  • Margins – The company said that product and service store margins came in at 22.9%, a gain of 28.5% year over year and 20.5% quarter over quarter.
  • Losses – The company said that its operating loss came to $2.9 million, a strong improvement over the $3.5 million reported in the same quarter last year. The consolidated net loss came to $3.2 million, another point of improvement year over year from $4.7 million.

In a statement, Ed Jankowski, CEO at XSPA, had the following to offer:

Our third quarter 2018 performance reflects our continued traction in driving operational excellence into our spas through a refined labor model and greater contribution of retail sales to our revenue mix, while reducing store-level and corporate overhead costs. Despite only a modest increase in our top-line, we achieved our highest store margin so far this year at 22.9% and lowered our general and administrative expenses by 5.7% compared to the year-ago period. We have now narrowed our consolidated operating and adjusted EBITDA losses for three consecutive quarters and the same three-month period last year.

During the third-quarter 2018, we opened in Concourse D at Hartsfield-Jackson Atlanta International Airport, our third XpresSpa location in the world’s busiest airport. Our ability to further penetrate existing airports speaks to the value airport partners see in our luxury spa experience, which is complementary with their strategy of enhancing retail and service offerings. This year, we have opened a total of seven spas, including our first off-airport spa in the Westfield World Trade Center in NYC. We remain active in competing for RFP’s and have several high-priority new store openings planned for next year that all meet our strict criteria for capital allocation and are also finalizing the implementation of our franchising model.

Our intention for the balance of the year and beyond is to build on what we have already accomplished by continuing to streamline costs and position ourselves to achieve positive adjusted EBITDA. Lastly, we are very excited by our new strategic partnership with Calm and welcoming their 35 million users into our spas during the busy holiday travel season. With this investment from Calm, we will be using these funds to raise our brand profile in new and existing markets while enhancing our customers’ experience.

What We’re Seeing From The Stock 

One of the first lessons that we learn when we start to dig into the market is that the news leads to moves. In the case of XpresSpa, the news proved to be overwhelmingly positive. After all, not only did the company announce a new partnership, it also produced third quarter earnings that showed strong growth on both a year over year and quarter over quarter basis. So, it’s not surprising to see that excited investors are sending the stock on a run for the top in the market this morning. Of course, our partners at Trade Ideas were the first to alert us to the gains. Currently (8:00), XSPA is trading at $0.22 per share after a gain of $0.037 per share or 20.58% thus far today.

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What We’ll Be Watching For Ahead

Moving forward, the CNA Finance team will continue to keep a close eye on XSPA. In particular, we’re interested in following the story surrounding the company’s continued work to expand its audience and the fruits of the partnership with Calm that the company announced this morning. Nonetheless, we’ll continue to follow the story closely and bring the news to you as it breaks!

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