Denim and e-commerce are leading the way at Express Inc.
In a Nutshell: “Results are now beginning to reflect the power of our product brand and customer strategies,” Express CEO Tim Baxter told Wall Street analysts Thursday on a call discussing first-quarter results, noting “excellent progress on our transformation from a store in the mall to a modern relevant multi-channel brand.”
While February was “tough,” March and April were better with second-quarter volumes currently exceeding 2019 levels, he said.
“In the first quarter, we introduced a plan to drive a billion dollars in e-commerce demand by 2024. And our first quarter e-commerce results are a strong start towards achieving that goal,” he added.
E-commerce transactions (40 percent), conversions (19 percent) and traffic (18 percent) all showed gains, Baxter said, driving the channel’s comps up 40 percent in Q1.
New fashion deliveries achieved double-digit sales gains versus 2019. Denim was in the double-digits in Express’ retail channel.
“We pulled back on promotions in the first quarter based on positive customer response to our new product, and will continue to be less promotional going forward,” Baxter said.
A loyalty program relaunch added 162 percent more new members in 2020, and 7 percent more versus 2019. A customer reactivation strategy in April has driven a 22 percent increase in returning customers, Baxter added.
The company also enhanced its mobile app experience, with a digital wallet and outfit-building tool slated for later this year. “We will be adding capabilities, including user-generated content and live chat for real-time suggestions, and advice from a digital stylist,” Baxter said, referencing a new virtual styling program that saw demand leap 25 percent.
“We achieved a 41 percent increase in demand driven through the mobile app, and are moving quickly towards a seamless digital customer experience,” he said.
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After stores began recovering in Q4, they’ve since seen “dramatic acceleration in March and April,” with “further improvement in the second quarter,” Baxter said.
“We continue to see encouraging trends in areas where coronavirus guidelines were less restrictive in the first quarter. Where mask mandates were lifted, our comp performance was approximately 10 percentage points better,” he said.
After focusing on rationalizing stores last year, Express is now looking at optimizing them. Baxter is confident that mall-based stores can be more productive. Tests at Pennsylvania’s King of Prussia Mall and at Dallas’ NorthPark Center will help Express determine the optimal size of its mall stores. About two-thirds of the retailer’s leases expire over the next three years.
Express has learned that some of its new, short-term, small-footprint pilot stores like a Nashville location generate higher average dollar sales and stronger conversion. The chain is planning 10 10 Express Edit concept stores by year end, with Westport, Conn., and Washington, D.C. brick and mortars under 4,500 square feet. The product mix will reflect local styles and trends for each market and neighborhood. And the company is also exploring opening multiple smaller stores in a single market.
Outlet locations are positioned in adjacent suburbs, with Express testing smaller formats in city centers, Baxter said. The company has also reduced promotions at its outlet locations and is flowing styles in more quickly.
Express’ new denim assortment is particularly resonating with consumers. “In 2019, only 8 percent of Express customers purchased our denim, and today, we’re at 24 percent,” Baxter said. “We saw significant acceleration in our denim business in the first quarter, selling over a million units, resulting in a positive double-digit comp in our retail channel across men’s and women’s as compared to 2019.”
Net Sales: For the thirteen weeks ended May 1, net sales rose 64 percent to $345.8 million from $210.3 million. Comparable retail sales, including both Express stores and e-commerce, rose 11 percent from year-ago figures, while comparable outlet store sales fell 19 percent.
Gross margin was 22.8 percent of net sales, up slightly from last year’s 22.0 percent.
“The wear-to-work and occasion-based categories that have historically been our strengths are starting to show signs of recovery,” Baxter said.
Men’s suits improved from down 41 percent in February to down 23 percent in the March and April time period, and second quarter to date are relatively flat, Baxter said. Women’s dresses were down over 56 percent in February, improving to down 25 percent in March and April, and second quarter to date are down just 14 percent, he said. The woven tops business has progressed from down 52 percent in February to down 31 percent in March and April, and are down to single digits for the second quarter to date.
“It will, of course, take time to fully recover in these categories. We are very encouraged by these early signs, and our core inventory is well positioned to take advantage of the demand,” Baxter said.
Inventory was down 2 percent to $264.5 million at the end of the first quarter, from $268.8 million at the end of the year-ago quarter.
Earnings: The first quarter loss narrowed to $45.7 million, or 70 cents diluted share, from a net loss of $154.1 million, or $2.41, in the year-ago quarter. On an adjusted basis, the loss for the quarter ended was 55 cents a diluted share.
Wall Street was expecting an adjusted diluted loss per share of 58 cents on revenue of $323.9 million.
For full year 2021, the company expects sequential comparable sales improvement throughout the year, projected positive operating cash flow for 2021 beginning in the second quarter, and forecast full-year capital expenditures of $35 million.
CEO’s Take: “We have made significant progress against the EXPRESSway Forward strategy we launched early last year, our transformation is well underway, customer response to our product assortment and brand positioning has been very positive, and our performance has begun to reflect the strength of our strategy,” Baxter said in a statement.