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Express Now a ‘Much More Powerful’ Denim Player, CEO Says

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Express reported its “best denim performance in recent history,” though the specialty retailer is looking at $15 million in extra Q4 costs to mitigate the supply-chain bottlenecks that have already forced it to air freight shipments from Bangladesh, Indonesia and Vietnam.

In a Nutshell: CEO Tim Baxter told Wall Street analysts that Express has sufficient inventory to sustain the second quarter’s double-digit comp sales gain, and is “bringing product in early,” should demand continue into the back half.

The retailer “placed orders in late spring for the fall season for October-November deliveries and so those are coming in early,” he added, noting that Express is confident it has the holiday stock needed to “support our business.”

What’s more, the company “has worked extraordinarily hard to mitigate a significant portion of the port disruptions and country of origin impact” from Covid, chief operating officer Matt Moellering added.

To reduce the time from distribution centers to stores, “we’ve aired in some critical goods from Vietnam, Indonesia, Bangladesh,” Moellering said, while Express credited its supply-chain agility for helping it quickly “move product to different countries of origin, as others are being impacted.” These logistics changes, he added, will likely result in a $15 million fourth-quarter impact.

According to Baxter, the second quarter demonstrated the “acceleration” underway at Express. “Results in each one of our channels were very strong on both the top and bottom line,” he said. “The ExpressWay Forward strategy continues to gain momentum.”

“Demand accelerated considerably” throughout the quarter, particularly over the Memorial Day and July 4 holidays,” Baxter added.

The company’s Virtual Investor Day Presentation Thursday will detail how it plans to generate over $100 million in operating profit in 2024, in large part on the strength of its Express Style editors who work their own virtual storefronts with special Express collections.

Baxter said Express has homed in on denim as a key element of a modern, versatile wardrobe. “We have a sharp focus on denim and are a much more powerful player than we were a year ago, posting our best denim performance in recent history, and delivering a 21 percent comp increase in the second quarter versus 2019,” he said, adding that tops accounted for 36 percent of sales in the women’s business.

Efforts to rev up social media outreach and organic engagement drove metrics up across all channels versus 2019, Baxter said. Instagram was up 10 percent, Facebook rose 80 percent and Twitter grew 700 percent, while paid social engagement climbed 210 percent, he said.

Like other retailers, Express is betting big on small-format stores. A shrunken King of Prussia Mall location improved second-quarter sales 12 percent versus 2019 levels despite 45 percent less square footage, according to Baxter, who said the company operates five 4,500-square-foot Express Edit stores, half the typical location, on high-traffic streets. Its North Park Dallas store is slashing square footage by 40 percent. As two-thirds of store leases are coming due over the next three years, Baxter said Express will evaluate whether to stay or revisit the store footprint.

Net Sales: Net sales for the quarter ended July 31 spiked 86 percent to $457.6 million from $245.7 million. Consolidated comparable sales rose 42 percent, or up 3 percent when compared with the same 2019 quarter. Comparable sales included a comparable retail sales gain of 48 percent for Express stores and e-commerce from the year-ago period and a comparable outlet store sales increase of 30 percent.

Inventory was up 15 percent to $166.6 million at the end of the second quarter, versus $232.3 million a year ago. When compared with 2019 levels for the same period, inventory declined by 1 percent.

Gross margin was 32.6 percent of net sales, versus the 17.9 percent decline a year ago. The company said merchandise margin was driven by “positive customer response” to new products and a significant reduction in promotional activity.

The women’s business drove 57 percent of sales, with men’s at 43 percent, a presentation noted.

For the six months, net sales rose 76 percent to $803.4 million from $456.0 million.

Express reported its “best denim performance in recent history,” though the retailer is looking at $15 million in extra supply-chain costs.

Looks for men and women from Express Inc.

Earnings: The company posted net income of $10.7 million, or 15 cents a diluted share, against a net loss of $107.8 million, or $1.67 a diluted share, in the year-ago quarter.

Wall Street expected an adjusted diluted net loss per share of 30 cents on revenue of $447.9 million.

Based on Q2 strength, Express said it is on track to drive a billion-dollar e-commerce business by 2024.

“We drove a 15 percent increase in transactions, and a 13 percent increase in average order value, which resulted in a 28 percent comp,” Baxter told analysts, adding that “app demand was up 70 percent and traffic grew by 30 percent” in Q2.

Express expects net sales above 2019 levels on a comparable basis for the second half of the year, with positive free cash flow for the full year and a gross margin rate of 200 basis points above 2019 levels for the back half.

Short-term debt was $9.0 million at the end of the second quarter. Long-term debt was $109.2 million, down from $165.0 million a year ago and reflecting $111 million in debt repayment during the quarter ended July 31.

For the six months, the net loss narrowed to $35.1 million, or 53 cents a diluted share, from a net loss of $261.8 million, or $4.07, in the year-ago period.

CEO’s Take: “Our second quarter e-commerce results were particularly strong, and we are on track to achieve our goal of $1.0 billion in e-commerce demand by 2024,” Baxter said. “We are in the midst of an exciting transformation from being known as a store in the mall to a brand with a purpose powered by a styling community.”

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