The turnaround at Express Inc. is starting to show some muscle now that it’s past the green-shoots stage.
In a Nutshell: The specialty chain on Wednesday posted fourth-quarter comparable sales and gross margin expansion that exceeded expectations, while generating full year EBITDA (earnings before interest, taxes, depreciation and amortization) of $65 million and operating cash flow of $89 million. The retailer last year delivered three consecutive quarters of positive comparable sales compared with 2019 levels. After a strong holiday season, sales momentum has continued into 2022. Chief executive officer Tim Baxter told Wall Street analysts during a Tuesday morning conference call that February product “sold through very quickly,” driving higher average unit retail (AUR).
“We expect to deliver another year of profitable growth in 2022 and are on track to achieve our stated goal of $1 billion in e-commerce demand with mid-single digit operating margin and over $100 million in operating profits by 2024,” Baxter said. “We will continue to restore the vitality of the Express brand and also begin to explore other avenues of growth for our company from accelerating our Up West business to considering wholesale and international possibilities.”
The retailer embarked on its Expressway Forward strategy in the fall of 2019 after Baxter joined the company, one that included a complete revamping of operations and assortment mix, from men’s to women’s to a closer look at its store network and social marketing.
Last year, Express closed about 100 doors. In addition, the new smaller format Express Edit stores are situated in high-traffic locations and have product assortments tailored to the tastes and character of each individual market and neighborhood, the CEO said. “They are acquiring new customers and reactivating lapsed customers at higher rates than the balance of our fleet, and driving higher digital sales.” Baxter also said the company is testing new ideas to grow its store base, whether opening its first women’s only Express Edit door in St. Louis or exploring other ideas that include a possible first men’s only location.
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“We are well on our way from being known as a store in the mall to a brand with a purpose, powered by a styling community,” Baxter said, adding, “We are selling more elevated product to more loyal customers at stronger margins.” He also said AUR for the year was up 13 percent from 2019 levels.
While sales of dresses and men’s were down 30 percent in the first quarter versus 2019, the two categories delivered positive comps for the balance of 2021. In addition, denim continued to resonate with customers. “Starting in the second quarter and continuing through the end of the year, denim posted its best performance in recent history, delivering a plus 16 percent comp versus 2019,” Baxter said, noting that its women’s Body Contour line generated nearly $16 million in sales and drove a 14 percent comp in women’s tops compared to 2019 levels. In men’s, polos and graphic tees grew 40 percent in 2021 from 2019 figures.
“Our marketing has evolved to reflect where and how content is being consumed. And we are leveraging more TikTok, Instagram and live streams,” the CEO said, noting over 110 million video views across the two platforms in the fourth quarter. “Our first livestream shopping event highlighting ‘Her Express’ outfit selections garnered nearly 450,000 viewers on express.com and Facebook Live,” he noted.
Baxter also spoke about the retailer’s UpWest brand, which he said “performed well in the quarter.” The mix of an assortment of casual relaxed apparel and home goods that are sustainably sourced and manufactured saw sales rise 41 percent. Digital was launched last year, with capabilities expanding this year, such as single-page checkout. In addition, its active Go product line will provide new store opportunities as the brand grows. Currently, there are seven UpWest stores, with nine more set to open this year. Another idea for growth that is being considered is the inclusion of wholesale.
Matthew C. Moellering, president, chief operating officer and interim CFO, told analysts the company spent $15 million in additional expenses connected with ongoing supply chain challenges.
“We have adjusted our go-to market calendar to order product two to three weeks earlier than normal. The additional in transit time will ensure that product arrives on time for product launches,” Moellering said. He added that the company also made investments in key categories, such as denim and men’s suits to make sure it has inventory on hand. “We also packed and held $12 million of holiday products that arrived late. This product is aligned with our outlet channel assortment strategy,” he said.
Net Sales: For the three months ended Jan. 29, net sales rose 38 percent to $594.9 million from $430.3 million. Consolidated comparable sales rose 43 percent. Comparable retail sales, including both Express stores and e-commerce, rose 45 percent compared with the year-ago quarter, and up 4 percent versus the same 2019 period. Comparable outlet sales rose 39 percent from year-ago figures and up 1 percent from 2019’s quarter.
Fourth-quarter e-commerce sales rose 33 percent and up 21 percent from 2019 levels. Baxter said the company has 2.3 million app users, making five more visits and spending more than $300 more each year than customers who only shopped from the website or in a store. “We added features and functionality to our mobile app that drove demand up 72 percent for the full year. Traffic increased by 20 percent, average order value increased by 27 percent and conversion was 45 basis points higher than 2020,” the CEO said.
The company said that inventory was up 36 percent to $358.8 million at year-end, versus $264.4 million at the end of 2020, due primarily to actions taken to mitigate supply chain challenges. In addition, gross margin was 29.2 percent of net sales, up from 16.6 percent a year ago.
For the year, net sales grew 55 percent to $1.87 billion from $1.21 billion.
Earnings: The specialty chain posted net income of $7.6 million, or 11 cents a diluted share, against a net loss of $53.3 million, or 82 cents, in the year-ago period.
Wall Street expected an adjusted diluted loss per share of 2 cents on revenue on $592 million.
For the first quarter of 2022, the retailer guided comparable sales to an increase of between 25 percent to 30 percent, and forecast a gross margin rate increase of 550 basis points, including $7 million of expenses related to mitigating supply chain challenges.
For the full year, the company guided comparable sales growth at an increase of 7 percent to 9 percent, with a gross margin rate rise of 100 basis points. Inventory is expected to be elevated in the first half of the year, and then return closer to parity with sales growth in the back half of the year, Express said.
For the year, the net loss narrowed to $14.4 million, or 22 cents a diluted share, from a net loss of $405.4 million, or $6.27, in 2020.
CEO’s Take: “We have effectively navigated the pandemic, rebuilt the foundation of our business and emerged as a stronger, more focused organization,” Baxter said. “We delivered profitable growth in the second, third and fourth quarters, our comparable sales accelerated each quarter and we drove substantial gross margin expansion compared to 2019 and delivered positive operating income and free cash flow for the year.”