Third quarter net income for Express Inc. swung back to the black, as a product revamp drove a 47 percent spike in net sales.
In a Nutshell: “We are developing and delivering fantastic contemporary products that appeal to multiple generations, and we’re doing it at incredible value,” CEO Tim Baxter told analysts in a conference call on Thursday. A 27 percent increase in average unit retail underscores customers’ response to the product, he said.
Express sees an opportunity to potentially raise prices, though it “certainly will continue to evaluate the marketplace” and price products accordingly, Baxter said.
Like others in fashion retail, Express is pulling some inventory from the first quarter into the fourth quarter to circumvent supply problems, he added.
“We’ve been strategic and surgical in our approach versus just throwing money at the problem,” he said, noting that Express began pulling forward orders in the spring. Shipments are being called in two to four weeks earlier to ensure timely arrival, while operations and logistics experts have taken time out of the system from when product gets to the port and then to the distribution centers, and then reducing processing times in getting the merchandise to the stores, he said.
He also described what happens when some goods come in late, noting that because of the lost selling time, Express takes a closer look at the smaller selling window to determine if the product can be packed and held for sale in its outlet channel next year.
The strategies seem to be working, given third quarter results.
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“We achieved these results with a significant reduction in markdowns reflecting the more disciplined strategic and targeted approach we have taken to eliminate the majority of deep store-wide and site-wide promotions,” Baxter said. “Our results are tangible evidence that the versatility, quality and value of our product is resonating with consumers as they discover or rediscover Express.”
One of the most important aspects of reimagining the product line was to design with versatility in mind. “That approach has been impactful,” Baxter said, noting research showing people are eager to get out of sweatpants and into “more fashionable clothing without sacrificing comfort. This is more important than ever.”
Trends in the third quarter show sales of occasion-based categories trending up, while the most casual categories have been trending down across the assortment. Women’s dresses are up 22 percent and men’s suits are up 20 percent versus 2019, Baxter said. Express Essentials have delivered newness in core basics such as body contour tops for women and polos for men.
Sales of Express’ reinvented denim lines climbed 12 percent versus 2019, Baxter said. Denim has played a key role in driving sales at Express since the first quarter, continuing into both the second and now third quarters. The current denim trend also saw a shift to a wider-leg for both men and women, changing proportions that drove the purchase of new tops and shoes to complete the look, he said.
The marketing and social teams have employed brand tracking, social media engagement and customer feedback to reposition Express in the fashion conversation. Baxter said they “all validate the direction we’ve taken, and indicate that we’re making great progress.” He cited significant improvement with video content on social media, as well as a focus on TikTok and Instagram reels and live streams.
Baxter said the company recently held its first live-stream shopping event. “Customer engagement was high, over 500,000 viewers attended. Results were certainly encouraging and we will accelerate this format as we move into 2022,” he told analysts.
Net Sales: Net sales for the three months ended Oct. 30 jumped 47 percent to $472 million from $322.1 million a year ago. Comparable sales rose 46 percent. Comparable retail sales at Express stores and the e-commerce channel rose 52 percent, and comparable outlet store sales rose 33 percent. When compared with the same 2019 pre-pandemic quarter, consolidated comparable sales rose by 3 percent.
Inventory was $383.6 million at the end of the quarter, up 9 percent versus $350.6 million in the year-ago quarter. The increase reflects accelerated investments in core products that have limited markdown risk to mitigate supply chain challenges. When compared with the same 2019 quarter, inventory increased 11 percent.
The company said gross margin was 33.2 percent, versus 4.3 percent last year. Compared to 2019, gross margin increased by 500 basis points.
For the nine months, net sales spiked 64 percent to $1.28 billion from $778.0 million in the year-ago period.
Earnings: Net income was $13.1 million, or 19 cents a diluted share, against a net loss of $90.3 million, or $1.39, in the year-ago quarter. On an adjusted basis, diluted earnings per share was 17 cents.
The company said it expects comparable sales for the fourth quarter to increase by low-single digits, when compared with 2019 levels. And despite ongoing supply chain constraints, the company said its inventory level and composition are “well-positioned” to deliver its fourth quarter sales outlook. In addition, the gross margin rate is forecasted to be 100 basis points higher for the quarter, including $15 million of expenses related to mitigating supply chain challenges.
The company also said it is in a good position to achieve its long-term goals, which includes $1.0 billion in e-commerce demand and over $100 million in operating profit by 2024.
For the nine months, the net loss narrowed to $22 million, or 33 cents a diluted share, from a net loss of $352.2 million, or $5.46, in the year-ago period.
CEO’s Take: “Our strong third quarter results reflect the second consecutive quarter of profitable growth and positive comparable sales compared to 2019. The Expressway Forward strategy continues to gain momentum, and we are well on our way from being known as a store in the mall to a brand with a purpose,” Baxter said.