Though Express Inc. drew a record high loyalty membership in the second quarter, sales missed expectations and profit gains stemmed from favorable tax breaks.
In a Nutshell: “We are in a shirt cycle, which you know, means the Portofino is more relevant than ever,” Express CEO Tim Baxter told Wall Street analysts in a second quarter conference call on Wednesday, referencing the chain’s wear-to-office, wardrobe-staple button-down.
Express will reintroduce the style next week after dropping an updated version of its popular Editor pants this week.
“We will continue to build core categories and core businesses that can drive significant volume at higher profit levels,” Baxter said. “We are [a] trends and fashion retailer, and so we’ll balance those key core programs with the right fashion at the right time.”
The “less price sensitive” men’s business reported a 12 percent increase in average unit retails on a growing customer base and strong chinos sales.
In contrast, Express’ pullback on promotions ended up alienating some female shoppers who started looking closely at prices starting in June, Baxter said. Jackets, skirts and Body Control did well in the quarter.
Related Stories
“While modern tailoring was great for us and women in the second quarter, we didn’t actually have enough of it. So as we’ve moved into August, and certainly as we move into September, our inventory in those key categories also grows,” Baxter said.
Sales picked up in August in women’s and the business overall as Express focused on office-ready merchandise.
The CEO reiterated the retailer’s plan to move away from deep discounts.
“We have made so much progress on eliminating the site-wide and store-wide promotions and we are not going back there,” Baxter said, adding that Express will continue to be very targeted and strategic with promotions, particularly on new product. He expects Express to continue grabbing market share in focus categories such as tailoring and denim.
Express has a good chance of that happening, especially as Baxter said building, activating and amplifying the Express styling community remains a priority for the year. Its second quarter social program Destination Express snagged 350 million impressions across digital platforms, representing a 23 percent increase from the prior quarter, and nearly 50 million organic video views. And lead style editor Rachel Zoe’s live event generated 16 million impressions across social and paid media and PR.
Baxter said Express is on track to reach $1 billion in e-commerce sales by 2024. The mobile app’s the fastest growing component of digital, representing a 31 percent increase in users to 2.7 million. They make five more visits and spend over $300 more each year than customers who only shop on the website or in store.
Express also will continue to invest in stores, the channel that Baxter said is where “our styling community comes together and where our brand’s purpose comes to life.” He noted that the majority of traffic and revenue still comes from Express stores.
In the second quarter, many of the chain’s 260 in-stores events were live-streamed by style editors, store associates and customers. “These events garnered 1 million views across our social platform,” Baxter said.
The specialty chain’s 25-store test pilot is helping management reimagine the customer experience. “These stores are outperforming the rest of our fleet with higher sales, higher loyalty program signups, increased customer engagement and overall improvements to the customer experience,” Baxter said, adding that the pilot will expand to 70 stores total in September.
Its smaller format Express Edit stores have been key to acquiring new customers and reactivating lapsed ones, as well as capture digital sales in surrounding zip codes. Express plans to open six new Edit stores in the next 90 days: one each in SoHo and Flatiron in Manhattan, Newbury Street in Boston, Walnut Street in Philadelphia and Lincoln Road and Brickell in Miami.
Baxter said its UpWest comfort lifestyle brand posted sales growth of 46 percent. Digital sales “continue to accelerate,” and the concept expanded its store footprint to 14, after adding four doors in the quarter. To build awareness, the brand is leveraging wholesale partnerships and will have a holiday launch at a “large national retailer.” The two will introduce a collection of blankets for sale on their websites.
Baxter said Express added 4 million new customers to its loyalty program and re-activated 3.2 million lapsed customers since the relaunch in the first quarter of 2021. Members make over two more visits and spend more than twice as much per year as non-loyalty customers.
But for all the perceived pluses going into the back half, one huge cloud is the retail environment, which Baxter said he expects will “remain uncertain.”
Net Sales: Net sales for the second quarter ended July 30 rose 2 percent to $464.9 million from $457.6 million. Consolidated comparable sales rose 1 percent in the quarter, reflecting the fifth consecutive quarter of positive comps versus pre-pandemic levels. Across its businesses, retail comps were flat, with stores up 6 percent and e-commerce down 6 percent. Comps at outlet stores rose 2 percent.
Inventory at the end of the quarter was $346.2 million, or up 30 percent from year-ago levels. The increase was driven by a pulling forward of receipts to mitigate supply chain challenges, and pack-and-hold for late-arriving 2021 holiday inventory that’s earmarked for its outlet channel this fall.
For the six months, net sales rose 14 percent to $915.7 million from $803.4 million.
Earnings: Net income fell 34 percent to $7.0 million, or 10 cents a diluted share, from $10.6 million, or 15 cents, a year ago.
Wall Street was expected adjusted diluted earnings per share of 9 cents on revenue of $479.6 million.
For the third quarter, the company expects comparable sales to fall in the mid-single digits.
For full year 2022, comparable sales are expected to increase in the mid-single digits. But the retailer also forecasted a diluted loss per share of between 16 cents to 22 cents.
For the six months, the net loss narrowed to $4.9 million, or 7 cents a diluted share, from a net loss of $35.1 million, or 53 cents, in the year-ago period.
CEO’s Take: “Despite considerable headwinds, we have delivered five consecutive quarters of growth, and made meaningful advancements by operating with focus, discipline and agility,” Baxter told investors. “The Expressway Forward strategy is working, and we remain committed to achieving our stated objective of the mid-single digit operating margin by 2024 and long term profitable growth.”