Express, Inc.

Good morning, ladies and gentlemen. Thank you for standing by and welcome to the Express Inc Q3 2020 earnings content call. At this time, all participants are in a lesson-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please give advice that today's conference is being recorded. I would now like to send the conference over to your speaker today, Dan Aldridge, VP Ayer. Please go ahead.

Thank you, Julie. Good morning, and welcome to our call. I'd like to open by reminding you of the company's safe harbor provisions. Any statements made during this conference call, except those containing historical facts, may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual future results may differ materially from those suggested in forward-looking statements due to a number of risks and uncertainties, all of which are described in the company's filings with the SEC, including today's press release. Express assumes no obligations to update any forward-looking statements or information except as required by law. Our comments today will supplement the detailed information provided in both the press release and the investor presentation available on the company's investor relations website. In addition, you can locate a reconciliation of any adjusted results discussed in our comments to amounts reported under GAAP on our website or in our earnings release. With me today are Tim Baxter, Chief Executive Officer, Perry Pericleas, Chief Financial Officer, and Matt Mullering, President and Chief Operating Officer. I will now turn the call over to Tim.

Thanks, Dan, and good morning, everyone. Throughout 2020, we have advanced the Expressway Forward strategy and taken appropriate actions to manage our liquidity. In the third quarter, we intensified our focus on e-commerce demand. Transactions were up 17%, conversion was up 10%, and we delivered sequential improvement quarter over quarter. We shifted gears on product, driving down the high penetrations and occasion-based stress categories and increasing the proportion of casual, which outpaced our overall performance. We responded to depressed mall traffic by putting a sharp focus on conversion in our stores and saw double-digit percent increases across each of our channels. We completed the first phase of our loyalty program relaunch and added more members than last year, who we know spend at three times the rate of non-members. We redirected our marketing dollars to drive brand awareness, resulting in a 77% increase in engagement across our paid social channels. We significantly enhanced our omnichannel capabilities, and our buy online, pick up in store demand grew by a factor of six times over the second quarter. We reduced our corporate workforce by an additional 10% to calibrate the organization to our improved operating model as we move into 2021. Our strategy is working. The foundational pillars of product, brand, customer, and execution are the right ones. Our decisive actions have been the right ones. Our third quarter results are clearly not where I want them to be, but they are a reflection of the environment and not a representation of the strength or power of our strategy. Now let me provide a more detailed update on the key initiatives within those four strategic pillars. I'll start with product. Our historical strength has been an occasion-based dressing. So of course, we have been disproportionately impacted over these last several months. Historically, the percentage of where to work categories specifically has had the highest inventory penetration in the third quarter, representing over 40%. We pulled back on our investment in occasion-based categories and have pushed forward with more casual, versatile categories, significantly changing their penetrations versus a year ago. For example, in men's tops, we canceled a half a million units in dress shirts, our biggest category, and repurposed about half of that inventory with more casual, versatile chambray, flannel, and corduroy, which all saw very strong consumer adoption and higher sell-throughs. We also saw early strength in men's polos, which had become the new work shirt, and our new X-Logo graphic tees. We chased into more than 250,000 units in these polos and graphic tees, and both categories achieved a monthly sequential improvement in the third quarter and ended October with positive comps. We canceled roughly 200,000 units in men's suits and replaced that inventory with our new super soft denim and elevated joggers. In women's tops, we canceled over 400,000 units of dressy blouses. and went after what we call express essential knits, and doubled our sales in that category versus last year. In women's pants, we canceled 500,000 units of dress pants, and reinvested in reorders of our luxe comfort knit jeans, joggers, and leggings, and are seeing continued positive momentum in these categories. We have steadily increased our sales penetration of total denim this year, and it now represents 49% of our total bottoms business, up from 42% last year. Denim is the foundation of a modern, versatile wardrobe, and we offer premium quality denim at very compelling price points. We launched three new fabrics in the third quarter, Luxe Comfort Knit, Luxe Comfort Super Soft, and Hyper Stretch Temp Control, and sold more than 400,000 pairs, which represented about 40% of our denim sales. We also introduced a number of new fits and styles. In 2019, One in every five of our customers purchase denim at Express. Today, that number has increased to one in every four. Our denim customer has tremendous lifetime value over a non-denim customer, visiting twice as frequently and spending twice as much on an annual basis. Our performance in men's knit tops significantly outpaced our total performance in the third quarter. Our design teams have done excellent work here, and the new approach to men's graphic tees has brought a significant number of new customers to the brand, with new customers in men's tops growing by over 100% online compared to a year ago. In addition to all of these strategic assortment adjustments, our new fashion deliveries began flowing in August. Customer response and sales results have exceeded my expectations. Now let's turn to our second pillar, the Express brand. Our brand purpose, to create confidence and inspire self-expression, is based on the belief that clothing can serve a higher purpose in people's lives. A recent article in the Wall Street Journal described the effect clothes have on how we feel and act, and the way that clothing shapes your mental state and your productivity. This is powerful validation of the relevance of our new brand positioning. We have seen increased engagement with our marketing. increased followership in social media, and greater connectivity between our customers and our messaging. We had a 12% increase in Instagram engagement and a 72% increase in Facebook engagement year over year. To fuel our customer acquisition efforts, we focused on brand awareness building activities and had a 13 percentage point trend improvement over Q2 in direct traffic and a four percentage point trend improvement over Q2 in organic traffic. We also launched the Express Dream Big project in the third quarter. This is a purpose-driven fundraising initiative created to champion organizations that empower people to believe in themselves and follow their dreams. We had a virtual event hosted by fashion expert and TV personality Tan France. The event drove record engagement for us, with over 3.8 billion total impressions, including over 39 million impressions across Express-owned and paid channels. This program unifies and aligns our corporate philanthropy and employee giving in a way that is tightly connected to our brand purpose. Turning to our third pillar, customer. To gain additional share of existing customer spend and to bring new customers into the brand, we soft relaunched our loyalty program in August and added more new customers to the program this year than last year during the third quarter. Express Insider members have the greatest lifetime value. They spend on average three times more than non-members. Their retention rate is seven times greater and new members are nearly two and a half times more likely to make a second visit within their first 90 days. We have additional enhancements coming in the first quarter of 2021, including the expansion of loyalty tiers to incentivize and reward our best customers in a more timely and engaging manner. The fourth pillar, execution, is the through line across all of our initiatives. During the third quarter, we focused sharply on two aspects of execution, accelerating our e-commerce business and omni-channel capabilities and aggressively managing our liquidity through this prolonged pandemic. As I said earlier, our e-commerce transactions in the third quarter were up 17% versus a year ago. which reflects sequential quarter-over-quarter performance improvement throughout 2020. However, revenue did not keep pace with transactions as customers shifted to categories that drove lower average order values. But as occasions return and people return to work and we progress through 2021, we expect this momentum to continue and revenue to pace closer with transactions. We added Klarna as a deferred payment alternative in mid-September. and it has driven a 25% higher average order value for customers who use this option. We expanded our digital stylist program, and this investment paid off with significantly increased demand, conversion, and average order value. We'll expand this program as we move into 2021 by shifting some of our physical store associates who have deep knowledge of our product and incredible experience working with our customers into these roles. We're expanding user-generated content on product display pages each week, and we see this drives conversion at double the company average. We enhanced product pages with product details and outfitting recommendations, which has driven increases in both AOV and conversion. Since the beginning of the pandemic, we have more than doubled the membership in our style trial rental service and have successfully launched men's. This program has achieved sustained profitability, and we see significant opportunities for future growth. We expanded our marketplace offering to include product categories outside of our own assortment, which drove nearly $3 million in demand. We advanced our omnichannel capabilities with enhanced and expanded buy online, pick up in store, and ship from store functionality, which contribute to more efficient and more effective inventory management. Demand has grown six times for buy online, pick up in store, and approximately 18% of these transactions have resulted in an incremental in-store purchase and increased conversion. In addition to each of these initiatives, we will be unveiling a bold new e-commerce strategy early in 2021 that will further enhance our capabilities and make us a more advanced omni-channel retailer. You may recall that we launched a digitally native brand, UpWest, just over a year ago. With a unique positioning around a holistic sense of comfort, the results for UpWest have already exceeded our expectations. In addition to our online offering, we have seen promising results at our current pop-up locations and are actively growing our customer file. The brand is already performing after one full year in line with or better than other digitally native brands that have also experienced significant growth over the past several years. So we're really excited about its future potential. Now let's turn our attention to physical stores. We still intend to close the 100 stores we announced in January as part of our fleet rationalization plan. We use data to make thoughtful decisions. And if we decide to close more stores, that will also be the result of thoughtful, data-based decisions. Fleet rationalization is about the number of stores. Fleet optimization, which is now our focus, is about where the stores should be, what type they should be, and what role they will play in our customers' lives. So let's talk about fleet optimization. We are testing smaller footprints in mall-based stores. We remodeled our King of Prussia store in September, reduced its square footage by 45%, and have delivered the same sales velocity as the balance of our fleet, therefore substantially increasing the relative productivity. We are also testing new concepts through off-mall pop-ups in Columbus and the Gulch in Nashville. Branded Express Edit, these are smaller formats at 1,500 and 4,500 square feet, respectively, with localized assortments, full customer service capabilities, enhanced fitting rooms, and styling services. We've made great progress in lease renegotiations through discussions with our landlords and have secured $25 million in rent abatements to date. We are in ongoing dialogue with our largest mall partners, and I am confident that we will secure additional abatements and deferrals. Our strategy is working. The response to our new fashion product that began delivering in August has been strong. Our new brand positioning is resonating and increasing engagement. Our more streamlined go-to-market process has significantly reduced our lead times. and we are gaining momentum quarter over quarter in our e-commerce business. We are pulling the right levers and prioritizing and sequencing the right initiatives in order to do everything that is within our control to advance our brand and accelerate the performance of our business. Our long-term goal remains the same, to drive revenue by capturing market share and achieve a mid single digit operating margin. Perry will now review the financial details of our third quarter results and the specific actions we have taken and will continue to take to manage our liquidity. Thank you, Tim.