Express, Inc.

Good morning. My name is Patricia and I will be your conference operator today. At this time, I would like to welcome everyone to the Express Inc. Third Quarter 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I would now like to hand the conference over to Greg Johnson, Vice President of Investor Relations. Please go ahead.

Thank you, Patricia. 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 obligation 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. We will also be providing financial comparisons to prior fiscal periods, and our prepared remarks today refer to 2020 unless otherwise noted. With me today are Tim Baxter, Chief Executive Officer, and Matt Molaring, President, Chief Operating Officer, and Interim Chief Financial Officer. I'll now turn the call over to Tim.

Thank you, Greg, and good morning, everyone. If you listened to our last earnings call, you heard me summarize our second quarter performance in one word, acceleration. And that acceleration continued into the third quarter. 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 powered by a styling community. Sales in the third quarter grew 47% over 2020 and delivered a positive 3% comp compared to 2019. 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. This drove a 100 basis point merchandise margin expansion and delivered gross margin improvement of 500 basis points versus 2019. We generated positive operating income of $16 million and adjusted EPS of 17 cents against losses in both 2019 and 2020. Third quarter EBITDA of $32 million was $18 million greater than 2019, and we achieved free cash flow of $60 million in the first nine months of the year. We are selling more elevated products to more loyal customers at stronger margins. and our results are tangible evidence that the versatility, quality, and value of our product is resonating with consumers as they discover or rediscover Express. We continue to advance each one of the four foundational pillars of the Expressway Forward strategy, product, brand, customer, and execution. Let me take you through some of the results we've achieved and what is still to come. I'll start with product. Our design and merchandising teams delivered outstanding product that brings the express edit philosophy to life and reflects the way people build their wardrobes and get dressed today. One of the most important aspects of reimagining our product was to infuse versatility throughout the assortments. That approach has been impactful. And today, with research showing how eager people are to get out of sweatpants and into more fashionable clothing without sacrificing comfort, this is more important than ever. We see further evidence of this mindset shift in overall industry search behavior, with occasion-based categories trending up and the most casual categories trending down. The breadth of our assortment and an unwavering emphasis on versatility put us in a strong position to meet these needs, and we're gaining momentum in our occasion-based categories. Women's dresses, for example, were up 22%, and men's suits were up 20% versus 2019. Express customers have always appreciated newness and relied on us to help them be of the now. So we have a consistent flow of fashion in each category and in every delivery. Denim is the foundation of every modern wardrobe. So we completely reinvented our offering and are a much more powerful player than we were a year ago, driving a 12% increase versus 2019 and our best third quarter results in recent history. There has been a shift within this category to wider leg shapes, and this change in proportion is driving the purchase of new tops and shoes to complete the look. Express Essentials are foundational pieces that help build more flexible, versatile wardrobes and have been standout performers. In women's, body contour is now 50% of our knit tops business and drove a 28% increase in the category versus 2019. In men's, Polos and graphic tees drove a 39% increase versus 2019, repeating their strong Q2 performance and delivering their best third quarter volume. Now let me turn to our second pillar, brand. Reinvigorating the express brand started with reimagining our product, and we have done that. And of-the-now product must be reinforced by an of-the-now brand. We have clarified our brand message and articulated a clear, compelling brand purpose. That purpose is to create confidence and inspire self-expression and is woven through everything we do. Google organic brand demand increased 25% in the third quarter compared to 2019, a remarkable increase from up 7% in Q2 and down 6% in Q1. Brand tracking measures, social media engagement, and customer feedback all validate the direction we've taken and indicate that we are making great progress. There have been significant increases in the consumption of video content on social media, and our marketing approach has evolved to keep pace with a focus on TikTok, Instagram Reels, and live streams. Our Q2 brand campaign, called Express Reentry, featured TikTok and Instagram influencers, and drove 49 million impressions across all social platforms. In the third quarter, we continued to leverage both the social space and our styling community with a new campaign called 30 Seconds to Confidence. Once again, we featured TikTok and Instagram influencers, as well as express customers, and drove 58 million impressions. In September, we launched a partnership with Big Brothers Big Sisters of America to lend our voice and our support to their Big Futures program, which provides mentorship to help young people reach their full potential. We kicked off the partnership with a segment on The Kelly Clarkson Show that reached over 1.3 million broadcast viewers and drove 7 million digital impressions. Mentorship is one of the most powerful ways to create confidence. And I am proud of our team for bringing this purpose-driven partnership to life. We committed to raise $1 million and volunteer over 100,000 hours for this incredible program and are already off to a really strong start. Our third pillar is customer. We continue to engage existing customers and acquire new ones and have seen existing customer spend increase by 7%. New customer acquisition increased by 2% and lapsed customer reactivation increased by 22% compared to 2019. We relaunched the Express Insider loyalty program in the first quarter of this year and have seen strong performance from our most loyal customers. Since the relaunch, we have brought in nearly 2 million new customers to the program and reactivated 1.8 million lapsed customers. We are especially encouraged by the new customer performance, both in Q3 and since the relaunch, because it is such a powerful indication that our new product and brand messages are resonating. Our fourth pillar is execution. Outstanding execution helps drive momentum in each one of our channels and reinforces that our Expressway Forward strategy is successfully advancing our e-commerce, retail, and outlet businesses. We are a much stronger multi-channel player than we were two years ago. Let me provide an update on our progress in each of our channels, starting with e-commerce. We have previously stated a goal to achieve $1 billion in e-commerce demand by 2024, and are on track to achieve this target. Continuing the momentum we experienced in the second quarter, traffic and conversion increased significantly, driving demand up 26% compared to 2020. Guiding our efforts are two key approaches, knowing our customers and connecting our customers. Knowing our customers means leveraging data to provide more relevant and personalized experiences. Connecting our customers is about building community and using digital tools that make it easy for customers to inspire each other, all of which furthers our evolution to a styling community. A number of ongoing digital advancements fuel these strategies. we have continued to enrich our product pages and develop ways to help people shop with greater ease and confidence, such as an outfitting tool, user-generated content, and digital stylists. Going forward, we will continue to improve these experiences, and in 2022, we will enhance our checkout process and add a filter by store location function to make the multi-channel shopping experience even easier and more intuitive. As we continue to experiment with new ways to shop, we recently held our first livestream shopping events. Customer engagement was high. Over 500,000 viewers attended. Results were certainly encouraging, and we will accelerate this format as we move into 2022. Digital advancements are also driving our mobile app, as we add features and functionality to bring it closer to parity with the website experience. In the third quarter, app demand was up 48%, traffic increased 35%, and conversion was 40 basis points higher versus 2019. We now have over 2.2 million app users, our most highly engaged customers, making four more visits and spending $200 more each year than customers who only shop through our website or in one of our stores. We expect that our innovative express community commerce program will drive increased digital revenue, attract new customers, engage existing customers, and bring our brand purpose to life in a distinctive and powerful way. In Q3, we began the national rollout of community commerce and named Rachel Zoe as our lead style editor. As a recognizable and respected fashion authority, Rachel will help recruit, guide, and mentor our style editors. She'll work with our design and merchandising teams on exclusive product collaborations and special curations and lend her voice and reach to further amplify this innovative program. In the future, we will integrate these style editors into our brick and mortar store experience as another way to deliver on our brand purpose and bring the Express styling community to life. Another important element of our transformation to a styling community is the complete reimagining of the customer experience in our stores through a pilot program. We call these particular pilot stores Express Style Studios, and they are high energy environments where customers can enhance their personal style with the guidance of teams we call Express Style Squads. From how we recruit and hire, to how we provide knowledge and styling education, to how we engage with customers, our teams are exploring different approaches. Initial results are encouraging, with pilot stores significantly outpacing the rest of our fleet. We will refine and perfect the operating model before rolling this component nationally. With that said, we are already applying some of these learnings to stores outside the pilot program, and I'll have a further update next quarter. Physical stores will continue to be an integral part of the Expressway Forward strategy. And our retail store sales gained momentum in the third quarter, achieving a 27% increase in average unit retail versus 2019, due to the excellent response to our new product, combined with a significant reduction in promotional activity. According to third party data, our store traffic has been higher than the total mall average, which I attribute to the appeal of our product message and the strength of our marketing. Our express edit concept stores are an important compliment to our larger and mostly mall based express fleet and a way for us to diversify our brick and mortar portfolio. Most of these smaller format stores are in well trafficked neighborhood locations with a product assortment that reflects the particular taste and spirit of each market and neighborhood. We now have five of these stores, each under 4,500 square feet and our newest is in Chestnut Hill in Boston. where we selected our first in-mall location to explore this concept's appeal in a luxury mall environment. In the Express Edit stores, new customers represented nearly 50% of the total, and reactivation was 18%, meaningfully higher than the balance of our fleet. We have also posted higher e-commerce sales in these zip codes, which speaks to the power of a multi-channel model. Our outlet channel is now fully aligned to the ExpressEdit philosophy and assortment strategy, which allows us to be less promotional on our retail stores while still offering our customers a compelling value option. Our AUR increased 17% and drove a positive 6% comp in Q3. Our UpWest brand also performed really well in the quarter, opening two new stores, bringing the total to seven, and posting higher customer acquisition and increased online sales in markets with physical stores. As a way to dimensionalize the UpWest purpose to deliver comfort, the team launched Comfort for Good Day, and associates spent the day performing acts of service in their communities. The business continues to gain momentum and is well positioned to be a powerful growth engine for our company. As the industry continues to confront supply chain challenges, we are carefully navigating and managing the situation. Our teams have been agile and flexible and continue to respond to the volatility and unpredictability with smart, thoughtful solutions. For example, we accelerated our receipts in core products with limited markdown risk and key fashion categories, deployed air freight strategically, and increased delivery frequency to our stores. As a result, our inventory is well positioned to deliver positive comparable sales and gross margin expansion versus 2019 in the fourth quarter. Now let me turn the call over to Matt, who will provide more detail on our third quarter results and share our view for the balance of the year.