Express, Inc.

Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Express, Inc. first quarter 2022 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'd 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, again, press star one. Thank you. I'd now like to hand the call over to Greg Johnson, Vice President of Investor Relations. Please go ahead.

Thank you, Rob. 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 our investor relations websites. 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 2021 unless otherwise noted. With me today are Jim Baxter, Chief Executive Officer, and Jason Judd, Chief Financial Officer. I will now turn the call over to Tim.

Thank you, Greg. And good morning, everyone. Before I share our incredible first quarter results, I'd like to introduce and welcome our new Chief Financial Officer, Jason Judd, to his first Express, Inc. earnings call. Jason is a seasoned, well-rounded, and accomplished financial executive with a proven track record of delivering results. The breadth of his experience adds both strategic and financial weight to our extraordinary leadership team. He brings a depth of knowledge and a passion for retail that make him well-suited to lead our financial strategy and be a steward of our company. Jason joined Express almost two months ago, and his perspective is already informing our path to long-term profitable growth. I'd also like to thank our president and chief operating officer, Matt Mullering, for stepping in as interim CFO these past six months. With Jason in place, Matt will once again focus on guiding our stores, supply chain, planning and allocation, technology, and legal teams. One of the most important elements of our Expressway Forward strategy is consistent, exceptional execution, and there is no better executive to ensure that than Matt. Turning to our first quarter results, positive comparable sales, gross margin expansion, and SG&A leverage all exceeded our expectations. We delivered positive comparable sales of 31% and drove double digit positive comps in every major category and in every channel. These incredible results and the continued acceleration of our business were driven by a combination of factors. Outstanding product, a compelling brand purpose, the power of our styling community, stronger connections with our customers, and consistent exceptional execution. We drove gross margin expansion of 640 basis points despite the negative impact of $6 million of expense associated with ongoing supply chain challenges. Our average unit retail increased 20%. And for the second consecutive quarter, we recorded the highest number of active loyalty program members in our company's history. In a very difficult apparel retail environment, Express is winning. We are selling more elevated product to more loyal customers at higher margins. And our performance in the quarter is tangible evidence of the momentum that the right strategy, the right product, and the right team, all working in concert, can create. We continue to advance each one of the four foundational pillars of our 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. We set out to bring greater balance and versatility to our assortments, reflecting a more modern approach to building a wardrobe. Our express edit design and merchandising philosophy is working. We are winning in the classifications we've long been known for and gaining market share in some of the most significant volume-driving categories. Our product has never looked better, and we achieved double-digit positive comps in every major category. We achieved a number of first-quarter bests in recent history, including our men's business in total, men's suits, men's polos, women's jackets, and women's and men's denim. Modern tailoring continued its resurgence with comps up across the board. Women's jackets were up 117%. and men's suits were up 78%. Denim had a 23% comp increase, and women's was particularly strong. The Express Essentials Body Contour women's collection generated nearly $20 million in sales, delivering its best-ever quarter. Express Essentials for men were also strong, with polos increasing 75%. Our second pillar is brand. and we delivered another exceptional quarter of increased brand tracking measures, social media engagement, and positive customer feedback. Google organic brand demand increased 20% in the first quarter and was up for the 12th consecutive month. Our first quarter brand campaign, Made to Express You, generated over 285 million impressions across all digital platforms, and our video content in the quarter drove another 215 million views across platforms. Express is transforming from being known as a store in the mall to a brand with a purpose powered by a styling community. The Express styling community is not only one of the most dynamic aspects of our brand, it is also one of the most authentic and organic ways in which our brand purpose comes to life. We create confidence, We inspire self-expression. We do it by editing the best of now for real-life versatility. And everyone in the Express styling community is a part of that. Customers, associates, style editors, content creators, influencers, and brand partners all play a role. Members of the Express styling community interact with each other in the physical and digital worlds. Our brick and mortar and online stores get over 300 million visits each year. And of course, many customers engage in both channels. Building, activating, and amplifying the express styling community is one of our key 2022 priorities, and it will help us deliver the best digital and the best physical customer experiences. Our stores are the place where our community comes together. to see, try on, and style our product in real time. We hosted over 200 store events in the first quarter. At many of these, our style editors or brand ambassadors invited their followers to join them, and their ability to broaden the reach of our brand purpose through their social media platforms is evident and powerful. We also see the seamless exchange between physical and digital engagement when we simultaneously host an event in store and stream it online. These digital live stream events in the first quarter drew nearly 2 million views across all social platforms. Our stores are an essential part of our styling community and an important driver of sales growth. But they are not yet where we want them to be. And we have already begun to reimagine the customer experience through a pilot program in select stores. The initial results are encouraging. and these stores are significantly outperforming the rest of our fleet with higher sales and a better customer experience. We will refine and perfect the operating model in these stores as we expand it across our fleet, and we are already applying the most effective elements in additional stores. The combination of knowledgeable associates and consistent exceptional execution will make it possible for us to fulfill our brand purpose for every customer in every store every time. We will continue to renovate and refresh our stores to elevate the customer experience and present a more consistent brand identity across our fleet. We have already updated 20 stores and will update a total of 70 by the end of this year. These enhanced stores are achieving consistent sales increases, but there is still much more to do before all of our stores fully reflect who Express is today. Our third pillar is customer. We continue to effectively engage existing customers and acquire new ones. Total customers were up 17% and spend per customer increased 13%. Since its relaunch in Q1 of last year, our insider loyalty program helped to grow our styling community, bringing in 3.4 million new customers and reactivating 2.8 million lapsed customers. Loyalty program members are our best customers, making over two more visits and spending over twice as much per year as non-loyalty members. And as I previously mentioned, we ended the quarter with the highest number of active loyalty members in the company's history. Our fourth pillar is execution. Solid execution contributed to achieving double-digit comps across all channels, and I'll share some highlights. We drove a 21% increase in e-commerce demand, including higher traffic and an increase in average order value, and are on track to achieve our goal of $1 billion in e-commerce demand by 2024. We introduced enhancements to our online checkout process and improved our buy online, pick up in store experience to let customers more easily shop our inventory. In the coming months, we will enhance personalization and make the checkout experience even more streamlined, We will provide even more robust content across all of our digital platforms and keep improving our multi-channel execution. Our mobile app now has 2.6 million users, and we drove a 30% increase in demand and a 33% increase in traffic with these users. These are among our most engaged customers, making five more visits and spending over $300 more each year than customers who only shop on our website or in one of our stores. The majority of app users are also Express Insider members, and they drove over 90% of the app transactions. Our retail stores had an outstanding quarter, delivering a 45% comp increase. We drove a 23% increase in average unit retail, and according to our third party data, our store traffic consistently outpaced the mall apparel average by over 20%. Express Edit stores are strategically located in high traffic, opinion-maker destinations, and diversify our brick-and-mortar fleet. These stores acquire new customers, reactivate lapsed customers, and sign up Express insiders at higher rates than the balance of our fleet, and boost digital sales in the surrounding zip codes. We recently opened a women's only express edit store at Plaza Frontenac in St. Louis. And it is already our most productive of these formats to date. We plan to open stores in Soho and Flatiron in Manhattan and on Newbury Street in Boston in the coming months. And we also expect to open a men's only store this year. Our outlet channel delivered a positive 30% comp and achieved its biggest first quarter ever. With assortments fully aligned to the express edit design and merchandising philosophy, we are achieving higher average unit retails while giving the customer even more compelling value. Our UpWest brand also had a remarkable quarter with sales growth of 68%. As our digital sales continue to accelerate, we are also expanding our physical store footprint. We've already opened four new stores this year, bringing the total to 11. and we plan to open four additional stores in 2022. These stores attract new customers and accelerate digital sales and surrounding zip codes. Later this year, we will unveil a partnership with a prominent national retailer that will expand the awareness and reach of UpWest more quickly. UpWest continues to gain momentum and is well positioned to be a growth engine for our company. In addition to driving incredible results in the first quarter, we also launched our ESG mission, Express Together, to guide and set clear goals for our commitments and actions across diversity, equity, and inclusion, giving and mentoring, and sustainability. Our DE&I mission is to seek out, respect, and embrace different experiences, approaches, and points of view. A team of DE&I stewards leads the development of our content, education, discussion, and communication around a wide range of topics. Our giving and mentoring mission is to offer opportunities and resources for every generation. We accelerated our Express Dream Big project through a partnership with Big Brothers Big Sisters of America and have already surpassed our goal of raising $1 million to support their Big Futures mentorship program. Within sustainability, Our conscious sourcing and product mission is to make better choices through products and practices. As one example, we have set a goal to conserve 50 million gallons of water by 2026. Now let me turn the call over to Jason, who will provide the detail on our first quarter results and share our improved outlook for 2022.