Express, Inc.

Good morning. My name is Chris and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Express second 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 would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, please press star one again. I would like to hand the call over to Greg Johnson, Vice President of Investor Relations. Please go ahead.

Thank you, Chris. 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 federal securities laws. 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, whether as a result of new information, future events, or otherwise, 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 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 2021 unless otherwise noted. With me today are Tim Baxter, Chief Executive Officer, Matt Molaring, President and Chief Operating Officer, and Jason Judd, Chief Financial Officer. I will now turn the call over to Tim.

Thank you, Greg, and good morning, everyone. In Q2, we delivered our fifth consecutive quarter of positive comparable sales compared to pre-pandemic levels and generated positive operating income and operating cash flow. We drove comparable sales of plus 1% compared to 2021 and plus 4% versus 2019. We delivered gross margin expansion of 50 basis points compared to 2021 and 630 basis points versus 2019. We generated EBITDA of $26 million. We delivered these results despite difficult macroeconomic conditions that worsened as the quarter progressed, and this dynamic caused us to miss our revenue outlook. Even so, our results in the first six months of the year were solid. Comparable sales were plus 14%, gross margin expanded 270 basis points, Average unit retail increased 13%, and we delivered EBITDA of $31 million, an increase of 350%. I expect the environment to remain uncertain, but we will continue to focus on the fundamentals, control the controllables, and deliver on our long-term commitment of a mid-single-digit operating margin. Even in this challenging environment, we continue to experience momentum across much of our business. We had very strong results in men's and posted growth in every major category. Modern tailoring in men's and women's continued its resurgence. Our average unit retail increased 7 percent, comps in our retail channel were flat, and our outlet channel was up 2 percent. As I mentioned, macroeconomic conditions worsened as the quarter progressed and caused us to experience a slowdown beginning in mid-June that continued into early August. However, we have seen some improvement in each of the past few weeks. We saw a bifurcation in customer behavior that affected our men's and women's businesses differently, with the women's customer becoming much more value conscious. This also negatively impacted our e-commerce business, as women's accounts for a high percentage of our digital sales. We continue to advance each one of the four foundational pillars of our Expressway Forward strategy, products, brand, customer, and execution. Let me take you through some of the results we've achieved to date and what is still to come. I'll start with product. We offer modern, versatile, high-quality fashion at incredible value, and we continue to gain market share in some of the most significant volume-driving categories. We're winning in men's. We saw strength and comp growth in men's across all categories, generated higher and more profitable sales, drove a 12% increase in average unit retails, and grew our customer file. The customer continued to respond to the fashion, quality, and value in our assortments, and as I referenced earlier, was less price sensitive than what we saw in women's. Modern tailoring continued its resurgence, and men's suits were up double digits. Men's chinos were one of our best categories, and thanks to a combination of comfort and versatility, were up significantly. Our women's business was more challenged as the customer's mindset became much more value-oriented. We were not as promotional as many of our competitors, which likely impacted our results. Within women's, our momentum in modern tailoring continued with both jackets and skirts up double digits. We have several compelling women's product launches coming in September, including the redesign and reintroduction of two of our most iconic styles, the editor pant and the Portofino shirt, as we continue to advance our product pillar. Our second pillar is brand. We create confidence, we inspire self-expression, and we do it by editing the best of now for real-life versatility. Activating and amplifying the Express styling community is one of our key priorities this year because it is one of the most unique and dynamic ways our brand purpose comes to life. Many members of our community engage with us and with each other online. Nearly 50% of the product pages on our website have content created and posted by members of our styling community, driving conversion at least twice as high as other pages. We had 1,000 style editors in our community commerce program this quarter, hosting events, sharing content, and appearing in our marketing campaigns. Our lead style editor, Rachel Zhou, hosted a live event that generated an estimated 16 million impressions across social media, paid media, and PR. Our second quarter brand campaign, Destination Express, generated 350 million impressions across all digital platforms, including nearly 50 million organic video views, a 23% increase over last quarter. And Google organic brand demand was up for the fifth consecutive quarter. Our third pillar is customer. Loyalty program members are our best customers, making over two more visits and spending over twice as much per year as non-loyalty customers. Since its relaunch in Q1 of last year, Our loyalty program has brought in 4 million new customers and reactivated 3.2 million last customers. We continue to operate with the highest number of active loyalty program members in our company's history. Our fourth pillar is execution. You've heard me describe execution as the through line across all our product, brand, and customer strategies, and the ultimate test of the effectiveness of our operating model systems, and processes. We have successfully rebuilt the foundation of Express, successfully reimagined our product, and successfully reinvigorated our brand, all of which contributed to our solid results over the past five quarters. We refined and optimized our go-to-market process, advanced our multi-channel capabilities, identified a number of operational efficiencies, and applied strong financial discipline to our expenses and investments. Our team has been agile and disciplined and continued to respond to the volatility and unpredictability of the macroeconomic and retail environments with smart, thoughtful solutions. We carefully and efficiently navigated numerous ongoing supply chain challenges. And while our inventory remains elevated, which is a recurring theme across the industry this quarter, ours actually stepped down in line with our expectations, and we expect it will move even closer to parity with our sales as the year progresses, while remaining well positioned on newness. Now let me provide an update on our performance in each channel, starting with e-commerce. As many in our industry have reported, our e-commerce business also slowed as the quarter progressed. However, we remain committed to achieving our long-term goal of a billion dollars in e-commerce demand. To enable that, we continue to introduce new features and enhancements to our e-commerce experience that will drive higher conversion and average order value. We improved buy online, pick up in store functionality so customers could more easily shop our full inventory. And in the coming months, we will enhance personalization and checkout. We will offer even more content across all of our digital platforms, and keep advancing our multi-channel execution. Our mobile app continues to be the fastest growing component of our digital business. We now have 2.7 million mobile app users, an increase of 31%. These highly engaged customers make five more visits and spend over $300 more each year than customers who only shop through our website or in one of our stores. Our retail stores achieve solid results. posting a 6% comp in the quarter, the highest comp among our channels, and drove a 7% increase in average unit retail. We completed our fleet rationalization work and closed nearly 100 stores over the past several years. And our fleet optimization strategy to advance and diversify our store portfolio through renovations and new formats is in motion. The majority of our traffic and revenue still comes through our stores, and there is tremendous value to the in real life experience. So we continue to make investments here. We have an important pilot program running in approximately 25 stores where we are testing and learning our way into a reimagined 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. They are also strengthening the attraction, development, and retention of talent. In September, we will expand this program to a total of 70 retail stores, which will create an elevated customer experience in some of the most important stores in our fleet. For the remainder of our retail stores, we will continue to improve the customer experience by taking what we've learned from the pilot and quickly applying the most effective parts of the program. Our stores are where our styling community comes together, and where our brand purpose comes to life. We held 260 events in stores in the second quarter, and many were livestreamed to bring our style editors, store associates, and customers together in a real-time virtual format. These events garnered 1 million views across our social platforms. The combined effect of our growing community, our events, and the changes we have made to upgrade the store environment and reimagine the customer experience is creating differentiation for Express and contributed to our store's comp growth in the quarter. We will continue to renovate our stores to align both environment and experience with our brand purpose and create a consistent visual identity across our fleet. We have already updated 35 and will update a total of 70 before the end of this year. We will also continue to diversify our store portfolio through format and location. Our Express Edit stores have proven to be a powerful way to reach new customers and advance our brand. They 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 surrounding zip codes. We plan to open six more of these stores in the next 90 days in SoHo and Flatiron in Manhattan, on Newbury Street in Boston, in Brickell and South Beach in Miami, and near Rittenhouse Square in Philadelphia. These are all high visibility locations in the most appealing shopping areas, and these stores will reflect the best of what we are learning in our pilot stores. Our outlet channel delivered record revenue in the second quarter and a positive 2% comp. In this inflationary environment where even more customers are price sensitive, Our product continues to resonate on fashion, versatility, quality, and value. Our UpWest brand delivered another strong quarter with sales growth of 46%. UpWest launched as a digital brand with a clear purpose around comfort for people and planet that is meaningful and compelling for today's conscious consumer. While our digital sales continue to accelerate, we are also expanding our brick and mortar footprint. We opened four stores in the quarter, bringing the total to 14. UpWest has leveraged wholesale partnerships to build awareness and exposure. We will expand this strategy with a holiday launch at a large national retailer and introduce a collection of blankets co-designed with their team that will be available for sale on their website and in all of their stores. Turning to our philanthropic activities. We continue to deepen the partnership between our dream big project and Big Brothers Big Sisters of America. We surpassed our $1 million donation goal by $200,000 and awarded our first Chesley Christ Fellowship. Each of our initiatives with Big Brothers Big Sisters is aligned with our brand purpose to create confidence and inspire self-expression. And we are especially proud to help do this for young people. Now let me turn the call over to Jason. who will take you through the detail of our second quarter results and our outlook for the back half of the year.