Express, Inc.

Good morning, my name is Chris and I'll be your conference operator today. I'd like to welcome everyone to the Express Inc conference call to discuss third quarter 2022 earnings as well as the partnership with WHP Global. 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'd like to withdraw your question, please press the pound key. Thank you. I'd 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 the Express Earnings Conference call and webcast to discuss the announcement of our third quarter 2022 results, as well as our partnership with WHP Global. Our third quarter 2022 earnings release and presentation and the press release and presentation relating to the partnership with WHP Global can be found in the investor relations section of Express.com. These items will be archived, and our call will be available for replay. I'd like to open by reminding you of the company's safe harbor provisions. Today's call may contain forward-looking statements. 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. For a description of the risks that could cause our results to differ materially from those described in forward-looking statements, please refer to our 2021 Form 10-K, Third Quarter Form 10-Q, and other filings with the SEC. These risks and uncertainties are further detailed in our earnings press release. and the press release announcing the partnership with WHP that we issued this morning. These statements represent our current judgment and are subject to risks, assumptions, and uncertainties. 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. We have two separate presentations on our investor relations website this morning. one for our third quarter 2022 earnings release, and another standalone presentation for the partnership announcement. The consummation of the partnership is pending lender consent, regulatory approvals, and customary closing conditions. Our comments today will summarize the detailed information provided in both press releases and both investor presentations. In addition, we may refer to certain non-GAAP measures, You can locate a reconciliation of any non-GAAP measures discussed in our comments to amounts reported under GAAP 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. Please see explanatory notes in the earnings release for additional details regarding the definition of certain items. With me today are Tim Baxter, Chief Executive Officer Matt Molaring, President and Chief Operating Officer, Jason Judd, Chief Financial Officer, and Yehuda Schmidtman, CEO and founder of WHP Global. I will now turn the call over to you.

Thank you, Greg, and good morning, everyone. I'll briefly review our third quarter results before turning to the strategic partnership with WHP Global that we announced this morning. Q3 was tougher than we anticipated, and that is reflected in our results. The macroeconomic, consumer, and competitive environments were extremely challenging and became more acute as the quarter progressed. Across the industry, we saw widespread aggressive promotional activity. Our strategy to elevate our brand through higher average unit retails and reduced store-wide and site-wide promotions, which has driven steady growth for the past five quarters, came up against the consumer's reduced spending in discretionary categories and increased appetite for deep discounts. At the same time, we had some misses in our women's business that further impacted our performance. We did, however, post our sixth consecutive quarter of positive comps in our men's business. Despite these results, we remain confident in our ability to achieve our stated goal of long-term profitable growth in the Express brand. We are already working to realign our assortments based on customer purchasing behavior recalibrate our opening price points, and address opportunities in our women's business. We are also taking decisive actions to right-size our cost structure and improve our profitability. This morning, we also announced some incredibly exciting news. We have entered into a mutually transformative strategic partnership with WHP Global, a leading brand management firm, to advance our Expressway Forward strategy scale our express brand, and accelerate the growth of our company through brand acquisitions. Through this partnership, we begin a bold new chapter, one that we expect will drive greater shareholder value. Let me talk you through the key components of this partnership. First, we will leverage our fully integrated omni-channel platform and operating expertise to acquire, operate, and grow multiple fashion brands. Second, we will establish an intellectual property joint venture with WHP to scale the Express brand through category and global licensing expansion. And third, we will immediately strengthen our balance sheet with $260 million in gross proceeds from the WHP investment. When combined, we expect these components will lead to accelerated long-term profitable growth and increased shareholder value. Let me provide some additional detail on each one. First, our platform. This model furthers our transformation from a mall-based specialty retailer to a fully integrated omnichannel platform with the capability and reach to operate multiple brands. We expect to be well positioned to take advantage of anticipated retail industry consolidation by pursuing brand acquisitions in partnership with WHP. Through these strategic acquisitions, We will leverage our platform to accelerate our growth, generate operating margin expansion, create cost savings, and drive profitability. Second, the intellectual property joint venture. This will enable us to scale our multi-billion dollar express brand through new licensing agreements with international partners and in non-core categories. the awareness and profile of the Express brand are larger than its category and geographic footprints. And now, with the partnership, expertise, and reach of WHP, the intellectual property joint venture can help to unlock its untapped potential. To be clear, eXPR will continue to operate the Express brand in the U.S. exactly as we do today, through a 100-year license agreement with the new intellectual property joint venture. I have said many times that we are transforming Express from being known as a store in the mall to a brand with a purpose, powered by a styling community. And that remains true going forward for the Express brand. Third, the balance sheet. WHP will invest a total of $260 million into this partnership. $25 million will be through a common equity pipe investment to acquire 5.4 million newly issued shares of Express common stock at $4.60 per share. This represents an approximate pro forma ownership of 7.4%. The intellectual property joint venture is valued at approximately $400 million. WHP will invest $235 million for a 60% stake, and ESPR will maintain a 40% stake. These cash proceeds will strengthen our balance sheet, allowing us to pursue compelling, synergistic brand acquisition opportunities, upgrade our platform capabilities, and eliminate our high interest rate term loan. As we do so, we will maintain our disciplined approach to capital deployment. This is a bold, innovative partnership, and realizing its full potential would only be possible with a highly experienced and equally committed partner. I have known Yehuda Schmidman, CEO and founder of WHP Global for many years. I have great respect for the WHP model and their expertise and for Yehuda's personal and professional integrity. It is my pleasure to introduce Yehuda to tell you a little bit about WHP.