Express, Inc.

Ladies and gentlemen, good morning. My name is Abby and I will be your conference operator today. I would like to welcome everyone to the Express Incorporated conference call to discuss our fourth quarter and full year 2022 earnings. 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 the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one a second time. Thank you. And I would now like to hand the call over to Greg Johnson, Vice President of Investor Relations. Please go ahead, sir.

Thank you, operator. Good morning and welcome to the Express Earnings Conference call and webcast to discuss the announcement of our fourth quarter and full year 2022 results. Express's fourth quarter and full year 2022 earnings release and presentation 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 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. For a description of the risk that could cause our results to differ materially from those described in forward-looking statements, please refer to our 2021 Form 10-K and other filings with the SEC. These risks and uncertainties are further detailed in our earnings press release that was 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. 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 comparisons to the corresponding periods in 2021, unless otherwise noted. Please see the 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, and Jason Judd, Chief Financial Officer. I will now turn the call over to Tim.

Thank you, Greg, and good morning, everyone. We delivered full year 2022 diluted earnings per share of $4.25 after completing the transaction with WHP Global. This transformative strategic partnership begins a bold new chapter for our company. As a part of the transaction and reflecting the intellectual property of the Express brand that we contributed to the joint venture, and to the private sale of a pipe investment, which WHP Global used to acquire 5.4 million newly issued shares of our common stock. We received proceeds of $260 million, which repositioned our company financially, and we are now beginning to reposition our company strategically. We intend to first achieve profitable growth in our core express business. Second, To optimize our fully integrated omnichannel platform to create synergies and drive efficiencies across a portfolio of brands. And third, to accelerate our growth and profitability in partnership with WHP Global by scaling the Express brand through category and international licensing and by acquiring and operating other fashion brands. We will accomplish these objectives by operating with consistent, rigorous, sustainable financial disciplines. and we are fully committed to creating shareholder value. Our comparable sales were flat for the year, with negative comps in the back half offsetting gains in the first half. Our strategy to elevate our brand with higher average unit retails and reduced store-wide and site-wide promotions, which had driven steady growth for five consecutive quarters through Q2, bumped up against reduced consumer spending, increased price sensitivity in discretionary categories, and aggressive promotional activity across the industry. In addition to these external headwinds, we had some self-inflicted misses in our women's assortment architecture. We lacked depth and breadth across certain categories and products. We were out of balance in dressy versus casual, in core versus fashion, and in good, better, best pricing. Over the last three years, our ability to react quickly has been inhibited by the industry's supply chain challenges. Now that we have effectively mitigated most of those challenges, our receipts are arriving on time, or in some cases earlier than expected, and we are responding to consumer trends and behavior with greater speed. We recalibrated with urgency to address the imbalances in our assortment architecture late in the third quarter. We have chased, restructured, and corrected our core assortments, and these categories are already generating a significantly higher portion of our sales. These recalibrations will accelerate as we move through the spring and be fully realized in Q3. Our outlook for 2023 reflects improved sales trends as we move through the year. In 2022, we continued to advance the Expressway Forward strategy. And while our women's business was challenged, our men's business delivered a record year. We drove positive comps of 12% and growth in all major categories. Our brand purpose is resonating. and our styling community is growing. We are operating with the highest number of loyalty members in our company's history and see strong spend per customer, but fell short of our customer acquisition targets and are adjusting our marketing strategies to address this. Turning to performance by sales channel, our retail and outlet stores outpace e-commerce throughout the year. Express factory outlets performed well with a positive 4% comp and record sales and profit in 2022. These results further underscore the current consumer expectation around value. Retail stores delivered a 5% comp for the year, with our in-real-life pilot stores outperforming the balance of our fleet. We opened six new Express Edit concept stores in New York, Miami, Boston, and Philadelphia. Our express edit stores are acquiring new customers and loyalty members and outperforming the balance of our fleet on these metrics, as well as boosting digital sales and surrounding zip codes. Our e-commerce business slowed significantly as the year progressed as customers returned to shopping in our stores. E-commerce sales were also impacted by the challenges in our women's business, which is highly penetrated online. As the women's business has improved, we've seen a corresponding lift in this channel. We remain committed to delivering a billion dollars in e-commerce demand. But given the industry-wide slowdown in online sales, this may take more time than we originally anticipated. The macro conditions in the back half of 2022 were challenging. And because we expect these conditions to continue, we have identified $40 million of annualized expense savings. $30 million will come from reductions in our SG&A cost structure. The remaining $10 million comes from interest savings due to the elimination of our high interest term loan, which we paid off in January. We expect inflationary headwinds as well. So this is just the first phase of aggressive, productive cost savings and expense reductions in order to safeguard our commitment to achieve a mid single digit operating margin. At an upcoming investor event, We will share more detail about our expected cost savings and expense reductions, including how and when they will be realized. We are fully committed to the Expressway Forward strategy, and our teams remain focused on the initiatives advancing our objectives. We have been agile in our approach and continue to both respond to and navigate the macroeconomic, consumer, and competitive environments. We remain confident in our stated goal of long-term, profitable growth in the Express brand. Now let me turn to the other aspects of our transformation beyond our core Express business. We intend to fully optimize our integrated omnichannel platform to operate and grow a portfolio of fashion brands. We will leverage our streamlined, flexible go-to-market model and apply our capabilities in sourcing and production, logistics, real estate, technology, finance, and human resources to create synergies and drive efficiencies across the portfolio. We also intend to accelerate our growth and profitability in partnership with WHP Global by scaling the Express brand through category expansion and international licensing and by acquiring and operating other fashion brands. We will be disciplined in our approach to acquisitions with a focus on generating compelling returns on our investments and delivering against a clear set of strategic criteria, including profitable growth potential, synergies through our operating platform, and new capabilities. Already a part of the ExpressBrand portfolio, UpWest will also accelerate our growth. While still small, UpWest had had a great year with sales growth of 43%. Digital sales continue to grow rapidly, and we have expanded the brick and mortar fleet to a total of 13 stores. UpWest also successfully launched its first wholesale relationship with Nordstrom in 2022. Now let me turn the call over to Jason, who will take you through additional aspects of the WHP Global Partnership, as well as the detail of our fourth quarter and full year results, and provide our outlook for 2023.