Express, Inc.

Good morning. My name is Rob and I will be your conference operator today. I would like to welcome everyone to the Express Inc conference call to discuss our first quarter 2023 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 star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you. I would 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 the EXPR Earnings Conference call and webcast to discuss the announcement of our first quarter 2023 results and the completion of the joint acquisition of Bonobos in partnership with WHP Global. Our first quarter 2023 earnings release and presentation can be found at our Investor Relations website. 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 risks that could cause our results to differ materially from those described in forward-looking statements, please refer to our 2022 Form 10-K and our other filings with the SEC, which are posted on our investor relations website. 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 and in the corresponding presentation. We will also be providing financial comparisons to prior fiscal periods, and our prepared remarks today refer to comparisons to the corresponding periods in 2022, 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, and Jason Judd, Chief Financial Officer. I will now turn the call over to Tim.

Thank you, Greg, and good morning. Earlier this year, we entered into a transformative partnership with WHP Global that strategically and financially repositions our company. We have begun a bold new chapter as eXPR that will be guided by a new corporate strategy. We will transform our company to create shareholder value by, first, achieving profitable growth in our core express business, second, optimizing our omnichannel platform, and third, accelerating our growth and profitability through the WHP global partnership. As we advance this new corporate strategy, we will build upon a foundation of strong, rigorous financial discipline and completely redesign the financial architecture of our company. to create a more agile expense framework that will allow us to be more flexible in a dynamic macroeconomic environment. Earlier this year, we began a company-wide initiative to aggressively reduce expenses. In January, we disclosed $40 million in annualized expense reductions versus 2022 prior to the impact of inflation, And since that time, we have implemented an additional $25 million for a total of $65 million that will be realized in 2023. These expense savings are just the first step. We have engaged external advisors to assist us in analyzing, identifying, and implementing further expense reductions and potential margin expansion opportunities. Having already implemented $65 million before the external advisors began their assessment, we are confident that we will realize significant additional expense reductions in the back half of 2023 and the full year 2024. These aggressive cost savings are just one aspect of how our new corporate strategy that will allow us to deliver on our first priority, which is to achieve profitable growth in our core Express business. Despite meaningful progress against each of the four foundational pillars of the Expressway Forward strategy, product, brand, customer, and execution, we have not yet delivered on our goal. Q1 comparable sales for the Express brand were negative 14%. Our results on the top and bottom line were not where they needed to be. Reduced consumer spending, increased price sensitivity in discretionary categories, and heightened promotional activity across the industry that began in 2022 continued into the first quarter of this year and negatively impacted our performance. The need to promote more to keep pace with consumer expectations and the competitive landscape led to greater margin erosion than we anticipated. We've already taken action across each of the four pillars to change the trajectory of our business and expect improvement in comparable sales trends and market share gains as we move through the year, starting with product. As we began the first quarter, our women's assortments were out of balance across multiple dimensions. We continued to take corrective actions to address these imbalances and saw sequential improvement in sales as the quarter progressed. These assortment recalibrations will continue as we move through the year. While our women's business improved in Q1 versus Q4, it was offset by a deceleration in our men's and outlet businesses, which delivered record volume in Q1 of 2022. Moving forward, we are doubling down on key category strengths. which we expect will lead to increased frequency, units per transaction, loyalty, and market share gains. We are effectively chasing into trends and secured additional product for Q2 in some of our best-selling items and categories. We are driving reductions in our average unit costs and expect to realize those benefits in the second half of the year. Turning to brand. Express has been a part of the fashion landscape for over 40 years. And changing consumer perception of a brand is the component of a transformation that takes the most time. We are transforming from being known as a store in the mall to a brand with a purpose powered by a styling community. That brand purpose, we create confidence, we inspire self-expression, has played an important role in building our Express styling community, which includes customers, sales associates, style editors, content creators, influencers, and brand partners. We grew our Express style editors to over 2,500 in Q1, a 70% increase over the number we had in Q4 of last year. The content they create and the content we create that features them is some of our best performing organic social content. We will continue to build, activate, and amplify our styling community in 2023 if this is a key strategic differentiator for Express. Turning to customer. Spend for customer held steady in the quarter due to an increase in frequency. We fell short of our acquisition targets, but did see sequential improvement as we moved through the quarter. We have specific strategies in place to engage existing, re-engage lapsed, and attract new customers. Our fourth pillar is execution. E-commerce outpaced retail and outlet stores. E-commerce sales were driven by the improvement in our women's business, which accounts for a significant share of our online sales. We had edited our assortments too much, so we corrected for that and are seeing the benefit. Sales performance in our retail and outlet stores was negatively impacted by the slowdown in our men's business, a significant decline in traffic and reduced conversion. We expect that all of the actions we have taken will drive improvement in the top and bottom line as we move through the year, and that is reflected in our outlook. The second component of our new corporate strategy to transform eXPR to create shareholder value is to optimize our fully integrated omnichannel operating platform in order to operate and grow a portfolio of fashion brands. We will leverage our existing strengths and capabilities in production and sourcing, logistics, technology, real estate, finance, legal and HR to achieve synergies and drive efficiencies across this portfolio. Let me share a few examples. In production and sourcing, we will apply our increased scale to realize unit cost savings and evolve our sourcing strategy to rebalance our ratio of agent to direct. In logistics, we will consolidate and strengthen our relationships with certain 3TL service providers and implement advanced order management functionality to reduce the cost of fulfillment. In technology, We will integrate systems within and across our brands to expedite speed to market and enhance data consistency. We will enable automated and self-service data exchange with our trading partners, and we will have a more modern order management system with sophisticated routing algorithms. UpWest is already a part of our eXPR brand portfolio and a proof point of the effectiveness of our platform today. We launched UpWest in 2019 as a digitally native brand, and have since opened 13 stores and established a wholesale relationship with Nordstrom. UpWest is included in the summer edition of the GQ subscription box, which is distributed quarterly to 25,000 subscribers. UpWest had a terrific quarter, with sales up 29% more than doubling in the last two years. The third component of our new corporate strategy to transform eXPR to create shareholder value is to accelerate our growth and profitability through our partnership with WHP Global. The WHP Global team is actively exploring domestic category and international licensing opportunities for Express. And today, we announced that we have completed the joint acquisition of Bonobos. Bonobos launched in 2007 as a digitally native menswear brand. and quickly became known for exceptional fit and an innovative guide shop retail model. Bonobos has delivered strong sales growth over the past three years, and the business generated sales of approximately $200 million in 2022. We intend to build upon the strengths of Bonobos in e-commerce, marketing, and customer loyalty, leverage our expertise in product and omnichannel retail, and unlock additional growth for Bonobos by extending the brand into under-penetrated categories. We also plan to drive scale through WHP Global's expertise in licensing and international distribution. Bonobos is a very compelling addition to our brand portfolio, and we expect it will be accretive to operating income and free cash flow positive in fiscal 2023. Now let me turn the call over to Jason, who will take you through the financial details of the Bonobos acquisition, provide more detail on our first quarter results, and share our outlook for 2023.