Express, Inc.

Good morning, my name is Jean-Louis and I will be your conference operator today. I would like to welcome everyone to the Express, Inc. conference call to discuss our second 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 star one. I would now like to hand the call over to Greg Johnson, Vice President of Investor Relations. Please go ahead.

Thank you, Operator. Good morning and welcome to eXPR's second quarter 2023 earnings conference call. Our second 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. 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. Lastly, I would like to remind everyone about our recent 1 for 20 reverse stock split. As a result of the reverse stock split, shares in our consolidated financial statements have been retroactively adjusted, and shares outstanding went from 74.9 million shares to 3.7 million shares. With the reduction in weighted average shares outstanding, Our second quarter 2023 diluted loss per share outlook of 50 cents to 60 cents was recast to $10 to $12. Our second quarter 2023 diluted loss per share of $11.79 was within this range, while our adjusted diluted loss per share of $9.05 was favorable to this range. This adjusted figure excludes certain restructuring charges, acquisition-related and integration costs, and a non-cash impairment charge, each of which are detailed further in the schedule attached to our earnings release. With me today are Tim Baxter, Chief Executive Officer, and Jason Judd, Chief Financial Officer. I will now turn the call over to Tim. Thanks, Greg.

Good morning, everyone, and thank you for joining us. Our second quarter net sales and diluted loss per share were both within the ranges of our outlook. Our adjusted diluted loss per share was favorable to the range, which reflects the ongoing aggressive actions we have implemented to improve our profitability. It's important to note that the results we reported today are reflective of the reverse stock split that Greg just reviewed, which is symbolic of a new chapter for eXPR. We are committed to creating shareholder value by, first, driving profitable growth and delivering positive free cash flow in our core Express branded business, second, by leveraging our fully integrated omnichannel platform to reduce costs, and third, by accelerating our growth and profitability through our strategic partnership with WHP Global. While our results were within the ranges of our outlook, they were not where they need to be in the Express brand, and we continue to be intensely focused on taking corrective action to address the most significant challenges we have faced. First, imbalances across the women's product assortment. Second, challenging comps in men's and outlet as we lap record top and bottom line performances in 2022. And finally, the ongoing dynamic macroeconomic environment and related consumer pressure on discretionary spending in categories like apparel and accessories. The corrective actions we have taken are working and our customer is responding. We delivered significant sequential improvement in our top line performance each month as we flowed new product. This positive momentum and improvement continued through Labor Day, giving us confidence that we will deliver substantially improved sales performance in the back half of the year, which is reflected in our outlook. Improvement was most powerful in our women's business, where our new deliveries reflect a more appropriate balance across categories, price points, and wearing occasions. Customer response has been so strong that it drove our women's business to a positive 2% comp in July, a trend that further accelerated to a plus 12% comp in August. We are now chasing into best-selling products and categories, which has always been a winning formula for Express. In September, we also reintroduced innovative icons, which have been incredibly well received. While our women's results are very encouraging, we still have ground to make up versus our pre-pandemic levels, which will be critical as we work to offset other pressures. Although not as strong an improvement as we have experienced in women's, our men's business delivered a positive comp on a two-year basis in the first half of the year. Challenges will persist in Q3 as we continue to lap record performances and work to offset the high average unit retails and margins in suits, our largest business, with increased sales in tops, jeans, and casual bottoms, all at lower AURs. From a channel perspective, the assortment actions we have taken also drove sequential improvement in e-commerce, retail stores, and outlet stores. In fact, women's product performed so well on e-commerce that women's delivered a plus 1% comp in June, a plus 17% comp in July, and accelerated to a plus 28% comp in August. Given our high penetration of women's online, this momentum was strong enough to deliver total e-commerce sales flat in June, plus 9% in July, and plus 18% in August. This momentum in e-commerce was a key factor in partially offsetting performance in both stores' channels, where traffic continues to be very challenged. We have put strategies in place to mitigate the traffic challenges by driving increases in conversion, units per transaction, and average dollar sales. Our rollout of RFID to our retail stores in the second quarter will be a key enabler of these strategies, and we expect to see improvement in our store trends in the back half of the year. Improvement in the top line isn't good enough. And so we have also taken very aggressive action to drive significant improvement on the bottom line. As a result of the ongoing comprehensive review of our entire expense structure, we have identified and implemented $80 million in expense savings for 2023, and inclusive of these savings, over $120 million in 2024. And we are not done. We are committed to over $200 million in savings by 2025, which includes $50 million in gross margin expansion opportunities by leveraging efficiencies in sourcing, production, and the supply chain. A portion of these savings has come in the form of reduced marketing spend, so we're focusing our spend on higher ROAS tactics to drive higher spend and frequency per customer, and it's working. Going forward, we also expect to be able to reactivate lapsed customers at higher rates as our momentum continues to build. As I said earlier, the first and most critical component of our shareholder value creation plan is driving profitable growth and delivering positive free cash flow in our core Express branded business. We remain relentlessly focused on this and are confident that the actions we have taken to date, our ongoing review of our business model, and the sales momentum we are building have put us back on the right track. The second component of our value creation plan is leveraging our omnichannel platform. Many of you likely still think of us as a monobranded, mall-based specialty retailer, which is no longer true. We entered into our strategic partnership with WHP Global in order to acquire and operate a portfolio of omnichannel brands, knowing that this portfolio would create significant synergies now and in the future. I don't think we've gotten credit for the value that this partnership has already created, Our Express intellectual property was valued at $400 million at the time of the transaction, and we maintain a 40% stake valued at $157 million. eXPR is now a platform company operating a portfolio of omnichannel brands that is comprised today of Express, Bonobos, and UpWest. We have positioned the Express brand to generate positive free cash flow, which can be strategically reinvested in our existing business and future acquisitions, while both the Bonobos and UpWest brands are positioned to be top and bottom line growth engines. As I mentioned earlier, we are aggressively pursuing at least $50 million in gross margin expansion through efficiencies in sourcing, production, and the supply chain. But the work doesn't stop there, and we know there is more opportunity as we identify synergies in technology, procurement, and our real estate portfolio. We expect that there will be much more to come here as we advance the work we're doing on all of this. The third component of our value creation plan is accelerating our growth and profitability through our strategic partnership with WHP Global. In the Express brand, this acceleration will come in the form of international and non-core domestic category licensing, both of which are already in motion and to date the response to the Express brand has been overwhelmingly positive. Each of these license agreements will generate guaranteed minimum royalties beginning in 2024 that will be accretive on day one. Perhaps the most transformative part of this strategic partnership is that it enabled us to pursue acquisitions like Bonobos, which was completed in the second quarter. Since the acquisition date, Bonobos sales have exceeded our expectations and delivered operating income accretive to our total. We expect it to be accretive to operating income and to deliver positive free cash flow for the full year. Bonobos is a very good example of the highly disciplined financial approach we intend to take with any future acquisition and represents a significant growth opportunity for eXPR. In addition to the substantial cost reductions, we've also entered into a definitive agreement for a $65 million asset-based term loan and expect to receive a $52 million CARES Act refund in the back half of the year, which bolsters our liquidity and allows us to continue to invest appropriately in our transformation. Let me turn the call over to Jason to provide further detail on our reverse stock split, Q2 results, the term loan and expected CARES Act refund, and our expectations for improved performance in the back half of the year.