Q3 2019 Earnings Call
<unk> earnings call.
This time all participants are in listen only mode. After the speakers presentations will be a question and answer session to ask a question. During this session me I need to press star one on your telephone if you require any further assistance. Please press star zero.
I'd now like to hand your conference over to your Speaker today, Dan Aldridge. Please go ahead Sir.
They can result, good morning, and welcome to recall 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 back maybe 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 that Jeff.
Got it and forward looking statements due to a number of risks and uncertainties all of which are describing the company's filings with the FCC, including todays press release expressed assumes no obligation to update any forward looking statements were information 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 the company 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.
With me today, our 10 Baxter Chief Executive Officer, not lowering President and Chief operating officer, very very close Chief Financial Officer, most of that Guy Chief Merchandising Officer answer a turbine Chief marketing Officer, I will now turn the call ever stuff.
Thank you Dan and good morning, everyone.
Thank you for joining our third quarter earnings call.
I've now been with express for a few weeks shy of six months and preparing for this morning's call gave me an opportunity to step back and reflect on the priorities I said when I arrived the insights I have game. The actions we have taken and the progress. This organization has made in a very short amount of time.
The three priorities I identified on our last earnings call as key areas of focus we're developing a corporate strategy.
Putting together the right leadership team.
Taking immediate action to change the trajectory of our business.
First.
Our corporate strategy will be unveiled at an investor event that will take place on January 22nd at the New York Stock Exchange I hope to see many of you there.
The foundational elements of product.
And.
Customer and execution are already serving as important compass point spread to work our teams are not doing.
I am pleased with the progress I've seen in these areas and I've been impressed by the new thinking and new ideas that have come forward to enemy and advance each of these elements.
Second.
Our executive leadership team is now largely in place.
We have achieved the right balance between seasoned express executives and new voices and viewpoint.
It was important to me to form a leadership team made up of results oriented strategic thinkers with diverse skill sets and perspectives.
Our Chief operating Officer, Matt Moellering was elevated to president in October .
Many of you know, Matt So you will not be surprised by my decision to expand his responsibilities and apply his thoughtful disciplined approach across more aspects of our organization.
Mike Dolan, our top performing regional stores director was named head of stores.
With three decades of retail experience an in depth knowledge of our stores. He has already immersed in the work of enhancing our customer experience.
We also attracted some extraordinary new talent to express Chief Merchandising Officer, Melissa Chi Chief Marketing Officer, Sarah Turbo and SVP of planning and allocation Carly pills, who all joined expressed in early September and hit the ground running.
I'm also pleased to announce that Michael wrangle will be joining us in January as the new SVP of men's merchandising reporting directly to Melissa.
This exceptional team has been working with me to shape, our corporate strategy, while also managing and improving the performance within each of their respective areas.
And just a few moments you'll hear directly from Melissa Sarah and Matt on how each of them is thinking about the product brand customer and execution pillars as well as a few of the initiatives, we expect to drive results in the fourth quarter and beyond.
Third.
We have taken a number of actions to change the trajectory of our business by teasing immediately present opportunities.
We have done so with both an imperative to improve our near term results and then objective to better position, our brand and our business for the long term.
Let me give you a few examples.
On our last earnings call.
I spoke about some changes we were just starting to make to the floor sets in a few of our stores.
Those changes continued during the quarter and expand it such that our women's presentation across the entire store fleet because now a more modern approach.
In the near term this has made it easier for the customer to put outfits together and for the long term.
This shows are more fashion centric and modern view of the express brand.
This shift away from separating our product according to a more traditional wearing occasion format now influences how we design.
Merchandise present and market our product going forward.
And we've already made progress as is evidenced by a continued improvement in our store trend throughout the quarter in response to these changes.
Another immediate action, we took was to improve our inventory position by using more strategically targeted promotions and our inventory levels turned out better aligned with our current sales performance.
On the last call, we indicated that it would take a few quarters to restore the health of our inventory.
But thanks to the sharp focus and disciplined work of our teams both inventory levels and the composition of our inventory are in a much healthier place for the fourth quarter and heading into 2020.
I'm very pleased with that progress and we will continue the work to sustain this going forward.
Developing a corporate strategy.
Building, an outstanding leadership team.
And taking immediate action to change the trajectory of our business.
There was a bit my priorities and I'm pleased with the progress that has been been made on all fronts to quickly and definitively begin to move express forward.
Now, let me turn to our results for the third quarter.
Well, we're pleased that sales and profit both for and within the third quarter showed sequential improvement and came in above our guidance, we're still not satisfied with these results.
With that said for the third quarter, our sales were $488 million, 5% decrease compared to the third quarter of 2018.
Comp sales were down 5% compared to the prior third quarter, but came in above the guidance we issued on her last earnings call.
This marks the second consecutive quarter of comp sales improvement. Despite the headwinds caused by our pullback of deep storewide insight wide promotions and we expect this sales trend to accelerate in the fourth quarter.
Diluted earnings per share were negative five cents and adjusted diluted earnings per share were negative three cents, which also came in above our previously issued guidance.
Perry will review the results in greater detail and discuss our fourth quarter guidance I'll make some closing comments and then we'll take your questions.
But before you hear from Perry I have asked Melissa Sarah and back to share. Some remarks on this earnings call. So you can hear directly from these leaders about the work day and their teams are doing to shape and drive each of the four pillars of our corporate strategy.
As we set our sights on the future of express everything we do will be to advance those four pillars.
Product brand customer and execution.
Each one is important and as we make improvements to each and delight across all we will drive results and create value for our shareholders.
I'm committed to leading this company to a bright and profitable future and I'm confident that we can restore express to the fashion authority that it once was.
The recent work, we have done and the engagement and determination of our executives and associates have only made me more committed and more confident.
Now, let me turn the call over to Melissa <unk>, who will tell you about our product strategies and initiatives.
Thank you Tim.
Since joining expressed about 90 days ago, our design and merchandising team have coalesced around the idea of product first.
Which is the recognition that we can do everything else right, but if we do not offer the customer high quality relevant and compelling product we will not succeed.
I joined express because I saw so much opportunity to restore its relevance and appeal and so much potential to elevate differentiate and create clarity for expressed through product.
Well, such fantastic breadth of product offering and such historical strength across a number of key categories. I know that expressed can and will become a fashion authority once again.
And my first few weeks I dug into the company's design archives, and immerse myself and product messages from the past for decades.
I was struck by the relevance of the product over such a long period of time.
Express had not only been on trend for so many years.
In fact expressed had said some of the most significant fashion trends.
The brand was what I would call of the now for decades.
So we thought about what had changed.
For the last several years expenses really held onto trends and ideas passed their point of relevance and appeal. So the assortment, so tired and outdated.
Then I began to reveal selling data and customer feedback and to engage with our associates and the message was consistent and encouraging when express offers a sharp added of modern trend right product the customer response.
I believed that our breadth of offering and our credibility across so many categories from denim shorts to cequent dresses.
Genes to tuxedos can once again being strategic differentiator for express.
We need to infuse more newness and then make sure that all of this fresh exciting product reaches the selling floor and the customer faster.
In order to do that we've made changes to help our design and merchandising team move with greater speed.
We have reengineered, our product development calendar to ensure that we can deliver more fashion and more newness more often.
This accelerated cycle will work in concert with the instead by process, Tim talked about last quarter. So that we can live with greater speed at the friends and the back end of the process.
We're also making changes based on the way people think about getting dressed today.
Women and men are looking for versatile wardrobe made up of pieces they can wear across multiple occasions.
Lines between a work wardrobe and a weekend more drugs have blurred and express has not reflected that in a way product was assorted or presented.
Going forward, we will still capitalize on our core product strength, but also offer more versatility, which will create more value for our consumers.
As Tim mentioned significant changes were made to our women's floor set back in August .
Stepping away from a more traditional way of separating product into four lifestyles based on wearing occasion.
Letting go of an outdated view of how people get dressed and making a shift to a more edited integrated and modern approach.
The impact on the floor was dramatic and we heard from sales associates and customers that it was a very positive change.
Early results are promising, but we have a lot more to do.
We will accelerate and expand this across our entire womens assortment and also bring this approach to the men's assortment in the spring season.
I have established a clear set the product priority and aligns the design and merchandising teams around them to address our product opportunities.
Sharp consistent focus on these priorities will give our customers what they're looking for support the new brand positioning and will drive the business forward.
And the work has already begun.
In the third quarter with newness and versatility top of mind I'm pleased to report that our top and dress categories gain momentum.
We balance the core product with newer ideas that brought greater diversity to the assortment and the customer responded.
In mens our denim business continues to be strong and the customer appreciate our performance stretch fabric and the drop down or dressed up possibilities of our gene.
Our suiting business also remained strong and we have an opportunity to expand upon our equity in this category.
For the fourth quarter newness will remain a focus as we turn to both modern holiday dressing and casual cozy elements.
And offer the customer great option.
On the last earnings call Tim shared his decision to house, all product strategies across stores online and outlet under a single leader of design and merchandising, which was an important structural change for expressed.
And I can tell you from my own experience that when design and merchandising teams are aligned it absolutely shows in the product and.
And the Assortments and the customer response.
I'm, so thrilled to be here at express to have the opportunity to lead the design and merchandising team to drive a modern on trends point of view across our Assortments.
And to help realized his vision and strategy through product that our customers will absolutely recognized as of the now.
And now to tell you more about our brand and customer strategies, Let me turn the call over to Sarah. Thank you and good morning, I joined expressed on the same das Melissa and we've been working closely together ever since.
As Tim said on the second quarter call. Most people know express, but many don't know what we stand for or how we fit into their lives today, we must clarify our brand message and more closely connected to our product strategy by telling our story in a more powerful and consistent way.
Obama, let's start with delving into the express design an image archives I spent my first few weeks learning about the history and current state of the brand and getting to know the patterns and preferences of our customers.
Let me share a few things that became clear.
Express brand must restarts lustre in order to regain its place as a fashion authority and a go to wardrobe resource in fact, the customer expects this from a.
Our customers see themselves as dynamic expressive individual looking to show their best self to the world and they believe their wardrobe can help them do just that in recent years Express has become more of a store then a brand and we have both a need and an opportunity to clarify the express brand purpose and promise.
So how do we get there.
The last 60 days, we have done research among both customers and prospects women and men across multiple age groups.
We learned a great deal about what resonates with them and what they want from expense.
Those insights have informed our thought process around a redefinition of the brands purpose and a re articulation of the brand promise we will share much more about this in January .
We need to apply both art and science to our marketing first a brand evolution that is grounded in customer insights they make decisions and take actions based not on what we think but I'm, what we know.
Second our brand and customer strategy must aligned with our product strategy for the product messages Melissa and her teams are creating are brought to life through the most connected and most compelling marketing stories and brand imagery. This may sound obvious, but there hasn't been this alignment in recent years.
And third we must engage customers and different and more impactful ways in order to getting greater share of wallet from that people, who are already shop with us and to a taste the ones who don't.
Let me give you some examples.
We recently launched a number of new capabilities that will enhance our customer contacts strategy.
These include a more personalized approach to email a new media attribution tool to further optimize our marketing investment and allocation and a number of advanced analytics models to help drive customer retention.
All of these offer test and learn possibilities that will allow us to explore hypotheses and quickly scale what works.
The result will be improved customer retention and acquisition. We will also be making significant changes to our next customer loyalty program to offer more value to the membership, but they plan to relaunch in the back half of 2020.
The smart use of data, we'll make better and more nuance decisions about the targeting of our marketing and the allocation of our spend we now have to analytical tools to do this and the team is working took salary how we use them to be more effective with both customer retention and acquisition.
In today's world are thinking about the brand and the customer must be seamlessly integrated our teams are already embracing Beth and fully realized but everything we do to reposition the express brand must be done and will be more successful what the customer at the center of our thought process.
I'm very proud to lead this work will afford us sharing our future brand positioning at the Investor event and I'll now turn things over to map to talk about the fourth pillar of our corporate strategy, which is execution.
Thank you Sarah and good morning, everyone.
Execution is the connective tissue across everything we do.
As you just heard we have built a solid plan to address our product our brand and our customer and a critical through line is the fourth pillar strong consistent execution across all channels, all strategic initiatives and all programs.
Well, we do the necessary work to improve our execution overall there are few areas in particular that will receive especially sharp focus.
Our bricks and mortar store performance, our go to market process and our inventory productivity.
Let me start with our stores.
The biggest opportunity in our bricks and mortar store performance is to meaningfully improve our conversion rate.
Today, we have a lot of variance in conversion across the store fleet and to address this we will be rolling out a new customer experience model. This spring that will allow our sales associates to spend more time with customers and less time on non selling activities.
And through improved store scheduling, we will be able to maximize every hour a sales associate works and also staff more precisely so we have the right coverage at the right time.
And finally, we are launching a new customer feedback tool, but capture and share what our sales associates are doing well and allow us to act quickly in response to enemy any customer issues.
These initiatives will have a positive impact on our store performance.
Second.
We thoroughly assessed our go to market process identified a number of opportunities for improvement and beginning in the spring season, our teams will be working in a new way.
This transform process will begin with clear focus product strategies continue with a line brand stories and marketing messages and conclude with a stronger customer experience.
We will be more efficient more effective more connected across functions.
In faster to market at a reduced costs.
Third we are taking steps to rightsize, our respiratory and speed up our turn.
We have dramatically improved our inventory position over the last 90 days driven by better product.
After liquidation of underperforming goods and elimination of non productive inventory.
Continued efforts in this area will allow us to reduce inventory levels and significantly reduced markdowns overtime.
As Tim mentioned, we still have a lot of work to do in order to better and more consistently calibrate our inventory to our sales trends, but we are encouraged that the work. We've done to date has already achieved results ahead of where we expected to be at this point.
Finally, as you heard from Tim on the last earnings call. We're in the process of identity identifying meaningful cost savings. These efforts will enable us to take the necessary action to significantly reduce our operating expense and 2020 and set the business on of course to return to pay.
Profitability.
We look forward to sharing more detail with you at our Investor event in January .
I'll now turn the call over to Perry.
Thank you Mike.
Oh stuck with reviewing our third quarter results and then just got her business outlook as Tim mentioned, there of course recon and earnings per diluted share exceeded our guidance and mark sequential improvement versus the prior quarter.
Third quarter and they still were 488 million dollar.
5% decrease compared to 515 million bullets last year.
Consolidated comparable so were negative 5%.
We took home, which includes express stores and ecommerce were negative, 5% and express factory outlet store comps were negative 5%.
During the third quarter, Phil what impacted but a strategic decision to the just the level of store wide inside what promotion it'd be more books and talk to that we don't promotional activity.
Similar to the same quarter pulling back on these types of promotion and the negative impact on sales in the short term, but we believe these will be booked and help of the business and the brand over the long term.
The work there is many of these on the customer from will allow us to do these much more effectively than we have seen the pot.
Our third quarter gross profit was 138 million bullet with a gross margin rate of 28.2%.
Down 250 basis point as compare to the prior year.
You break this down merchandise marching contracted by 140 basis point.
While we were more strategic with our push the store wide insight what promotions. This was offset by the actions we to do move through clearance inventory as well lots of product that was then resonating with our customers and didn't aligned with our go forward product strategy.
Buying and occupancy quote while down slightly much left here at the present different when they sell the leverage by 110 basis points.
18 expenses were $144 million, a decrease of $4 million compared to last year.
The percentage of sales as June 18, I mean at 29.5% de leveraging 70 basis point driven by the decline in sales.
On a GAAP basis.
Put any loss was $7 million as compared to last year's I'll put it in income of $10 million.
Consistent with the first two quarters of the year.
Third quarter operating loss was negatively impacted by 800000 dollar related to the new lease accounting standards. However.
There was no material impact on our pre tax laws.
Adjusting for non core operating expenses of $1.7 million.
Mainly related to the restructuring of the management team, our operating loss was $5 million.
Third quarter loss per share with five cents on a GAAP basis, and there's lots of three cents on adjusted basis as compared to last years as well for 11 cents.
At the end of the third quarter to 44.
The 4 million Board of course reduction we committed to 2016, we substantially completed and the cost savings. Once one now I know investor event in January would be incremental to those already achieved.
This work is currently in progress.
I'll now turn to robotics sheet and cash flow.
Our balance sheet remains extremely healthy.
Even could position has improved dramatically over the last 90 days.
Inventories of course Rand were $346 million at 5% decrease as compared to last years $363 million.
As Mike indicated the team has made good progress in a short amount of time in our inventory position is now more closely aligned without comp guidance.
We ended the third quarter, we grew 168 million board of cash and cash equivalent as compared to last years $161 million.
These bonds reflects 41 million board used to purchase outstanding shares over the past 12 month.
We initiated our share repurchase program in the third quarter, and repurchased 2.8 million shares for $8.7 million during the third quarter and subsequent to quarter and have been purchased an additional 600000 shares for approximately $2 million.
Yes.
Under our cotton 150 million dollar share repurchase program, we have repurchased.
16.4 million shares for $116 million and we currently have 34 million Boes remain available.
Our balance sheet reflects no day.
Year to date capital expenditures were $21 million as compared to last year's Capex $32 million.
With that I will now move on to our guidance.
For the fourth quarter of 2018, we currently expect.
Comparable sales in the range of negative one two negative 3%.
Profits in the range of $10.5 million to $13.5 million.
Earnings per diluted share in the range of 16 to 21 cents. This compares to last year adjusted EPS of 19 cents.
The fourth quarter guidance.
Reflects our plans to continue our strategic targeted promotional activity. It also reflects our actions to continue to improve the composition of our inventory by clearing through slow moving I didn't spot there to free up we see you noted two up more newness to the assortment.
Now, let me see if you worth about Patty.
Today, approximately 20% of our unique are sourced from China.
We are on track to bring that down to approximately 8% by the middle of next year.
We will accomplish the by further diversifying our sourcing base.
For the fourth quarter, we expect approximately 2.5 million dollar of incremental costs.
This is included in our fourth quarter guidance.
We continue to expect 2019 copies all expenditures in the range of 35.
38 million board.
This compares to 2018 Cogs on expenditures of $50 million.
We also expect to generate positive cash flow in 2019, while continuing to invest in our business initiatives in a prudent away.
On our second quarter earnings call, we expected that our store count would be 624 at year end.
Which can be used for Q for modeling purposes.
These does not reflect the details of our fleet personalization plan that will be provided on January 20 seconds.
In conclusion.
While we're not satisfied with all financial result, we're confident in our ability to returning spread to mid single digit operating margin over time.
I'll now turn the call back to team for closing remarks.
Thank you Barry.
My first six months at express have been both challenging and rewarding.
I am encouraged by the response from our corporate teams in Columbus, and New York and our store teams across the country.
They believe in the express brand. They know we have so much to offer today's consumer they are energized by new product and eager to apply new ways of thinking and new approaches.
This organization is up to the challenge.
Our results in the third quarter are only one data point.
But our sequential improvement from Q1 to Q3, 2019 and sequential improvement with in the third quarter are compelling evidence that our early actions are resonating with the customer.
Six months ago, I set forth to develop a new corporate strategy for express.
To assemble and outstanding leadership team.
And to take immediate action to change the trajectory of our business.
The corporate strategy will be shared at our January investor event.
The executive leadership team is almost fully in place.
And I'm, so pleased with the level of discussion debate and collaboration among its members.
We are driving to become a culture of ownership and accountability with a mindset of delivering results and there has been tremendous receptivity across the entire company to this shift.
You heard some details from Melissa Sarah and Matt about how we are addressing the foundational pillars of product brand customer and execution with long term profitable growth in mind.
Infusing, our product with newness and relevance restoring the strength of our brand.
Responding to what customers want and expect from us and executing with excellence.
That is what will lead expressed a long term financial health and that is exactly what this team is determined to do.
I am confident and optimistic about the future of express.
And it is my expectation that we will return to a mid single digit operating margin through a combination of topline growth margin expansion.
Spence reduction and fleet rationalization.
This will of course takes some time.
But our strong balance sheet and free cash flow generation give us the financial flexibility, we need to take the necessary actions.
I am encouraged that the actions we have already taken have started to show in our results and have begun to change the trajectory of our business.
At the same time I am realistic.
I am fully aware that the road ahead will be difficult and it will surely have some bumps in curves, but each element of our strategy is realized we will add significant value to the company for our associates and for our shareholders.
Thank you for our your interest in express I look forward to unveiling our long term corporate strategy at our Investor event on January 22nd at the New York Stock Exchange.
I will now ask the operator to begin the question and answer portion of the call.
At this time I'd like to remind everyone in order to ask a question. Please press star and the number one on your telephone keypad.
Your first question comes from a line of Paul Trussell. Your line is open.
Hi, Good morning. This is gabby carbone on for Paul Thanks for all the color today.
I wanted to ask about the for Q comp guidance seems like things, probably trended pretty well in November . So I was wondering if you comment there and then if you can dig a little bit deeper on the recent changes you've made around product presentation and assortment.
I see the confident you can meet your expectation for the next quarter. Thank you.
Hi, WBC stop the study.
From a Q4 guidance. Some point would that reflects is what we have seen that's far quarter to date and what would be live we can achieve the bottom of the quarter and that's what's embedded in our guidance cutting please.
Hey, Gabby it's Tim.
Just to take the second part of your question, we've talked a lot about the changes we made up to the merchandising strategy, particularly on the women's side of the business in our stores.
And.
Those changes have had a very positive impact on our results, particularly as we moved through the third quarter.
We previously for for a very long time segmented our stores and in fact, the company was organized around for lifestyles.
Those lifestyles, we're actually wearing occasions, they were wear to work casual denim and party.
And the reality is that's just simply not the way people think about that wardrobes today or think about getting trust.
People have one wardrobe and they want.
Specific pieces that are very very personal that fit in that wardrobe. So we.
Dismantle basically all of those those locations so those sections of the store and.
Mixed all the product up a and the result is a much much more modern approach where you see.
Lasers that Mike traditionally have only been merchandise back to a matching skirt her matching Pat now with a great Cequent tank in a pair of jeans that just reflects a much more modern way people are dressing.
Those changes have been very positive on the women side and as Melissa said in her comments, we will be moving forward with those changes on the men side as we move into the spring season.
Thanks, and just one more quick question for Perry I'm, just wondering if you can discuss the gross margin expectation for the fourth quarter in more detail could you remind us what comp you need to achieve leverage in D. I know and how that has evolved thanks.
Yeah, absolutely so from a gross margin expectation for Q4, we currently expect gross marching to contract by approximately 70 basis points. That's 70 basis points. It's a combination of the merchandise margin contraction of about 50 basis point and being no contraction of about 20 basis points.
I see relates to the second part of the question around what we what he takes would be I know two levered age.
Typically we see that Vietnam can live with age I'm very very low single digit comps.
With our airports when they write some point in the recent years via no can leverage I'd I'd slightly negative low single digit Kong's hi. This is what you're seeing right now the guidance that we're providing we're expecting to be a no will be only I did 20 basis points I've contraction onto two last year.
Great. Thank you so much and best of luck for holiday.
Thank you again.
Your next question comes from a line of Marine Shapiro Your line is open.
Hey, guys congrats on the progress.
Thank you Marty and good morning. Good morning, So [laughter] you front, that's very well developed bottoms business starting from the editor pent up on your denim could you talk a little bit about your tops business the changes that you're making there and I guess how.
How you're going to look at this differently than you then you didn't the past it sounds like you're making a lot of changes to the way you think about her apparel and her wardrobe.
Yes, absolutely Marni I'm going to late I'm going to let Melissa I take that one hi, Marni Yeah, we've introduced.
We've introduced new silhouettes, new fabrics, new ideas like sleeve interest and what we've seen a consistently of whats winning is really modern feminine personal style. So we've been chasing into those themes with new updated ways.
The speed to market the go to market transformation, including an accelerated calendar will help us continue to to leverage new learnings and understand what the customer wants faster.
Then tests you know so I think Marty Marty you have all people know very well that we have traditionally relied on some very big key items to drive our tops business and as Melissa said in her prepared remarks, you know we've held onto many of those things passed their point of relevance.
So a shift just to more trend right on trend tops is is where we're showing significant signs of improvement in the business.
Well some of those buys be smaller buys it might just sell out kind of thing.
Absolutely Marni were really thinking about inventory turns and how we can be more profitable with bringing new ideas and turning the faster to bring an even more new ideas. So absolutely yes.
Fantastic Best of luck for the holidays guys.
Thanks Marni.
Your next question comes from line of Roxanne Ma'am your line is <unk>.
Great. Thanks, and congratulations on the progress and thanks for all the color today.
First I just wanted to start with a with a couple of follow up I guess as it relates to the progress you're seeing with your new approach to merchandising are you able to share how much better those stores are doing versus the chain.
I actually Roxanne, what's what's really exciting is that early in the third quarter I'm sorry in early in the third quarter, we rolled out this strategy to all stores and the chain. So the entire fleet is now merchandised in this way.
So I couldn't comment on the differences when we when we first began yeah you guys may recall on our last call. We had just started rolling it out and the performance in those stores, where we had rolled that out was significantly better than in stores, where we hadn't.
So I think that much of the improvement that we have seen in our and our sales trends throughout the third quarter.
Based on the change in the merchandising.
Okay, Great and then as it relates to you know your lead times, you know I know Melissa talked about.
Yeah, I get it used to be on trend and and and setting the trends you know I'm one of the key things that has taken place. The industry is that the competition has gotten so much faster or what supply chain in speed to market.
So I'm just wondering if you can elaborate on you know what are your lead times now and what are you targeting in terms of how much speed are going to be able to achieve it might land.
So we're significantly reducing the time it take from conceptualizing and idea on to having that product really ready and customer facing and part of that accelerated calendar really as part of the bigger go to market transformation that Matt talked about and that go to market transformation is really about.
Getting organization, United and aligned against key product and brand strategy. So there really together their thoughts together, yeah and rock Sam This is Matt.
We have obviously been here for quite a while now one of the biggest changes associated with this go to market transformation.
Most of his point much better coordination and alignment upfront across all functions. So we're talking about design merchandising planning and allocation production the sourcing and also importantly, bringing marketing in the loop at the very very front end of the process, making sure we have alignment and this creates quick hdclear product strategies clear and.
Align branded marketing messages and it also enables us to make faster and better decisions. The end result of all this will be better customer experience when they get to stores or online for us.
Okay, Great and then just one follow up for you, Matt I know you talked about improving the conversion rate and it sounds like there's there's a couple of of new initiatives, there and potential investments, whether it's you know labor scheduling the but the new customer feedback tool.
On the experience model and I'm. Just wondering are it's all of these are already in place or is this much more of a multiyear opportunity.
This is I wouldn't necessarily call it a multiyear opportunity, but a lot of this we will be rolling out in 2020. So we have spent a lot of time in the last.
Six months or so taking a look at all of the activities that occur in the stores in particular, and we have streamlined a lot of the processes. We are eliminating non value added activities, we're going to roll. This whole we're testing it now in a few stores, we're going to roll this out in early spring.
But what we're trying to do here is free up nonproductive time of sales associates, and making sure that we have more time for the associates to face to face interaction with customers selling on the floor and providing a better customer experience.
Based on benchmarking, we have done we know currently we lag from a conversion standpoint relative to many others in the industry and we think this is a huge opportunity. So we get the right labor in the right place at the right time, a combined with much better eliminating non value added.
Activities getting more time in front of the customer along with the product and brand work the Melissa answer or doing all of those should significantly improve performance in the stores.
Okay, great. Thanks for the color and best of luck for holiday.
Thank you. Thank you.
Your next question comes from the line of Susan Anderson Your line is open.
Hi, good morning, Thanks, so much for taking my question.
Harry I guess I wanted to follow up on the March margin first fourth quarter. Its sit driver of it being down skill clearing screw the product that you guys get cleared through and if so I guess when do you guys expect to have kind of full you said a product where we won't have to clear through the old products the bar.
Thanks.
Hi, This is an yes the margin expectation for Q4 reflects our approach in terms of the slow moving put that we continue to talk it and move through our stores. We do expect as we move do odd Q4 that we're going to see continued to see improvements in the he makes it a couple.
The shown and by the time, we get to that 50, AUM that remit throughput competition still being a much much better shape and even the relationship all sales to inventory will continue its improving and be in morning alignment.
And this is Matt it will take some time for sure. Obviously, we've had a lot of change and senior leadership as Tim talked about Tim came on in June .
Melissa came on as the new head merchant of only about 90 days ago, We just announced today that we're hiring a new men's head merchant all of these activities will change the construct of the of the merchandise going forward. So waller inventories getting cleaned up and getting better it is going to take some.
Time to get to the assortment, we really want and to get to an optimal storm and we're probably looking closer to the back half of EUR 2020.
Great. That's helpful. When we talk about size sorry, it's Tim I'm just to add on when we talk about being very strategic in targeted in our promotions one of the things. We are doing is targeting promotions on those products that we want to move through at a faster rate and that we don't believe are relevant as we move into.
2020.
Great.
And then maybe I don't know if you could give some color on the perform it says the online in the quarter or at least that performance versus the stores in the third quarter.
Yes zone, we don't provide a.
Separate constant performance by your own line versus stores as you know we have moved to Moreover, we slowed versus outlet Colm, which those channels. They have performed by the same level of negative 5%. The reality is today that it's very difficult to assign a sale.
To.
Either e-commerce or a store because the customers interacting in both channels very regularly she's shopping online before she may actually go make a purchase out of store or vice versa. She is in a store shopping she sees something she likes your tries it on but she goes home and she buys it online later so there is the lines are blurred.
You know because of the way that consumer is behaving.
So it's very very difficult to assign a sale to either ecommerce to restore.
Yes, Okay, great. That's true and then lastly, Tim and maybe you can talk about this more January but how are you looking at potential opportunity left still on the expense side and maybe if you could just talk about the different buckets. What you think there's opportunity there still.
Well I think there is definitely opportunity across the board to to significantly reduce our expense and we are planning to share. The details of that expense reduction plan at the January 22nd Investor event in New York City, So a lot more detailed.
Okay, great. Thanks, So much you guys good luck to holiday.
Thank you.
Next question comes from line of Janet Kloppenburg. Your line is open.
Good morning, everyone. Congrats on the inflow and then on the improvement I'm, just wondering morning to talk a little bit hi, a little bit about the women's business pushes the men's business and you know what level of improvement you saw in that category. Bush's you know the <unk> the first.
Half of the you called out dresses and tops, just wondering what else you're seeing there and and I assume that the men's business continue to really outpaced women's but I could be long them, that's wed love to learn more there.
Also in terms of testing and lead times, if you could talk a little bit about what's going on right now in terms of testing that would help.
Inform your spring Assortments and how how good you feel about.
Acceleration in the business based on what you're learning now in terms of fashion trends and customers response, just some of the key items that are working at express and importantly on lead times, maybe because you've done a lot of changing in your sourcing because of China exposure you know what does that look like.
And just lastly appeal you talked a little bit about the merchandise margin outlook, Oh, two more questions I'm the merchandise margin outlook for.
Oh, the fourth quarter planning to legacy product I'm, just wondering do should we expect the promotional strategy.
The targeted promotions to continue can you even eased up for the given that your inventory is in better shape and just the opportunity for S. You need to continue to decline on the dollar basis. Thanks, so much.
Okay, Janet Theres, a lot to unpack there so let me try to tackle I tried.
I remember what I have to liken, Okay Bassi right apologize I took some notes, but let me see a bike let me see if I can tell how I can tackle it first on the performance of men's and women's I would say that our trend change as a total company has been driven by an improvement in the women's trend the mens trend.
As we have mentioned has been better than the women's trend and the men's trend has stayed very consistent and very stable.
So all of the change that that we have experienced as a total company has come through.
Based on a change in the an improvement in the women's trend and that's based on all of the things that Melissa shared in her comments and I have shared previously about remerchandising the floor.
The second part of the question was about testing.
And what we're testing today now you know the way I look at it Janet.
Every delivery needs to include products that are tests for what may or may not be relevant going forward. So within each of our deliveries we will be infusing newness across every category.
Exploring consumer preferences and learning from the customer based on how they vote on those those products and initiatives.
So we did that very in a very targeted way in the third quarter with women's tops.
And we've seen great success by by getting back into the products that worked well out of that test in a much more meaningful way throughout the entire assortment.
So we'll be applying that.
Not to each one of the categories of business as we move forward.
And finally, the promo strategy.
As I have said, we will continue to very strategically pulled back I'm very deep store wide and site wide promotions.
But we will also be competitive.
And we are in an extraordinarily competitive market share time right now in the fourth quarter, particularly over the next several weeks as we head into Christmas. So we you will see us.
Pulling back in some cases and pushing harder in other cases based on what we know.
Or what we believe we know based on where things were competitively a year ago.
Okay can I mean, I come back with a couple.
Sure.
Okay. Thanks, just on the testing I was just wondering if you have if you feel more confident that you're testing right now will secure.
More on pocket key items for the spring season, particularly in womens or if that if you adjust too early and you stage of testing so what I'm thinking about him is the ability for unit to live up consistently improved assortments and some of that less on what you've learned.
And how you built your go forward with assortment and then lastly, if you could just elaborate on lead time and the opportunity for short lead times I'm, particularly in light up the changing your vendor matrix right now.
So to take the first part of that Janet I'm very confident that we will be able to continue to improve our assortments going forward and it'll be my expectation that we will always be improving our assortments going forward.
We.
You know, we're able to impact.
You know a limited amount of the assortment moving into fourth quarter.
We will impact a greater percentage of the assortment as we move.
Into spring of 2020, and then will impact an even greater percentage of the assortment as we move throughout 2020.
Yes from a little time standpoint Janet.
Well, Matt put together are the high their high Jim whenever we put together our production in sourcing strategy. A we look at a number of things and as we're moving out of China. We continue to look out obviously consistency of product quality, a product agility and speed and fabric platforming et cetera.
With this go to market strategy change that we are this transformation, we're talking about within the business, we are going to significantly reduce.
The concept to market time within the decision, making process a lot of it frankly is getting better alignment upfront and making faster decisions on the back end. So that we reduced the time to market and a better information to make decisions. So we are not concerned about lead times even.
With that you know tend to 11%, we're shifting out of China, putting into other countries.
Well the lead times.
Are you shortening those lead times and so to support your test didn't react strategies and you go to market strategy.
Yes, we are and what we need to move on I think we have one more question Jamie. Thank you very much.
Okay last question comes from a line have Steve <unk>. Your line is open.
Good morning, Kim at parity, Melissa, Sir and Dan one [laughter] good morning to be one Steve one one finer point question and then one quick follow up to just to put a finer point on it as far as the planned promotional cadence goes in the fourth quarter. That's expected at this moment on a plant basis to be down year over year, but.
Hi, guys margin pressures more directly from the accelerated.
Efforts within the clearance.
One of your merchandise correct.
Yes, I said writer.
Okay and also has there been any changes to your web site a to improve online conversion in other words within the stores. There was a major change from a remerchandising standpoint with women's have you done anything online in order to increase conversions.
Absolutely. So we're on the process right now of Replatforming. The front end of our system, which will give us some enhanced functionality for the spring season that'll go live in the early spring along with that we.
Recently launched a new version of the express out earlier. This year, we have done a outside audit of our user experience online and have made some changes already in early fall and we're going to be making additional enhancements to the web site functionality in spring as well to address some of the gaps that we had a and then.
Cerus team is also evolving the editorial content content strategy online, which should help significantly and we will also be adding styling of personalization functionality as well. So all of these things are in concert with each other should help drive increased conversion overtime.
Thank you very much I'll take the balance offline. Thanks.
Great. Thank you Steve. Thank you all for joining US. This morning, we look forward to speaking with you again at our Investor event in January and let me take this opportunity to wish you all are very safe and happy holiday season.
This concludes today's conference call you may now disconnect.