Q4 2020 Express Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to Day Express Inc. Q4, 'twenty 'twenty earnings call. At this time all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session.
Ask a question during the session you will need to press star one on your telephone keypad. If you require for assistance. Please press star zero.
Now my pleasure to turn the call over Hh Speaker today, Mr. Daniel <unk> VP Investor Relations. Please go ahead.
Thank you and good morning, and welcome to our call 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 facts may be deemed to constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.
Actual future results may differ materially from those suggested in forward looking statements due to a number of risks and uncertainties all of which are described on the company's filings with the SEC, including today's press release Express assumes no obligation to update any forward looking statements or information, except as required by law.
Comments today will supplement the detailed information provided on both the press release and the Investor presentation available on the company's Investor Relations website. In addition, you can locate a reconciliation of any adjusted results discussed on our comments to amounts reported under GAAP on our website or on our earnings release with me today are Tim Baxter, Chief Executive Officer Perry Perry.
<unk>, Chief Financial Officer, and Matt Moellering, President and Chief operating Officer, I will now turn the call over to Tim.
Thank you Dan and good morning, everyone in.
In the fourth quarter and throughout 2020, we have successfully advanced the expressway forward strategy and taken decisive appropriate actions to effectively manage our liquidity.
We intensified our focus on e-commerce demand and traffic transactions and conversion have all increased.
We shifted gears on product driving down high penetrations on occasion based categories and driving up the percentage of more personal ones and they outpaced our overall performance.
We completed the first phase of our loyalty program relaunch and added 8% more new members than last year, who we expect will generate meaningful incremental value because they generally spend at two times the rate of non members.
We reallocated, our marketing dollars to drive greater brand awareness and saw a 54% increase in engagement across our paid social channels.
We responded to significant declines in mall traffic by sharpening our focus on conversion and so on increases across all of our channels.
We reduced $250 million on cost through expense reductions capital reductions and inventory cuts.
We secured a $140 million on additional financing and.
And we negotiated $85 million in savings through rent abatements, and deferrals and reductions.
Our strategy is the right one and we will continue to advance its four foundational pillars, while being agile in response to the accelerated pace of consumer and marketplace change.
Our fourth quarter results do not reflect where our business is headed store traffic continues to be materially affected by the pandemic. However, our comp sales did improve sequentially from the third quarter to the fourth quarter, our gross margin improved significantly from the third quarter and I expect these trends to continue in the first quarter and throughout 2021.
We also saw encouraging trends in the southeast where coronavirus guidelines were less respect restricted cash.
Comps were on average 20 points better than in the more restrictive northeast and California markets.
Controlling the controllable was absolutely essential in 2020, and we are back on the expressway advancing our transformation in 2021.
I expect that sales and gross margin will continue to improve throughout the year and that we will achieve positive EBITDA in the back half of the year and positive operating cash flow for the full year.
In 2020, we began transforming from a mall based specialty retailer to a modern relevant and compelling multichannel brand and now we are well positioned for the post pandemic world.
Our product strategy was already focused on versatility and comfort.
We were already bringing newness and innovation to our wear to work on occasion product.
We were already leveraging the authenticity and input of our Influencer and customer communities to bring on new dimension to our brand message.
And we were already investing more to accelerate our digital business.
Let me share the progress we've made on each of our channels starting with the biggest one which is e-commerce.
All of you and all of our customers have known express as a store in the mall and at the top of 2020, most people still met our brand that way but.
But we knew that meaningful digital advancement needed to be a part of our strategy.
We will drive increases in traffic conversion and average order value by continuing to invest in our omni channel capabilities.
We have built a plan to grow our digital channel to deliver $1 billion on demand in 2020 for the plan is based on our four foundational pillars of product brand customer and execution.
Moving forward, we will optimize our product assortment through product extensions and expansions and robust growth of our marketplace business with the addition of new categories, such as active swimwear and intimates.
We will foster brand preference loyalty and advocacy through greater personalization, such as real time product recommendations and a new build or a wardrobe feature.
We will drive customer acquisition and retention through enhanced service offerings, such as our digital stylist program.
We will enhance and streamline the checkout process improved search and navigation functionality and apply features we launched with our site re platform to our mobile App experience.
We will generate sales through our social media channels and take our customer co creation to the next level by building a more expansive and involved express community, where all who participate have the opportunity to create confidence and inspire self expression.
With strong digital and multichannel thinking already a part of our future strategy. We brought forward into 2020 many of the enhancements that we had planned for further down the road because the pandemic may driving greater conversion online mission critical.
We accelerated and enhanced by online pickup in store ship from store curbside pickup product detail pages and user generated content all of which resulted in consistent increases in digital traffic transactions and conversion.
To provide an order of magnitude perspective digital sales now represent over 50% of our total retail business.
Other revenue did not keep pace with transactions as customers shifted to categories that drove lower average order values.
Influencer driven traffic to our digital properties is up 3% and demand is driven through our website is up 34%.
Engagement across our paid social channels is up 54% with a 130% increase in traffic and a 150% increase in demand.
We leveraged learning from our digital startup west and the day to day knowledge from patterns emerging unexpressed Dot com.
Customer feedback and sales results to continue to inform our thought process and certainly validate the importance of a fulsome multichannel approach to effectively reach customers, when where and how they want to shop.
Although up west is not yet material to our overall results. The brand has resonated and the business has performed ahead of our expectations.
In fact up West has outperformed a number of other digitally native brands on a first year revenue basis, including brands that have gone on to have extremely high valuations.
Up West launched at the end of 2019, as a direct consumer brand with product and purpose focused on comfort.
And managed as a completely separate entity from express.
Led by fully dedicated design merchandising and marketing teams.
<unk> dot com experienced strong traffic and increases in conversion throughout the first year.
It's customer database on social media following are growing nicely as is the customers' response to the brand's sustainability message.
We have seen good success with up west pop ups as well as the offering within multi brand retailer neighborhood goods in Manhattan and Austin.
We plan to open additional pop ups in 2021, which will continue building brand awareness and driving customer acquisition.
Up west as a catalyst for growth that I expect will deliver long term shareholder value for express.
Turning to our second channel our retail stores.
The strength in our online business was not enough to offset the declines in our physical stores, which of course continued to be impacted by significantly reduced while traffic.
As I said this channel is still where most people meet our brand and in fact, the majority of our customer acquisition still comes through this channel. So.
So physical stores will continue to be an important part of the expressway forward strategy.
And having already announced our fleet rationalization plan to close 100 stores. Our focus has now shifted to fleet optimization.
Fleet rationalization is about the number of stores fleet optimization is about the store location.
<unk> concept format and most importantly, the role physical stores will play an customers post pandemic lives.
Our mall based stores can be more productive and we must also expand beyond to the mall.
We introduced a reduced square footage concept at the King of Prussia mall decreasing the amount of space by 45% and the results are outstanding with productivity double that over the balance of our fleet.
This has been and will continue to be an important testing ground for us to determine the optimal size of our mall based stores.
And we will be able to act on that learning because we have tremendous flexibility with approximately two thirds of our leases actionable over the next three years.
We also see an opportunity to diversify our fleet, which is today.
<unk> me predominantly mall based so we opened to express that it concept stores, one in Columbus and another in Nashville.
These are street locations with strong foot traffic. These stores have a smaller footprint at 1400 to for thousands square feet and a product mix curated to reflect local styles and trends within a particular market and even neighborhoods.
We have already seen a higher penetration of new and reactivated customers with 45% new customers in the Nashville location and over 20% reactivated customers in both stores.
We plan to add eight more express edit concept stores in 2021, which are short term leases to allow us maximum flexibility as we learned about this new format.
Our outlet channel outperformed our retail stores in the fourth quarter and the full year and that was before the product reflected the express edit design philosophy.
Because our outlet customer is just as focused on fashion as our retail customer we have begun to apply this approach to this assortment and are bringing styles from retail to outlet much more quickly which is already generating strong response.
E Commerce.
Optimized retail outlet.
A solid sustainable retail strategy must be holistic and therefore must include a value component. So as we continue to move away from deep Sitewide in store wide promotions because it is the right thing to do for our brand we will ensure that our outlet assortments are fully reflective of the express added approach to put our best foot forward.
In this important value channel.
Across each of our four foundational pillars product brand customer and execution, we have made significant progress let.
Let me take you through what we've done the results we've achieved to date and what is still to come across each one.
I'll start with product.
Versatility adds value as one of the core ideas within the express edit design philosophy, we have been known primarily for wear to work and occasion based categories, where we have held strong market share positions.
Today, we are seeing tremendous strength in our most versatile product categories, especially what is quickly becoming our new core which is denim bottoms and express our central tops.
In denim, we saw continued strength in our newest fabric platforms Lux comfort knit and temp control hyper stretch rolled out in the third quarter Super soft and for way hyper stretch launched in the fourth quarter and these drove 25% of our denim business in total denim, we sold over $1 6 million units.
For spring and womens we will launch more leg shapes and for summer, we will have ankle length crops and an entirely new assortment of shorts. We will also have a new curvy fit that was developed through a dialogue between our designers and our customers.
Optimizing denim inventory is also essential to our success and we have identified key fits washes and sizes that are the core of our business and have committed to being in stock online and in stores.
Denim was also a key driver of new customer acquisition, we signed up more than 240000, new denim customers in the fourth quarter and have since added more than 40000 in February.
Going forward denim will play an outsized role in expanding our customer base.
Today, one in four of our customers by denim, which is a record high for us in terms of customer penetration and our denim customers. Among our most valuable spending generally three times more with a 22% higher spend per transaction compared to a non denim customer.
As we move forward I expect this category to significantly accelerate for both women and men.
Express essentials, our new foundational knit tops for women and men are represented across all of our channels.
These styles out these sales performed exceptionally well in the fourth quarter selling over 500000 units.
This product is modern relevant and versatile and meets weekday and weekend wardrobe needs.
Express essentials will be our new core, but never basic because we know that people come to express for elevated fashion details.
And Womens Express essentials are offered across for fit platforms.
Contour, which slim and shapes or silhouette fitted skimming and relaxed.
In the fourth quarter, we sold over 400000 units and we launched body contour in February selling over 40000 units.
In mens Express essentials include Polo's, Henley's in Ts and elevated fabrics, great colors, and with those fashion details our customer appreciates.
Polo's the most versatile men shirt were up 6% to last year and up 61% online in the fourth quarter.
Men's graphic Tees were also up 6% to last year and up 120% online driven by continued success of the X logo program, we introduced last year.
Going forward, we see significant upside in our express essentials net business and plan to deliver over $125 million in sales this year, which speaks to the relevance and appeal of this offering.
Our product strategy is working and as we grow these programs in 2021, we will continue to dimensionalize versatility and comfort in our Assortments.
We are also very well positioned to meet the wardrobe needs of people returning to offices, social gatherings and occasions of all kinds because of our strength and wear to work and dress apparel.
We will seize every opportunity to regain market leadership in these categories, where we have historical strength and develop new market leadership in denim and knits.
Our second foundational pillar is brand.
We introduced a new brand purpose to create confidence and inspire self expression and a new brand promise to edit the best of now for real life versatility.
Today, we fulfill our purpose and promise through social engagement, influencer relationships and customer co creation and with a wide variety of initiatives and activations that create deeper more meaningful connections with our most loyal and our newest express fans.
Our goal is for express customers to see themselves as a part of a styling community.
To feel connected to our brand our physical and digital stores, our sales associates and we will fuel those connections through a share depreciation for the inspiration and power of fashion and a shared belief that close conserve a higher purpose.
This work is already in progress and we're seeing great results with increases in engagement and conversion across all of our channels.
In fact, we just learned last week that we were named one of the Influencer of marketers of the year by reward style for outstanding Influencer marketing strategy, the criteria being engagement brand sentiment and ROI.
The express digital Stylus program is exceeding our expectations showing a 52% conversion for those who interact with a stylist and we still have tremendous opportunity with this program.
Restoring the relevance of the express brand is a key priority and as evidenced by brand tracking measures social media engagement and customer feedback. We've made good progress in a relatively short period of time.
In 2020, we laid the foundation for this transformation and in 2021, we will build on this momentum.
We will evolve our customer experience model model in our physical and digital stores.
Expand and enhance our styling capabilities and offer more localized assortments and more personalized selling.
Customer.
We remain focused on engaging existing existing customers and acquiring new ones. So.
So in 2020, we refined our approach to identifying and connecting with customers sharpened our digital spend and drove greater personalization of messages through owned and paid media channels.
The express inside our loyalty program is one of the most impactful ways, we acquire and engage customers. So we developed a more compelling customer value proposition and enhanced and rebranded the experience.
This led to a fourth quarter increase in loyalty sign ups of 8% over the prior year, despite significantly reduced store traffic.
We have also seen a 3% higher spend per new customer versus last year, driven by a 4% increase in visits and a 3% increase in units per transaction. Despite the decline in sales of higher ticket wear to work on occasion based product.
Our express insider members have tremendous lifetime value.
Spend on average two times more than non members annually their retention rate is seven times greater and new members are nearly two times more likely to make a second visit within the first 90 days.
In a few weeks, we will enter the next phase of our relaunch, which includes new participation tears, new benefits of digital wallet feature and an easier way for customers to earn track and redeem their benefits and.
And we will also reissued the express private label credit card, which should drive incremental sales through additional trips and improved retention.
Over the last year, we have not only increased our engagement with customers, but we have done so in new and creative ways.
We began a dialogue with our top loyalty members to understand their wardrobe needs and style preferences, which led to our first ever express designer and express customer co created product capsule in the fourth quarter, our living locks holiday assortment.
This was one of our fastest selling collections for the quarter moving over 230000 units and attracting over 50000 new customers.
Our second customer co creation focused on men's and women's denim. It was launched in February and we've seen great success selling over 40000 units in February alone.
And our final pillar execution.
Which is both a through line across product brand and customer and the evolution of our operating model as a result of more streamlined and disciplined systems and processes.
Conversion is a key component of execution and we have successfully driven increases across all of our channels.
Stores. This was driven by a new customer experience model, new associate training programs and a continued focus on loyalty sign ups.
Higher conversion will also help us improve our inventory position, which is up 20% versus last year's levels, but is down 1% compared to 2018.
So while the level is higher than we planned a large portion of this inventory is in core season list product with low mark down risk and we are managing through the balance of the inventory appropriately and delivering significantly improved margins on our clearance.
I expect our inventory will be more aligned with our sales trend as we move into the back half of the year and business continues to recover.
One of the most important aspects of execution in 2020 was effectively managing our liquidity.
We finalized discussions with nearly all of our landlords negotiating a total of $85 million and abatements and deferrals and future rent reductions and we reduced expenses in the fourth quarter by $35 million.
We then secured an additional $140 million in financing to support business continuity and allow us to emerge from the pandemic with the means to keep driving our strategy and accelerating our business.
Product.
Brand customer and execution.
Across each one of these pillars, we are focused on what we expect will drive long term value for our company and despite the many challenges of 2020, we have meaningfully advanced the expressway forward strategy.
As we move through 2021, I expect revenue to improve as vaccines continue to rollout and as more people returned to work in offices and resumed social gatherings and occasions.
I also expect that we will deliver positive EBITDA in the back half of the year and finished the year with positive operating cash flow.
Perry will provide detail on our fourth quarter and full year results give an update on our liquidity actions and share our view for the balance of the year.
Thank you team in 2020, we focus on controlling the controllable in order to build a strong foundation and maintain liquidity throughout an unusually difficult year.
As Tim just said, we finalize negotiations with the majority of our landlord and negotiated $85 million in wind abatements, and deferrals and future rent reductions.
We reduced expenses by $35 million.
And secured $140 million in additional financing.
Our foundation is stronger and we're back on the expense for awards.
I'll discuss our fourth quarter on full year results provide detail on our liquidity action and then provide a high level outlook for 2021.
Our comments today will refer to the usual year over year comparison.
Also make some quarter over quarter combined with both are relevant and meaningful.
Fourth quarter amidst till were $430 million.
At 29% decrease as compared to $607 million last year.
Consolidated comparable sales with negative 27%, we took homes with negative 28% and express factory outlet store comps were negative 27%.
Our sales continued to be materially impacted by COVID-19 in the fourth quarter our store.
Traffic remained pressured compared to last year.
While our merchandise margin contracted by approximately 600 basis points versus last year on a relative year over year basis, we saw sequential improvement compared to our third quarter results and we expect merchandise margin to continue to improve into the first quarter of 2021 and begin to normalize as we move through.
For the balance of the year.
Finally on occupancy expenses were down $21 million on on absolute dollar basis, but deleverage by approximately 400 basis points due to the decline in sales.
The overall dollar reduction in buying and occupancy was driven gross fleet rationalization of DVD rent savings organizational restructures, we announced in January and November of 2020, and incremental actions, we took to manage liquidity, including significant wind up eight minutes, we negotiated with our landlords.
The year over year dollar reduction in buying and occupancy with significantly greater than Q for Q2, and Q3 as we recognized a seven medium bolt on P&L benefit from our executed window basements.
It should be noted the binding occupancy was negatively impacted by $4 5 million bull or non cash impairment charge.
Related to certain stores and store updates.
During the fourth quarter, we had a gross profit of $71 million with a gross margin rate of 16, 6% down approximately 1000 basis points as compared to the prior year driven by the sales decline.
However, compared to the third quarter, our gross margin rate improved on on absolute basis, and also on a relative year over year basis due to higher total sales for mentioned improvement in merchandize margin.
And our improved buying and occupancy rate.
We expect gross margin rate to continue to improve in 2021 sales improvements markdown management and expense leverage.
SG&A expenses were $134 million.
A decrease of $15 million compared to last year.
No to the buying and occupancy reduction the reductions in SG&A expenses were driven by fleet rationalization. The previously announced cost reductions associated with our corporate restructuring and the actions we took as part of our COVID-19 savings.
As a percentage of sales SG&A came in at 31, 1% deleveraging of approximately 700 basis points as a result of the significant decline in sales.
On a GAAP basis, our operating loss was $63 million as compared to last year's or put it in loss of $190 million.
The loss from the prior year includes approximately $205 million loss in non core operating expenses.
Excluding the impact of the previously mentioned noncash impairment charges, our adjusted operating loss for the fourth quarter was $58 million as compared to last year's adjusted or put it in income of $17 million.
Fourth quarter diluted loss per share was 82 on a GAAP basis compared to a loss of $2 and 21.
Diluted share in the fourth quarter of 2019 on an adjusted basis diluted loss per share was <unk> 66.
Compared with last years adjusted earnings of 21.
For diluted share.
Our effective tax rate for the fourth quarter was 16, 9%. This reflects the valuation allowance recorded against our deferred tax assets.
For the full year 2020, net sales total $1 2 billion.
A decrease of 40% compared with the full year of 2019.
Consolidated comparable sales were negative 27%, we put comps were negative 29% and express factory outlet store comps were negative 21%.
For the full year 2020 loss per share was six bullet and 27 on a GAAP basis, which compares with a loss per share of $2 49 in 2019.
Adjusted diluted loss per share was $4 86, compared to last year's adjusted diluted loss per share of <unk> debt.
Full year results were also impacted by the previously mentioned restructuring charge and the noncash write off of our intangible assets.
Now, let me discuss our liquidity position and review our balance sheet and cash flow.
Over the past year, we have taken a number of steps to reduce costs and improve liquidity, we drew down on our existing ABL credit facility.
We secured $140 million of incremental financing through a 90 million for.
FILO term loan that will sell standing on the year end and an additional $50 million delayed draw term loan for which we have satisfied the requirements and provided notice to the lenders of our intent to borrow.
We negotiated $85 million of rent abatement deferral and rent reductions.
We reduced $250 million of course through expense reductions capital reductions and inventory cuts.
And we expect that curious tax benefit of approximately $120 million of which $95 million is expected at the end of the second quarter.
As a result of these actions our cash position at the end of the fourth quarter with $56 million and our long term borrowings were $196 million.
Of which $106 million is drawn on our $250 million ABL and the remaining $90 million is from the new followed term loan.
Inventory at year end was $264 million.
A 20% increase as compared to last year's $220 million.
As a reminder, we ended 2019 with inventory down 18% versus 2018, after making considerable efforts to optimize for inventory levels and composition. Therefore on a two year basis, our inventories down 1%.
Additionally, almost 40% of our assortment consisted of wear to work and occasion based categories, which.
We are disproportionately impacted by the pandemic.
However, the majority of this inventory is what we consider core items with low markdown risk and as we move through the year, we expect our inventory to be more in line with our sales expectations.
Moving on to our high level outlook, our assumptions are dependent upon the duration and intensity of the pandemic.
We expect the full inc. For the full year of 2021.
Sequential comp sales improvement throughout the year significant gross margin improvement for the year buying and occupancy expense dollars to decreased double digits as a percent to 2019.
SG&A expense dollars to decreased high single digits.
At present to 2019.
Positive EBITDA for the second half of the year.
Positive operating cash flow for the year, including the receipt of our cares act refund and capital expenditures of approximately $35 million.
In addition, we are monitoring and managing potential headwind.
From an inventory standpoint, we're trucking port delays and freight cost increases due to the pandemic. We have adjusted our floor set timing to ensure the express edit is appropriately reflected and while the freight increases could have on impact on our gross margin in the back half of the year, we are working with vendors and our.
Our supply chain to mitigate part of these increases.
We continue to review potential tariff increases and while there is no expected impact at this time the flexibility of the vendor base allows us to adjust countries and factories if necessary.
You should also be noted that our expectations for gross margin include shipping and handling rate increases in surcharges. There are continued from the fourth quarter of 2020.
And finally, our store labor costs continue to be affected by state minimum wage increases we're actively managing our store labor model to balance these costs with our desired level of customer engagement and our vision for the customer experience.
Turning to real estate, we expect to close an additional 25 stores.
This will bring our overall closures to 93 since the beginning of 2019.
We expect to open one new express factory outlet location nine express added concept stores.
And for up with pop up stores during 2021.
A result, we expect to end the year with 559 stores.
339 retail stores 10 Express added concept stores 206 outlet and for up with pop up stores.
In summary, based on the actions we have already taken and will continue to take to offset the impacts of the pandemic as well as the relative strength of our E Commerce business and the continued strong response to our fashion receipts will well position for improved results going forward and to achieve.
Our long term goal of a mid single digit operating margin.
We look forward toward the new on our progress and I will now turn the call back to team.
Thanks Perry.
When I think about what will most sharply distinguished 2021 from 2020 I returned to that frame quote on my desk that the word crisis when Britain and Chinese consists of two characters one for danger and the other for opportunity.
Everything that we accomplished in 2020 from.
From operational improvements and the streamlining of our store fleet to the reinvention of our product and the repositioning of our brand.
From the reduction in our cost base to the bolstering of our finances are the reasons that we were able to mitigate the dangers of the pandemic.
In the face of exceptionally difficult circumstances, we continued to advance with clarity and purpose. We built a solid foundation advanced the expressway forward strategy deepened our engagement with our community and made investments in our ecommerce business.
I expect us to return to positive EBITDA in the back half of this year and we are well positioned to seize every opportunity in 2021.
You for your interest in express and we will take your questions.
As a reminder to ask a question. Please press Star then the number of line on your telephone keypad.
Again, Thats star one to ask a question.
Please standby on them on we compile the Q&A roster.
Your first question comes from Susan Anderson from B Riley <unk>. Your line is open.
Hi, good morning, Thanks for taking my question.
I'm curious just if there's any thoughts on the consumer coming back to fashion, yet or is it still really heavily trended more towards casual and loungewear and I guess within that fashion component.
And any trends that yet as consumers coming back to work were and then also I'm curious are you seeing any differences in performance by geography, maybe from the south to North where things may be more open already in this house. Thanks.
Hey, good morning, Susan I'll start with the latter part of your question, Yes, we are seeing differences by geography.
In fact, the south east.
Performed at about 20 points better than the northeast and California.
As there have been many announcements made over the past week or so about the loosening up of restrictions in places like Texas. We have also seen.
Changes in our trends in those locations.
So it seems to be light at the end of that tunnel and as as restrictions loosen up or in places where restrictions have been.
Looser, we are seeing much much better trends than in places where the.
Restrictions are more restrictive.
Alright.
The first part of your question about fashion. The answer is yes people are buying fashion.
The only caveat I would put on that is that the consumer's expectation I believe has changed forever in terms of comfort.
So while we are seeing a return to fashion and a return somewhat of a return to what we would have considered wear to work categories. The most critical thing is that those categories have become more and more comfortable so we launched men's knit suits.
Last year, and we have continued to see incredible results. In spite of the fact that that category is obviously very challenged the fastest turning component of that category is actually fashion and comfort and our soft stretch suits.
In women's for example, we've introduced an entirely new range of modular suiting much.
Much of which is net.
Including.
Tailored looking bottoms that are actually.
Just as stretchy in just as comfortable as your favorites sweat pants. So we are beginning to see people returning to those categories beginning to see a little bit of energy around those categories and I expect that we'll continue to see that as as people return to work in offices.
And perhaps more importantly returned two occasions.
Great that's really helpful that sounds positive.
And then maybe if I can just add a follow up on the store closures I think youre looking to close 20 retail storage five outlets.
And then you have the smaller express edit store, what's your testing I guess any thoughts on moving some of those other store, it's down to the smaller format and I guess, how quickly could you do that if this express edit store comes back with positive results and then maybe also if you could talk about the cost to relocate or we do a store.
Sure I think.
Fleet optimization as I said is our focus and we have the opportunity.
To do quite a few things.
We have tremendous lease flexibility. So as we continue to learn what consumers are going to expect from our physical locations in a post pandemic world, we'll be able to apply those learnings to.
Two the vast majority of our fleet over the over the next few years.
I talked a little bit about the king of Prussia store and that was a test we took on mall based store, we reduced its square footage by 45% and as I said, our productivity in that location is double the balance of our fleet. So we know that we have the opportunity to <unk>.
Link.
Much of our mall based square footage and be significantly more productive.
The express added concept stores are even smaller in terms of square footage. So the two that we have now one is for 500 square feet and one is 4000 square feet and as we open the remainder of them, we expect to stay within that range. So these are.
For example, the 4000 square foot store in Nashville is half the size of the King of Prussia tour that we reduced by 45%. So we definitely have an opportunity to be much more productive in our physical spaces, we have the flexibility in our leases to affect our mall based fleet appropriately.
Over the next few years and as we continue to learn what the street side smaller express edit locations could do we actually have the opportunity to potentially expand.
That fleet.
Great that sounds positive and then if I could add in there the new App what stores I'm just curious what the response has been from the consumer and how are you marketing that new concept to the consumer to line here now that that's out there yes.
Yes up West has as I said operated as its own entity.
So it truly is operating out of <unk>.
Separate space here in Columbus, as a digital startup.
As a part of their strategy.
Like many digital.
Brands.
They recognize that one of the greatest ways to drive brand awareness and.
Acquire new customers was in physical locations. So they have executed several pop ups in 2020, and as we said expect to execute quite a few more in 2021. The purpose of those stores really is customer acquisition and brand awareness. So they are short term leases, but we'll also continue to see.
What the customers' appetite.
Is for that product in a physical space. So that may become a permanent part of the strategy likely will become a permanent part of the strategy, but up west is a digitally native brand and we intend to keep it minimally even our longer term plans have it at 75% digital demand.
So very very excited about the <unk>.
<unk>.
And very excited about the future there.
Great. Thanks, so much I'll, let someone else hip hop on.
Good luck this year.
Thanks, Susan.
Your next question comes from Marni Shapiro from retail tracker. Your line is open.
Hey, guys good morning.
Good morning Marni.
Perry for you just first clarify your comment I think you said SG&A for the year Youre looking at it to be down high single digits versus 2019.
Was that did you say that was a dollar basis or as a percentage of sales I think I missed that part.
On a dollar basis when you look at it compared to 2019, we expect it to be done on the high single digits.
Okay fantastic.
And then just could you talk a little bit about the marketplace opportunity and what youre seeing there you've had a growing breadth of brands. There that look really fantastic and brands that I'm used to seeing in specialty store is that seem to be disappearing quickly.
So could you just talk a little bit about that and is there any thought as to bringing any of these brands into some of your bigger and best stores.
Yes, Marni the answer is yes on the second part of that so let me talk about Mark.
Place, though we do see as I said marketplace as being a key part of our $1 billion E Commerce demand.
Planned debt that will share much grit in much greater detail with you all in the <unk>.
Second quarter, but we've had great success in marketplace. The customer has responded extraordinarily well to particularly to products outside of our.
Apparel and accessories accessories categories, but also to products within those categories, where we are augmenting our assortment our existing assortments. So across the board, it's really been a very exciting to see how the customers responded to.
Our debt within the marketplace.
I also believe that there is an opportunity for us to bring some of those brands. Some of the most successful brands into our larger physical stores.
As I said, we have the opportunity to make the stores more productive by shrinking the square footage, but in the meantime, we can also make the stores much more productive by bringing new concepts and new product categories.
So yes more to come on on the marketplace strategy, a very exciting part of the E Commerce strategy, but also potentially.
Powerful part of our physical strategy.
Great and can I ask one more follow up.
I'm curious I know your inventory is up and you hold a lot of that in the core and basic stuff, but less. So this question might sound strange, but do you think you have enough inventory or do you feel you have enough inventory to drive the sales on the fashion side I'm watching your.
Customers come into the stores and they are blind to basics right now.
And they're going right for every top with the shoulder detail. So I'm curious what your balance looks like and how you feel about that for spring.
I feel good about that going forward I don't feel good about it right now per.
We mentioned that we have experienced some delays.
In shipments.
And so our first spring deliveries have been delayed and so we have not executed our March product launch yet we are executing that next week, which is two weeks later then.
A year ago and free.
Weeks three weeks later than 2019.
The percentage of our inventory right now thats in new fresh spring fashion product is lower than I'd like it to be but that will correct itself over the next couple of weeks and we agree with you. The response to our fashion product has been outstanding and the agreed.
Core pieces of the.
Business have been more challenge, but actually our body contour, which we just launched in February which mark.
Part of express essentials.
Which is core but its fashion core has been its been explosive.
Been really really good so I am excited about our ability to continue to drive fashion and also develop these new core businesses that appeal to the fashion consumer.
It's fantastic for the fashion looking debt I'm excited to see the new set good luck to you guys. Thanks.
Thanks Marni.
Your next question comes from Roxanne Meyer from <unk> Partners. Your line is open.
Great Good morning.
Couple of questions for you.
Knowing on the inventory knowing that you've got a focus on increasing denim fits and styles and also in your new net assortments, where you've got for different since it sounds like youre going to need to significantly increase SKU count and breadth.
So how are you thinking about that in the context of market risk overall for these categories or are these categories in a way.
Part of what you would consider having a longer shelf life, and therefore aren't exposed to risk.
They definitely have a longer shelf life, so much less exposure to risk and as I said, it's important it's actually critical for us to develop these new core categories.
We have as you all know been historically very very well known for occasion and wear to work and I think the past year, we talked about.
Dimensionalize, our assortment outside of those categories pre pandemic and obviously the pandemic has accelerated the need and also demonstrated just how important it is to have.
A broader assortment that services all of our customers' needs. So I feel really good actually about the way we are building the assortment.
And we have been.
Over skewed in.
Many categories in the past so in total you will actually see a lower SKU count than previously.
Just going to be much more focused.
And therefore, it should be a much more powerful assortment.
Okay, Great and then moving on to your comments about moving more quickly from <unk>.
Have an assortment move from retail to outlet I was wondering if you could expand on that a bit and just overall I guess remind us how much of the outlet product is made for outlet versus.
Coming from retail and how are you.
Just talking about kind of adapting the styles from retail to outlet or actually transferring some of that product and just how you think about the strategy in the context of the potential for <unk> for increased cannibalization.
Sure.
No.
Our outlet strategy previously was a 100% made for outlet product.
Over the past year, we have transferred some product that was intended for retail into our outlet channel.
<unk> seen great success in our outlet channel with that product.
As we move into 2021.
We adopted a very different philosophy and that.
So the product was still in it.
The vast majority of the products will still be made for outlet.
But the product will reflect the same aesthetic as the mainline.
So that's a huge change from where we've been and we're already seeing great success with that as well.
We will share the other part of your question.
We previously might have taken a best seller from spring of 2020 and put it into our outlet assortment in spring of 2021, so literally a full year later.
What youll begin to see is trends and ideas and in some cases styles appear in.
Our full price retail channels in stores and online and then 60 to 90 days later actually appear.
With a strong value proposition in our outlet channel.
So the take down from from retail to outlet will go from what was historically a year two in some cases.
60 to 90 days.
Okay.
Okay, Great. That's helpful and certainly can appreciate how it can make that channel that much more.
Current and relevant.
And then as it relates to I know it sounds like Theres more details coming on your E Commerce strategy.
But just wondering when you think about that billion dollar target for ecommerce.
So that is incremental to your total business or does some of that film.
Transition of demand in part from stores to online.
And how I guess, how are you factoring in.
What's going on at stores I know you talked about your store base, and obviously, a move to smaller stores and I imagine, it's all part of that on larger strategy.
Yes, absolutely I think.
I would love to tell you that I think it's going to be all incremental but I would stop short of saying that at this point because we simply don't know what consumers post pandemic behavior is going to be in physical locations. So it's mission critical.
Does it may just be debt that is how the consumer is going to choose to shop more and more in a post pandemic world.
But we are going to continue as I said to learn about what the consumers' expectations are in physical stores and our hope is that we'll obviously be able to return to growth in that channel as well.
I know that's not an answer to your question, but the answer is could be incremental or it could be a shift in consumer behavior.
All I know is that we can drive $1 billion in ecommerce and we must drive a $1 billion in E Commerce and that's what we're going to do.
Excellent well looking forward to hearing more details on our best of luck.
Thank you.
Your next question comes from generating fan Wedbush Securities. Your line is open.
Right.
Yes.
Great job guys navigating to the lives end of the tunnel on Android.
A few questions for you.
One are you guys seeing any kind of transfer stores from digital as location on restrictions loosen and also just if you can give any color on kind of high level trends like just for any big changes you're seeing we've heard a lot of that.
Isn't it shifts between tops and bottoms.
<unk> balance and then any category trends that you can see they're new and then just started on.
Our data shows them very very strong first quarter.
Gross margin trend and I'm, just kind of wondering as.
As you guys see.
On the stimulus for for.
For 210 come as well.
A nice pleasant surprise opportunity and is there any other kind of surprise upside opportunities that you guys see is.
You know you can potentially take advantage and capitalize on as they are lighter than normal.
Thanks.
Hi, Jen <unk>.
A lot to unpack, there, but I'm going to try to hit all of it.
We are we are not seeing a shift away from e-commerce in geographies, where we are seeing an increase in store traffic.
<unk> E Commerce demand continues to be strong, we're still seeing increases in traffic and conversion in <unk>.
So we're.
We're not we're not seeing that I think that was the first part of other question.
Second part of the question in terms of product categories that.
That are working.
As I said we.
We are well positioned.
To take advantage of every opportunity and re capture our market leadership position and occasion based categories in wear to work based categories as people return to offices and returned to celebrations indications of all time.
We are also developing new core categories like denim and like express essential net so that we have.
Great balance and net so when he or she comes to our store or our website, they're going to be able to build a powerful wardrobe that fulfills all of their needs and so.
I'm very confident that the success, we're seeing in the new core that we're building will.
We will continue and debt, we will recapture and regain our market leadership position in those.
To work on occasion based categories.
Great. Thanks, and then any any kind of insight.
I'm just kind of is low.
Tangela upside opportunities just the near term or our thoughts on the stimulus or or anything else on first quarter trends.
Well.
I think we all believe that the stimulus will.
Encourage people, who many of whom haven't shopped to a great extent in the past year on many of whom are going to be emerging.
From an extended <unk>, we do expect that the stimulus check could be a positive.
Tailwind for us in that.
That could help drive business as we move into the second quarter.
Obviously vaccinations and as vaccinations continue to rollout across the country.
We believe that is.
Tailwind we're also.
Reissuing, our private label credit card, which we believe will be a huge opportunity for us and we're as I said enhancing our loyalty program and expanding to for tears and making it much easier for customers to earn rewards. So all of those I think are.
Very immediate opportunities for us as we move through the balance for the first quarter on into the second quarter.
Great and just one more again on that.
I know you guys do that payments programs.
On line.
How did that work I can't remember if it was planning on or after pay sorry.
Can you comment on that and how your how you feel about that kind of opportunity and what youre seeing so far.
Yes.
From a partner standpoint, we've seen on increasing the <unk> for the customers that they are using cloud.
So we're very pleased we're splitting the initial stages of these program.
What we've seen so far is very encouraging from an <unk> and the adoption of the cloud.
Okay, Great and this fourth quarter. It was the first quarter that you guys had that line.
Yes on the platform.
Okay. Thanks, so much and great job like you said you guys had a little bit you guys had a little bit tougher on them.
Just given the nature of your product so great job navigating them on where we are thanks a lot.
Thank you Jen.
I would now like to turn the call over back for the management for closing remarks.
Great. Thank you for joining us everyone and we look forward to updating you on the progress of our strategy.
Alright, thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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