Q1 2021 Express Inc Earnings Call
Okay.
Good day, and thank you for standing by and welcome to the Express Inc. Q1 at 'twenty 'twenty 1 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
To ask a question during the session you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero.
I would now like to hand, the conference over to your speaker of today, Dan Aldridge Vice President of Investor Relations. Please go ahead.
Thank you Mariano good morning, and welcome to our call I'd like to open by reminding you of the Companys 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 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 in 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. Our comments today will supplement the detailed information provided in both the press release and the Investor.
A presentation is 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 in our earnings release, all commentary on a year on year over year comparisons in our prepared remarks today refer to 2020, unless otherwise noted.
With me today are Tim Baxter, Chief Executive Officer, Barry Perry Class, Chief Financial Officer, and Matt Moellering, President and Chief Operating Officer, I will now turn the call over to Thomas.
Thank you Dan and good morning, everyone.
Our top and bottom line performance in the first quarter exceeded our expectations. Although February was tough March and April were considerably better and we experienced a significant inflection point in the business at Easter.
Our comp trends of further accelerated and our second quarter comp volumes to date are now exceeding 2019 levels.
Our results are now beginning to reflect the power of our product brand and customer strategies, we have meaningfully advanced the expressway forward and made excellent progress on our transformation from a store in the mall to a modern relevant multichannel band with a compelling purpose.
And we are well positioned for the post pandemic world.
In the first quarter, we introduced our plan to drive of $1 billion in E Commerce demand by 2024, and our first quarter ecommerce results are a strong start towards achieving that goal.
We drove a 40% increase in transactions of 19% increase in conversion and an 18% increase in traffic all of which contributed to an e-commerce comp of up over 40% in the first quarter.
We continued to see strong momentum with our fashion deliveries with sell through is up double digits compared to 2019.
We established new core denim and express essentials, and both categories posted positive comps versus 2019 with denim up double digits in our retail channel.
We pulled back on promotions in the first quarter based on positive customer response to our new product and we will continue to be less promotional going forward.
We delivered of nearly 1100 basis point improvement in merchandise margin and expect to improve further as our inventory composition reflects a higher penetration of new receipts.
We drove greater brand awareness through Influencer, Activations and saw demand driven by these channels increased by 30%.
We completed the relaunch of our loyalty program added 162% more new members than last year, and 7% more new members than in 2019.
We kicked off of customer reactivation strategy in April that has already led to a 22% increase in returning lapsed customers.
We maintained a sharp focus on conversion and saw increases in this important metric across all of our channels.
We further bolstered our liquidity position and improved operating cash flow by $130 million.
We delivered significant sequential improvements from the fourth quarter end, all 3 of our channels and we've seen further acceleration in the second quarter to date.
I'll provide an update on our progress in each channel starting with E Commerce, which is the biggest contributor to our comp growth.
As we drive to our billion dollar in E. Commerce demand goal by 2024, we will leverage data to provide more relevant compelling experiences that bring the versatility of our assortment of life and a more personalized way for our customers.
We made significant progress toward this goal in the first quarter posting a positive 40% increase in demand and that has further accelerated to up over 70% in the second quarter to date.
Conversion is up 19% compared to last year.
And these results were all achieved on far fewer deep site wide promotional days.
Average order value so showed sequential improvement during the quarter with <unk> up 6% in March and April combined and compared to last year.
<unk> has been challenged by the impact of the pandemic on traditionally higher price point categories, such as dresses and suits.
So it is especially encouraging to see this improve.
As more restrictions are lifted and more people resume social gatherings occasions and going into offices I expect it will continue to rise.
We enhanced our mobile app experience to bring it closer to parity with our website, including a new digital wallet functionality and outfit building tool for.
For the remainder of 2021, we will be adding capabilities, including user generated content and live chat for real time suggestions and advice from a digital stylist.
We achieved a 41% increase in demand driven through the mobile app and are moving quickly towards the seamless digital customer experience.
We launched the deferred payment feature through acquiring at in the third quarter of last year and have seen at 27% higher for customers, who choose this payment option.
We increased the amount of user generated content and applied it across all of our digital properties with a particular focus on product pages, and social media, where we know customers are making real time purchase decisions.
In the first quarter, we featured user generated content on approximately 40% of our product pages with 10% higher conversion than the average and our goal is to double the number of pages that feature user generated content in the back half of this year.
We continued to expand our digital stylus program and saw a 25% increase in demand and an 18% increase in <unk> in the first quarter.
Only a small percentage of our customers use this feature today, so as we increase coverage and expand the number of stylists. We expect this program to grow.
We continue to drive success with our outfitting recommendations tool with 20% higher conversion and 6% higher <unk> on product pages with this feature we.
We will expand the use of this tool across our site and App experience, so customers will be able to shop trends and outfits as easily online as they already do in our physical stores.
We've expanded our marketplace business and now feature over 80 brands that complement and broaden our express brand assortment.
Marketplace allows us to stay focused on what we do best while offering great products from complementary categories, such as active swimwear and home.
The express style trial rental program continues to resonate with our customers.
We have more than doubled our women's membership and of exceeded our expectations in mens.
This program offers our customers the opportunity to try our product and have newness in their closet with no ownership commitment.
Our rental business is driving new customer acquisition. So we plan to double the membership over the next 18 months.
Yeah.
Turning to retail stores.
We continued to see improvement from the fourth quarter and saw a dramatic acceleration in March and April and we've seen further improvement in the second quarter.
We continued to see encouraging trends in areas, where corona virus guidelines were less restrictive.
In the first quarter were masked mandates were lifted our comp performance was approximately 10 percentage points better and we're already seeing this performance materialize more broadly as states continue to lift mandates and restrictions.
As I've said previously our focus has now shifted from fleet rationalization in 2020 to fleet optimization in 2021.
Fleet rationalization spoke to the number of stores will operate.
Fleet optimization speaks to the location size concept format and perhaps most importantly, the role of physical stores will play an customers post pandemic lives.
Our mall stores can and will be more productive and we will also expand beyond the mall.
Our reduced square footage concept at the King of Prussia Mall has driven productivity double that of the balance of our belief.
And we will apply this approach to a new store at the North Park mall in the second quarter.
These stores and others like them will help us determine the optimal size of our mall based stores and we have tremendous flexibility with approximately 2 thirds of our leases actionable over the next 3 years.
Our express at at concept stores are valuable test and learn opportunities.
We see a higher percentage of both new and reactivated customers.
In the first 90 days, our Columbus location reactivated customers at a 22% faster pace and our Nashville location added 45% more new customers than the average store and the balance of the fleet.
These stores also generated higher average dollar sales and higher conversion with the Columbus location achieving of conversion rate over twice the company average.
Express edit stores have short term leases and off mall locations with strong foot traffic that allow us the flexibility to test learn and modify going forward.
As an example, while the Columbus location I, just mentioned had strong conversion at 200 square feet at was the smallest of these concepts to small and I'll review. So we close that store of few weeks ago.
And opened a new store at Southlake town square near Dallas.
We plan to operate approximately 10 express edit concept stores by the end of this year.
We've already selected sites in Westport, Connecticut in Washington, D C with footprints under 4500 square feet.
And true to the express at at concept the product mix will be curated to reflect local styles and trends within each market and neighborhood.
Another facet of the express at its strategy as the exploration of multiple stores in a single market.
We will open 2 locations in Washington D C, where we currently operate stores in the adjacent suburbs. So testing these smaller formats in the city center will allow us to read the impact on existing stores.
E Commerce sales to these zip codes, and new and existing customer activity overall.
Turning to our outlet stores.
Since we began flowing the first deliveries that reflected the express at at Zine philosophy in March we saw an acceleration in comparable sales that continued as we moved through the quarter and our second quarter to date comp sales in our outlet channel are now tracking ahead of 2019.
We are bringing styles from retail to outlet more quickly, which is already generating strong response, especially to our fashion product denim and express essentials.
The entire outlet assortment will reflect the express at at by the third quarter.
And while outlets represent an important value component of our holistic channel strategy all of the progress. We have made from a product perspective has allowed us to be less promotional in this channel as well.
Now turning to the 4 foundational pillars of our strategy. Let me take you through what we've done the results we've achieved to date and what is still to come and I'll start with product.
We established new core protein grams, and introduced big ideas, such as denim and express essentials balanced with fashion tested and built inventory behind what worked and we've seen incredible customer response.
The new fashion deliveries are exceeding our expectations with sell throughs in the first quarter up double digits compared to 2019.
Average unit retail of 9% higher and merchandise margins of approximately 400 basis points higher.
Our early second quarter deliveries in May have achieved a total sell through of almost 40% higher than in 2019.
We put a stake in the ground last year to become a more powerful player in the denim market and our results are outstanding in 2019, only 8% of express customers purchased our denim and today, we are at 24%.
We saw significant acceleration in our denim business in the first quarter selling over a million units, resulting in a positive double digit comp in our retail channel across men's and women's as compared to 2019.
This was driven by the introduction of new leg shapes, new fit and the denim Bayou customer co creation of assortment.
This newness not only drove sales at also attracted new customers.
In the first quarter, we at over 18% new customer penetration in denim 1.5 times that of 2019.
Our express Essentials program is the second component of what we refer to as the new core and we have also exceeded our expectations here.
We made real progress during the quarter selling over a million units across mens and womens and driving a 48% comp in our E Commerce channel.
Express essentials drove as much volume and as many unit sales in the first quarter as it did in the entire fall 2020 season.
The performance was driven in women's by the launch of body contour compression and high compression programs.
In men's the continued success of our polo business the expansion of our ex logo icon and PK pillows, and Ts plus enhanced fabrics and fashion details contributed to a positive comp of 10% versus 2019 in men's knit tops.
As these new core elements of our business are performing well the wear to work and occasion based categories that have historically been our strength are starting to show signs of recovery.
For example store sales plus demand in men's suits went from down 41% in February.
So down 23% in March and April time period, and second quarter to date are relatively flat.
In women's dresses went from down over 56% in February to down 25% end March and April and second quarter to date are down just 14%.
And our woven tops business has progressed from down 52% in February to down 31% in March and April and are down single digits second quarter to date.
While it will of course take time to fully recover in these categories. We are very encouraged by these early signs and our core inventory is well positioned to take advantage of the demand.
In fact, our first quarter receipts were down 25% compared to 2019, as we took a cautious planning approach coming into 2021.
However, our confidence grew during the quarter and our new go to market process allowed us to be more agile and aggressive and as a result, our second quarter receipts are positioned to be 3% higher compared to 2019.
Turning to our second pillar brand.
Restoring the relevance of the express brand was a top priority.
And brand tracking measures social media engagement and customer feedback indicate that we've made good progress since first introducing our new brand positioning in August of 2020.
Our brand purpose to create confidence and inspire self expression comes through in all of our marketing and the way, we engage customers and in our marketing tactics across channels.
Engagement metrics have increased across social channels, with Instagram up, 8% and Twitter at 140% compared to 2019.
We are expanding our presence on Tictoc and just completed of campaign called express reentry to inspire customers to reconnect with style as they get ready to return to some of their pre pandemic routines.
The campaign, which is of new and innovative way to connect our brand to our customers through a shared enthusiasm for fashion has been viewed over 14 million times.
The health of our brand is improving as evidenced by the increase in traffic metrics with organic search up 44% direct load up 8% and email driven traffic up 3%.
Our Dream Big project, which launched at the end of 2020 supports of organizations and individuals whose mission aligns with our brand purpose.
In addition to financial support we use our social platforms to drive awareness and visibility for their efforts.
Since the project began we have raised over $500000 to support those organizations, who share our commitment to creating confidence and inspiring self expression.
We tested of purpose based initiative at <unk> 40 of our retail stores called random acts of confidence, which empower sales associates to give product to customers in need of of confidence boost.
The feedback from stores and customers has been overwhelming and we plan to expand the program in the third quarter.
I'll share just 1 example of the very real and personal impact of our brand purpose.
A woman came into 1 of our stores in Carmel, Indiana and shared with our sales associates that she was making a career change and would be starting her new job and a few weeks.
She had been a nurse for many years and always wear scrubs to work, but for her new job. She would have to address very differently.
She needed a number of things, but couldnt afford the piece that she loved most of terrific draped sleeves, Mark next dress so.
So we surprised her with a random act of confidence and gave her the dress as a gift from express.
The sales associate felt so good thinking about giving this customer confidence on her first day at her new job.
Our third pillar is customer.
And we have driven strong results through the inside of our loyalty program relaunch in the first quarter delivering better engagement and increases the cost of customer acquisition and reactivation, while reducing the number of lapsed customers.
Express inside of our members have tremendous lifetime value. They spend on average 2 times more than non members annually. Their retention rate is 8 times greater and new members of our nearly 2 times more likely to make a second visit within their first 90 days.
With the launch of the new tiers and earning structure at the end of March we have seen improved profitability in the utilization of rewards with of 6% increase in sales and of 38% decrease in markdowns tied to reward redemptions compared to 2019.
Additionally, 19% of express existing express inside of our customers re engaged with the loyalty program by qualifying for the new 5 dollar express cash reward.
We continue to have positive momentum with customer acquisition, which was up 7% with reactivation is up 25% and lapsed customers down 36% compared to 2019.
Additionally, all channels saw an improvement at express insider transactions with ecommerce up 30% compared to 2019, while new express insiders drove an impressive 16 percentage point trend improvement in transactions quarter over quarter compared to 2019.
We initiated a lapsed customer reactivation strategy at the end of the first quarter with direct mail messaging of strategic customer targeting program and paid media.
And the early results are very encouraging.
Total reactivated customers increased by 22% in the quarter compared to 2019.
These results were double what we anticipated.
Over the last year, we have completely re imagined our marketing approach and reallocated our investments across the marketing mix.
We have increased engagement with our customers in new and creative ways and with more relevant and authentic content.
Through ongoing dialogue among our top loyalty program members and our design and merchandising teams, we are able to better understand our customers' evolving more drove needs in style preferences.
As a result of this dialogue, we developed a customer co created denim assortment called denim by you.
This was 1 of our fastest selling collections for the quarter at over 230000 units generating over 100000 new customers.
As a result, we have exceeded our customer acquisition and retention plans in fact, almost 1 third of our customers in the first quarter were new to the brand and new customers in our ecommerce channel increased by over 27% compared to 2019.
Our final pillar execution is both of through line across product brand and customer and the evolution of our operating model as the 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 and stores conversion was driven by new customer experience model, New associate education programs and continued focus on loyalty sign ups.
Another key component of execution is inventory management, and we have significantly improved our inventory level and composition versus at the end of the fourth quarter, which positions us well to flow more new product as we head into the second quarter and the back half of the year.
Our historical strength in categories, such as men's suits in women's dresses position us well for continued improvement, especially as gatherings and occasions are expected to increase throughout the balance of the year.
Product brand customer and execution occur.
Across each 1 of these pillars, we have meaningfully advanced the expressway forward strategy and we are committed to driving long term value for our company and our shareholders.
I expect that our sales and profitability will accelerate as we move through 2021 and that we will deliver positive operating cash flow in the second quarter and positive EBITDA in the third quarter.
Perry will provide more detail on our first quarter results and share our view for the balance of the year.
Thank you Tim.
Start with our first quarter results discuss our liquidity position and provide a high level outlook of the balance of the year.
My comments and comparisons will be to 2020, unless otherwise noted we will also make some quarter over quarter comparisons where those are relevant and meaningful.
First quarter net sales were $346 million.
An increase of 64% as compared to 2020.
Consolidated comparable sales were positive 5% retail comps were a positive 11% and express factory outlet comps were negative 19.
e-commerce demand compared to last year was up over 40% driven by the initiatives Tim discussed earlier.
It's important to note that comparable sales calculations are not consistent across all retailers are comparable sales exclude sales from stores that were closed for at least 1 full day, including during the pandemic consistent with our historical policy.
Our sales showed significant recovery in the first quarter.
Particularly in the back half of the quarter. It is worth noting that these results were achieved with less promotional activity, reflecting the strength of our product and brand strategies.
We improved our merchandise margin by approximately 1100 basis points compared to 2020 and expect to improve further at our inventory composition reflects a higher penetration of new receipts.
In fact newly seats delivered higher merchandise margin in the first quarter compared to 2019, reflecting of pullback on deep storewide and site wide promotions.
Buying and occupancy expenses were down $30 million compared to 2020, leveraging sales by approximately 3400 basis points. This improvement was driven by significant reductions in our expense structure, mainly by rent savings achieved through London negotiations fleet rationalization.
And then November 2020 workforce reduction.
Additionally, there was at $15 million impairment in the first quarter of last year.
Compared to 2019 binding occupancy was down $29 million.
During the first quarter, we had a gross profit of $79 million.
With a gross margin rate of 22, 8% increase in approximately 4500 basis points as compared to the first quarter of 2020, we.
This also reflects a sequential improvement to the fourth quarter of 2020, and we expect the gross much of rate to significantly improve throughout 2021 at sales continued to accelerate and our strategy continues to advance.
SG&A expenses were $119 million, an increase of $20 million compared to 2020, due mainly to last year's store closures and all of the mitigation actions we took during the pandemic.
We leveraged SG&A expenses by approximately 3500 basis points, driven by our sales increases and the previously announced cost reductions at <unk>.
Most of that with our corporate restructuring and fleet rationalization activities.
Compared to 2019, <unk> expenses were down $16 million.
Our operating loss was $41 million as compared to an operating loss of $145 million in 2020.
First quarter diluted loss per share was <unk> 70 on a GAAP basis compared to a loss of $2.41 per diluted share in the first quarter of 2020.
Adjusting for $10 million valuation allowance booked at against our deferred tax assets, our adjusted diluted loss per share was <unk> 55.
Our effective tax rate for the first quarter was essentially zero and reflects the impact of a valuation allowance recorded against our deferred tax assets.
Excluding this allowance our effective tax rate at for the first quarter was 22%.
Turning to our balance sheet and cash flow, we ended the quarter with $84 million of cash and cash equivalents and our operating cash flow improved by $130 million.
As we move forward, we expect to return to positive operating cash flow in the second quarter.
Inventory at the end of the first quarter of where $264 million at.
At 2% decrease as compared to last year's $269 million.
We have made significant progress reducing read length inventory, which allows us to flow more newly seats in the back half of the second quarter end into the third quarter.
We also expect to realize significant liquidity benefits from the cares Act in 2021 during the first quarter, we received $15 million and our balance sheet at the end of Q1 reflects $97 million of care sector receivable of.
Which $45 million was received subsequent to quarter end and we now expect to receive the remaining $52 million in the back half of the year.
Our borrowings were $233 million of.
<unk> 105, $105 million was drawn against our existing ABL credit facility and the remaining $128 million was drawn on our term loans.
During the quarter, we paid down $12 million on our term loan and quarter to date, we have paid an additional $61 million against our debt.
Before moving to our outlook I will review of the equity offering press release, we issued this morning, we.
We filed a prospectus supplement with ACC.
Which gives us the ability over the next 3 years to sell up to 15 million shares of our common stock from time to time through an at the market or ATM equity offering program. There is no timing associated with this announcement and no minimum offering amount.
Moving to our high level outlook, we expect the following for 2021.
Sequential comp sales improvement throughout the year.
<unk> gross margin improvement for the year.
Binding occupancy expense dollars to decreased double digits at 2% to 2019.
SG&A expense dollars to decrease mid single digits as a percent to 2019.
Net interest expense of $4 million loss in the second quarter and $16 million for the full year at <unk>.
50 of tax rate of approximately 16% for the second quarter and approximately 20% for the third quarter fourth quarter and for the year, excluding the impact of antibody duration of allowances recorded against deferred tax assets.
Positive EBITDA for the third quarter end, the second half of the year.
Positive operating cash flow for the year, beginning with Q2.
Capital expenditures of approximately $35 million.
To summarize <unk>.
Just on the momentum we have seen in our business across all channels since Easter.
Further exploration in the second quarter.
Continued strong response to new fashion receipts.
Our expectation that both sales and margin will continue to improve as we move forward.
And the significant improvement in our operating cash flow, we are well positioned for 2021 and to achieve our long term goal of of mid single digit operating margin.
I look forward to updating you on our progress and I will now turn the cold Baxter team.
Thanks, Perry before moving onto my closing thoughts I want to briefly provide an update on another way in which we are driving long term investor value.
Our digitally native brand up west had another exceptional quarter as the brand product and purpose continued to resonate extremely well up.
<unk> dot com experienced strong increases in traffic conversion and average order value in the first quarter and the growth has been impressive with net sales, increasing approximately 130% and gross margins expanding double digits in the first quarter.
We are continuing to continuing to explore retail through pop up concepts with relocations already opened and 3 to 4 more planned for the second quarter.
I am proud of the progress the team has made in a short amount of time and although up west is not yet material to our overall results I am confident that it will drive significant shareholder value in the future.
This strong performance, we have seen in the versatile side of our business continued in the first quarter and is now complemented by a resurgence in our wear to work end occasion based categories, which position us well for the post pandemic environment.
We are on track to reach our 1 billion e-commerce demand goal and achieve a mid single digit operating margin.
The expressway forward strategy is moving ahead with momentum and the inflection that we saw in the first quarter has accelerated quarter to date and we're now exceeding 2019 comp volumes.
I expect these trends will continue to improve as we move through the second quarter and I'm confident that we will return to positive operating cash flow in the second quarter and positive EBITDA in the third quarter.
Thank you for your continued interest in express and we will now take your questions.
As a reminder.
Minder to ask a question you will need to press star 1 on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Your first question comes from the line of Marni Shapiro with retail tracker. Your line is open.
Hey, guys congratulations on the progress and the stores have looks fantastic.
They need inventory in spots.
And a good way.
So can you talk a little bit about <unk>.
Your best.
Sellers are sold out so body contour some of the express essentials denim is a really important part category for you guys, especially in the back half of the year. So could you talk to us a little bit about how you were thinking about the store those categories inventory going forward. How it is going to affect your buys just overall as you push forward in these.
These big new pillars in your store.
Yes, absolutely thanks, Marnie and I agree we all agree that we do need more inventory in our stores. However, our sell throughs on both fashion and the big category of distortions that you mentioned like denim and express essentials have far exceeded our.
Expectations.
Particularly since the inflection point that we experienced at Easter So as we move forward.
I did say our first quarter receipts, we were very conservative they were down 25% to 2019 first quarter receipts as we move through the second quarter, we have gotten very aggressive about going after the best sellers within the fashion assortment and the big categories that are <unk>.
Driving the business right now and our second quarter of receipts will be plus 3% specifically.
The 2 categories that you mentioned I'll start with express essentials, which have been.
Fantastic and both mens and womens.
Body contour, specifically has been explosive for us we more than doubled our inventory from the beginning of the first quarter to the end of the first quarter and we will more than double our inventory position and body contour again in the next 6 weeks.
Very aggressive we've taken a very aggressive stance on that category. In addition to the other everyday essentials.
Within that.
Denim is the same.
Our performance has been explosive like I said, we actually drove a double digit increase versus 2019 in denim in the first quarter and that trend has also accelerated as we've moved into the second quarter.
So we are also bolstering our inventory positions pretty significantly in denim, including in women's denim also more than doubling our current.
Current inventory position by the time, we get near.
Near the end of the second quarter.
I don't really I don't want to overstate. This because I know, there's a lot of work to do but body contour in particular feels like it has changed the entire look of the women's business for you.
I mean, how do you think about that is at just body contour does at seep into dresses and other parts of the assortment for women's because it feels to me its at somebody walking in the stores that it can really change the trajectory of the brand that at its that impactful.
Yes. Thank you we agree and it has been that impactful end.
It is absolutely.
Something that we're going after across categories.
Just delivered several dresses within the body contour.
Collection, they have been outstanding.
But to your point at at.
At transcends just body contour. We've also had incredible success with.
Sweaters that that our body contour.
At this.
This is an idea that we're going to go forward with.
And of very very meaningful way not just in the core product.
That you see but also within our fashion deliveries across categories.
Tastic best of luck to you guys just sort of just look great. Thanks.
Thanks Marty.
Your next question comes from the line of Susan Anderson with B Riley Your line is open.
Hi, good morning, nice to see the improvement in that business.
I'm curious so youre planning for positive EBITDA in third quarter in the back half of it I guess I'm just curious what's the puts and takes on that how much is planned for improvement in gross margin or SG&A reduction and then also how much is reliant on sales I guess remaining about 2019 levels.
Really good questions Suzanne obviously.
We havent provided guidance in terms of our sales for the balance of the year, but based on our current plans.
Which obviously, we exited at a plant in the Q1 timeframe from our own expectations. We're expecting that we're going to continue to see sequential improvement. If you look at the Q1 into Q2 end in the back half of the year.
Those improvements it will translate to obviously merchandize marching of flow through and improvements there and they're continuing to leverage of buying and occupancy we have made over the last couple of significant improve.
Improvements in our buying and our finance <unk> see through rent reductions and store closures. So we expect of significant leverage there translate into gross margin from the backup of the year that are going to be approaching the 2019 levels and then from that obviously through discuss improvements and expense reductions that we've discussed we're.
At into the positive EBITDA for the Q3 end the back couple of the year.
Okay, Great and then.
Then just on and maybe if you could give some more detail from the liquidity I think you said you repaid $61 million of debt. After the first quarter was that from the cares Act money that was received after the quarter also and then with the remainder of that money do you plan to pay down debt and then finally, I guess with the ATM money.
Is that kind of all go towards debt and if so I'm just curious what your expectation for debt levels are at.
After both of those funds come in and then by the end of the year of til.
Yes, so from from.
The care tax from of curious at some point.
We've used.
Okay.
Well, we've used all of the curious mark.
I need to pay down debt, we paid $61 million.
Subsequent to quarter end, we Scott.
Good operating cash flows in Q1, and we continue to improve on our operating cash flows.
And we're going to continue to pay down both on our <unk>.
$50 million of delayed draw term loan and we're going to use of cares Act money for that and then also from an ABL at some point, we use placebo put it in cash flows to pay those down.
Haven't provided guidance as to our debt levels at the end of the year, but I do want to address the question of run the ATM and from an ATM standpoint.
We believe it's prudent to have the ATM on file and at day 55. As you May know through April of 2024 end simply provides that provides us with optionality for future use at.
This point, we haven't really discussed we'll disclose.
When and how we will be in the market and it's something that obviously, we won't be disclosing that.
Ahead of time.
Okay, Great and then just 1 clarification I think you guys had said that store sales plus demand.
We're trending at the 2019 levels is that store comp sales.
That include E. Comm, maybe if you could just kind of clarify what that is I think I heard that the outlet sales were at that 19, maybe if you could talk about the full price store sales and what those trend levels are too. Thanks.
Absolutely.
The comment around the above at 2019 levels is based on store comp sales plus the months. So if you look at these through memorial weekend and through that Monday of the Memorial day.
That is tracking from a comp standpoint, I head of the 2019 levels.
Tim mentioned in his prepared remarks that the.
Of the outlets are posting at pausing positively from a comp some point end of the retail business through the acceleration that we have seen in demand is also positive.
Got it and what's the plus demand represent is that the E. Comm sales then.
Yes, yes.
Great. Okay. Okay, great. Thanks, So much you guys. Good luck the rest of the year. Thanks, Susan Thank you.
Your next question comes from the line of Roxanne Meyer with <unk> Partners. Your line is open.
Okay.
Great. Good morning end, let me add my congratulations on the accelerated improved.
Improvement.
I appreciate your expectation for the sequential improvement in the gross margin, but I was hoping you could give us more perspective on gross margin versus 2019, I guess specifically for <unk>.
<unk> 21, third merch margin and buying and occupancy versus 19, and how we should think about the merchandise margin piece the progression versus the quarters of 2019, thanks a lot.
Great question. So let me let me interest at gross margin.
<unk> first so from a Q1 some point of gross margin.
Came in at 22, 8% and when you look at at that compared to the 2019 levels.
That is down approximately.
400, some basis points and we expect that gross margin to continue to improve compared to those 2019 levels and when you look at overall for the back half of the year. We expect the gross margin to get very very close to the 2019 levels dozens of combination of continued merchandise.
Margin improvement our merchandize marching in Q1 was obviously impacted by the mix of inventory, but as we move through out the year or even to the composition in improving significantly with a new receipts and team of mentioned in his prepared remarks that our receipts in Q1 were down 25%.
That is a new fashion deliveries and then as we move into Q2, our receipt of going to be up and we're expecting our merchandize margin of the inventory composition improved to continue to improve and get closer from a merchandize Marcia standpoint.
2 of those 2019 levels and from a buying and occupancy given all of the reductions that we have made on those line items would expect and as they still are improving obviously, the buying and occupancy to continue to expand and improve and getting to levels other higher than 2019 or better.
Therefore overall your gross margin getting closer to that 2019 level.
Okay.
Okay, Great and then from a supply chain perspective, I know that.
Shipments have been delayed on average of 3 to 4 weeks end certainly that was the factor in that.
In the first quarter and I'm, assuming that's what's really driving your commentary around demand in general is that there are delayed shipments.
Just wondering if you could talk to where you know where your deliveries are now relative to where you'd like them in terms of being on track.
And also can you actually quantify what that demand piece looks like because of you speak to at a lot at it it feels like the sales trend in <unk> would have been a lot stronger if things were on time I just wanted to better appreciate.
The qualification of demand both at <unk> and <unk>. Thanks, a lot.
Sure. This is Matt so we definitely felt an impact from the.
Transportation issues, a lot of them driven by the port of long Beach.
Then backups subsequent to that on the east coast as well.
And where we did to your point see those 3 to 4 week delays and.
Combined with the fact that we did plan very conservatively from a receipt standpoint to begin with in Q1 as we were just starting before we really started to come out of the pandemic, we were down 25% and receipts on top of that.
What we have done is push floor sets out about 2 weeks before setting the floor set we're about 2 weeks.
Later than originally planned on subsequent floor sets going forward and.
In Q2, as Tim mentioned in his comments.
Receipts will be up 3% versus down 25% in Q1.
We definitely would like to have more inventory in our stores and online right now and as we start to.
At more newness into our stores and our fulfillment center, we think that will definitely be a tailwind for us as we progress through Q2.
Okay, great. Thanks at a best of luck.
Thank you.
Your next question comes from the line of Steve Marotta with CL King and Associates. Your line is open.
Good morning, Jim Perry and Matt maybe at a very high level you could provide a little.
Bit of context on your current market share.
Overlaid with.
The number of doors that may have closed say in the last 15 months or just simply the competitive landscape is a little bit different now again going into the pandemic and the opportunity that presents for you in particular categories. Thanks.
Sure. Thanks, Steve.
As as you know we have enjoyed.
Very strong market share penetrations in categories that you would typically describe as occasion based or wear to work. So we've had strong market share held strong market share positions.
In categories like men's suits, which has historically been our biggest business in men's.
Men's dress shirts, our second biggest business historically in mens.
Big businesses like women's dress pants dresses and blouses woven have all been historical strongholds for us and our strength in those categories was a significant headwind for us obviously during the pandemic much more significant.
And then.
Our much more casual competitors faced.
Those headwinds are are poised to become tailwind as we emerge from.
The pandemic and as consumers.
Begin to resume.
Pre pandemic activities and occasions and going back into the office.
I mentioned in my prepared remarks that we have seen.
At that resurgence.
As states lift restrictions, we see a very distinct change in our business and particularly in those categories. So as I described in my comments.
We saw a major acceleration in those categories post Easter and I expect that we will continue to see great progress in those categories as we move forward, particularly because as you mentioned.
Many of our competitors in those categories.
Have closed a substantial number of stores during the pandemic and the retail landscape the physical retail landscape in those categories has changed very dramatically.
How much it has changed I think.
Remains to be seen so I don't want to quantify.
Market share our percentage of market share that I think we can can go get.
But I will say that we are very aggressively going after market share in those categories.
Did not walk away from them during the pandemic and we are not walking away from them going forward.
We have changed our approach in many cases in those categories because of the 1 thing that I do think customers are going to expect moving forward is comfort.
And so we have infused comfort characteristics comfort qualities.
Across all of our categories, including categories like men's.
Suits and dress shirts women's dress pants, even dresses.
So that people can be as comfortable.
When they are.
Dressed for work or foreign occasion, as they have been throughout the pandemic.
That's really helpful. I will take the balance of my questions offline. Thanks again.
Thanks.
There are no further questions at this time I will now turn the call back to presenters for closing remarks.
Thank you everyone. We appreciate your continued intra.
Interest in express and your continued support.
This concludes today's conference call. Thank you for participating you may now disconnect.
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David.
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