Q2 2019 Earnings Call

After the speakers remarks, there will be a question and answer session. If you would like to ask a question. Please press Star then the number one on your telephone keypad to withdraw your question press the pound key. Thank you Dan Aldridge VP of Investor Relations at Express you May begin your conference.

Thank you Amy 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 like a 95 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 companys filings with the FCC, including today's press release Express assumes no obligations to update any forward looking statements for information, except as required by law.

Comments today will supplement the detailed information provided in both the press release and the Investor presentation available on the company's Investor Relations website.

With me today are Tim back from CEO , Matt Moellering, Executive Vice President and COO and Perry Perry Claire every class senior Vice President and CFO I will now turn the call over to Tim.

Thank you Dan and good morning, everyone I'm pleased to be with you on my first earnings call since joining express I am committed to leading this company to a bright and profitable future and I am confident in the opportunities that exist for our brand.

Today, I will speak to the three key areas I have been focused on in my first 60 days.

Developing a corporate strategy.

Building, the right leadership team and taking immediate action to change the trajectory of our business.

Following my remarks, I will turn the call over to Perry, who will discuss second quarter results and third quarter guidance I will make a few closing comments and then we will take your questions.

So let me start with our corporate strategy.

I believe that the express brand can play an important role in bringing great style at a great value to our customers lives, but in order to return to the fashion authority, we once where we must have a more unique and differentiated product offering a more compelling brand positioning and a more engaging customer experience.

Since joining the company I've asked a lot of questions I've done a lot of listening and spent a lot of time in our stores.

I wanted to get a clear understanding of what was working what was not working and the most immediate opportunities.

I certainly don't have all of the answers at this stage, but we are in the process of developing a comprehensive strategy based on my learning so far and while it is not yet complete I can share that it will be based on four pillars our product.

Our brands, our customer and our execution.

Everything we do going forward will be to improve and advance these four pillars.

I am confident that we will return expressed to sustainable profitable growth and I look forward to sharing more details on our strategy with you soon.

Now, let me talk about building and strengthening our leadership team.

Identifying the right talent for key open positions on the executive team and quickly assessing where we need to upgrade senior talent was a clear priority.

Earlier this month, we announced appointment to the two critically important roles of Chief merchandising Officer, and Chief Marketing Officer, and a search is in progress now for a leader for our stores organization.

As Chief Merchandising Officer, Melissa Hi, will oversee women's and men's design and merchandising with responsibility for product strategy across Express Express factory outlet stores and express Dot com.

This also marks an important structural change to have all product strategies across all channels report to a single leader.

Well this is experience spans categories price points and geographies and this comprehensive perspective will advance our approach.

As Chief Marketing Officer, Sarah Turbo will be responsible for brand strategy and positioning creative services customer insights and loyalty.

Cerus experiences across all aspects of marketing.

She has successfully built brands that resonate with customers and have delivered results.

Both Sarah and Melissa will join express on September nine and I'm pleased to welcome executives of their caliber to our company.

Ensuring consistent execution and turning around the performance of our brick and mortar business are absolutely essential so I chose to take action quickly to address our store leadership.

I can't talk about building, a great team without mentioning and thanking our COO, Matt Moellering, who stepped in as interim CEO earlier this year and did an excellent job getting the organization focused.

Matt and I have been aligned since our first meeting and he has done so much to make this a very seamless transition of leadership.

The right strategy and a leadership team that reflects a balance of season to express executives and those with fresh outside perspective will better position us for the future.

But we are also taking decisive action, where we see immediate opportunities for improvement.

Let me take you through a few examples within each of the four pillars, I mentioned earlier product brand customer and execution.

Number one product.

Express was once seen as a fashion authority and a trusted resource to help customers build their wardrobe.

We've lost some of that credibility due to product misses and while there are areas of strength in our womens and particularly men's assortments, we need to be winning in key categories.

We need to fix our womens tops business, which has declined in recent years.

Weve had too much depth and older key items and not enough breadth and style diversity.

Over the last several weeks, we conducted a test to understand the impact of optimizing our assortment by adding different colors fabrics, Prince and silhouettes.

The results have been positive across all metrics with customers responding well to the assortment in our test stores.

We have impacted Q4 receipts, where possible and we'll apply the learnings more broadly going forward.

We also have an opportunity to move faster and bring in more newness across all categories.

To address this we have implemented a new instant buy process for both womens and mens while the majority of product will continue to be created by our internal design team.

This process gives us the option to instantly by product from our vendors that complete or enhance our assortment.

This approach will ensure that we are consistently delivering fresh trend right product and significantly improve our speed to market.

Another example, where weve taken decisive action is to rethink the brand's traditional way of category categorizing product into four lifestyles based on wearing occasion.

Today people want one wardrobe with great pieces that are versatile enough to work from multiple locations and our approach has been out of step with this shift.

The most immediate way we are addressing this by changing the way customers experience our product in stores.

Our floor sets will reflect a more modern approach and make it much easier for customers to see how to put outfits together.

Early reads have shown improvement to sales and conversion and sales associates tell us the customer feedback has been overwhelmingly positive.

This shift away from the four distinct lifestyles will also influence how we design merchandise and present our product going forward.

So thats product.

Number two is brand.

Alongside our corporate strategy work, we have also been refining the strategy for our brand.

Most people know express, but many don't know what we stand for or how we fit into their lives today.

We must clarify our brand message and more closely connected to our product strategy.

We have more than 280 million visits to our website and stores each year, we offer offer fashion that helps customers build a versatile wardrobe.

And we have a following among millennials and Gen Z.

But we must tell our story and a more powerful and consistent way. This work is already in progress and our new Chief marketing Officer will lead the articulation of our brand to strengthen our positioning and encourage people to take a fresh new look at express.

Number three customer.

Simply put we need to be much more effective at retaining existing customers and attracting new ones.

This summer we implemented two new tools to enhance the effectiveness of our marketing spend for both retention and acquisition.

We are using a marketing mix model to assess how we allocate investment and which channels deliver the best return we are using these findings to make adjustments starting in September .

We are also using multi touch attribution to evaluate the real time performance of our end market messages and to track the customer's journey to purchase both online and in stores.

This tool allows us to quickly shifted spend to boost the channels and messages that are most effectively driving sales.

In the back half of this year, we're very focused on earning a greater share of wallet from our customers who are already engaged with the brand.

We know that participants in our next loyalty program have a higher lifetime value, making it one of our most important retention vehicles. We have already added a significant number of new customers. This year and we'll continue to make enhancements to the program going forward.

For new customers, we know that getting a repeat purchase within the first 90 days is key to earning their loyalty.

We launched our new first impression program in May and while it is still early we've already seen an improvement in our customer retention rate.

And compared to 2018, there is an increase of approximately 20% in our email click through rate.

Number four execution.

The two priorities here are delivering a better more consistent experience across channels and achieving our financial goals.

Our biggest challenge and I believe our greatest opportunity is our stores.

Our performance has been extremely challenging and has lagged behind the brick and mortar performance of other retailers.

I have already visited a number of stores and spoken with many of our field leaders in five of our seven regions.

It is clear that we must reduce the time spent on non selling activities in order to improve our sales and customer experience.

We will focus on improving conversion and increasing average dollar sales through efficient merchandise flow and better customer experience.

These will be important areas of focus for our new store leader when he or she comes on board.

Through the changes, we're making to our product our merchandising and our marketing we expect to drive topline sales improvement overtime.

In addition, we are in the process of identifying cost savings and Rightsizing, our expenses and let me be clear.

We will take the necessary action to significantly reduce our operating expense in 2020.

With respect to the second quarter, we are clearly disappointed in our results. However, we did deliver sales and profit at the top end of our guidance.

The sales were negatively impacted by a 15 day reduction to store wide site wide and significant category promotions.

As we continue to make real time changes to improve performance in Q3 and to accelerate our performance in Q4, we are doing so with the long term health of the brand and the business in mind.

We are moving forward with a sense of urgency to return express to long term profitable growth.

It is my expectation that we will get back to a mid single digit operating margin through a combination of topline growth margin expansion expense reduction and fleet rationalization.

This will take some time, but we have the financial flexibility to take the necessary actions, given our strong balance sheet and free cash flow generation.

We appreciate that the road ahead is a difficult one but we believe that when our strategy takes hold we will add significant value to the company and to our shareholders.

I will now turn the call over to Perry and return with some closing comments before our Q and a.

Thank you, Tim and good morning, everyone.

I will start by reviewing our second quarter results and then discuss our business outlook as Steve mentioned, the second quarter, while disappointing met the top end of our guidance in Macau sequential improvement versus the prior quarter.

Second quarter net sales were $473 million, a 4% decrease as compared to $494 million last year.

Consolidated comparable sales were negative 6%.

Retail comps, which include express stores and ecommerce were negative 7% and express factory outlet store comps were negative 2% during the quarter sales were impacted by our decision to strategically to choose storewide site wide and deep deep pocket promotions.

While pulling back on these types of promotions did have a negative impact on sales in the short term. We believe this will improve the health of the business over the long term.

Promotions, we will of course continue to be part of our strategy, but going forward, we will use them in a more thoughtful and targeted manner.

Our second quarter gross profit was $126 million with a gross margin rate of 26.8% of sales down 160 basis points as compared to the prior year.

Breaking this down merchandise margin contracted by 60 basis points.

While we had less promotional activity across our stores and website. This was offset by our actions to move through clearance inventory and an increase in inventory valuation reserve for goods that will be marked out of stock in September .

Fine in occupancy costs, while down slightly versus last year as a percentage of net sales deleveraged by 100 basis points due to fixed cost on lower net sales.

As Ginny expenses were $136 million, a decrease of $2 million compared to last year.

As a percentage of sales as generic came in at 28.7% de leveraging 80 basis points driven by the sales decline.

Operating loss was $10 million as compared to last year's operating income of $3 million.

The second quarter operating loss was negatively impacted by $800000 related to the new lease accounting standard. However, there was no material impact on a pre tax loss.

Second quarter loss per share was 14 cents on a GAAP basis, and 13 cents on an adjusted basis.

As compared to last year's EPS of three cents.

By the end of this year, we will achieve the $44 million to $54 million of cost reductions we committed to in 2016.

As Tim mentioned, we're actively identifying significant savings opportunities to further optimize our cost structure in 2020.

We expect to provide an update on this in January .

Now turning to balance sheet and cash flow.

Our balance sheet remains healthy.

Inventories at quarter end were $269 million.

A slight decrease as compared to last year's $270 million.

While we have made progress on inventory levels, we still have work to do to get inventory in line with our comp expectations.

We ended the second quarter with $154 million of cash and cash equivalents.

As compared to last year's $191 million.

This balance includes $56 million to repurchase outstanding shares over the past 12 months.

Our balance sheet reflects no long term debt.

Year to date capital expenditures were $12 million as compared to last year's capex of $17 million.

With that I will now address our guidance.

For the third quarter of 2019, we currently expect.

Comparable sales in the range of negative six to negative 7%.

Net loss in the range of $5 million to $7 million and loss per diluted share in the range of eight to 10 cents.

This compares to last year's diluted EPS of 11 cents.

The third quarter guidance reflects our plans to continue pulling back on promotional activity.

It also reflects our actions to change the composition of our inventory by clearing through slow moving items factor to free up exceed 2000 unit to the assortment.

We believe this approach will set us up with sequential improvement in the fourth quarter.

A few comments and targets.

Today, approximately 20% of our units are sourced from China.

We are on track to bring that down to approximately 8% by the middle of next year.

We will accomplish this by further diversifying our sourcing base.

With what we know today in the back half of 2019, we're expecting approximately $2.5 million of incremental costs.

This is included in our third quarter guidance.

We now expect capital expenditures in the range of $35 million to $38 million.

This represents a decrease from our previous guidance 2019 guidance of $37 million to $42 million and now 2018 capital expenditures of $50 million.

We expect to generate positive free cash flow in 2019.

While continuing to invest in our business initiatives in a prudent way.

As it relates to real estate activity. Our current plan is to end the year with 624 stores, consisting of 409 Express stores and 215 factory outlet stores.

This count does not include the impact of fleet rationalization plans, the details of which were finalizing and expect to share with you in January .

I said reminder, 60% of our stores have a lease action date over the next three years, giving us significant flexibility.

In conclusion, while we're not satisfied with our financial results. We remain highly focused on returning expressed to sustainable profitable growth through our focus on product brand customer and execution. We're confident that the changes, we're making will improve the health of the business in Q3.

And we expect to accelerate this improvement in Q4, which was our most challenging quarter of comp performance in 2018.

I will now turn the call back to team for closing remarks.

Thank you Barry.

I'll conclude my comments today by a REIT reiterating that while we certainly not pleased with the current state of our business I am very encouraged by the progress we have made in my first 60 days.

We are well on our way to developing a corporate strategy that will address the foundational issues around product brand customer and execution.

We have strengthened the executive team with two key appointments and we have taken a number of immediate actions to change the trajectory of our business.

With consistent focus over time on the four pillars of our strategy, we expect to win in key product categories restore the express brand to its place as a leading fashion authority deliver a compelling customer experience that builds loyalty.

And return the business to a mid single digit operating margin through topline growth margin expansion expense reduction and fleet rationalization.

Thank you all for your interest in express I look forward to updating you on our progress when we chat in December I will now ask the operator to begin the question and answer portion of the call.

Thank you at this time, we will be conducting a question and answer session in order to ask a question. Please press Star then the number one on your telephone keypad to allow for as many questions as possible. We ask that you. Please limit your questions to one question with one related follow up you May then reenter the queue for any additional questions.

Your first question comes from the line of Paul Trussell with Deutsche Bank. Paul Your line is open.

Good morning.

One and good morning wanted to ask a few questions. Thank you Tim.

First maybe just talk a little bit more about.

Products, and where you want to be position.

In the market place.

And then second.

If you maybe could talk a little bit more about.

Your intentions in the back half around promotional cadence and should we expect you to continue to pool.

15, or so days out of.

Promotions in both the third and the fourth quarter as well. Thank you.

So let me start with product those of you that know me know I always like to start with product. So thank you for starting there.

Our approach to bet as to product as I said in my prepared comments has been focused on for lifestyles and those lifestyles were actually all wearing occasions.

And everything we did as a company was was organized and focused on those four lifestyles and it's simply that approaches out of step with the way the consumer dresses today and the way the consumer wants to experience product both in stores and online today.

As I said, a customers really looking and building one wardrobe.

That has great pieces that cross multiple wearing occasions. So our entire approach to product is really going to change rather than being focused on a very specific wearing occasion, we're just going to start designing.

Product and thinking about product in a much more modern way and that is really about designing great unique differentiated product that a customer will actually have sort of an emotional connection to and then showing the customer actually how all those pieces on all those different pieces of product in our assortment can work together to build this incredibly versatile wardrobe.

We've already started to change this approach I mentioned that in my comments that we've changed the way we have merchandise our stores with the August floor set and we've seen positive results.

It's too early to call anything, but we have seen positive results and I'm excited about this more modern approach.

In terms of the promotional cadence.

As Perry said, our third quarter guidance includes.

A the continued.

Pullback on on promotional activity.

I want to be clear, though Perry said this but I want to be very clear express will continue to be a promotional brand. We will just be much much more targeted in the way that we promote the products and categories that we promote and and the promotional offers that we actually.

Give too specific individuals.

So you can expect.

That we will we'll stay on this path.

Throughout the balance of the year.

Thank you and my last question is just around.

The store portfolio.

I know you're going to announce more details in January but maybe just help us understand the guide point the guide post.

As you kind of think about.

The rationalization plans and ultimately.

How do you think about the mix of retail versus outlet stores.

So.

This is Matt what we are doing is we have undertaken an analysis of our entire fleet and we're looking at a number of different things to determine what the right end state is four hour.

Our portfolio first and foremost we're obviously.

Looking at what the coverage looks like in each market. So.

We're looking at one store markets to store markets and multi store markets. We have a lot of data at this point in time around transfer volume.

Four stores that closed in multi store markets. We are now able to model that.

With a relative degree of accuracy and we've taken that into account.

As we are developing our final plan around what this.

Portfolio will look like long term, we're finalizing those plans as Tim and Perry talked about we will share the.

Results of this analysis with the broader community in January .

As it relates to outlet stores.

We are clear that there is a balance between outlet and retail stores and there could be a brand impact.

Two having oversaturation in the outlet market. So we're taking that into account with our modeling as well, but we'll have more to share in January .

Thank you best of luck.

Thank you.

Thanks. Your next your next question comes from the line of Susan Anderson with B. Riley FBR Susan Your line is open.

Hi, good morning, Thanks for taking my question.

And I was wondering if you could talk a little bit more about the buckets of opportunity to reduce your operating expenses.

Throughout the organization I guess, where do you see that opportunity and then also the same on the margin expansion. If it doesn't relate to operating expense and the also gross margin Where's the opportunity is it within your supply chain within or structure or how should we think about that over the next couple of years. Thanks.

Yes is on fixed for the question as you look at it let me start from a merchandise margin standpoint that puts you needed to improve merchandize marching through our focus on our product our brand and it's through the focus on the customer and execution on and the ability to be far more targeted with our overall.

Promotional activity and be able to get our inventory back in line with our comp expectation and would do believe through that as well as the systems that we're putting in place the assortment planning system that will improve the overall markdown rate and improve our overall merchandise margin.

As it relates to the buying and occupancy we believe our buying and occupancy we have an opportunity through one is through the fleet rationalization and as we announced the plans for the fleet rationalization. We believe that's going to be an opportunity to obviously reduce expenses. There. But also were looking at we think the buying and occupancy our overall processes and looking for opportunities to choose improve and streamline our processes in order to reduce expenses.

From an EPS Jenny we're going bottoms up in terms of looking at all of the expenses and we believe there is an opportunity across the board, including looking at efficiency and process improvements within the stores organization in order to be able to drive significant expense reductions for the business.

Great and then maybe just one follow up on the re merchandising of the product concept store and.

Please looks like there is some early re mixing of product and it sounds like you're maybe seeing some early success Im curious maybe just if you could give some color around is the consumer maybe mixing and matching a little bit more with the remerchandising that you've done across product categories, maybe just a little bit of color on the early success going on there. Thanks.

Yes, absolutely Susan.

The.

We set.

We changed our floor set and the first week of August and I was actually able to be in about 20 stores since we've set a floor.

Getting.

Feet first hand feedback from our store management teams and sales associates in the field, but also then obviously looking at the results and all the metrics that we review centrally and there has been.

Great progress and as I said, we're excited about and.

Enthusiastic about the results that we've gotten the customer is definitely mixing and matching product from each of what we would have considered those four lifestyles in the past.

The customer is is absolutely understanding in a in a much better way that product that we may have categorized as wear to work previously is actually product that she wants for a more polished casual look and she she may be paring, it back to denim or paring it back to to a t. shirt. So.

There is absolutely a lot more mixing and matching of product between those those legacy lifestyles. We've also heard anecdotally from virtually every store that customers are taking a lot more product into the fitting room.

And our conversion reflects that so.

Very excited about it a lot of work still to do.

But excited that by just by changing the merchandising tactics with the same product, we really where we were able to achieve a better result.

And the good news as well with that is there is a lot more to come so as you might imagine as you go through the fall season, a lot of commitments have already been made on product of Tim has come in and made some significant changes to the assortment, particularly on the womens top side of the business. We are aggressively working through some of the legacy product to free up receipts, so that as we get into the spring season will have.

Much more better much better representation of what a go forward tops business will look like for the organization as well.

Great. That's very helpful. Thanks, So much good luck next quarter.

Thanks, Thank you.

Your next question comes from the line of Roxanne Meyer with MKM Partners. Your line is open.

Great Good morning, and thanks for taking my question.

I wanted to ask about the denim category I know you mentioned of course that the fixing that the women's tops is obviously very critical.

But this is also used to be a business with denim at the core I'm just wondering how you're thinking about denim.

As really a key item going forward.

And then secondly, similar to what you're doing in the frontline stores with Remerchandising Im wondering if there is the same type of opportunity within the outlet.

Channel or if there is there any other kind of low hanging fruit type of changes are thinking about that are necessary in the outlet, even though obviously, they're performing better relative to front line. Thanks a lot.

Yes, Thanks Roxanne.

Denim is a great question denim is obviously a key part of every one of our consumers' lives. So there is no doubt that we need to win in denim.

And I would tell you that we have had.

Success in 2019 in men's denim and hyper stretch denim in particular has been fantastic.

Category for US has performed very very well.

And we've just launched a new fit in men's denim and athletic fit Thats also performing very well, so we continue to grab market share and and.

Outperforming mens.

It's been more of a challenge on the women side.

And we are as focused on fixing denim as we are on fixing our womens tops business.

There is a shift happening in silhouette on the women's side of the business, we have been in a skinny.

Slash legging cycle for probably nearly a decade now and that there is a huge.

Momentum shift and honestly, we missed it in women's denim.

The women is.

Definitely gravitating back toward a boot cut a flare or a wide leg in denim.

And our assortment is still too heavily penetrated in leggings and skinny so we're making those adjustments.

I am excited that after I started we actually moved up a launch that was slated for spring 20 in women's Hyperspring stretch denim actually move that launch up into the fourth quarter to try to get some.

Momentum in the women's denim business in the fourth quarter, but I expect that we'll be in much better position in denim it as we move into 2020.

In terms of Remerchandising outlet.

There are absolutely always opportunities to look at how we're merchandising things in the categories that we're distorting across channels, what I'm most excited about.

As we move forward is that Melissa in her role as Chief Mark Merchandising officer will have oversight for all of our product and merchandising strategies in both full price and outlet.

And I am very confident that she will really lead the charge and driving the business in both channels.

Great. Thanks, a lot for the color appreciate it.

Your next question comes from the line of Marni Shapiro with retail tracker Marni. Your line is open.

Hey, guys welcome aboard Tim Great to hear your voice.

Good to hear your voice through I Didnt expect thank you.

[laughter] surprise I've two quick questions. The first is incentivized is that you guys going into the market at kind of the old fashioned relabel good get the man.

Get some fresh new products in the store or is it working with your factories and really just moving things much faster.

It's both.

We started we just kicked this off in an effort to improve our speed to market. So we started honestly with working with our manufacturers.

On development and and taking advantage of.

The development that they have but going forward marni it will be a combination of both things.

We will do whatever we need to do to be sure we have trend right product in our stores at the right time.

That's fantastic and then you guys have launched the rental business I'm curious how does that fit in with this new approach. It seems to me gut instinct that it works really well with the new approach, but I'm just curious with the internal what your thoughts are.

I would tell you my thought is that I agree with you. It it should and will I believe work really well with our new approach, we kicked off the rental business, which is called express expressed style trial.

At the end of last year.

And we measured the results obviously throughout the entire spring season.

We are making some firm decisions on how we will move forward with express style trial over the next several weeks. So thats something that we will update all of you on our next call, but I do believe that we have an extraordinary opportunity because we do have product that.

Is appropriate for all wearing occasions, I think that rental as an enormous opportunity for us.

Fantastic Best of luck for the fall season.

Thanks Marni.

Your next question comes from the line of Steve Marotta with CL King and Associates. Please your line is open.

Good morning, Tim Parry and Matt during the prepared remarks, you mentioned that there you expect sequential improvement in the fourth quarter are you, referring specifically just to comp store sales or are there other income statement metrics embedded within that comment.

Hi, Steve Thanks for the question.

We're referring to overall the TNL, we're expecting to have improvements in the fourth quarter.

We believe that based on the comp performance last year and based on how we are.

Performed thus far this year and quarter to date that we expect to see sequential improvements going into Q4.

The way that we're managing the business right now he is and Tim mentioned from a promotional activities. We continue to find opportunities to pull back on promotions. We're also very very targeted with our promotions on moving slow moving merchandise and promoting those I noted to make room for new receipts and we expect to improve the health of the business in Q3, and then accelerate that into Q4.

That's very helpful.

Jim can you talk a little bit about the levers in the near term to improve store traffic our their methods you can employ.

Through either direct marketing or maybe even as.

You just alluded to.

Promos on specific items.

Q in order to improve traffic trends.

Yes, yes, absolutely, Steve and I can give you a couple of examples of things we've done.

We certainly do have the ability to target.

Marketing to certain individuals within our customer base to drive traffic both online and in store.

But one of the things that we've done quite honestly to drive traffic in store is distort our clearance message over the past couple of weeks, it's a very different approach that we've taken in the past.

But we as Perry mentioned in the comments had a larger.

Amount of clearance that we had planned to mark out of stock in September we have gotten much more aggressive on selling through that product rather than marketing of out of stock.

And that has been a great traffic driver for us and Thats, just simply by putting a banner up in that front windows driving and end of season clearance message.

And the traffic has has gone up.

Pretty significantly with that change. So there are definitely levers that we can pull there are other things too Steve that we are doing we have taken a very analytical approach to customer acquisition and retention which is.

Somewhat of a departure from where we have been in the past. So we over the last two years have really built up on the analytics function within the company. We have committed all of our customer databases together now and now have actionable data to work with.

We have.

Implemented a new mmm, an empty a model so marketing mix model marketing touch attribution model. We believe these two models will increase productivity of marketing spend by approximately 20%. Thus the target we're going after so as we move marketing investments into higher productive of investments that should help drive customers to store. We've also launched some new predictive modeling.

In the last month, or so and that is starting to take hold as well, which has a better capability of targeting customers and getting the right messages to customers that are relevant to also bring them into stores and as we do generate new customers. Our first impression program kicked off in May.

With that program, we're packing customers.

After the after their first purchase of trying to capture them for a repurchase within the first 90 days, we're seeing traction on that as well and we continue to emphasize our next.

Loyalty program as well all of these things over time should help improve traffic to our stores as well as the things Tim talked about.

That's very helpful. Thank you best of luck will take the rest of the questions offline.

Your next question comes from the line of Janet Kloppenburg with J.J.K. Research Chen Your line is open.

Hi, good morning, everyone.

I had a question on the product categories that.

Tim and Matt spoke about.

For instance on and the tops category.

Given that the new tested we act strategies that have been implemented I'm wondering if you think that the assortments will get progressively better. This Paul I know you talked a little bit about improvement you see expect improvement in the spring, but I'm wondering if we should expect that.

We should see some progress as we go through the rest of the season and then secondly on denim Tim I I thought you guys did make a better asset here.

In the back to school season on the denim front.

Making it more predominant within the stores and on the web site.

And I'm just wondering the same if you if you expect that the efforts there will bear fruit in terms of those the category performing better as we move through the season or do you expect that to change will really come next spring. Thank you.

Hi, good morning Jana.

The answer very simply is yes to both I do believe that we will get progressively better this fall.

As I've mentioned in my comments, we were able to have some impact in late Q3 and into Q4 in the tops category and in the denim category. So I do believe we will get progressively better.

And we should expect just incremental improvement.

Thank you and then on the inventory front and I did get on late I'm. Just wondering if the content is where you want it to be.

Is the investment category trending in line with the sales results, you're seeing or are those adjustments ongoing and when do you think you'll be aligned.

With the proper investment by category. Thank you.

Hi, John this is Patty.

We have made sequential improvements compared to where the maybe you and was.

And compared to the comp expectation that we had for Q2.

The August view and came that day and negative 8.6% slightly down to last year and obviously has have mission. We have made some progress there compared to the Q1 levels. We still have work to do to get our inventory fully in line with our comp expectations.

And what we are doing specifically to do so one is we're managing our receipts in our planning the business appropriately in terms of the level of promotions and we're targeting slow moving merchandise in order to clear those through.

So from an inventory composition standpoint.

We believe that we're going to continue to make progress to the inventory composition.

As we're moving through Q3, and then into Q4.

Thanks, so much.

This concludes our question and answer session I will now turn the call back over to Tim Baxter for closing remarks.

Thank you all for joining us. This morning, we look forward to speaking with all of you again next quarter.

Have a good day.

Thank you. This concludes today's conference call. Thank you for your participation you may now disconnect.