Express Inc. is on the fast track of change.
The specialty retailer, which has stagnated for the past three years, plans to close 100 stores and realize $80 million in cost reductions by 2022 and has a new product approach geared to creating “curated assortment reflecting versatility and consistent newness.”
That’s all part of a new strategy called “The ExpressWay Forward” disclosed by chief executive officer Tim Baxter and other senior executives at the company’s investor presentation Wednesday in New York. The intent is to return the once dominant fashion specialty chain to mid-single-digit operating margins, raise conversion rates in stores and online and strengthen shopper engagement with the brand.
Apparently, Wall Street likes the strategy — Express stock Wednesday rose 20 percent or, 86 cents, to $5.01.
The ExpressWay Forward strategy also calls for:
• Accelerating speed to market by 20 to 25 percent so products and trends get to consumers faster.
• Improving the loyalty program with four levels of benefits, rather than two, for fall 2020.
• Increasing personalized e-mails.
• Evolve store associates from task-oriented to service-oriented.
• Selling more denim by enhancing the assortment with more fits and washes.
“Seventy-eight percent of our customers wear denim to work but only 17 percent buy denim from us,” said Baxter. “We can lean into more refined and tailored denim.” Plenty of retailers load up on denim and emphasize torn and destructed jeans and jackets that are heavily detailed or adorned. Express, on the other hand, goes for a cleaner look.
Baxter said the Express collection will have “more newness, shorter product life cycles and is eliminating some nonproductive sizes.” While acknowledging the business has slowed, “We are reducing choices to create a clear story to customers and improve turns.”
Express also has a new approach to design and merchandising called “The Express Edit” revolving around five themes: “Mix and Match Versatility,” “New and Now,” “Modern Tailored,” “Denim Everywhere” and “Best of Black.”
The $2 billion Express operates about 600 stores and outlets and a web site, and sells apparel and accessories for young women and men for work, casualwear and going-out occasions.
Last week the company confirmed that 10 percent of the positions at the Columbus, Ohio, headquarters and 10 percent of the positions at the New York design studio would be cut, amounting to a total of 100 slots. That cutback includes jobs currently filled and those that aren’t filled. The job losses were across the board in design, merchandising, marketing and production, and at various levels.
Business has been challenging at the publicly held Express, which reported a $3.1 million loss for the third quarter ended Nov. 3, amid a 5 percent decline in comparable sales.
For the fourth quarter, Express has narrowed its fourth-quarter earnings-per-share guidance to $0.17 to $0.19 on an adjusted basis, from a previous range of $0.16 to $0.21, or between $11 million and $12.5 million, from the previous range of $10.5 million to $13.5 million. Comparable fourth-quarter sales are expected to be negative 3 percent. “New product for the fourth quarter sold very well. We just didn’t have enough of it,” said Baxter, at the investors meeting. “Simply put, we are moving in the right direction.”
Express expects about $200 million in cash by the end of fiscal 2019. The guidance excludes an estimated pre-tax restructuring charge between $6.5 million and $7.5 million that will be incurred during the fourth quarter and does not take into account any additional non-core items that may occur.
Fourth-quarter and full-year 2019 results will be reported the week of March 9.
“Our expected results show the third consecutive quarter of sequential improvement in our comp sales trends. I am encouraged that the new initiatives we have put in place are resonating with our customers,” said Baxter.
Through the new corporate strategy, “We are focused on profitable growth,” said Baxter. “My expectation is that we will return to a mid-single-digit operating margin through a combination of low-single-digit comp sales growth, margin expansion and cost reductions. This will, of course, take some time, but we have a clear path.”
The company has a new “brand purpose,” he said, to “create confidence and inspire self-expression and edit the best of current fashion for real-life versatility.” The fashion message will be “Dream Big. Dress Accordingly.”
Breaking down the $80 million in annual cost-reduction opportunities expected to be realized over the next three years, the company cited $25 million through process improvements, inventory optimization and systems implementations associated with its go-to-market transformation, and $55 million by reducing the workforce.
These savings are incremental to the $50 million in savings that were revealed in 2016 and delivered over the past three years.
Of the 100 store closings by 2022, nine closed in 2019, 31 will close by the end of this month, and 35 will close by the end of January 2021. The closings will result in a reduction of $90 million in sales by 2022.
“This reduction is offset by the elimination of the fixed operating costs of the closed stores and leveraging the remaining stores and online infrastructure for additional sales, which it expects to result in a $15 million annualized increase in EBITDA [earnings before interest, taxes, depreciation and amortization] by 2022,” the company said.
The company, which has no long-term debt, hopes to increase free cash flow from about $50 million in 2019 to $90 million to $110 million by 2022. It expects to achieve this by increasing operating cash flow by $60 million to $80 million, driven by growth in net income and improved working capital.
Over the next three years, between $50 million and $60 million will be spent in capital expenditures each year for technology investments; ongoing maintenance of technology platforms; enhanced customer-facing e-commerce capabilities, and to refresh stores.
Express has about 5,200 full-time workers. The cutbacks at Express follow those recently revealed at Bloomingdale’s. Macy’s, which like Bloomingdale’s is a division of Macy’s Inc., is also expected to soon disclose a restructuring. It’s not unusual for retailers to make organizational and store fleet changes in the aftermath of the holiday selling season.