Dive Brief:
- Thanks to the acquisition of Bonobos, which made $52.1 million in the quarter, Express Inc.’s consolidated net sales in the third quarter rose 5% to $454.1 million from $434.1 million last year, the company said in a Thursday earnings statement. But net sales for the company’s Express and UpWest brands fell 7% to $402 million from $434.1 million.
- The retailer also said comparable sales for Express stores and e-commerce fell 4% from a year ago. Retail store comps fell 16% but e-commerce comps rose 10%.
- Express Inc. also reported an operating loss of $28.7 million and a net loss of $36.8 million for Q3. Meanwhile, inventory including Bonobos rose to $480.9 million, up 14% from $422.7 million a year ago. Excluding Bonobos, it was flat.
Dive Insight:
During his first earnings call with Express, recently appointed CEO Stewart Glendinning laid out his vision on what needs to happen to steer the apparel retailer back “on the pathway to recovering the company's full profit potential.” Those actions will include accelerating ongoing cost reduction initiatives and launching new ones to improve business performance and liquidity.
Glendinning acknowledged some of the retailer’s missteps. They include a misguided merchandise strategy, where Express’ women’s offering was “out of balance across categories, price points and wearing occasions.” That misalignment between the assortment and customer demand affected sales and margins. Glendinning replaced former CEO Tim Baxter, who resigned in September after about four years leading the company.
Glendinning said on the earnings call that the top-line decline for the Express brand was driven by weaker results in retail and outlet stores, partially offset by a 10% increase in online sales. And while unit sales were consistent with expectations, he said during the call that more extensive discounting was required to move inventory, which resulted in greater gross margin erosion.
In a note shared ahead of the earnings call, Eric Beder, CEO and senior research analyst at Small Cap Consumer Research said, “we believe a continued focus on improving operations, creating a more balanced product mix between basics and fashion and leveraging the WHP Global relationship will remain key tenets of the Express business model.”
Brand management firm WHP Global and Express entered an intellectual property joint venture last year. WHP and Express acquired Bonobos from Walmart in April for $75 million. Its portfolio also includes UpWest. Glendinning also noted that Q3’s earnings report includes royalty expenses to WHP Global, which negatively impacted the gross margin by approximately 370 basis points.
However, Glendinning also noted there were some positive indicators in the quarter. They include improved sales performance, $30 million in cost savings, which drove a 4% reduction in SG&A, and improvement in women’s sales driven by a shift in merchandising strategy.
Interim CFO Mark Still said on the earnings call Thursday that October trends continued into the first half of November, while in the back half of November, sales improved and were more in line with last year. The company on Thursday updated its outlook for the remainder of 2023. It now expects net sales of approximately $1.84 billion to $1.87 billion and approximately $150 million in Bonobos net sales. Previously, the company forecast net sales ranging from $1.9 billion to $2 billion.
WHP, through its joint venture with Express Inc., said recently it plans to expand the brand into new markets and increase its presence in Mexico and Central America. Glendinning said the royalty-sharing agreement is “beneficial to us without extraordinary effort from us,” as it’ll be licensed and overseen by WHP.
