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January 23, 2020

Express to shutter 100 stores by 2022, outlines new strategy

US apparel retailer Express, Inc has narrowed its fourth-quarter guidance and outlined a new three-year corporate strategy which includes a 'fleet rationalisation plan' to close about 100 stores by 2022 and a new approach to product.

By Beth Wright

US apparel retailer Express, Inc has narrowed its fourth-quarter guidance and outlined a new three-year corporate strategy which includes a ‘fleet rationalisation plan’ to close about 100 stores by 2022 and a new approach to product.

In a statement, Express said the figure includes nine stores that have already closed in 2019, 31 by the end of January 2020, and an additional 35 by the end of January 2021. The company expects the net impact to sales to be a reduction of US$90m by 2022. 

Its new Expressway Forward plan also includes “significant cost reductions”, with Express having identified US$80m in annualised cost reduction opportunities which it expects to be realised over the next three years. Of this, it says $25m will be driven by process improvements, inventory optimisation and systems implementations associated with its go-to-market transformation.

The other $55m will be driven mainly by a previously announced restructuring of its workforce. Earlier this month, the company said it is restructuring its business in order to drive long-term profitable growth. The move will impact about 10% of its workforce in its Columbus, Ohio, headquarters and its design studio in New York City.

Expressway Forward

The strategy, which was announced during the company’s investor day in New York yesterday (23 January), outlines key initiatives based on the company’s four foundational pillars of product, brand, customer and execution.

Among its plans are a new product approach – ‘The Express Edit’ – which it says will allow the company to deliver “great product” in every category, and a new brand purpose, which is to create confidence and inspire self-expression.

Express says how the brand engages with customers will be consistent with this point of view across women’s and men’s, across channels, and across communication touchpoints, and will encourage them to “Dream Big. Dress Accordingly.”

Meanwhile, the company plans to boost customer retention and acquisition by relaunching its loyalty programme and private label credit card in autumm 2020 and more personalised customer communications.

Elsewhere, several new initiatives are tipped to boost operational efficiency across the business, including a new go-to-market process, inventory optimisation, and improved customer experience.

CEO Tim Baxter said the company is focused on profitable growth.

“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,” he adds.

Fourth-quarter guidance

Meanwhile, announcing fourth-quarter guidance that narrows the previous range, Express said comparable sales are currently expected to be down by about 3%. Adjusted net income is forecast in the range of $11-$12.5m, with adjusted diluted earnings per share to be in the range of $0.17 to $0.19.

Express said the guidance excludes an estimated pre-tax restructuring charge between $6.5m-$7.5m that will be incurred during the fourth quarter and does not take into account any additional non-core items that may occur. It expects to report fourth-quarter and full-year 2019 results during the week of 9 March.

“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,” Baxter added.

The fashion apparel retailer reported a net loss of $3.1m for the third quarter amid a 5% drop in consolidated net sales to $488.5m.

Analyst reaction

B Riley analyst Susan Anderson notes Express management has a “clear focus” on areas for product improvement with the company stating it had “shown some signs of life” in the fourth quarter.

She adds: “With the team now filled in, Express is now ready to go out and more meaningfully execute on delivering fashionable, on-trend, modern product to customers that they feel are underserved in a mall-based setting.”

In August of last year, Express named former Lane Bryant executive Malissa Akay as its executive vice president and chief merchandising officer, with Sara Tervo joining as executive vice president and chief marketing officer.

“Express feels that its target customer is looking for a fashionable product that can serve in both a workplace and weekend social environment. So, rather than distinct casual or workplace offerings within stores and online, the new product focus centres around clothing is increasingly multi-purpose, with Express pushing maneuverability and interchangeability among key items,” Anderson says.

“CEO Baxter stressed a focus on fashionable items, citing white space in the mall-based fashion-forward environment. Initial changes are already underway to the supply chain, but the new product isn’t expected to meaningfully hit until the fall of 2020, after which Express will be focused on leaner, faster, more productive inventory with higher turns.”

Regarding the fleet rationalisation, Anderson notes: “We view the announcement as unsurprising, given that 60% of Express’ fleet has a lease action date by 2022.

“In addition to store closures, management noted they would be continuing to evaluate opportunities for further store closures, downsizing, and changing mix between full-price and outlet stores. Recall that Express announced on their 2Q19 earnings call that they had begun to experiment with updated floorsets, and have been particularly focused in the women’s space. Stores with updated floorsets have seen better performance across all metrics, including traffic.”

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