- WHP Global will invest $260 million in Express in a strategic partnership that will give the brand management firm a 7.4% stake in the 42-year-old apparel retailer, the companies said Thursday.
- They will also form an intellectual property joint venture intended to scale the Express brand through domestic licensing and international expansion. The deal is expected to close in the fourth quarter, subject to regulatory approvals.
- Also on Thursday, Express reported a Q3 operating loss of $30 million, down from income of $16.3 million last year. Sales declined by 8% year over year in Q3 to $434.1 million, with comps also down 8%.
Express CEO Tim Baxter said Thursday during a third quarter earnings call that the joint venture will have financial and operational benefits.
"Our partnership with WHP will drive greater scale and profitability of the Express brand through their category licensing and international expertise and strengthen our balance sheet,” Baxter said in a statement. “We expect to accelerate our growth by acquiring multiple brands in partnership with WHP and operating them on our platform. Both of these are expected to drive shareholder value."
One potential value add of the deal is accelerated growth through licensing in non-core categories. Another is the ability for Express to leverage WHP’s expertise for international expansion opportunities.
WHP’s portfolio of eight brands includes Toys R Us, Babies R Us, apparel and accessories maker Anne Klein, Lotto, an activewear brand, and Joe’s Jeans, a men’s and women’s denim brand.
The deal’s announcement came at the same time as Baxter acknowledged Express had a tough third quarter.
"Our strategy to elevate our brand through higher average unit retails and reduced promotions, which has driven steady growth for the past five quarters, came up against the consumer's reduced spending in discretionary categories and increased appetite for deep discounts,” Baxter said. “At the same time, we had some misses in our women's business that further impacted our performance.” Baxter pointed to one bright spot: Express posted its sixth consecutive quarter of positive comps in its men's business.
Neil Saunders, managing director of GlobalData, said in emailed comments that Express “bears some responsibility for the sharp decline because of missteps in its range and pricing strategies,” including its focus on formalwear, which remains sluggish despite some growth this year.
Saunders also said Express has a visibility issue.
“It is not always foremost of mind and is somewhat reliant on passing footfall to bolster trade. This dynamic makes it very easy for consumers to stop shopping or visiting at Express when times get tough or when they are looking to spend less money,” he said.
Baxter acknowledged that issue during the earnings call.
“I have said many times that we are transforming Express from being known as a store in the mall to a brand with a purpose, powered by a styling community,” Baxter said. “And that remains true going forward for the Express brand.”
Express has 550 brick and mortar stores in the U.S. and Puerto Rico.
Saunders also said the Express Insider loyalty initiative has driven foot traffic and sales among core customers. But it “has not done all that much to boost sales among more occasional browsers of the brand.”
“The latest results are a shame as they interrupt a period of progress when management seemed to be rebuilding the company. However, those results were delivered against a reasonably robust market in which people were spending with ease. We are now in a much tougher period. This will be a test to see whether the changes are deep-rooted enough to allow Express to weather the storm.”