Express Inc. executives on Wednesday announced cost-cutting and borrowing initiatives amid sales and profit declines. Q2 net sales fell 6.4% year over year to $435.3 million. Without recently acquired Bonobos, which the company said bested expectations, sales at namesake Express and UpWest plunged 15%.
Overall comparable sales, including store and digital sales across brands, fell 13%. Store comps fell 21%, e-commerce fell 1% and outlet comps fell 17%. Inventory was up 20%.
Gross margin contracted about 1,000 basis points to 23.1%. The conglomerate swung to a $44.1 million loss, from last year’s $7 million net income. Express has hired advisers to help review its business model and achieve $200 million in annualized savings by 2025.
Express Inc. executives reminded analysts during a conference call Wednesday that they aim to get a firm grip on expenses as the company faces ongoing consumer desire for promotional prices.
The financial picture has necessitated some new debt. To bolster its finances, the apparel conglomerate on Tuesday entered into a definitive loan agreement with ReStore Capital for a $65 million first-in-last-out asset-based term loan, per a company press release. Express Inc. has tapped $32.5 million in gross proceeds from that, with the remaining $32.5 million to be received on or before Sept. 13.
More broadly, CEO Tim Baxter told analysts Wednesday that the company’s merchandising efforts, which included tackling some fashion misses, are gaining traction.
“The corrective actions we have taken are working and our customer is responding,” he said.
The macroeconomic environment is pressuring the retailer’s results, keeping customers on the hunt for good deals, but they seem pleased with the assortments at Express, which remains the company’s largest brand, Baxter also said. Denim, sweaters and knits in general are already selling well ahead of the fall season, he said.
“Our denim business has sort of skyrocketed and we intend to continue to drive the denim business, knowing that that is a key component of success in women's,” he said. “We know that over 80% of our customers actually wear denim to work, but today only about 25% of our customers are buying denim from us. So we know there's an extraordinary opportunity there.”
He admitted that “improvement in the topline isn’t good enough,” which he said is leading the company to focus on slashing expenses. But cost cuts won’t adequately compensate for severe topline weakness, GlobalData Managing Director Neil Saunders said in emailed comments. Saunders warned that that company’s correction in women’s “may be too little too late to save this fiscal year from being anything but a disaster.”
“Express is the archetypal middle-market mass retailer that consumers are increasingly willing to either cut out of the portfolio of stores they visit, or buy less from, as they look to save money,” he also said. “In our view, very little about the Express proposition stands out. The assortment is bland, styles are mediocre, and prices are somewhat too expensive for the type of products being offered. There isn’t anywhere near enough excitement and oomph to carry the retailer through a period of challenge in the consumer economy.”