Teen apparel retailer Express said Wednesday that fourth quarter net sales fell 11% to $678.8 million from $765.6 million in the year-ago quarter. Same-store sales fell 13% in Q4 2016, and e-commerce sales rose 9% to $170.1 million, accounting for 25% of net sales in the quarter.
For the full fiscal 2016 year, net sales fell 7% to $2.2 billion and e-commerce sales increased 5%, accounting for 19% of net sales, Express said. Last year, the company realized $9 million in cost savings and is on track to deliver $44 million to $54 million in total cost savings over the next three years, corresponding to full-year operating cash flow of $187 million and a balance sheet with more than $200 million in cash.
For the first quarter of 2017, Express expects same-store sales to fall in the “high single digits,” compared to a 3% decline a year ago, and full-year 2017 same-store sales to remain flat or rise in the “low single digits,” compared to a 9% decline last year.
Express is one of the retailers formerly owned by Les Wexner’s L Brands, and could be on track to falter in the face of dramatic shifts in shopping habits and fashion sensibilities much like The Limited, which was once Wexner’s flagship brand but has filed for bankruptcy and shuttered all stores.
Express may be experiencing some fallout from the 2014 departure of L Brands veteran Mike Weiss, who spearheaded the company's merchandising efforts when it was still just an experiment, going on to lead the brand from 1997 to 2004 and retiring as CEO after Express was sold to private equity firm Golden Gate Capital.
Weiss returned to the helm in 2007, and for many years Express flourished, its success coming in part thanks to The Limited’s pivot to target older working women, says Lee Peterson, who spent 11 years at The Limited and is now executive vice president of brand, strategy and design at global retail design firm WD Partners. “Express had the younger, fashionable customer,” Peterson told Retail Dive earlier this year. “In 1990 or ’91, [The Limited] just gave the fun business to Express. And Express extended its success because it brought back Mike Weiss. [But] you’ll probably see them struggling [in the future].”
Peterson's forecast is now coming true, says GlobalData Retail managing director Neil Saunders. “A dismal set of final quarter numbers cap what has been a torrid year for Express,” Saunders said in an email to Retail Dive. “That the figures are sequentially worse than last quarter and, indeed, the worst of the current fiscal, provides little comfort that the business is getting back on track.”
Saunders says that while "traffic and visibility are the crux of Express’ problems," some retail fundamentals also present headaches. "We also believe that recent seasons have seen the company make some merchandising missteps,” Saunders said. “Although holiday quarter collections were an improvement, much of 2016 was characterized by far too much product choice in stores, over-complicated assortments and items that were aimed at too young an audience. This made shopping stores unpleasant and was a turn-off for some customers. Although we do not attribute all of the current sales dips to this, we believe that Express is still working to build back the interest of those shoppers who were deterred by previous poor product selection.”
In his statement Wednesday, Express CEO David Kornberg noted the challenging retail environment and falling mall traffic, and emphasized the retailer’s e-commerce sales rise and its strong balance sheet.
"We enter 2017 with confidence that the actions we have taken and the initiatives underway will translate into stronger performance as we move through the year,” Kornberg said. "These initiatives include improving the fashion clarity in our stores through reduced choice counts, launching a new brand campaign, introducing compelling new products, and improving upon key existing categories. We also expect to benefit from the relaunch of our customer loyalty program and our new IT systems, which will foster more efficient decision making and precise planning."
Saunders isn’t particularly cheered by the company’s cost saving measures, however. “Although Express does have a number of cost saving initiatives… these were nowhere near sufficient to offset weaker margins. Fortunately, Express remains profitable and has a solid balance sheet which will allow it to weather this more challenging period of trading,” he said, but added “the first quarter of the new fiscal year does not look like it will bring much relief. We do not believe Express has done enough to turnaround its business in the near term.”
GlobalData Retail expects further declines in same-store sales and net income, possibly even a net loss. “For the foreseeable future, Express will remain on the slow line of retail,” Saunders said.