Express on Wednesday reported steep fourth quarter and full year sales and margin declines, though shares rose amid GameStop-style investor activity as noticed by MKM Partners analysts, and as losses narrowed. Net sales in the quarter fell 29% year over year to $430.3 million, beating MKM Partners expectations for a 37% decline.
Comps, including store and online sales, fell 28% in the quarter, according to a company press release. Gross margin in the period contracted to 16.6% of sales from 27% a year ago.
However, year over year, EBITDA loss narrowed to $45 million from $168.7 million, operating loss narrowed to $62.7 million from $189.9 million, and net loss narrowed to $53.3 million from $141.6 million. Adjusted net loss, (which excludes federal pandemic tax relief, non-cash impacts of the deferred tax asset valuation allowance and pretax impairment charges), reached $43.1 million, from net income of $13.8 million in 2019.
The actions that Express was taking over a year ago to adjust to changing fashions and ebbing apparel sales, including 100 store closures and corporate layoffs, grew more critical in 2020 as the pandemic accelerated those trends. By the end of the year the company further reduced its corporate workforce by 10%.
Like Banana Republic and others focused on office wear and more formal styles, Express has had a particular disadvantage in recent months as consumers stuck to comfortable clothing and activewear, according to a pre-earnings client note from MKM Partners. The company's more casual "Express Essentials" offering did better, and CEO Tim Baxter said during an earnings call that the company expects $125 million in sales from that line this year.
The company could also once again see enthusiasm return for less casual clothing, however. "We view [Express] as a potential key beneficiary post-pandemic, given our view that there will be pent-up demand for social occasion dressing, coupled with what is likely underappreciated merchandising improvement, particularly over the last six months," MKM Managing Director Roxanne Meyer wrote.
After shrinking its fleet and boosting investment into its e-commerce, the company has turned its attention to where and how to run stores, and at what size. Baxter said that physical stores remain important, but said those in malls must be more productive, and more need to be located away from the mall. The company is testing smaller "Express Edit" stores with localized merchandising and plans to open eight this year with short lease terms (less than 12 months).
Higher inventory at the end of the year means likely markdowns this quarter. But, with a caveat that the ongoing pandemic makes this year uncertain as well, Express was upbeat for 2021. Per the release, the retailer said it expects sequential comps and "significant" gross margin improvement throughout the year, and positive EBITDA for the second half of the year, among other improvements. The company plans about $35 million in capital expenditures.
"Everything that we accomplished in 2020 — from operational improvements and the streamlining of our store fleet to the reinvention of our product, and the repositioning of our brand, from the reduction in our cost base to the bolstering of our finances — are the reasons that we were able to mitigate the dangers of the pandemic," Baxter said. "In the face of exceptionally difficult circumstances, we continue to advance with clarity and purpose."