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Express CEO Tim Baxter joins Yahoo Finance Live to discuss company earnings, inflation, consumer spending, the e-commerce demand, and the outlook for growth among the retail sector.
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- Shares of retailer Express getting a boost this morning after the company reported a 30% increase in net sales in the first quarter. You can see shares up almost 7%. Although the company did lose about $12 million on the bottom line, still an improvement over the losses that they had in the same quarter last year. Joining us to break all of this down is Express CEO Tim Baxter. Tim, it's great to have you on the program. I love the blazer with the white shirt, by the way. This is absolutely the vibe that we're--
TIM BAXTER: The white tie scarf.
- Yeah. You guys are--
- Yeah, we're matching.
TIM BAXTER: We look like we're wearing a uniform.
- We did not coordinate this. But, Tim, great to have you on the program. Hey, I was listening in to your earnings call earlier this morning. You described the situation right now is a tough apparel retail environment. In short, what do you mean by that?
TIM BAXTER: Well, look, we have heard from many apparel retailers over the past couple of weeks. And in many cases, there have been misses on both the top and bottom line and there have been revisions downward in their outlook for the balance of the year. So that's what I mean by a tough retail environment. That is absolutely contrary to what we are experiencing at Express, where our transformation is really taking hold. And we posted an incredible quarter with a 31% comp increase in sales, driving double digit comps in every single one of our major categories and in every channel.
- What do you attribute that to?
TIM BAXTER: Look, I think we launched the EXPRESSway Forward strategy about 2 and 1/2 years ago, just before the pandemic. And our incredible focus on the four foundational pillars of the strategy, product, brand, customer, and execution, is finally paying us back. And so we are seeing a resurgence in product categories that we have long been known for, more occasion-based and wear-to-work categories.
But we are also gaining market share in huge volume, driving categories like denim and knits. So the versatility of our assortment, putting product first, that's really why we are winning. And an incredible marketing strategy to reinvigorate our brand that focuses on product has really engaged customers.
- Let's talk about product. Inventory, as I understand it, was up 40%. This is a trend that we're seeing across the industry. The concern now is there's going to be discounting that is needed to get that stuff out of the stores and out of the warehouses. Is that something that you see on the horizon?
TIM BAXTER: No. We have seen a much more promotional environment around us. We, at Express, have not been more promotional. In fact, the first quarter was the first quarter in many years where we had no site-wide or store-wide promotions, not one single day. And the 40% increase in inventory is direct related to the actions we took to mitigate supply chain challenges.
So we pulled forward a considerable amount of our inventory so that we would be able to meet consumer demand. And we did that, from my perspective, extremely effectively. There have been extraordinary costs associated with the supply chain challenges across many of our competitors. We anticipated about $7 million in incremental expense in the first quarter and actually came in slightly under that, spending about $6 million to mitigate those challenges.
But the inventory composition is exactly where we want it to be in order to meet consumer demand when we are going to experience that demand. And what I said earlier on the call is that, while the inventory level is elevated right now, it will continue to be elevated as we move through the second quarter. But as we move into the back half of the year, our inventory levels will be much more aligned and in much greater parity with our projected sales trends. And right now, we actually increased our outlook for the year.
- Yeah. And, Tim, that might be a reason for the stock going up. But I want to ask just as a follow-up to that, in the absence of your stores having the rack space to accommodate that 40% increase in inventory, how do you strategize that between your main stores and also your retail stores? Because what we've been hearing is a little bit of a different story from other retailers that are saying, we got to get this product out there. We don't even have the warehouse space for it.
TIM BAXTER: No. We're in good shape. We're in very good shape. First of all, we're also driving extraordinary comp increases in online demand. So we do over 21% increase in e-commerce demand, so a lot of that inventory has been positioned in our fulfillment centers and we have plenty of space in our fulfillment centers. This is not a peak inventory time, so we have plenty of space in our fulfillment centers to continue to drive through that product and are driving the kind of comp increases that we need to move through the product at an appropriate time period.
In our stores, there's no doubt. We have back rooms that are full of core products in order to be able to fulfill that demand, as I was saying. But we're in good shape. We actually have dramatically reduced the capacity in our stores by taking fixtures off the floor, creating more space, creating a much more luxurious shopping environment. So we've not only reduced capacity, but we still are in good shape. So I do not anticipate any deep discounting in order to liquidate product.
- Yeah. Tim, it's interesting to hear that, because it's so different from what we have heard from some of your competitors who have said, look, the situation or the environment has changed dramatically over the last few months. I mean, somehow all the retail stocks have now been lumped in together as a result.
TIM BAXTER: Correct.
- And I wonder if you think this is just about companies really planning ahead. I mean, why do you think you're in a better position? Because you're still competing in the same environment.
TIM BAXTER: Absolutely. But we did plan ahead. We planned ahead very, very effectively. I give our team an incredible amount of credit for having mitigated these challenges extraordinarily well. But beyond that, this has been an environment that has existed for the past several months and we have seen the competitive landscape change fairly dramatically. We have seen our competitors begin to offer store-wide and site-wide discounts.
And as I said before, we didn't do that one time in the first quarter and drove a 31% comp increase, with comp increases across every single category of business, so categories that have become highly promotional in some of our competitors. So we're winning by putting product first. Our product, the consumer is responding to our product. There is incredible value in our product. So our AURs have gone up 20%, and the consumer response has continued to be incredible. Our discount rates have gone down dramatically.
- Express CEO, Tim Baxter. It's good to have you on the show. Appreciate the time today.
TIM BAXTER: Great. Thank you.