Express Earnings Call INSIGHTS: Comp Anemia Issue, Promotions

On Wednesday, Express, Inc. (NYSE:EXPR) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Comp Anemia Issue

Neely Tamminga – Piper Jaffray & Co.: Can we dig a little bit into this comp anemia issue, traffic versus ticket, in some sort of a very specific category issue? I do have some category questions for you as a follow-up, but can we just dig a little bit more into what’s driving this anemia?

Michael A. Weiss – President and CEO: Yes. As (comp) what’s going on, is merely the comp which does not match that conversation and I’ll tell you I think it’s a couple of things right now. Number one thing is that our business has so shifted away from the kit, the back to school kit that we, even though our denim business is very good, it’s at a much different price than the younger competition. I think that’s one thing. I think that we are doing in denim what we set and plan to do and we’re doing well in denim, but not really competitively with the real back-to-school people. I think the other thing with the comp right now is that we started to (suffer) I want to say about three or four weeks after that investor conference the early business had been excellent I guess it was because if we look back to warm weather the questions were where it’s been pulled up, I never believe that happened, but apparently it did. Because as soon as we came up against, it changed, the other thing that happened and it might seem like our early deliveries were negative that is not true, our early deliveries really added to the business and what we had left over had to be less than last year. We went into July with less old merchandise, less summer merchandise than we did last year, and one we think if they were intended on buying it would have returned faster it did not. So less merchandise turned it the same rate at cheaper prices. So we did net up as I said before Nealy we have a lot of good news in a lot of our categories a little bit of difficult news in a very important category and the aggregate it’s not adding up well. But as we also said our guidance going forward does not, really does not include what we see is upside based on our adjustments.

Neely Tamminga – Piper Jaffray & Co.: So I guess that’s the bigger question, Michael as the guidance based on your current trends or is it truly you are being very specific with your language that’s based on the trend that you saw in Q2?

Michael A. Weiss – President and CEO: I would have to say and I would ask Paul to add to this after I finish, because we have – we don’t have different – we have different approaches although not different views. I would say that the guidance is based on the numbers. The guidance is based on what we experienced in Q2. The guidance does not include those things that we feel have been fixed. As you well know, our single biggest categories which is cotton (indiscernible) and knit-tops and all by the way cotton (indiscernible) knit-tops is bigger than sweaters and fall even though sweaters is very, very important, but that really never got totally back on track in terms of the number till the end of the quarter. So the current knit-top business is not really factored into the past, because it is kind of subjected. We believe we have done something, we feel it is prudent not to include something that we don’t yet really note that. Let Paul add to that if he would like.

D. Paul Dascoli – SVP, CFO: I don’t really have much to add. I think that’s right, you know we faced it and the trend that we saw it in the second quarter. We saw continued improvement in the trend of the knit-tops business and we have taken steps as we talk about to have delivers available more in sort of entry price point back in knit-top as we get to the backend of the third quarter. That’s all reflected in the guidance as Michael talked a little bit about. So the challenges with some of the new sweaters and that’s reflected in our guidance also.

Neely Tamminga – Piper Jaffray & Co.: Then can I just ask another question for your Michael on (prices), in general for women. You know it seems to me that we are seeing a style shift away from traditional jackets and skirts and things like that in the workplace. How are you interpreting career now for your Express consumer?

Michael A. Weiss – President and CEO: I would tell you that early on and through summer and into early fall our jacket business is ahead, and it’s nicely ahead even though it’s not an enormous business. I think what that says to us is we’re gaining credibility at those price points. The pants business has been very good and we have a new pant, that is our Columnist pant that is potentially a very, very big item. The skirt business is not so great, because I think that they way they’re looking at it, we – and by we, I mean this entire industry are not singing out a message on skirt length, on skirt shapes and we all understand that we can say, oh the customer buys what she wants, but the truth of it is, is the customer buys fashion and I don’t think we’ve been good enough at defining that. There are some fun skirts that are really, really good, but the skirt business in total is not where it should be. We do believe based on a few things that are really, really good, which we’ve gone back after for third and fourth quarter that it can be better than it currently is, but in terms of the made of work, our woven tops are fabulous, truly fabulous, both shirts and blouses. Not as fabulous as they could have been based on inventory but at the way we operate as we’ve told you is we reserve a whole lot of money and we invest in a bunch more in what is very good for the period of time that we’re really going to need it. So, we’re optimistic about that, again that optimism is not reflected in our guidance because it’s not there yet.

Promotions

Lorraine Hutchinson – Bank of America Merrill Lynch: Just wanted to maybe get some clarity on some of the issues that you saw towards the end of the quarter. What caused the more promotional stance, was that simply just the carryover summer product and then when we see, 30% off the store promotions and things like that coming into the third quarter is that on the new product or is that simply just issues with what you had coming out of 2Q?

Michael A. Weiss – President and CEO: I think there two ways, I’ll answer to the first part of the question and answer to the second. In terms of the first part of the question, yes we were more promotional on carryover summer goods because as we have been – and we planned less of it and we add less of it. But as we’ve been saying the seasons, and seasons, and seasons, it becomes almost the customers want it, but they want it for (indiscernible). So that was a part of this early on. In terms of the 30% off, I have – and I keep saying this I keep saying that I don’t know how much more promotional it can’t get, but clearly it can get more promotional as we’ve said early on our jeanswear category which means that our August and late July business is a younger business. And we were up against in that incredible promotions, I’ve never seen 1% off everything this early and I saw it weekend after weekend after weekend. What I would tell you about the 30 off the entire store is when we run something out of that, and take off every other promotions, so it becomes 30 off of ticket, which is – the promotion is a couched better and you’re even more convinced by it, but in terms of the markdown it’s very little different than we do in terms of promoting lots of our items which we always do anyway.

Lorraine Hutchinson – Bank of America Merrill Lynch: Then the new store productivity of the recent openings. Have you been happy with those?

Michael A. Weiss – President and CEO: We’re learning about that store and clearly the productivity is good enough, so that we’re switching over. What we have found is in the stores that we’ve built we have different configurations of the rooms and that’s why we start out the way we do and we found out that certain configurations are much more productive than other configurations. So mapping the design in the configurations of the rooms within the stores and we’re going forward with the ones that are much better than the other ones.

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