Express CEO: WHP Global partnership repositions us as a growth company

Express CEO Tim Baxter joins Yahoo Finance Live to discuss company earnings, consumer spending, the state of retail, investor sentiment, and the outlook for growth.

Video transcript

BRIAN SOZZI: Shares of Express are falling today but were in major rally mode yesterday after the apparel retailer disclosed a $25 million investment from WHP Global and plans for a joint venture with the company, but Express did report an 8% drop in sales in the third quarter and a $30-million operating loss.

Joining us now for more on all of this is Express CEO Tim Baxter. Tim, always great to see you here. So let's start on the deal because that seemed to be the real market mover yesterday for the stock. Why did you make it, and what does it mean for your business moving forward?

TIM BAXTER: Hey, good to see you, Brian. It's a really powerful deal, and it repositions our company as a growth company. So we did this deal with WHP to form a really mutually transformative partnership that we believe is really trailblazing in our industry.

So WHP is making two investments. You mentioned that they're investing $25 million to acquire 5.4 million shares of Express common stock valued at about $4.60 per share for about a 7.4% ownership. But the bigger investment is actually in an IP joint venture that we have created together that values the Express intellectual property at about $400 million, and they've invested $235 million to own a 60% stake in that.

And the growth that I'm talking about is going to come from two different things. Number one, we're going to scale the Express brand through this IP joint venture, which is going to be very powerful. They have expertise in licensing, so they'll be assisting us in licensing noncore categories, both in the US and abroad. And they have incredible expertise at global expansion, so we'll be working with them to expand the brand globally. And then the second piece of it is that we will leverage our fully integrated omnichannel platform to acquire new brands with them and operate those brands on our platform.

JULIE HYMAN: I have so many questions, Tim, so I'll go with this one first. So when you talk about licensing the Express brand abroad, like, give me an example of what that might look like. If I'm in Europe or in Asia, I would be able to buy an Express what, for example, from whom, for example?

TIM BAXTER: Yeah, absolutely. So I think there's two things. As we think about international expansion, your experience internationally with Express will likely be in an Express store and on Express.com, and we'll do that through license agreements with other operators around the world.

Here in the US, when we talk about licensing noncore categories, the example I love to give is eyewear. We think that there's an enormous opportunity, for example, for great-quality, great-value fashion eyewear that will be available at your local optometrist.

So there are so many different opportunities for us to license in our noncore categories here in the US. But if you're going to experience the Express brand internationally, it'll likely be in an Express store.

JULIE HYMAN: OK, so next question. When you talk about acquiring more brands, what type of brands are you looking for? What fits into-- I mean, we already know that WHP has a certain portfolio. What would be in your joint portfolio that-- what are the characteristics of what you're looking for?

TIM BAXTER: Yeah, when we talk about mutually transformative, this gives WHP the opportunity to really invest with us in different kinds of brands that they currently have in their portfolio. So, you know, for us-- you know, for us specifically, the kinds of brands that we will be looking to acquire, look, our expertise is in fashion retail. So we will be looking for fashion brands that have a strong direct-to-consumer presence that we can fully integrate into our omnichannel platform.

And, you know, the criteria that I would have is really about growth. We'll be looking for brands that we believe we can grow both the top and the bottom line on. That will then obviously grow our top and bottom line.

BRIAN SOZZI: Tim, take us through what you saw in the third quarter and what you're seeing in the current quarter. You didn't hide that you had some fashion misses in the women's business. Where are those misses, and how promotional is it out there right now?

TIM BAXTER: Yeah, well, the third quarter was interesting. And I guess just in summary, I would say that for five consecutive quarters we drove growth through the Expressway Forward strategy by elevating our average unit retails and reducing our level of storewide and sitewide promotion-- you know, getting really targeted promotion.

And that came in direct conflict with the consumer who is spending less in discretionary categories and, when they are spending, is looking for deep promotion. So that is the overarching challenge that we faced in the third quarter.

In the women's business specifically, I wouldn't say it was fashion misses. Actually, the fashion that we have added in women's has been very, very good. It's actually the assortment architecture where we had some challenges. We have opportunities in women's tops. We lacked breadth of assortment, actually, in women's tops, and that's the most price-sensitive category in our entire assortment, and we lacked opening price points.

So as we move into the first quarter of next year, we are recalibrating. We're getting much more aggressive about our women's tops assortments, and we're recalibrating the price points to include some opening price points.

JULIE HYMAN: I want to ask about the recent stock action. And, Tim, I know this is something that we've talked to you about before, but, you know, when you see your stock surge 38%, like, great on the one hand, but also if your stock is one of your areas of currency and you see a lot of volatility in it, that can be challenging. So how do you approach that kind of thing?

TIM BAXTER: Well, you know, we-- this is going back a couple of years, but both of you know that we were caught up in the meme stock phenomenon--

JULIE HYMAN: Yeah.

TIM BAXTER: --and saw extraordinary volatility, obviously, in our stock during that time period. And today we still have about 50% of our shares that are owned by retail traders, and we're working very hard to keep them in our stock, actually. We respect every one of our shareholders, but the real volatility that you see comes from the high percentage of our shares that are not owned by institutional investors where you see greater stability.

So, you know, one of the things that we're very focused on is driving shareholder value. And so with this new partnership, with this new arrangement, we know we are going to be able to really drive growth of both our top and bottom line. And that's a story that we are going to take out, you know, into the market, and we're going to work very hard to bring new institutional investors into the stock.

BRIAN SOZZI: Tim, that's a huge number, 50%. I'm sure you have seen what Adam Aron has done over there over at AMC just communicating differently to his investors on Twitter. Is that a plan of some sorts that you want to follow next year just to change how you're communicating to this retail-investor base?

TIM BAXTER: Yeah, we actually have been communicating differently with this-- the retail-investor base in order to try to manage that volatility, and like I said, we value every single one of our shareholders. And ultimately driving shareholder value is going to be about driving results, so we're very focused on that.

We're obviously disappointed in the third-quarter results and the way the year is going to pan out based on our outlook. So, you know, in addition to obviously looking to continue to bring new investors into our stock, we're going to get-- we're going to stay-- not get, stay very, very focused on results. So as we move into 2023, we're obviously going to make the necessary cost adjustments in order to return to profitability.

BRIAN SOZZI: Tim, Julie and I are going to-- our holiday gift to you, we're going to think of a new meme stock name for you. We've got to think of something cool. We need something cool because the Express--

TIM BAXTER: That would be good.

JULIE HYMAN: Adam Aron is, what, the silverback?

BRIAN SOZZI: Silverback and ape, so we need something cool. We need something cool for you, Tim.

JULIE HYMAN: I was proposing the BAX, but I think we can do better.

BRIAN SOZZI: We can do better than that. We'll get back to you. I'll send you an email.

TIM BAXTER: The BAX? That was my nickname in college, so that one would work for all my fraternity brothers.

BRIAN SOZZI: There we go. That's how we get stuff done.

JULIE HYMAN: All right, Tim Baxter, thanks for joining us to talk about what's been going on with Express. Interesting stuff. Thanks a lot.