Express Inc. (NYSE: EXPR) Q1 2020 Earnings Call Transcript

Express Inc. (EXPR) Q1 2020 earnings call dated June 03, 2020

Corporate Participants:

Dan Aldridge — Vice President, Investor Relations

Tim Baxter — Chief Executive Officer

Perry Pericleous — Senior Vice President, Chief Financial Officer and Treasurer

Matt Moellering — President and Chief Operating Officer

Analysts:

Marni Shapiro — The Retail Tracker — Analyst

Alec — B. Riley FBR, Inc. — Analyst

Roxanne Meyer — MKM Partners — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Express, Inc. First Quarter 2020 Earnings Conference Call.

[Operator Instructions]

After the speakers’ presentation, there will be a question-and-answer session.

[Operator Instructions]

I would now like to hand the conference over to your speaker today, Dan Aldridge, please go ahead.

Dan Aldridge — Vice President, Investor Relations

Thanks, Marcella. Good morning and welcome to our call. I’d like to open by reminding you of the company’s safe harbor provisions. Any statements made during this conference call, except those containing historical facts, may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual future results may differ materially from those suggested in forward-looking statements due to a number of risks and uncertainties, all of which are described in the company’s filings with the SEC, including today’s press release. Express assumes no obligation to update any forward-looking statements or information, except as required by law.

Our comments today will supplement the detailed information provided in both the press release and the investor presentation available on the company’s Investor Relations website. In addition, you can locate a reconciliation of any adjusted results discussed in our comments to amounts reported under GAAP on our website or in our earnings release.

With me today are Tim Baxter, Chief Executive Officer; Perry Pericleous, Chief Financial Officer; and Matt Moellering, President and Chief Operating Officer.

I will now turn the call over to Tim.

Tim Baxter — Chief Executive Officer

Thank you, Dan, and good morning, everyone.

I’d like to begin with a word about the extraordinary times in which we find ourselves, since the onset of the COVID-19 pandemic and now also the recent and furious demonstrations and protests taking place across our country. Our families, companies and communities are all affected. 2020 is certainly proving to be a challenging year and I am hopeful that we will all come through this time with new perspective, new understanding and new ways of operating in the future. In a couple of weeks, I will come to the end of my first year as CEO of Express. I could not possibly have imagined a state of retail much less the state the world like this. Speaking specifically to the impacts of COVID-19, I don’t believe the word unprecedented has been used as much over the last decade as it has been over these last 10 weeks. Even as our country and its many industries continue to reopen, this time it’s still characterized by uncertainty. The future of our economy, of retail businesses and of consumer confidence has not yet been returned.

With that said, I speak to you today with as much optimism and as much realism as ever. The optimist in me knows that consumer demand will return and the realist knows that it will take some time and it will be different. Let me tell you about our first quarter, specifically the decisions we made and the decisive actions we took to protect our company, to preserve the foundational aspects of the course we have chartered for our brand and our business, and the reasons why I believe just as strongly as ever in the future of Express.

Our first quarter unfolded in two distinct phases, followed by a third phase that began in the last week of the quarter with the reopening of some of our stores. Leading up to and including what I am calling Phase 1, Express was in the early stages of a transformation. Our new corporate strategy, the EXPRESSway Forward, with its emphasis on the foundational pillars of product, brand, customer and execution had been set in motion, and while much work was still ahead of us, a great deal had already been accomplished.

We had completed a comprehensive restructure of our organization in order to better align our teams and our objectives, implemented a more streamlined and efficient go-to-market process, established a new design and merchandising vision called The Express Edit and developed a new brand positioning to stake our claim to territory our customers told us would be relevant and compelling to them, and we had identified a total of $80 million in cost savings opportunities that we expect to achieve over a three-year period.

In addition to this transformational work, we began the first quarter with a high caliber executive leadership team almost complete. Combining the right balance of institutional knowledge and experience with new voices and viewpoints, this team is comprised of results-oriented, strategic thinkers who bring different complementary skill sets and perspectives. And at the end of April, we welcomed [Indecipherable] as our new Senior Vice President and Chief Human Resources Officer.

Before the COVID-19 pandemic even had a name, the decisions we had made and the actions we had taken had created momentum and had already begun to change the trajectory of our business. We had significantly reduced our expenses and meaningfully improved the health of our inventory. Our fleet rationalization plan had begun to rightsize our store portfolio. Our new approach to product design, merchandising and in-store presentation was delivering encouraging early results. Our new brand positioning was beginning to reveal itself in our creative content and customer engagement was increasing. And finally, we had launched a new set of corporate values and had begun to build the culture that would support and enable results.

Our organization was galvanized behind our new strategy and our cross-functional teams were aligned around our new operating model. We were on The EXPRESSway Forward, moving with confidence and speed to our destination of long-term profitable growth. And then, the world changed, and we entered what became the second phase of the quarter. We had to make a new set of decisions with information that was incomplete and rapidly evolving. We did so with the overriding objective for Express, not only to survive the pandemic, but also to emerge with the strength and resources to return to the important work of our transformation and to be well-positioned to achieve our goals. We responded swiftly and decisively. We followed government guidelines and closed our offices and our stores. We quickly shifted to work from home and experienced no interruption of service or productivity. We put in place a robust communications plan to keep our associates informed, engaged and connected. We took the actions we deemed appropriate and necessary to protect our company’s future, including securing $165 million from our existing credit facility to support the business during the crisis and making the extremely difficult decision to furlough the majority of our store associates and approximately 10% of our corporate support team who either could not perform their responsibilities from home or whose roles solely supported our stores.

Throughout the period of store and office closures, our team has maintained momentum on key strategic initiatives through a combination of determination, innovation, and at times sheer force of will. Let me share some examples.

The Express Edit design in merchandising philosophy came to life through virtual co-creation sessions between our designers and our customers. Our marketing team conducted virtual research to stay attuned to the customers’ mindset and needs during this highly unusual time, and then created digital content to deliver the most relevant and appropriate marketing messages for the current environment. The team tapped into our roster of influencers, who hosted a number of live virtual events and connected with our customers in an authentic and conversational way. The top performing event in the series generated unique views, three times higher than our previous benchmark.

Our new brand positioning, Create Confidence & Inspire Self-Expression, was realized, and in fact, accelerated through the launch of multiple content series under the heading #ExpressTogether. Our marketing team worked closely with our network of influencers, brand advocates and customer ambassadors to develop content for our social platforms, website and e-mail messaging. Some of this content drove our highest customer engagement and direct sales levels to date, with Instagram went up 35% for Express and up 62% for ExpressMen and Instagram story completion rates up as well. And on April 19, we achieved a social media milestone, when our @Express Instagram account reached 1 million followers.

We expanded our live chat feature, so digital stylists and select district managers could provide real-time product and wardrobe assistance to our online shoppers. And most recently, we began testing curbside pickup at our Easton location in Columbus and select Chicago stores, and have implemented enhanced buy online pick-up in store functionality in select reopened store locations starting in mid-May. We plan to expand this quickly across all of our stores.

During the period, when only our online channel was open for business, we, of course, saw declines in men’s suits and dress shirts and women’s suits and dresses. With professional and social occasions for wear-to-work and wear-to-go-out categories put on hold, the shift was immediate. We saw strength in casual categories such as vikings and jogger pants, driven partly by our new work-from-home and essential shops which resonated with customers as they adjusted their usual Monday-to-Friday work wardrobes to suit the new work-from-home dynamic. This reinforces our commitment to offering customers versatility and value, as they continue to take a more modern and even more casual approach with their wardrobes. And our focus on women’s tops paid off with strength in both casual and video-conference-ready fashion tops. We continued to see increased interest and engagement from customers, as they settled in to this new reality.

Phase 3 began in late April, as announcements from federal and state governments allowed us to start reopening our stores. Our team had been awaiting and preparing for this moment, and we immediately shifted gears to begin a phased opening. On May 1, we opened two stores in South Carolina, quickly followed by several more in other states, in accordance with local regulations and mall guidelines around the health and safety of our associates and our customers. By Memorial Day, we had reopened 242 stores. Today [Phonetic], 303 of our stores are open with another 58 expected to open this week. And we plan to reopen all remaining stores just as quickly as it’s safe and allowable.

We have taken the responsibility to protect our associates seriously and also to make sure that customers feel safe and comfortable in our stores. So, we took a number of important steps. Prior to reopening, we thoroughly cleaned each store, all fitting rooms and bathrooms, installed protective Plexiglas shields at the checkout counter, indicated line queuing in appropriate intervals and other reminders of social distancing through signage and floor marking, removed fragrant scent strips and personal care product testers, and trained all of our associates on the new health and safety procedures.

We have also brought our store associates back in a phased manner, calibrated to these safety protocols and best practices as well as mall traffic and store activity. Upon reopening, we instituted and adhered to another set of protocols. Each store has been designated with a maximum capacity; verbal reminders of social distancing are played through the store audio system; sales and non-sales areas of the stores are cleaned throughout the day; fitting rooms are cleaned after each customer and signature capture devices after each transaction; all tried on or returned product goes through a special heat steaming process or a 48-hour hold before it is back on the selling floor; reinforcing sales associate awareness and practice of personal hygiene such as frequent hand washing and self-health assessment immediately prior to each shift; and all of our sales associates must wear face coverings.

While we are, of course,pleased to reopen stores and welcome back associates and customers, we know that it will take time for our sales to stabilize, and we are paying close attention to traffic and customer trends in our reopened locations. These are still the early days of the reopenings. The new reality is still unfolding, and of course, the protests and riots create even more uncertainty about how things will play out. And to that point, we have had as many as 39 of our stores closed since Saturday, with eight sustaining damage over the last few days. I am relieved to report that no Express associates were harmed during these incidents.

Given these circumstances, it will certainly take time for consumer confidence and shopping behavior to be fully restored. We do not typically share our in-quarter trend and it is premature to make any predictions about how the current quarter will unfold. But let me share some of the early indications.

The competitive environment is extremely promotional [Phonetic], yet our new receipts are selling well. Our store reopenings have been phased and we have seen consistent improvement in performance week-over-week as each wave progresses. Traffic and comp sales are improving. Sales are outpacing traffic. There is little doubt that the retail industry has a long road ahead, but I am confident that the actions we have taken and the strategy we have implemented puts us in a strong position to achieve our long-term objectives. Unlike many other retailers, we entered into this crisis in a position of financial strength. And throughout its duration, we have kept a sharp focus on maximizing everything that is within our control.

Let me now turn the call over to Perry, who will provide additional detail on our results and further explain the liquidity actions we have taken to ensure the health of our business, and then I’ll share some closing thoughts.

Perry Pericleous — Senior Vice President, Chief Financial Officer and Treasurer

Thank you, Tim. I will start with our first quarter results, then discuss our liquidity position and the actions we have taken and are continuing to take to ensure the long-term health of our business.

First quarter net sales were $210 million, a 53% decrease as compared to $451 million last year. Retail sales were negative 51% and Express Factory Outlet store sales were negative 61%. Our sales were materially impacted by the onset of COVID-19 and the subsequent closing of all of our stores on March 17. When sales moved to 100% online as Tim mentioned, we saw the shift to the more casual options as customers were suddenly spending more time at home. We quickly pivoted our marketing efforts to support the shift, which gained traction as the quarter progressed.

Our merchandise margin contracted by approximately 1,500 basis points and was mainly driven by increased promotions as we shifted to a highly competitive online-only environment, higher valuation reserves related to our inventory, as well as higher levels of reserves against certain fabric commitments. Buying and occupancy expenses were relatively flat on an absolute dollar basis. The benefits from our fleet rationalization, rent savings, previously announced reorganization and the actions we took as part of COVID-19 were fully offset by a $14.7 million non-cash impairment charge related to certain stores and store assets.

During the first quarter, we had a gross loss of $46 million, with a gross margin rate of negative 22%, down approximately 4,900 basis points as compared to the prior year driven by the sales decline. SG&A expenses were $99 million, a decrease of $36 million compared to last year. The decrease was driven by the previously announced cost reductions, associated with corporate restructuring and fleet rationalization. In addition, this includes the mitigation actions we took in response to COVID-19 and the reduction of certain variable costs associated with operations. As a percentage of sales, SG&A came in at 47.2%, deleveraging approximately 1,700 basis points as a result of a significant decline in sales.

On a GAAP basis, operating loss was $145.3 million, as compared to last year’s operating loss of $11.6 million. On an adjusted basis, our operating loss for the quarter was $130.6 million. The adjusted operating loss excludes the impact of the previously mentioned non-cash impairment charges. First quarter loss per share was $2.41 on a GAAP basis, compared to a net loss of $0.15 per diluted share in the first quarter of 2019. Adjusted loss per diluted share was $1.55. Excluded from this loss was the tax benefit from the CARES Act, the valuation allowance recorded against our deferred tax assets, the non-cash impairment charge previously mentioned, as well as $2.7 million non-cash write-off of our 2016 investment in Homage.

Our effective tax rate for the first quarter was negative 4%. The rate reflects the previously mentioned valuation allowance recorded against certain deferred tax assets. This allowance was partially offset by the CARES Act benefit of cutting back 2019 and projected 2020 net operating losses to prior-tax years with a higher federal tax rate.

Turning to our balance sheet and cash flow. We ended the quarter with $236 million of cash and cash equivalents, as compared to last year’s $144 million. This reflects the COVID-19 mitigation efforts we have realized to date. Our cash also includes $165 million in proceeds from the revolver, which were down in March. And to be clear, we have no other borrowings and still have approximately $68 million available under this facility, subject to certain borrowing base limitations. Operating cash flow was negative $131 million and capital expenditures were $4 million, resulting in free cash flow of negative $135 million for the first quarter of 2020.

Inventories were $269 million, a 6% decrease as compared to last year’s $286 million. The decrease was primarily driven by our inventory position as we started the first quarter, which was down 18% year-over-year. In addition, as we began to see the impacts of COVID-19, we immediately took actions to reduce the balance of second quarter deliveries and adjust our plans for the fall season. Our goal was to maintain the integrity of our assortment, while minimizing our exposure due to excess inventory. While this level of inventory composition is not ideal, it should put us in a much healthier position by allowing us to increase the penetration of new items in our assortment as we head into the fall season.

Due to uncertainty surrounding the potential impacts of COVID-19, we will not provide guidance for the second quarter or the year at this time. But I do want to review our liquidity position in more detail and provide some color around the cost savings, resulting from our COVID-19 mitigation actions as well as the reductions we announced in January.

Once the crisis began, we took immediate action to help ensure sufficient liquidity throughout the duration of this crisis, including drawing $165 million on our credit facility, reducing second quarter inventory receipts by over $100 million and immediately adjusting our fall’s sales and inventory plans accordingly. In addition, we identified cost savings of approximately $75 million, including the impact from our previously announced COVID-19 mitigation actions and a decrease in our variable costs as a result of the decline in sales. These actions included furloughing more store associates and a number of corporate associates, adjusting store labor plans, suspending merit increases, implementing a hiring freeze, and cutting all non-business-critical costs.

Furthermore, we reduced capital expenditures by $25 million by postponing certain real estate and IT projects. Additionally, we expect approximately $20 million in cash benefits from the CARES Act in 2020. However, the majority of the CARES Act benefits will materialize in 2021, as we get to tie back [Phonetic] potential 2020 net losses to prior tax years. In total, these actions are expected to result in approximately $385 million in improved liquidity in 2020, of which $195 million was realized in the first quarter. These actions are incremental to the previously announced $80 million in profit improvement opportunities as part of The EXPRESSway Forward strategy. We continue to expect $50 million to be realized in 2020, driven mainly by the restructuring we completed in January. We expect the remainder of this savings to be realized in 2021 and 2022.

It is important to remember that there are headwinds associated with these opportunities, which we previously communicated as part of our Investor Event in January.

To summarize, based on the immediate actions we took in response to COVID-19, our strong cash position and absence of debt coming into the pandemic, and the early trends from the reopening of our stores, we’re confident that we have sufficient liquidity to support us through fiscal 2020 and to set us up for improved results in 2021. With 303 of our stores now open, we’re cautiously optimistic. But, of course, it will take some time before we reach our long-term goals. As Tim said, we have confidence that the actions we have taken and the strategy we have in place will allow us to achieve our long-term goal of profitable growth.

I look forward to updating you on our progress and I will now turn the call back to Tim.

Tim Baxter — Chief Executive Officer

Thanks, Perry.

COVID-19 was certainly an unexpected detour on The EXPRESSway Forward. And as you all know, a detour can add time to your journey and it can alter your route, but it does not change your final destination. Our strategy for Express is the right one and our destination remains the same, long-term profitable growth and a mid-single digit operating margin. The executive leadership team and I are focused on the work that will return our brand to relevance and our business to financial health. So, despite this detour, I am as confident as ever in the future of Express. Our brand has high awareness and is known for delivering quality and value.

Our product portfolio offers breadth and depth to cover a wide range of consumers across an equally wide range of wardrobe needs and wearing occasions. Our customer base is large and we are engaging them in compelling and relevant ways. Our financials and liquidity are solid. And finally, our strong cash position and low inventory levels at the onset of the pandemic, as well as the decisive actions we took, will allow us to bring more newness into our stores more frequently as we move into the fall season.

In the most admired companies, there is a third component that sits right alongside a clear corporate strategy and a compelling brand positioning, and that is a strong corporate culture. The corporate culture reflects the way an organization operates, the way we show up, conduct ourselves and treat one another. The corporate culture we had begun to build, prior to the onset of the pandemic, is encapsulated in six words, express yourself, express together, express success.

Express together is about acceptance, respect and trust. It is about listening openly, speaking candidly and inviting dialog. I cannot help but think about this idea of express together as I bear witness to the events that have transpired over the last week from peaceful protests and deeply felt pain to outrage and riots, because express together is also of course about equality, inclusion, understanding and compassion, and it cannot possibly include or condone or tolerate discrimination, hate or violence. Express together means that today and every day, we stand in solidarity with all of those who also express together.

There has been a frame quote on my desk in every office I have occupied for the last 20 years. I’ve thought about it often, since the onset of the pandemic and over the last week. It says, “When written in Chinese, the word crisis is composed of two characters. The first represents danger and the second represents opportunity.” It is never easy to consider the opportunity, when the danger is so present. But throughout the COVID-19 crisis, I have held tight to the view that there will be an opportunity for those with the foresight, conviction and resources to realize it. My commitment to our associates, our customers and to all of you is to continue doing everything possible to mitigate the danger to Express and seize every opportunity for Express as we navigate our way to the other side of this crisis. I appreciate your confidence in our ability to do this and I thank you for your continued support.

I will now turn the call back to the operator, so we can take your questions.

Questions and Answers:

Operator

[Operator Instructions]

Your first question comes from the line of Marni Shapiro from Retail Tracker. Your line is open.

Marni Shapiro — The Retail Tracker — Analyst

Hey, guys. Tim, well said. So, I guess two things. First of all, you stores I was in yesterday, they were open, I love your sanitation stations with the Express logo. And could you talk a little bit about — you came into this period with very lean inventory, you’ve cut receipts, the stores looked fresh actually. So, could you talk a little bit about what late summer and into fall looks like in your ability to balance new versus what you need to clear through the next couple of months, say [Phonetic]?

Tim Baxter — Chief Executive Officer

Yeah, absolutely Marni. So, I’ll explain pretty clearly what we ended up doing. When we closed stores on March 17, as I’ve said, we had to take some pretty decisive action. And as Perry said, from a product perspective, our number one objective was preserving as much of the integrity of our assortments as we could, given that the assortments that we’re [Phonetic] flowing in were actually improving delivery after delivery given that we were on a new path. So, essentially I think the reason that you see freshness in the stores now is because we actually took what would have been our April delivery and made it our May floor set, and we took our May floor set and made it our June floor set, and we then — we didn’t put into production quite honestly. We said we cut the receipts; we did cut them from our plan, but we didn’t have June and July in production at the time we were making these decisions. So, we did not put them into production. We put a limited amount of product into projection for July, that will continue summer and also transition us into fall.

So, what I would say is that in the second quarter, if you are visiting our stores and our website, you will continue to see fresh product, you will continue to see product that is more reflective of The Express Edit and where we are going in the future. But you won’t see likely the best product that we had developed for the second quarter because that was the latest deliveries. And you may think that some of it doesn’t look exactly like you’d expect it to look during the time period that you’re seeing it because it wasn’t intended for that time period.

That being said, I think that in the world of fashion, there has been a tremendous amount of conversation about how COVID-19 has impacted retailers and designers’ fashion houses, thoughts [Phonetic] about how we flow product and when we flow product. And I’ve actually been very pleased with how relevant the product we’ve delivered, that was our April delivery, how relevant It is than May and how — where now it is in May. And the same thing can be said for the May delivery, which will become June delivery. So, that’s part one.

So, there will be freshness flowing in the second quarter. It is more reflective of The Express Edit. We are achieving very strong sell-throughs on new product and in many of the categories at much higher average unit retail. As we move into Q3, what I will say is that I had said previously that I thought the composition of our inventory would be much more aligned with where I wanted it to be, when we got to Q3. That’s obviously no longer true because the composition of the spring product is not what I would have wanted it to be. But as we deliver product in the third quarter, I would say, I’m very confident that it really reflects well The Express Edit and where we are going directionally. So, with each delivery in the fall season, I believe we will continue to improve the composition of our overall inventory and the customer will begin to see much more clearly The Express Edit as we’ve defined it going forward.

Marni Shapiro — The Retail Tracker — Analyst

Excellent. And you’ll be able to deliver newness through all of fall?

Tim Baxter — Chief Executive Officer

Exactly.

Marni Shapiro — The Retail Tracker — Analyst

Because that was not purchased at all.

Tim Baxter — Chief Executive Officer

Exactly.

Marni Shapiro — The Retail Tracker — Analyst

That’s fantastic.

Tim Baxter — Chief Executive Officer

Exactly. And Marni, what I would say for anyone on this Express team that is listening, but also for all of you, the work that has been done in difficult circumstances — none of us, when this started, could have imagined designing, developing, merchandising, producing, fitting product in a virtual environment. And this team has done an extraordinary job. I mean, it’s actually — I’m so proud of the work that the team has done and we didn’t miss a beat in terms of marching forward on our product initiatives, marching forward on our marketing initiatives, on our customer initiatives, and in fact, we accelerated many of our brand initiatives, which we had planned to hold until later in the season. So, really proud of the team and what we were able to accomplish in a new virtual environment.

Marni Shapiro — The Retail Tracker — Analyst

Best of luck for the summer, guys. I’m looking forward to being back in the stores next week.

Tim Baxter — Chief Executive Officer

Thank you, Marni. I’m looking forward to hearing your thoughts.

Operator

Your next question comes from the line of Susan Anderson from B Riley. Your line is open.

Alec — B. Riley FBR, Inc. — Analyst

Hi, good morning. This is Alec on for Susan. So, hopefully everyone’s family is safe during this time. But my first question is just related to the store. So, you mentioned that 303 stores were opened. Are you able to provide any color on the store traffic or just the sell-throughs with that? And then, also on occupancy costs, have you had any update on negotiations with rent costs or updating your lease agreement to lower costs going forward? Thank you.

Tim Baxter — Chief Executive Officer

Hi, Alec, thanks for the question. As I said, it is very early in the reopening process for the whole country, not just for retail, to give any sort of strong indications of where I believe consumer confidence will land. That being said, what I will tell you is we have opened our stores in waves. So, if you think about, each week is a wave. Each week, state and local guidelines allow us to open more and more and more of our stores. So, if you look at Wave 1 and you think about Wave 1 as the first week that we reopened stores, that Wave, — the revenue and sales trends and traffic trends in that Wave has improved sequentially week-after-week-after-week-after-week. That’s also true of Wave 2, of Wave 3, and of Wave 4. So, what we’re seeing is very consistent improvement in each wave, the longer that wave is open, which I think, given the circumstances, we would all expect.

But again, it’s too early to tell. I will say that our conversion is much higher than a year ago. So, those people that are shopping in our stores and online seem to have: number one, a greater intent to purchase; and number two, they like the product that we have, better than they have in the past. So, I feel very confident in the product because of the conversion rates we are seeing and the average unit retails we are seeing in the new product we’re delivering, but still really too early to give any indication of what’s happening in stores, other than to say that they are improving week-over-week, as the longer they are open.

I’m going to let Matt handle the second part of your question, which was on rent negotiations.

Matt Moellering — President and Chief Operating Officer

Hi, Alec.

Tim Baxter — Chief Executive Officer

Thank you.

Matt Moellering — President and Chief Operating Officer

So, we are in discussions with landlords around what fair rent looks like for when our stores have been closed. Still they are active negotiations, so we’re not going to comment any further on those, because the negotiations are still ongoing.

Alec — B. Riley FBR, Inc. — Analyst

Perfect, thank you.

Tim Baxter — Chief Executive Officer

Thanks, Alec.

Operator

[Operator Instructions]

Your next question comes from the line of Roxanne Meyer from MKM Partners. Your line is open.

Roxanne Meyer — MKM Partners — Analyst

Great, thanks for taking my question and I also hope that everyone is safe and healthy there. I just wanted to follow up, Tim, on your comments related to Marni’s question. Third quarter, I appreciate that the composition of inventory isn’t going to be where you want it to be, but you’re going to have a better reflection of the direction on what [Phonetic] you want to go. How should we think about — putting aside the dozens of scenarios in the macro backdrop but from what you can control, the time frame for feeling like your inventory will be well-positioned and the merchandise will be largely in its new positioning to really be in a position to generate results, should the macro be cooperative?

Tim Baxter — Chief Executive Officer

Great question, Roxanne. I had previously previously said that I expected — as I said to Marni, expected that to be at the beginning of the third quarter. But as you know, the third quarter is still driven by a tremendous amount of product that was delivered in the second quarter. And so, when I say I’m not as confident as I previously was about the inventory composition at the beginning of Q3, it’s because of all of the changes we needed to make in the spring season. That being said, I believe that when we get to Q4 and we have moved through — and most of the inventory from the spring season, taken the appropriate markdowns, — and I believe when we get to Q4, our inventory will very accurately reflect the composition of our inventory will very accurately reflect The Express Edit in both men’s and women’s.

It will take longer in outlet. You may remember that I said on our last call and the last time we talked that outlet, we are further behind on outlet. Obviously my — our first priority as a team was addressing our full-price retail stores and website. But I still anticipate that outlet will be much more reflective of the new Edit as we move into our first quarter. So, fourth quarter for full-price retail and online; first quarter of 2021 for outlet.

Roxanne Meyer — MKM Partners — Analyst

Great, that’s helpful. And then, I appreciate the idea that your assortments are going to be and are much more versatile, and not necessarily labeled in distinct categories like they were in the past. But that said, I’m wondering if you could help us appreciate how your exposure will look to, what I guess I’ll call, polished versus lounge, if you have kind of label though, as we move forward. And I certainly understand that it might be different by season, but just to better understand the [Indecipherable].

Tim Baxter — Chief Executive Officer

Yeah. Look, I think, let me start by saying that the long-term impact on the way consumers will dress is still to be understood and written. I think we’re still evolving. That being said, we’ve been seeing a shift to more casual wardrobes for decades quite honestly in America. And I think there is no doubt that this pandemic has has pushed that forward even more significantly and even more rapidly. That being said, when you look at our first quarter results, the fact that we are dominant and have strong market share in men’s suits, men’s dress shirts, women’s suits, women’s dresses, really adversely affected us versus our peers or competitors who may not be as penetrated in those categories.

When you think about the spring season, we missed weddings, we missed proms, we missed graduations, we missed Easter. So, we missed — all of those things were put on hold; people stayed home; weddings were canceled; graduations were done virtually or in cars, in car parades. So, we missed every one of those occasions in the first quarter and we will likely miss most of them in the second quarter. I do not believe that occasions that drive people to wear suits, dress shirts and dresses are gone for good. Those occasions will still exist and we will be positioned to grab market share from some of our competitors, including department stores who’ve typically been very dominant in those categories. We will be positioned to grab market share from them because of the strength and power of our assortment, the strength and power of our brand, and the reaction we’ve seen from customers. So, that’s part one.

Part 2 is versatility adds value. You’ve heard me say that and customers are taking a more modern approach to the way they dress. And that more modern approach, I believe, to your point Roxanne now, also includes a much higher penetration in a person’s closet of loungewear or true at-home-wear. And we saw a shift — as I said in my comments, we saw a shift almost immediately to that. When we created a work-from-home shop on our website, we created an Essentials tab on our website for all those products that we believed were most relevant for people who were adjusting to a new reality, that was predominantly at-home. We still see however our brand and what our customers expect from our brand is more polished. So, our penetration of loungewear is absolutely going to go up. It’s going to increase in both men’s and women’s. But our loungewear and our approach to loungewear will still be reflective of the Express Edit, which is more polished. It is more refined and we’ve seen incredibly positive reaction to the product that exists in our assortment right now. That does reflect that. So, that’s the direction we’ll move forward with loungewear.

So, you will not see loungewear, that is duplicative of things you’ll see in other places. We’ll have a loungewear assortment that’s reflective of our brand at it and who we are. And I think our customers will respond to it really, really well.

Roxanne Meyer — MKM Partners — Analyst

Great, thanks for all that color. Super, super helpful and best of luck.

Tim Baxter — Chief Executive Officer

Thanks, Roxanne.

Operator

[Operator Closing Remarks]