Express, Inc (EXPR) Q4 2021 Earnings Call Transcript

Express, Inc (NYSE: EXPR) Q4 2021 earnings call dated Mar. 09, 2022

Corporate Participants:

Greg Johnson — Vice President, Investor Relations

Tim Baxter — Chief Executive Officer

Matt Moellering — President, Chief Operating Officer & Interim Chief Financial Officer

Analysts:

Steve Marotta — CL King Associates — Analyst

Marni Shapiro — Retail Tracker — Analyst

Roxanne Myers — MKM Partners — Analyst

Dana Telsey — Telsey Advisory Group — Analyst

Janet Kloppenburg — JJK Research Associates — Analyst

Presentation:

Operator

Good morning. My name is Chantal, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Express, Inc. Fourth Quarter and Full Year 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.

I would now like to hand the conference over to Greg Johnson, Vice President of Investor Relations. Please go ahead.

Greg Johnson — Vice President, Investor Relations

Thank you, Chantal. 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 our 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. We will also be providing financial comparisons to prior fiscal periods and our prepared remarks today refer to 2020, unless otherwise noted.

With me today are Tim Baxter, Chief Executive Officer; and Matt Moellering, President, Chief Operating Officer and Interim Chief Financial Officer. And one additional item, Tim and Matt will be participating in a fireside chat at the UBS Global Consumer and Retail Conference tomorrow morning at 8:00 AM Eastern Time. This event will be webcast on — our Investor Relations website. So, please join us.

I will now turn the call over to Tim.

Tim Baxter — Chief Executive Officer

Thank you, Greg and good morning everyone. In 2021, we delivered three consecutive quarters of positive comparable sales versus 2019 and drove positive operating income for the full year. We had a strong holiday season and our momentum has continued. Sales in the fourth quarter grew 38% over 2020 and delivered a positive 4% comp compared to 2019. We drove gross margin improvement of 220 basis points compared to 2019, including the negative impact of $15 million of expense associated with ongoing supply chain challenges.

We generated positive operating income of $10 million and EPS of $0.11. We achieved EBITDA of $26 million in the fourth quarter and $65 million for the full year. We achieved free cash flow of $55 million for the full year. In the combined Q2, Q3 and Q4 period, sales grew 53% over 2020. Comparable sales accelerated each quarter and gross margin improved 420 basis points compared to 2019. We generated positive operating income of $41 million, EBITDA of $89 million and free cash flow of $60 million.

The EXPRESSway Forward strategy has effectively galvanized our organization, advanced our brand and accelerated our business and we are well on our way from being known as a store in the mall to a brand with a purpose powered by a styling community. We are selling more elevated product to more loyal customers at stronger margins. Our average unit retail for the year was up 13% compared to 2019. And we are exiting the year with the highest number of active loyalty members in our company’s 40-year history.

We continue to advance each one of the four foundational pillars of the EXPRESSway Forward strategy: product, brand, customer and execution. I’ll take you through each with some of the results we’ve achieved and what is still to come, starting with product. We completely reimagined our product, bringing more style, more versatility and more newness across our entire assortment. Our occasion-based categories that have historically been our strength and were disproportionately impacted by the pandemic accelerated significantly as the year progressed. Dresses and men’s suits were down around 30% in the first quarter versus 2019, but delivered positive comps for the balance of the year.

Customer response to our denim has been incredible. Starting in the second quarter and continuing through the end of the year, denim posted its best performance in recent history, delivering a plus 16% comp versus 2019. Introduced this year the Express Essentials body contour collection generated nearly $60 million in sales and drove a 14% comp in women’s knit tops compared to 2019. In men’s, polos and graphic tees grew 40% in the full year versus 2019, delivering our best results in recent history.

Our second pillar is brand. Google organic brand demand was up for the ninth consecutive month, increasing 14% on average between May and January compared to 2019. Brands tracking measures, social media engagement and positive customer feedback, all important indicators of the health and vitality of our brand continue to increase. Our marketing has evolved to reflect where and how content is being consumed, and we are leveraging more TikTok, Instagram Reels and live streams. We had over 110 million video views across these platforms in Q4.

Our fourth quarter brand campaign launched with the segment on the Kelly Clarkson show and a spot on the Adele One Night Only special, which generated over 100 million impressions across all social platforms. We introduced a very exciting new dimension to our brand when we kicked off our Community Commerce program in Q3. Our lead style editor fashion authority Rachel Zoe joined us in Q4, and has already brought outsized awareness and engagement to the program. Our first live stream shopping event highlighting her Express outfits selections garnered nearly 450,000 viewers on express.com and Facebook Live. You’ll be hearing a lot more about this program in the coming months.

Our third pillar is customer. We are successfully engaging existing customers and acquiring new ones. Our re-launched Express Insider loyalty program has brought in 2.7 million new customers and reactivated 2.2 million lapsed customers. And as I previously mentioned, we ended the year with the highest number of active loyalty members in the company’s history. We improved the quality of our customer file. Total customer spend increased by 13% in the fourth quarter and new customer spend grew 19% compared to 2019.

Our fourth pillar is execution. We refined our go-to-market process, advanced our multi-channel capabilities and identified meaningful operational and financial efficiencies. We have rightsized our fleets, closed nearly 100 stores and begun to execute a fleet optimization strategy. We effectively navigated supply chain challenges and applied strong financial discipline to both expenses and investments. Outstanding execution helped accelerate sales across all channels. I’ll provide an update on our progress in each one starting with eCommerce.

We stated a goal to achieve $1 billion in eCommerce demand by 2020 and are on track to achieve this target. With momentum that began last year and strengthened throughout 2021, we drove a 33% increase in demand for the year compared to 2020 and saw increases across all key metrics: traffic, conversion, average order value and average unit retail. We now have 2.3 million app users, our most highly engaged customers making five more visits and spending over $300 more each year than customers who only shopped through our website or in one of our stores. We added features and functionality to our mobile app that drove demand up 72% for the full year. Traffic increased by 20%, average order value increased by 27% and conversion was 45 basis points higher than 2020.

Our physical stores are one of the most important expressions of our brand. And we saw a real progress in the performance of our retail stores this year. Comparable sales accelerated throughout the year and we drove a 20% increase in average unit retail for the year compared to 2019. Our fleet optimization strategy includes a comprehensive look at the location, size, design and customer experience in our stores as well as the opening of Express Edit stores. We have renovated a select number of stores and see consistent comp sales increases. We have refreshed many of our stores to meet customer expectations for a great fitting room, a comfortable place to sit and more clear sight lines and pathways for ease of shopping. And across both renovated and refreshed stores, we are creating consistency of our visual brand identity.

Launched in 2020, our smaller format Express Edit stores are situated in high traffic locations and have product assortments tailored to the taste and character of each individual market and neighborhood. They are acquiring new customers and reactivating lapsed customers at higher rates than the balance of our fleet and driving higher digital sales in the surrounding zip codes. Based on these results, we will continue to open Edit stores as a way to further diversify our brick and mortar portfolio.

Our outlet channel had a remarkable year, driving record volume and a positive 4% comp in the last nine months of the year compared to 2019. UpWest also performed well in the quarter, capping off a great year and achieving a sales increase of 41% compared to 2020. UpWest launched as a digital brand with a mission to provide comfort for people and planet. And that has come to life through its assortment of casual, relaxed apparel and home goods, sustainable sourcing and manufacturing and a volunteering and giving program.

In 2022, we will expand the digital capabilities of UpWest with features such as single page checkout and enhanced customer segmentation. Introduced an active product called Go — product line called Go UpWest, open additional stores and continue to grow. As more consumers become more conscious about their buying choices, the UpWest product in Ethos resonate even more strongly, and we see UpWest as an incredible growth opportunity for our company.

Now, let me turn the call over to Matt who will provide details on our fourth quarter and full year results and share our view for 2022.

Matt Moellering — President, Chief Operating Officer & Interim Chief Financial Officer

Thank you, Tim. I’ll take you through our fourth quarter and full year results, review our liquidity position and provide a high level outlook on the first quarter and full year of 2022. My comments on comparisons will be to 2020, with additional color on our performance versus 2019.

We delivered positive operating income for the year and our fourth quarter comparable sales and gross margin result exceeded our outlook. Fourth quarter net sales were $595 million, an increase of 38% and consolidated comparable sales were up 43% versus 2020. Compared to 2019, consolidated comparable sales were positive 4%, which was above our outlook.

Total retail comps increased 4% and outlet comps were up 1%. These results were achieved despite a significant reduction in promotional activity in our retail channel. As a result, merchandise margin expanded by approximately 600 basis points compared to 2020. Compared to 2019, merchandise margin was down 40 basis points. However, excluding the negative impact of $15 million of expense associated with ongoing supply chain challenges, our merchandise margin would have been up approximately 200 basis points.

Buying and occupancy expenses leveraged 670 basis points in the fourth quarter compared to 2020. This improvement was driven by increased sales. Compared to 2019, buying and occupancy expenses levered 260 basis points, driven by reductions in our expense structure. During the fourth quarter, we had a gross profit of $174 million with a gross margin rate of 29.2%, an increase of approximately 1,300 basis points as compared to 2020. Compared to 2019, gross margin increased by 220 basis points and exceeded our outlook.

SG&A expenses were $163 million leveraging by 370 basis points compared to 2020, driven primarily by sales increases. Compared to 2019, SG&A expenses were up $14 million, reflecting additional marketing investments and higher labor expenses. We reinvested some of our markdown savings into marketing programs that drove higher traffic, engagement and conversion.

Fourth quarter operating income was $10 million. Fourth quarter diluted earnings per share were $0.11 compared to a loss of $0.82 in 2020. EBITDA was $26 million for the quarter. For the full year 2021, net sales of $1.9 billion increased 55%, and comparable sales were up 37% compared to 2020. Retail comps increased 41% and Express factory outlet comps were a positive 27%. Compared to 2019, our full-year comparable sales were down 2%. However, comparable sales in the last three quarters were positive and improved sequentially throughout the year, culminating a positive 4% comp in the fourth quarter. Gross margin rate expanded by 260 basis points compared to 2019. We generated positive operating income and $65 million of EPS.

Turning to our balance sheet and cash flow. We ended the year with $41 million of cash and cash equivalents. Operating cash flow was $89 million for the full year and free cash flow was $55 million. Compared to 2020, our inventory was up 36%, reflecting aggressive action we took to mitigate supply chain challenges. We have adjusted our go-to-market calendar to order product two weeks to three weeks earlier than normal. The additional [Phonetic] transit time will ensure that product arrives on time for product launches, while minimizing costlier shipments. We also made investments in core categories with long lead times, such as denim and men’s suits. These investments represent approximately $35 million of the increased inventory.

We also packed and held approximately $12 million of holiday product that arrived late. This product is aligned with our outlet channel assortment strategy and we are confident it will sell-through at regular prices in fall of 2022. We remain focused on ensuring that we are well positioned on both the newness and composition of our inventory and because we expect these supply chain challenges to continue, our inventory levels will remain elevated in the first half of the year and move closer to parity with sales growth in the back half of the year.

Our balance sheet at the end of the year continues to reflect a $52 million CARES Act receivable, which we expect to receive in the third quarter. Our borrowings at the end of the year were $132 million, of which $35 million was drawn against our existing ABL credit facility and the remaining $97 million was drawn on our term loans.

Turning to our outlook, we took a balanced approach as we developed our expectations. We considered our strong performance in 2021 and the strength of our product, brand and customer strategies against the ongoing supply chain constraints, tight labor market and other inflationary pressures. Our outlook includes expectations for the first quarter and the full year.

Let me start with Q1. Compared to the first quarter of 2021, we expect to deliver the following. Comparable sales to increase 25% to 30%, gross margin rate to increase approximately 550 basis points, including approximately $7 million of expense related to mitigating supply chain challenges and SG&A expense as a percent of sales to lever approximately 250 basis points. Compared to the full year of 2021, we expect the following for 2022. Comparable sales to increase 7% to 9%, gross margin rate to increase approximately 100 basis points, SG&A expenses as a percent of sales approximately flat, including incremental investments in technology, higher labor expenses and general inflationary pressures, and capital expenditures of $50 million to $55 million.

To summarize, our EXPRESSway Forward strategy is working. In 2021, we delivered positive comps in the second, third and fourth quarters versus 2019 and positive operating income for the year. We are carefully navigating and managing the supply chain challenges and are well positioned to achieve our expectations for continued growth and significantly improve operating income in 2022.

I will now turn the call back to Tim.

Tim Baxter — Chief Executive Officer

Thanks, Matt. We are well positioned to continue our momentum in 2022. Our transformation has been driven by significant progress in each of the four foundational pillars of the EXPRESSway Forward strategy, outstanding product, a relevant and compelling brand purpose, a customer loyalty program driving higher engagement and solid execution. We are designing best-in-class modern product at incredible value and gaining market share across some of the most significant volume-driving categories. We are reinvigorating our brand and driving increases in brand tracking measures, social media engagement and positive customer feedback.

We have the highest number of active loyalty program members in the company’s history, more new customers, more engaged in higher spending existing customers and more reactivated lapsed customers. We have effectively navigated the pandemic, rebuilt the foundation of our business and emerged as a stronger, more focused organization. We delivered profitable growth in the second, third and fourth quarters. Our comparable sales accelerated each quarter and we drove substantial gross margin expansion compared to 2019.

We delivered positive operating income and free cash flow for the year. This performance is tangible evidence of the strength of our strategy. And we are well on our way from being known as a store in the mall to a brand with a purpose, powered by a styling community. My confidence is reinforced by our results. We expect to deliver another year of profitable growth in 2022 and are on track to achieve our stated goal of $1 billion in eCommerce demand and mid-single digit operating margin and over $100 million in operating profit by 2024.

We will continue to restore the vitality of the Express brand and business, and also begin to explore other avenues of growth for our company. From accelerating our UpWest business to considering wholesale and international possibilities, we see a number of compelling growth opportunities. We are confident that the versatility of our product, the power of our brand purpose, the reach of our physical and digital stores and our strong financial results and prospects and the incredible potential of our styling community will create long-term shareholder value.

Thank you for joining us this morning and for your interest in our company. And now, we’ll take your questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Steve Marotta with CL King Associates. Your line is open.

Steve Marotta — CL King Associates — Analyst

Tim, Matt and Greg, congratulations in capping off a terrific 2021. Tim, I know that 2021 was notably a low promotional year. And I know that you will never, of course, be aggressive promoters again. But can you talk a little bit about how you view any sort of deltas or variances in your promotional strategy as the year progresses? Also, as you see potential for the industry to do the same?

Tim Baxter — Chief Executive Officer

Thanks, Steve. Look, we as you know, have aggressively pulled back on deep storewide and site wide promotions. And we have been very successful doing that because of the strength of our product and the value that we put into the product. I’ve said it before, but our customer responds to value, not price and not necessarily promotion. So, we are going to continue developing and delivering best-in-class product at incredible values. So, I do not see any significant change to our promotional strategy as we move through 2022. We will continue to use promotion very strategically and surgically versus those big site wide and store wide promotions that we have done previously.

The competition, I can’t speak to. I think we have seen varied responses to business over the past six months, and some of our competitors have continued to be very aggressive in promoting and others have, like we have, pulled back on that promotion. So, I think that we will continue to see that environment and I think that we will continue to win. So, I’m very confident that we will not go back and I’m very confident in the gross margin expansion that we’ve included in our outlook for 2020.

Steve Marotta — CL King Associates — Analyst

That’s very helpful. And just following up on that, particularly on the gross margin side. Can you maybe quantitatively talk about the inflationary pressures that you’re seeing in the first half of this year and the second half of this year? And do you feel that pretty much all of the offsets to those inflationary pressures will be pricing increases or is there another component that we might want to think about? Thanks.

Matt Moellering — President, Chief Operating Officer & Interim Chief Financial Officer

We are seeing some inflationary pressures as everybody is in the market, obviously. Where our inflationary pressure show up more versus less is in the SG&A line with labor expenses, etcetera, and we have that baked into our guidance that we provided both for Q1 and the full year. As it relates to product, we have gotten out in front of product pretty aggressively as we talked about in our remarks. And we have fabric platform to fair amount of fabric. So as we look at our costs that are coming in, they are a little bit higher. But what we do know, to Tim’s point, when we get the fashion-right, which we have now demonstrated our ability to do on a regular basis, there is a lot of very little price sensitivity to the product, because the customer wants the right fashion that we’re providing to them.

Tim Baxter — Chief Executive Officer

[Speech Overlap] And as I said, Steve on the call, we have consistently driven very, very aggressive increases in our average unit retails. And we will be able to continue to do that as we move through 2022.

Steve Marotta — CL King Associates — Analyst

Very helpful. Thank you.

Tim Baxter — Chief Executive Officer

Thanks, Steve.

Operator

Our next question comes from Marni Shapiro with Retail Tracker. Your line is open.

Marni Shapiro — Retail Tracker — Analyst

Hey, guys, congratulations on wrapping up a really nice year and congratulations on the floor sets for spring, which I would like to talk a little bit about. You hit spring set, it was pretty outstanding rivaling ZARA consider the best fashion player out there in this space. Can you talk a little bit about how your customer is responding to this? Whether it’s the bright colors, or the more dress looks and is it across men’s and women’s? Because you made some bold moves on the men’s side as well.

Tim Baxter — Chief Executive Officer

Yes. Absolutely Marni. As I said, our momentum has continued into the first quarter and that was largely driven by the product launch and floor set that you’re speaking about, which did rival ZARA. And I’ve said previously that we were striving to be the American version of ZARA and I think we’re finally hitting our stride on that. Consumer response has been incredible to that product and incredible to the marketing campaign that supported the product. And we are seeing extraordinary sell-throughs on the fashion product and it is — it’s actually across all categories. So, we continue to see incredible strength in denim and knits and we are seeing incredible strength in modern tailoring, in both men’s and women’s.

So, the colored head to toe [Phonetic] suits that you were referring to, the February product launch have been absolutely incredible, many of the colors are actually sold out. And that happened within a couple of weeks, but the customers are responding across the board. I previously mentioned that our men’s business has been outstanding. And what we’re seeing now is that, men’s has continued to improve and is continuing to drive incredible results and women’s is beginning to keep pace with men’s. So very, very excited about where we’re heading in the spring season and the consumer response that we have seen thus far to the marketing and to the product.

Matt Moellering — President, Chief Operating Officer & Interim Chief Financial Officer

And Marni, one thing I would add to that as well is that, we talked about this prior, but we have revamped our entire go-to-market process. And we now have everybody working in concert with each other from design, to merchandising, to production and sourcing, planning and allocation and marketing. We’re getting behind the big ideas and making them very powerful for the customer online and in stores. So when you go into the stores and see these powerful displays and product, it is obviously intentional and we’re getting behind the big ideas which help drive our business going forward as well.

Marni Shapiro — Retail Tracker — Analyst

It makes it very easy to shop. Can you just talk also a little bit, I think you finished up the last question about AUR. Are you seeing AUR move up because you pulled back promotions or are you also raising some prices, because your quality over the last couple of years has gotten significantly better. And so I’m curious if AUC has gone up and so — and prices on new product has gone up because there’s better make. Can you just walk us through a little bit about your AUR breakdown?

Tim Baxter — Chief Executive Officer

Yes, absolutely Marni. And it’s really three components. As you mentioned, it’s a pull back on promotion. So, we are promoting less which is driving higher average unit retails. It is higher ticket prices that are based on higher average unit costs, because we have put so much more quality into the product. And as I said, the customer is responding to that, because they recognize and see the value in the quality of our product. And then the third thing is mix of business, which is also helping drive higher average unit retails as we continue to drive incredible increases in modern tailoring in both men’s and women’s and categories like dresses continue to rebound. Those are obviously higher average unit retails and the customer is responding there as well.

Marni Shapiro — Retail Tracker — Analyst

Can I just sneak in one more on the AUC. As costs are going up across the board as we hear on the merchandise side, is it less — less of an issue for you guys, I mean, it’s going to hit everybody, but you are already raising yours AUCs because you were putting better quality in, so is it not really an apples to apples for you guys the same way it is for other people?

Matt Moellering — President, Chief Operating Officer & Interim Chief Financial Officer

I would say that’s definitely fair and it’s a combination of that specifically, Marni, as well as the work we’ve done in general, improving our product and the brand. And as we get the product and brand stronger and stronger, that helps with price stability as well and allows us to ask for higher prices and get them.

Marni Shapiro — Retail Tracker — Analyst

Fantastic. Best of luck with the rest of the spring season guys.

Tim Baxter — Chief Executive Officer

Thanks Marni.

Operator

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

Roxanne Myers — MKM Partners — Analyst

Great, thanks. Good morning and congrats on your — the strength of your fourth quarter. I’d start with my follow-up on AUR. I guess I’m curious to know social occasion dressing is doing exceptionally well for you and certainly others in the industry. Do you plan to drive ongoing AUR this year through and increasing tilt towards dresses and tailoring, like, are you consciously shifting the mix increasingly in that direction? And can you talk about maybe to what extent?

Tim Baxter — Chief Executive Officer

Yes, absolutely. Our occasion based businesses, as I mentioned, have continued to accelerate — continued to accelerate throughout 2021 and in 2022. It’s worth mentioning that third-party data tells us that 2022 is the largest number of weddings in the United States since 1984. And whether you are a guest of the wedding, the groom, the bride or a member of the wedding party, we have the right occasion based apparel to service all of those needs. So we will continue to drive outsized growth in modern tailoring, categories like dresses. But as I said, we are actually seeing strength across all of our categories. So denim also posting its best comp, 16% comp in the last three quarters of the year. The best comp we’ve had in denim in a very long time.

So yes, occasion based categories are going to continue to grow. Yes, that’s a great opportunity for us, because those are the categories that have historically been our strength. But we are also going to continue to drive denim, we’re going to continue to drive categories like body contour in women’s and polos in men’s. So the versatility of our assortment is how we are — how we have been winning and how we are going to continue to win. And those categories, as you mentioned, Roxanne, are — the occasion based categories are higher average unit retail. So like I said to Marni, the third piece of that AUR growth is definitely coming from mix as those categories regain momentum and become a larger percentage of our sales in 2022, that will be a part of what will drive our higher average unit retails.

Roxanne Myers — MKM Partners — Analyst

Great. Thank you for that color. Super helpful, and certainly an exciting tailwind for you. My other question is around new customer growth, which really has been a stand out. Can you talk about what percent of new customers are coming from stores versus online? Anything to call out in terms of the average age of your customer as your fashion has evolved? And then, as it relates to your loyalty program, what percentage of your customers are loyalty program members? And how much more do they spend versus non-loyalty? So a lot packed in there.

Tim Baxter — Chief Executive Officer

There is a lot. I should have written that down, Roxanne. I hope I can get it all. Look, we are really excited about the number of new customers coming into the brand, the number of lapsed customers, customers who haven’t shopped with us in years, who are reactivating and reengaging with the brand. And obviously very excited that the customer — our existing customers, customers who have stuck with us through thick and thin are spending a lot more with us at this point. So very excited about all of those measures.

As I said, the loyalty program has been a big driver of all of that, bringing in 2.7 million new customers in 2021 and 2.2 million reactivated customers. So it’s the loyalty program that has been driving a great deal of the higher spend as our loyalty customers visit our stores more often and spend more money. That being said, we’re also bringing new customers in through stores, that was one of your questions. I would say, the vast majority, without sharing any numbers, the vast majority of our new customers come to us through our physical store locations. That has always been true, it continues to be true and Express Edit stores in particular are bringing a very disproportionately large number of new customers into the brand as we enter into locations where — that we haven’t been in previously.

So we also are bringing in new customers online, so I don’t want to — I certainly don’t want to take away to be that we’re not bringing in a large number of new customers online, because we are. It’s just that the vast majority of the new customers come in through our stores. In terms of age, we haven’t shared anything on our age demographic, but I would say, we are winning across all ages, in both — well, I shouldn’t say all ages. We’re winning — we’re winning from 18 plus in both genders. So we have a huge opportunity, we have historically been able to bring many new customers into the brand actually in high school. We are many people’s choice for their first home coming dress or their first prom dress, we are many guys choice for their first home coming suit, their first prom suit, graduation suits and dresses, we’re able to bring a large number of new customers in at that point.

And then obviously, they have the longest lifetime value for us. And because of the versatility and strength of our assortment and the breadth of our assortment we can take them through each one of their life stages. And people ask me a lot, what our target age is, and if we go back to when we launched the EXPRESSway Forward strategy, I don’t typically like to talk about that. All I’ll say is that, obviously, the younger they are when they into the brand, the longer we have them, obviously, the greater their lifetime value. But we call our customers the Express generation. We have incredible product and when you’re driving incredible product at incredible value and there is incredible versatility, you can appeal to a very, very broad range and age of consumers.

Roxanne Myers — MKM Partners — Analyst

Okay, great. Thank you for all that color. Super helpful.

Tim Baxter — Chief Executive Officer

Thanks Roxanna.

Operator

[Operator Instructions] Your next question comes from the line of Dana Telsey with Telsey Advisory Group. Your line is open.

Dana Telsey — Telsey Advisory Group — Analyst

Good morning everyone and congratulations on the nice progress. Tim, you’re making great strides in improving the Express business. I would love to hear any more about the Express Edit store concept and outlet, given the differentiation of product and how you’re positioned going forward? And then you mentioned some of the growth initiatives, on UpWest any more clarity there and what you’re expecting for that business? And with wholesale, is that a 2022 action or is that for ’23 and beyond? Thank you.

Tim Baxter — Chief Executive Officer

Thanks Dana. So Express Edit, I’ll start there. We are continuing to explore locations for Express Edit. We have not quantified the number of Express Edit stores that we will open in 2022. But we will be continuing to open Express Edit stores in high traffic opinion maker locations and we believe that’s a very powerful way for us to continue to reinvigorate the brand, introduce the brand to a large number of new customers for their consideration. And so, very excited about Express Edit and what we can do and accomplish in Express Edit. We will actually be opening up our first women’s-only Express Edit in St Louis in about a month, I believe, don’t quote me on that. We’re opening our first women’s only Express Edit soon in St Louis [Indecipherable]. So you’ll continue to see us explore different concepts with Express Edit, it’s our intent to open up also try our men’s only Express Edit. So we’re going to continue to evolve that, it’s going to continue to be a way for us to test these new store concepts and continue to be a way for us to bring new consumers into the brand and drive eCommerce demand in the surrounding zip codes.

Next I’ll go to UpWest. UpWest has been incredible. And while we have not — while we have not yet shared our longer-range view of the potential volume of the brand, we will likely do that at some point, later this year or early in 2023 as we continue to map this out. But UpWest grew by 41% in 2021 over 2020, so incredible growth there. We have opened seven UpWest stores and the stores are performing very well and we see the same exact thing with the UpWest stores that we see with Express Edit stores. We’re coming into these locations, we are gaining new customers through the physical store location and our digital business in those surrounding zip codes is accelerating pretty significantly.

We will open nine new UpWest stores in 2022. So, more than double our store count in 2022 with UpWest. And we’re introducing go UpWest which is an active component of the UpWest brand. So a really exciting growth opportunity and look for us to get clearer on where we see that opportunity at some point this year. And then finally, the last part of your question on wholesale. We are in the very early consideration and exploratory stages on wholesale. I will say that we have begun a wholesale business in UpWest, and UpWest will be a part of a national chains assortment, gift assortment in the fourth quarter, which we’re very excited about, that’s obviously going to drive incredible brand awareness for us at UpWest, and we will continue also to consider and explore opportunities for wholesale in the Express business.

I think we are at an exciting point where we are fielding calls on this subject as sort of an in demand brand among multi-brand retailers.

Dana Telsey — Telsey Advisory Group — Analyst

Thank you.

Tim Baxter — Chief Executive Officer

Thanks, Dana.

Operator

Your next question comes from Janet Kloppenburg with JJK Research Associates. Your line is open.

Janet Kloppenburg — JJK Research Associates — Analyst

Hi, everybody. Can you hear me?

Tim Baxter — Chief Executive Officer

Yeah. Hi, Janet.

Janet Kloppenburg — JJK Research Associates — Analyst

Hi, congratulations on a great quarter and a good outlook. I wanted to talk about the first quarter guidance, it sounds like — given the guidance, it sounds like business is pretty good. Maybe you could talk to us a little bit about what your outlook is for March as we — mid-March as we come up against the stimulus comparisons from last year? And secondly, I was wondering if you could talk about the assortment content right now. It looks really good to me. I wondered if you own enough of the bestselling spleen items or if there were any supply chain constraints there? And I was also wondering about year-end liquidation, because through holiday I was seeing a lot of what might have been late receipts from the fourth quarter and I just wondered if you are clean and if you’re clearance levels were lower year-over-year? And just lastly on your fleet expense, I was wondering if you — what you had embedded into your guidance, I think you said gross margin up 100 basis points. What does that assume for freight as we move through the year? Thanks so much.

Matt Moellering — President, Chief Operating Officer & Interim Chief Financial Officer

Yeah, Janet. And I’ll start off, to your question about the comparable sales. We did mention that the business has gotten off to a strong start in Q1. We are cognizant of the fact that there were stimulus payments made beginning in mid-March. We have embedded all of that and we did — if you go back to our Q1 earnings call last year. We did talk about seeing an inflection point start in the business in mid-March for Q1. And then we saw it again after Easter we’ve embedded at all of that into our outlook and projections. So we feel good about the overall quarter there. And that’s why you also see a more conservative comparable sales as you get into Q3 and Q4 lapping those higher numbers as well.

Second piece, I’ll pick up. I’ll let Tim talk about the product in general, but from an inventory standpoint we — in a freight standpoint, the 100 basis point gross margin improvement on the year, what we have built in is — the only thing we’ve talked about today is the $7 million in incremental freight for Q1. As we’ve talked about, we have taken aggressive action to change our go-to-market calendar to take into account delays in shipments from different parts and therefore that should help minimize air cost, which is the primary driver of the incremental cost in Q3 and Q4 of this past year. We should minimize that going forward.

Tim, you want to talk about [Speech Overlap]

Tim Baxter — Chief Executive Officer

Sure. Hi, Janet.

Janet Kloppenburg — JJK Research Associates — Analyst

Hi Tim.

Tim Baxter — Chief Executive Officer

Hi, Janet. So the product and the consumer response to the product in the first quarter has been incredible and there certainly been items that we have sold through at a very, very fast rate, but that is part of the strategy. So our assortment is built very strategically and the components of the assortment we’re building very strategically. So you heard Matt in the call talk about the fact that we have positioned ourselves, and I mentioned it, we have positioned ourselves in core categories like denim, like men’s dress shirts, men’s suits, body contour, all of those big key item volume driving categories we are very, very well positioned to meet consumer demand. The fashion we are going to expect to sell-through at faster rates going forward. It is going to be the scarcity of our fashion that continues to drive those higher average unit retails that we’ve been talking about.

So while we sold through our February product launch very, very quickly, March is now being set and we’re very confident in the results of March and that’ll be followed directly with a new idea for — new ideas for April. So the fashion component of the business, we are going to turn faster, very strategically while being really, really well positioned in the core drivers of the business.

Janet Kloppenburg — JJK Research Associates — Analyst

Okay. And on clearance levels and carrying over from holidays?

Tim Baxter — Chief Executive Officer

We feel good about our composition of our inventory right now. As we mentioned, we did take a look at product that was delivered late. So as an example we had — if we had something coming in that had a 12 week selling window came in eight weeks later, so we only had really a four week selling window, we had full-size runs, et cetera. We did pack and hold about $12 million worth of inventory to sell in our outlet channel next fall. We made sure it was great product that fit within the product strategy for the fall season next year. Pack and held that which helped make sure our composition of inventory overall is good.

Janet Kloppenburg — JJK Research Associates — Analyst

And so, the clearance levels are lower year-over-year, Matt.

Matt Moellering — President, Chief Operating Officer & Interim Chief Financial Officer

They are about flat year-over-year at this point. So we feel good about where we are. The good thing is the product is also better this year than it was last year, which makes it more attractive to the customer to buy as well.

Janet Kloppenburg — JJK Research Associates — Analyst

Thanks so much.

Matt Moellering — President, Chief Operating Officer & Interim Chief Financial Officer

Thank you.

Tim Baxter — Chief Executive Officer

Thanks, Janet.

Operator

There are no further questions at this time, Mr. Baxter, I will turn the call back over to you for closing remarks.

Tim Baxter — Chief Executive Officer

Thanks for joining us everyone.

Operator

[Operator Closing Remarks]