Express Inc (EXPR) 2015 Q1 法說會逐字稿

Good morning and welcome to the Express, Inc. first-quarter 2015 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Marisa Jacobs, VP of Investor Relations for Express. Please go ahead.

Thank you. Good morning and welcome to our call. I would like to open by reminding you of the Company's Safe Harbor provision. Any statements made during this conference call, except as 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 projected 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.

In addition, during this call, we will make reference to adjusted net income and adjusted earnings per diluted share, which are not GAAP measures. Information necessary to reconcile these non-GAAP measures to reported net income and earnings per diluted share can be found in our press release.

With me today are David Kornberg, President and CEO; Matt Moellering, Executive Vice President and CEO; and Paul Dascoli, Senior Vice President and CFO. I am now going to turn the call over to David. He will be followed by Paul and then we will turn to Q&A.

Thank you, Marisa. Good morning, everyone and thank you for joining us today.

Fiscal 2015 got off to a strong start. We saw good product acceptance with momentum in our women's business. Our more restrained approach to promotions combined with greater inventory discipline enabled us to successfully reduce markdown activity and we presented a clear value proposition to our customer.

In combination, this led to greatly improved results. Posted comp sales exceeded the high end of our guidance, our merchandise margin was better than anticipated and earnings per share significantly exceeded our expectations. I am also encouraged by the fact that our overall results were not only better; the key drivers were more balanced than before with a combination of top-line growth, margin expansion and expense leverage. This is critical to delivering the consistent and sustainable results I touched on when we spoke in March.

I would like to start by providing a brief update on our growth pillars. After that, I will address areas of progress relating to the 2015 key priorities outlined on our last earnings call. As a reminder, our growth pillars consist of, one, enhancing the productivity of our existing stores; two, optimizing and expanding our store base; three, continuing to grow our e-commerce platform; and four, international expansion.

Enhancing the activity of the existing fleet was the key theme for the quarter. As 2014 wound down, we managed inventories prudently and protected our spring products by running fewer all-store percent off promotions once the holiday season wrapped up. This set us up for a much better first quarter. We had the right amount of the right inventory and our customers responded favorably.

The most significant drivers of improvement were products that resonated with our customers, tight inventory control and restrained use of promotions.

We were less promotional across the Board and we also implemented a new approach to our semiannual sale. Our Easter event was our only all-store percent off event during the quarter and we shortened it by a day. We only had five days of all-store off blanket promotions during the quarter compared to 12 days last year. We also limited our digital CRM offerings in both frequency and depth compared to those in last year's first quarter.

In addition, when we ran our semiannual sale during the quarter, we didn't make it the focal point of the store. After years of featuring boxes of clearance product at the lease line, we moved the sale to the back of the store so that the customers saw exciting new fashion when they entered and it worked. We successfully cleared through the sale product without cutting into our full-price selling as deeply as we had done in the past. The aggregate impact of a quarter characterized by better product and fewer promotions was increased AUR, ADS and conversion.

We optimized our real estate as we began to execute against our plan to close 50 retail stores and open highly productive outlet locations. Specifically we closed 21 of the 23 retail stores slated for closure this year. At the same time, we continued focusing on our new outlet business by opening six doors during the quarter. The Express Factory Outlet stores continued to do extremely well as value-conscious shoppers are embracing the high-quality assortment being made available to them and, as expected, traffic is robust.

Our first outlet stores have now reached their one year anniversary and new stores are being added as quickly as possible based on the availability of the right real estate. We expect to have close to 80 outlet stores opened by year-end and continue to target an Express Factory Outlet fleet, which will eventually reach approximately 150 stores.

E-commerce grew by 12% during the quarter. This reflects the important work done over the past year to elevate many facets of our website and mobile functionality and to enhance the user experience. It also reflects the behind-the-scenes work being done to drive more traffic to the site and boost conversion. Beyond that, the overall improvement of our product created an uptick in demand, which also drove stronger results.

On the international front, our first stand-alone Express store in South Africa opened last week. We have a great location in a new mall, Baywest, in Port Elizabeth, and we intend to use this store as a base of learning before moving onto additional freestanding stores in larger South African cities. We also anticipate opening another shop-in-shop location in Johannesburg before the year-ends.

Let me turn now to the 2015 priorities, which I laid out for you on our last call. Profitability, customer experience, brand, systems and people.

Improving our profitability remains the first priority and I already spoke about our better performance in the first quarter. Of particular note is the fact that we achieved the balanced growth I spoke about on our last call. Specifically, we drove top-line growth and positive comps while simultaneously growing merchandise margin and leveraging our expenses. We are committed to driving improvements in profitability over a sustained period of time.

Delivering a great customer experience is another priority. We have begun rolling out new training programs for our sales associates and are seeing early signs of success in the form of increased sales and conversion along with higher scores on our customer experience surveys.

Enhancing the Express brand is our next priority and we saw some important data points this quarter that substantiate that we're making progress. The number of EXPRESS NEXT members continues to increase. We have now passed the 14 million mark. Our social media engagement is increasing as well and we made significant gains across a variety of media, including Facebook, Instagram, Pinterest and Snapchat.

We are delighted to have partnered with Stephen Curry and our collaboration with him has been great. As someone who wore Express long before our collaboration began and who loves the brand, he embodies the type of personality we want to associate with. This speaks to the way in which people, including very famous ones, connect with our brands.

I'm also pleased to announce that our next campaign, which will run from July through September, will feature supermodel, Karlie Kloss. You will see her first in an integrated campaign featuring Express OneEleven in July. This will be followed in succeeding months with Karlie modeling our denim, along with our wear-to-work collection.

The brand work we mentioned to you in March is continuing. Given that the work is not yet complete, I won't elaborate here, but we will have more to say on this topic later in the year.

From an IT perspective, the work being done to modernize our systems is moving forward. We expect to bring our new retail management and order management systems online next year. These will be the backbone of our operating environment and pave the way for important initiatives, including establishing our omnichannel capabilities such as order online and pick up in-store or ship from store. These expanded capabilities will enable us to better serve our customer and should also contribute to further inventory optimization and merchandise margin growth.

I want to note two other rollouts that deserve mention. First is Apple Pay, which we began testing a few months ago in a small number of stores. On May 19, we rolled it and other electronic payment types out to all of our U.S. retail and factory outlet stores to provide our customers with additional payment options.

Second is the new Express mobile app, which will be rolled out in June. It features a new interface and expanded functionality. With the app, EXPRESS NEXT loyalty customers will benefit from easier access to their NEXT information and Express credit cardholders will be able to take advantage of single click shopping. The initial rollout targets Apple users and we expect to unveil our new Android app later this year.

The fifth priority that I spoke with you about on the last call was the Express team. We have rolled out a number of initiatives designed to focus on appreciation and advancement. People are at the heart of our organization. Without them, we can't grow and prosper, so we want to ensure that they themselves are growing and finding fulfillment in their careers at Express.

At this point, I would like to comment briefly on our fashion and the trends we are seeing in the marketplace. I mentioned earlier that I was encouraged by our spring products. In terms of the women's business, our customers are responding enthusiastically to our take on the 1970s, Boho and Western trends. I believe we are doing a better job this spring of striking the right balance in terms of offering newness and trends while also delivering newness in our core key items that are always in demand.

Our woven top category is continuing to grow. We have spoken before about the knit business being challenging, so it is great to report that we are making progress in this important category.

Dressy knits delivered notable growth and casual knits are significantly better than at this time last year.

The Express 111, our new collection of casual knits with great style and compelling price points, tested well in the first quarter. The collection, which is currently in 50 stores and online, will be rolled out to the full chain in July.

Our men's business had some pockets of strength during the first quarter. Overall, however, it lagged behind the women's performance.

Casual pants and men's sweaters both grew year-over-year as did our men's patterned dress shirts.

As we move into Q2, we see opportunity in a number of categories, denim being one example, as we introduce a greater degree of newness across the assortment than at this time last year.

Across both the women's and men's businesses, I want to highlight the fact that we are buying inventory tighter than in the past to drive faster turns. We are quite comfortable with the fact that certain fashion pieces may sell out. That will simply pave the way for the next wave of new product and new fashion stories.

From a pricing perspective, we are continuing to work on our communication around price to ensure that customers understand exactly what they are paying for. We are also continuing to look for opening price point offerings where we think doing so will create opportunities to introduce the Express brand to younger shoppers or a broader population.

Before wrapping up, I want to mention that we are working on a new project to bring our customer data in-house. It will be managed by a business intelligence team focused on extracting actionable information from available data and then employing sophisticated analytics and predictive modeling to better inform our actions.

You have heard us say repeatedly that Express is data-driven. That has always been the case even though we have been somewhat constrained by legacy systems. We are now addressing them and laying the groundwork for working smarter and driving future profitability.

In summary, I would like to say that I am pleased with the start to the year. We improved our products and our assortment mix, which led to improved financial performance. We took a more balanced approach to the growth we experienced, evidenced by our ability to generate positive comps while at the same time recouping merchandise margin by presenting a clear value proposition to our customer.

We have made headway on each of our growth pillars and executed against each of our 2015 objectives. As we begin the second quarter, I feel good about our business and I'm excited about our ability to continue to drive Express forward.

I would like to thank the entire Express team for delivering such a positive start to 2015. We are fortunate to have such a talented team of dedicated and passionate associates. At this time, I'm going to turn the call over to Paul.

Thank you, David. Good morning, everyone.

I would like to begin by reviewing our first-quarter results. After that, I will turn to our guidance for the second quarter and our outlook for fiscal 2015.

Net sales during the first quarter grew 9% to $502 million.

Our comparable sales grew by 7%, exceeding the low to mid-single digit guidance we provided in March.

Our gross margin came in at 33.1%, rising 330 basis points compared to last year.

Our merchandise margin expanded by 200 basis points. We benefited from tighter inventory management, including the more disciplined release of our open-to-buy dollars, which facilitated fewer markdowns. We also benefited from running fewer promotions than in last year's first quarter. This enabled us to generate incremental margin dollars and a higher margin rate.

As a percentage of sales, we generated 130 basis points of leverage on our buying and occupancy expense compared to the first quarter of 2014. Our top-line growth enabled us to more than offset the increase in absolute buying and occupancy dollars associated with higher rent expenses.

SG&A as a percent of sales was 26.5%. The 20 basis points of leverage was in keeping with our commentary calling for SG&A to be essentially flat on a rate basis.

Operating income for the first quarter was $34 million, an increase of 126% over the $15 million generated in last year's first quarter.

Interest expense was $12 million during the quarter and included approximately $10 million of nonrecurring expenses associated with the retirement of our senior notes in March. This interest expense compares to $6 million in the prior year's comparable quarter.

Our effective tax rate was 40.6% compared to last year's first-quarter rate of 44.3%.

We generated $13.1 million of net income. After adjusting for the nonrecurring costs associated with the redemption of our senior notes, adjusted net income was $19 million, almost four times the $5.1 million in last year's first quarter.

Diluted earnings per share were $0.15, more than double the $0.06 per diluted share reported in the first quarter of 2014. On an adjusted basis, our diluted earnings per share rose more than threefold to $0.22 per share.

EPS exceeded our guidance to a greater degree than our comparable sales. This is principally attributable to the growth in our merchandise margin resulting from a better product assortment, our more restrained use of promotions and our more disciplined approach to inventory management.

Capital expenditures were $23 million compared to $27 million in last year's first quarter.

Our balance sheet continues to be very healthy. We ended the first quarter with $128 million of cash and cash equivalents compared to $250 million at the same time last year. The decrease is primarily related to our use of $215 million to redeem our senior notes on March 1. This redemption will eliminate $19 million of interest expense annually.

Our revolving credit facility remains untapped. Last week, we amended the facility to take advantage of the favorable rates available in the marketplace. The amendment increases the size of the revolver to $250 million, up from $200 million that extends the term to May 2020.

We ended the first quarter with inventories of $266 million, up 13% from last year. This included approximately $35 million of inventory related to outlet stores, a significant portion of which was driven by new stores. Retail inventory, exclusive of our outlet product, increased approximately 3% and we are comfortable with the level and composition of our inventory.

I am now going to turn to our guidance for the second quarter and full-year 2015.

For the second quarter of 2015, we currently expect that comparable sales will grow at a low single digit rate, our tax rate will be approximately 39% and net income will range from $11 million to $14 million, or $0.13 to $0.16 per diluted share based on approximately 85.2 million diluted shares outstanding.

On a full-year basis, we expect our comparable sales to increase in the low single digit range, our tax rate to be approximately 40%, our adjusted net income to range from $95 million to $104 million, or $1.11 to $1.22 per diluted share based on approximately 85.3 million diluted shares outstanding. This excludes the impact of approximately $10 million of non-core operating items associated with the redemption of our debt in March.

Interest expense is expected to be approximately $1.2 million for each of the next three quarters, reflecting the accounting treatment of our flagship leases.

We continue to expect our capital expenditures to be between $114 million and $119 million compared to the $115 million spent in 2014.

That concludes my comments. At this time, I'm going to turn the call back over to David.

Thank you, Paul. We are pleased with the first quarter. We laid the groundwork that should enable us to keep driving improvements throughout the balance of the year.

We intend to keep advancing our growth pillars and executing against our 2015 objectives. This will bring us closer to achieving our longer-term goal of delivering consistent, sustainable and profitable growth. I believe our initial steps have paved the way for a successful future.

Before turning to Q&A, I'm going to turn the call back to Marisa for one quick announcement.

Thank you, David. I would like to request that Q&A participants limit themselves to one question and one follow-up so that we can get to everyone in the queue. Operator, please open the lines so that we can begin the question-and-answer portion of the call.

(Operator Instructions). John Morris, BMO Capital Markets.

Congratulations, everybody, on a really great quarter and great start to the year. David, you know one of my favorite questions is about color on the performance of the product -- clarification from you on denim. When you were talking about the new style rollouts in fall, was that both men's and women's, or were you really just referring to men's at that point? And can you comment on the performance of the women's denim thus far in the spring?

The women's performance in denim has been very good this spring. In terms of both men's and women's, you're going to see significant newness on both sides heading into the back-to-school timeframe.

Specifically you had talked about a new platform rollout or new style rollout. Were you referring to just the men's side or are we going to see that both in men's and women's in the fall?

You are going to see new styles in both, in both men's and in women's.

And then finally, with the strength that you have seen across the board in spring from a trend perspective, how well do those trends that you're seeing currently translate to fall? Maybe a little bit of color on that.

I think they translate very well into fall and the testing that we are doing at the moment is showing that a lot of our styles for Q3 and heading into Q4 as well look very good.

Okay, thanks.

Neeley Tamminga, Piper Jaffray & Company.

Good morning. Congratulations, you guys, on excellent execution. So first on the app, it sounds like better integration of loyalty and improved frictionless pay. Are you also including some geolocation sort of functionality in this, or just creating the platform to add it later? Just a very technical follow-up.

And then a bigger picture question for you, David. On the loyalty program, could you just remind us at a very high level -- we've got 14 million members -- but how do these people behave? What sort of percentage of sales do they represent and any sort of frequency or average annual spend? Some sort of contextualization of that shopper relative to your ex-loyalty shopper would be really helpful. Thank you.

First question, the geolocation on the app. Yes, there is going to be extensive geolocation capabilities within the app. So when the customer is in the mall, they will be notified of promotions that we are offering in the store. Secondly, the loyalty, we are, yes, at 14 million members of the NEXT card. We don't go into details of the percentage of sales and the performance that we are seeing from those customers, so unfortunately I can't share that with you.

All right. Good luck out there.

Betty Chen, Mizuho Securities.

Thank you. Good morning, everyone. I would like to add my congratulations as well. I was wondering if you can talk a little bit more about the OneEleven collection. It sounds like you remain very pleased with the read for the chain-wide rollout. Can you give us a sense in the past what you have seen with a top to bottom ratio and the opportunity, because we recall knits being a pretty significant business for Express in the past?

My second question, if I could, is when we think about the opportunity on entry price point items, are there specific categories where you see that opportunity? For example, is it knits and will that be replacing some other buckets of the product or how should we think about that mix? Thank you.

Okay, so you got two questions there, Betty. First of all, OneEleven, we are very excited by the test results that we have. We have obviously chased into it and we are doing a nationwide launch in July, as I said in my prepared remarks earlier. I don't go into the details of our top to bottom ratios, or the results that we see within the individual segments of our business.

Looking at the entry price points, yes, I believe that knits is a major contributor to that and you will have seen with the OneEleven assortment that we have excluded it from CRM and from other promotional deals so that we can provide the sharp entry price points. So we are going to continue to go forward with that as part of the strategy within Express OneEleven. There are certain other tops where we are looking at introducing opening price points, some of which have been tested and we've seen some very good results.

Thank you so much, David. Best of luck.

Adrienne Yih, Janney Capital Markets.

Good morning. Congratulations. It's a difficult environment and the stores look great. I wanted to ask about the guidance for the low single digit comp. Is that reflective of current trends? Do the comp compares get more difficult? Just a little bit more color on that through Memorial Day weekend. And then my follow-up would be for Paul on inventory expectations. I know you are cleaning up and buying much tighter, turning faster, but what are your inventory expectations at the end of the quarter? Thank you very much.

I think that the guidance is very realistic based off of what we saw last year as well. So if you remember last year Q1 we were negative 11. Going into Q2 we were negative 5. It's also reflective of the trends that we have seen so far quarter to date. We are very pleased with what we saw over the Memorial Day weekend and the business that we achieved. We successfully comped a five-day promotion from last year with four days on promotion. So I think it's a very realistic guidance and it's based off of current trends that we are seeing.

Basically part of that is, as David talked about earlier, we are continuing to focus on pulling the amount of promotions we have off of the business and obviously that has some drag on the top line. We are still generating significant top-line improvement along with margin expansion and expense leverage. We're looking to do all three of those in a balanced manner as David talked about and that is what we are focused on.

In terms of the inventory, Adrienne, as you know, we don't really provide inventory guidance. As we sit here today, we are very comfortable with the level of inventory and the quality of the inventory that we have. We would expect as we go into sale later on in the quarter that we will be in a better position than we were last year with respect to the number of units that were brought to sale and our focus is continuing to have a lot of discipline around how we manage our inventory this year.

Great, fantastic. If you are banking more gross margin dollars, great. Thanks.

Simeon Siegel, Nomura.

Thanks. Congrats on a great quarter, guys. Given the really strong gross margins, how do you view the rest of the year's opportunity? You are lapping meaningful occupancy deleverage, so what would the low single digit full-year number imply on the B&O line and then just given the impressive expansion in Q1 and your color on promotions, any thoughts on what that does for the merch margin?

We would expect in the second quarter to see some merch margin expansion compared to prior year, maybe not to the extent that we saw in Q1, but we would expect some expansion in merch margin both in the second quarter and then on a full-year basis and the same with gross margin as well. We would expect to see some leverage in our B&O in the second quarter and that will translate into some gross margin improvement and the same on a full-year basis. I would say on a full-year basis you won't see gross margin expansion to the extent that you saw it in Q1, however.

Great. Thanks a lot. Best of luck for the rest of the year.

Lindsay Drucker Mann, Goldman Sachs.

I had two questions. Number one, I wanted to just ask about your looking to dial down the promotional cadence. Did that really begin in 1Q and we don't lap that effort until we get to 1Q next year, or should we expect your ability to pull off promo days as you've been doing in 1Q, that as we get to holiday, there is less of that kind of easy comparison? I am just trying to understand when the timing of all that stuff happened. And my second question is, in the past, you had talked about rent inflation from A mall rent increases. I just wanted to understand how you were thinking about your rent costs given what we are seeing from some of the landlords. Thanks.

Okay, so your first question was dialing down promotions. We really started at the end of Q4, so at the end of Q4, we were up against I think it was a five-day promotion at 40% off the store and we pulled it off completely. And we anniversaried it with a smaller CRM offer. So it's really the end of Q4 that we will see that we are up against lower promotions from last year. Your second question was about rents?

In terms of rents, Lindsay, I think we've shared with you that we have had over the last couple of years a disproportionate number of A mall top 100 type stores come up for renewal, so there has been some pressure on our rent and that will continue a little bit into 2016 and obviously on an absolute dollar basis in terms of rent, we will continue to add expenses associated with the addition of the outlet stores, but we'd expect obviously to have revenue to offset that.

Great. Thank you.

Richard Jaffe, Stifel.

Thanks very much and congratulations, guys. Really impressive quarter. Looking forward, it seems that we can anticipate some SG&A leverage given the comp momentum and yet the guidance doesn't suggest any. Could you help us understand the tipping point for SG&A leverage for the next three quarters?

Yes, so SG&A leverage in Q2, Richard, is actually at the lower end of high single digits. We had a couple of things that happened to us last year in terms of timing. In fact, we are having the anniversary this quarter. Remember we made some SG&A cuts last year that gave us a little bit of a disproportionate benefit, in Q2 that we are having to lap this year. We also have some incremental store expenses in terms of payroll for the additional outlet stores, some of the preopening type payroll expenses that we'll incur in Q2 this year. We also had some incremental IT expenses this year and also incentive compensation that we are not lapping. So in the second quarter, we actually would expect to see a little bit of deleverage in terms of SG&A and then on a full-year basis, we would expect SG&A to be flattish compared to 2014.

Got it. Thank you.

Janet Kloppenburg, JJK Research.

Good morning, everyone and congratulations on a fabulous quarter. I did get on a little bit late, so I hope I am not asking questions that have been answered or that you talked about. But I wonder, David, if you talked about the men's business and what you are seeing there. I think OneEleven is going into all stores or is in all stores right now. If you could confirm that and I'm also wondering given the strength of that assortment what your turnaround time looks like for reorders or how quickly you can get back into that? And lastly, there has been a lot of weakness across the factory outlet channel by most of the retailers that I follow and I know that you are happy with the results and the profitability there, but are there any issues or challenges in terms of traffic that you are seeing? Thanks.

Okay. That's three questions, Janet. Number one, men's lagged behind the women's performance. We are seeing a much better trend over the past four weeks in the men's business so I am excited to see the opportunity that lies ahead there. On OneEleven, we will be in all stores by July. The turnaround time is really based on our platforming of the fabric and we have been able to platform ourselves in a good position and are leveraging the fabrics across different styles. So I'm excited about what we are able to achieve there. And then, finally, Express Factory Outlet, really we are seeing robust growth there. The stores that we opened a year ago are comping and the traffic that we are seeing across the board looks very good.

I have 10 other questions, but I will wait. Thanks so much.

Marni Shapiro, The Retail Tracker.

Congratulations, guys. You know I think the stores look amazing, so well done. So I guess a couple smaller topics. You have tested swim in a bunch of the stores and it is online. I am curious how that is doing. And then you know, David, I'm going to ask about the shoe business and things like that because, in some of the stores, and in some of the stores that you have redone, it is really pretty amazing. So if you can just touch a little bit on those smaller businesses.

Okay. So first of all, the swim business was very good, we're very happy with it, and looking to expand on that go forward into next year. Secondly, the shoe business, we're seeing terrific growth there. A lot of opportunity abounds, a lot of opportunity ahead. And I think that the fashion that we are delivering and the styles that are coming into the fall look very good, so I don't see that engine slowing down at all.

Fantastic.

Susan Anderson, FBR Capital Markets.

Good morning, congrats on a really nice quarter. I was wondering if you could give us an update on your retail order management system, which I think is coming online next year. And then also with that, should we expect more omnichannel capabilities to roll out next year or is that more of a 2017 event? And then also an update on the C and D mall conversions to outlets.

Sure, this is Matt. So the retail management system platform will go live in Q1 of next year, early Q1 of next year, along with the enterprise planning systems, followed shortly thereafter by an order management system. What this does for us is we have been operating with very old systems for several years now. This gets us onto a platform of -- increases the foundation for multichannel, multigeographic growth opportunities and it also sets the foundation to really implement a lot of the omnichannel capabilities that we lack today. So there should be large opportunities there from a combination of better inventory planning and management, as well as getting the omnichannel capabilities in place soon thereafter.

Got it.

And Susan, with respect to the C and D outlet conversions, we've been testing a few of them as we have talked about and it's a very opportunistic conversion, so we have to look at each individual mall. We don't have a strategy necessarily around these; we are still at the early stages of testing some of these.

Got it. Okay, great. Thanks. Good luck next quarter.

Jay Sole, Morgan Stanley.

I've got a question about the promotions. What is the goal for reducing the number of whole store off days? I think you said you went from 12 to 5 this quarter? Is there a plan to take it to zero and how do you think about that?

Jay, I think about it in a way that we have to be competitive with the marketplace and we are going to look at each quarter as it goes. The goal is going to be to reduce the number that we are doing and the goal is to increase the levels of profitability to get closer to the levels that we've achieved in the past. So we are going to do whatever we need to do to get to that point. I think we stuck to it very well in Q1, but we've obviously got to look at the market on a day-to-day basis and see how we are performing.

Yes and these 40% off all-store promotions, effectively what you end up doing is selling a lot more of your good stuff, good product, at a discount and the bad product that you have in the store just sits. You can't be surgical with that type of promotional activity and you also start to bunch up your sales on a few days and what we found as we pulled these promotions off is that sales have spread back out again and we get more full-price selling as well. And then we are not having customers that are trained to wait for these promotions. They come and shop when they are in the mall or when they see something they like from us.

Got it. If I can switch gears for a second, the test and react strategy, there have been quarters where sometimes some of the decision-making has wavered from it. Can you talk about this quarter -- was a lot of the success in product based on really implementing the strategy and executing the strategy the way you expected to run, or has the strategy evolved a little bit and has that helped you improve the comp run rate that we've seen so far this year?

We really haven't changed the test and chase strategy at all, or our go-to-market market strategy. We are continuing to test close to 70% of the units that we are selling and we will do that going forward in the same way. So it is a central plank of our strategy, our test and chase. And if anything, we are keeping more open-to-buy dollars open later so that we can chase the best performing items.

So it is more about disciplined inventory management and holding our powder dry as long as possible to react to the better product.

Got it. And then the last one is just on international stores, David, you mentioned some stores in South Africa. Is the international strategy now about opening up your own stores, or is the franchising component still a big part of the international strategy?

We are still going forward with the franchising strategy as it is today.

Okay. Thanks so much.

Steve Marotta, CL King & Associates.

As it pertains to the store off promotions in the second quarter, what are the number of days expected this year versus last year?

Steve, for competitive reasons, we don't talk about the number of days that we've got planned or the types of promotions that we have planned ahead of us.

Okay. Fair enough. And as it pertains to the open-to-buy dollars which you just commented on, can you confirm that the open-to-buy dollars are currently materially higher than they were a year ago?

Yes, they are.

And my last question pertains to the opening price point offerings. You mentioned that you are going to be sharpening some of those price points going forward through this year. Can you comment on the categories and where those new products will arrive? And again specifically the categories and what the price points are now versus what you expect them to be?

We are looking at it first across men's and women's and again, for the same reasons, competitive reasons, I don't want to go into the details of which categories that is going to be in.

Fair enough. Thank you.

Rebecca Duval, BlueFin Research Partners.

Hi, let me add my congratulations as well. I have a question on the e-commerce. It seems like you guys are making a lot of traction and seeing great growth in the sales in e-commerce. I am wondering if you are seeing a bigger than expected shift in the consumer shopping online than you originally anticipated and how should we be thinking about that going forward? Are you seeing a different mindset in the consumer? And along the lines with that, if you are seeing a greater shift into the online, are you going to be taking a look at real estate, maybe closing some additional brick-and-mortar footprints?

So Rebecca, I wouldn't say that we are seeing a greater shift than we had expected. This business grew quickly from being started in 2008 to over 15% of our sales at the end of last year. We have talked before about our expectations that this could get up to 20% of our overall sales, so it's clearly a significant growth pillar for us, as David talked about in his prepared remarks.

With respect to its impact on potential closings of additional stores, we announced earlier that we were closing 50 stores over the next few years timed to natural lease expirations. But we also mentioned that we keep an ongoing list of stores that we watch based upon their performance to see whether or not we should look at further reductions of the fleet. Part of our determination on that will hinge upon what we see out of the movement of sales from the stores that we have recently closed to both other stores within the MSAs as well as ecomm. Our loyalty program helps us track how those shoppers might have moved, but it's still kind of early to tell because we just closed that first group of 20 some stores early on in February.

Great. Well, thanks so much and best of luck.

Thank you. We have reached the end of our question-and-answer session. I would like to turn the floor back over to management for any further or closing comments.

This concludes our call for today. Thank you for joining us this morning and for your ongoing interest in Express.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.