Express Inc (EXPR) 2021 Q2 法說會逐字稿

Good morning. My name is Christie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Express, Inc. Second Quarter 2021 Earnings Conference Call. (Operator Instructions) Thank you.

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

Thank you. 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. All commentary on year-on-year comparisons in our prepared remarks today refer to 2020, unless otherwise noted.

Today, we will speak to our second quarter performance, including the positive acceleration we are seeing as the EXPRESSway Forward strategy continues to gain momentum and the evidence that our transformation is well underway. Tomorrow at 11:00 a.m. Eastern Time at a virtual investor event, members of our management team will share what has been accomplished across each of the 4 foundational pillars of our strategy, and more importantly, how we will continue to generate profitable growth over the next several years. I hope all of you will join us.

With me today are Tim Baxter, Chief Executive Officer; Matt Moellering, President and Chief Operating Officer; and Perry Pericleous, Chief Financial Officer. I'll now turn the call over to Tim.

Thank you, Greg, and good morning, everyone. Our second quarter performance can be summarized in a single word, acceleration. Results in each one of our channels were very strong on both the top and bottom line. The EXPRESSway Forward strategy continues to gain momentum and the evidence that our transformation is well underway continues to build.

Sales in the second quarter grew 86% over 2020 and delivered a positive 3% comp compared to 2019. Stores plus demand comps accelerated considerably throughout the quarter, driven by inflection points at Memorial Day and the fourth of July. Post fourth of July, through the end of the quarter, we drove a positive 11% comp versus 2019, and have continued to deliver a double-digit comp in August. Through a combination of outstanding products and a compelling brand positioning, we were able to significantly reduce our promotional activity. And as a result, drove a 200 basis point merchandise margin expansion and delivered gross margin improvement of over 500 basis points versus 2019.

We generated positive operating income of $15 million, and adjusted EPS of $0.02, both significant improvements versus 2019 and 2020. Second quarter EBITDA of $31 million was $20 million greater than 2019 and ahead of our initial expectations. And we achieved free cash flow of $57 million in the first half of the year. I'll be sharing much more about the progress we've made and what's next on the EXPRESSway Forward at our virtual investor event tomorrow, but I'll provide some highlights across the 4 foundational pillars of our strategy today.

Product. You've heard me say that if we get everything else right but don't have great product, we won't be successful. We have applied the Express Edit design and merchandising philosophy across every category and every item, and I am incredibly proud of where we are today. Even more importantly, customers are responding with tremendous enthusiasm. And of course, theirs is the opinion that matters most. Versatility is one of the key ideas within the Express Edit, and we identified denim and knits as 2 of the most important elements of a modern versatile wardrobe. Our new core of denim and Express Essentials are an integral part of the redefinition of Express, and customer response has been incredibly strong in both categories. We have a sharp focus on denim and are a much more powerful player than we were a year ago, posting our best denim performance in recent history and delivering a 21% comp increase in Q2 versus 2019.

Our tops business is back, driven by Express Essentials. In women's, Body Contour is driving unbelievable growth, accounting for 36% of women's retail net sales and driving a 20% increase in the category over the prior quarter. In men's, polos and graphic tees delivered the best second quarter volume in recent history with significantly higher margin rates. The wear-to-work and occasion-based categories that have historically been our strength, but were, of course, negatively impacted by the pandemic are gaining significant momentum as our customers venture back out into the world, and we've seen an acceleration as the year has progressed. Our comps in these categories versus 2019 were down 36% in the first quarter, down 12% in the second quarter but are now tracking close to flat. These categories represent a meaningful opportunity for us in the back half of the year, and we are very well positioned to meet the needs of people returning to offices, social gatherings and occasions of all kinds.

Brand. We set out to reinvigorate our brand, clarify our message and articulate a clear, compelling brand purpose. Our brand tracking measures, social media engagement and customer feedback indicates that we've made great progress. Organic engagement metrics were up across all social channels compared to 2019 with Instagram up 10%, Facebook up 80% and Twitter up 700%. Our paid social engagement increased 210%. ExpressReentry, our brand's first TikTok campaign, drove over 49 million total impressions across paid and organic social, and 4.4 billion media impressions. Google organic demand improved throughout the quarter and turned positive in the second quarter compared to 2019, culminating in a 13% increase in the month of July. Organic search traffic was up 5% and demand increasing 14% over 2019.

Customer. We said that we would engage our existing customers and acquire new ones. We relaunched the Express Insider loyalty program in Q1. And in the second quarter versus 2019, spend per existing customer was up 8%. Acquisition of new customers was up 17%, and reactivation of lapsed customers was up 43%. We have welcomed over 1.1 million new insiders and reactivated 900,000 lapsed customers since the relaunch. Loyalty members redeeming Express cash rewards drove a 64% increase in sales with a 14% decrease in markdowns associated with those sales versus 2019.

Execution. This is the true line across our product, brand and customer strategies and the ultimate test of our operating model, systems and processes. Second quarter was the first time our new seasonal strategies came to complete fruition and the results are a powerful testament to the strength of our go-to-market model and how aligned we are as a total organization. We effectively responded to the impacts of the pandemic, particularly navigating through the many supply chain challenges and disruptions and applied strong financial acumen and discipline around our expenses and our investments. Outstanding execution is also what helped drive momentum in each one of our channels and reinforce the ability of our strategy to effectively advance our eCommerce, retail and outlet businesses.

Let me begin with eCommerce. We previously announced our goal to drive $1 billion in eCommerce demand by 2024, and we are on track. We drove a 15% increase in transactions and a 13% increase in average order value, which resulted in a 28% comp and a 20% comp compared to 2019. These results were driven by our product and brand strategies as well as the impact of a number of digital advancements. We redesigned product pages with an outfitting tool so shoppers can clearly see the details that differentiate our products. We added even more user-generated content to our product pages, and our digital stylists offer real-time advice and recommendations. All of these are driving meaningfully higher conversion and average order value. We upgraded our mobile app experience to bring it closer to parity with the enhancements we had made on our website, and now have over 2 million active app users, and that's growing.

In the second quarter, app demand was up 70%, traffic grew by 30% and conversion increased 70 basis points over 2019. These are some of our most important customers because they make nearly 4 more visits and spend over $200 more annually than customers who only shop on our website or in our stores. We recently announced an exciting new program called Express Community Commerce, which offers fashion-savvy entrepreneurs an opportunity to apply their sense of style to our product and fulfill our brand purpose to create confidence and inspire self-expression throughout their social networks. We call these individuals Express Style Editors, and they will have exclusive access to specially designed collections to help them drive sales and earn commission. We launched the pilot phase of this innovative program in July, and we'll share much more about the program at our virtual investor event tomorrow.

Our retail store sales gained momentum throughout the quarter, and we delivered a positive comp in July despite inventory that was down double digits compared to 2019 in the stores. Our performance was driven by a 25% increase in average unit retail versus 2019 due to the outstanding consumer response to our new product and a significant reduction in promotional activity. Physical stores are an important contributor to a successful retail business and they are certainly an integral part of the EXPRESSway Forward strategy.

Our fleet optimization strategy informs both current and future real estate plans. One component is a reduced square footage concept we first implemented at our King of Prussia store. Second quarter sales were 12% higher than 2019, a remarkable result given the 45% reduction in square footage. We are remodeling our Northpark store now in Dallas based on this learning. These stores and others like them will help us to determine the optimal size of our future mall-based stores. We are also expanding beyond the mall with smaller footprint Express Edit concept stores in off-mall locations that present tightly curated and localized assortments. We currently have 5 Express Edit concept stores, all under 4,500 square feet. New customers represent nearly 50% of total customers and reactivation is 20%, meaningfully higher than our mall-based stores.

The second quarter was the first time our outlet assortment was aligned to the Express Edit design and merchandising philosophy, and we drove record second quarter volume and a 7% comp compared to 2019.

Product, brand, customer and execution. Across each one of these pillars, we have meaningfully advanced the EXPRESSway Forward strategy and are well positioned to drive long-term value for our shareholders. Perry will provide more detail on our second quarter results and share our view for the balance of the year.

Thank you, Tim. I'll start with our second quarter results, discuss our liquidity position and provide a high-level outlook on the balance of the year. My comments on comparisons will be to 2020 with some additional color on our performance versus 2019 and/or quarter-over-quarter where those are relevant and meaningful.

Second quarter net sales were $458 million, an increase of 86%, and consolidated comparable sales were up 42%, both compared to 2020. Compared to 2019, consolidated comparable sales were positive 3% with total retail comps at plus 1% and Express factory outlet comps at plus 7%. These results were achieved with a significant reduction in promotional activity, reflecting the strength of our product and brand strategies. As a result, merchandise margin accelerated by 2,500 basis points compared to 2020.

Compared to 2019, merchandise margin increased by 200 basis points, and we expect merchandise margin in the second half of the year to be slightly below 2019 driven by disruptions throughout the supply chain. Buying and occupancy expenses leveraged 2,500 basis points versus 2020. This improvement was driven by increased sales and rent reductions. Compared to 2019, buying and occupancy expenses leveraged 390 basis points driven by significant reductions in our expense structure.

During the second quarter, we had a gross profit of $149 million with a gross margin rate of 32.6%, an increase of over 5,000 basis points as compared to 2020. This also reflects a sequential improvement over the first quarter of 2021. And we expect the gross margin rate in the second half of the year to be higher than 2019 levels as sales continue to grow and our results reflect the power of our product, brand and customer strategies. Compared to 2019, gross margin increased by over 500 basis points.

SG&A expenses were $135 million, leveraging by 840 basis points compared to 2020, driven by our sales increases. During the quarter, we reinvested a considerable amount of our markdown savings into marketing, primarily focused on customer acquisition.

Second quarter operating income was $15 million compared to a loss of $136 million in 2020 and a loss of $10 million in 2019. Second quarter diluted earnings per share was $0.15 on a GAAP basis compared to a loss of $1.67 in 2020. Excluding the benefit of a $9 million reversal of a valuation allowance booked against our deferred tax assets, our adjusted diluted earnings per share was $0.02.

Our effective tax rate for the second quarter was essentially 0, and it reflects the benefit of the previously mentioned reversal of the valuation allowance recorded against our deferred tax assets. Excluding this benefit, our effective tax rate would have been approximately 84%, driven by a true-up from the first quarter provision due to a significant improvement in forecasted pretax results. EBITDA was $31 million during the quarter, a $149 million improvement versus 2020 and a $20 million improvement versus 2019. Our second quarter performance resulted in positive EBITDA one quarter ahead of expectations and drove positive EBITDA of $7 million for the first half of the year.

Turning to our balance sheet and cash flow. We ended the quarter with $34 million of cash and cash equivalents. For the first half of the year, operating cash flow was $68 million and free cash flow was $57 million, both of which improved by $238 million versus 2020. Our inventory levels and composition improved significantly throughout the second quarter with the majority of the deliveries coming late in the quarter. We began the second quarter with inventory down 7% to 2019 and ended with inventory of $267 million, down 1%. Compared to 2020, our inventory was up 15%, which reflects the impact of the pandemic-related inventory cuts we executed in 2020.

During the second quarter, we received $45 million against our CARES Act receivable. Our balance sheet at the end of the second quarter now reflects the remaining $52 million of CARES Act receivable, which we expect to receive late in the year. Our borrowings at the end of the second quarter were $122 million, of which $25 million was drawn against our existing ABL credit facility and the remaining $97 million was drawn on our term loans. Total borrowings decreased by $111 million, and our liquidity is solid with $137 million available for borrowing under our revolving credit facility at the end of the second quarter.

Moving to our outlook. Based on the strength of our second quarter performance, we're providing an improved outlook for the second half and full year of 2021. Net sales above 2019 levels on a comparable basis for the second half of the year. Gross margin rate approximately 200 basis points above 2019 levels for the second half of the year. Net interest expense of $6 million for the second half of the year. Positive free cash flow for the full year, and capital expenditures of approximately $35 million for the full year. Our comps accelerated through the second quarter and into August. That said, we're closely following the continued impact of the pandemic on consumer behavior and throughout the supply chain. Recognizing the momentum of our business and tempered by these potential headwinds, we have taken a balanced approach with our outlook.

To summarize, we have significant momentum in our business across all channels and a continued strong response to new fashion receipts. Our outlook has improved throughout the year. We're well positioned for 2021 and to achieve our long-term goal of a mid-single-digit operating margin. And now, I will turn the call back to Tim.

Thanks, Perry. I'll conclude right where I began. Our second quarter performance can be summarized in a single word, acceleration. As investors, you only get a sense of how a company's business is performing on a quarterly basis on calls such as this. But inside Express, we are driving and charting and witnessing our performance every day. And what we see is strong, consistent acceleration on so many fronts. We are creating best-in-class product that offers incredible value. We are reinvigorating our brand and driving higher engagement through more relevant and compelling messaging. We are earning a greater share of wallet from our existing customers, reactivating lapsed customers and bringing new customers into the brand. We are executing with more speed, more agility and more confidence.

Our strong results in the second quarter from double-digit comps after the fourth of July versus 2019 to significant increases in merchandise margin rates are tangible evidence of the power of our strategy. The EXPRESSway Forward strategy continues to gain momentum, 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 have a plan to generate over $100 million in operating profit in 2024. Please join me tomorrow at our virtual investor event, and you'll hear just how we intend to do that and more of what's ahead on the EXPRESSway Forward. Thank you for your interest in Express, and we'll now take your questions.

(Operator Instructions) Your first question comes from the line of Oliver Chen with Cowen.

Tim, the reduction in square footage and doing more with less has been really impressive. What does that mean for the broader store base and your learnings there as well as if you could elaborate on Express Edit and the success you've had there and how that will apply over time to your store bases as well. Second, the average order value was impressive as well. I'd just love color on the momentum you're seeing there and how it may continue going forward as well.

Great. Thanks, Oliver. Well, I'll start with stores. We're very excited about the results we've seen at our King of Prussia store. As I said, we reduced the square footage in that store by about 45%, but did a complete remodel. And we drove a 12% increase in the second quarter in that location. We are in the process of remodeling our Northpark store in Dallas. That store, the square footage will also be reduced by about 40%, and we expect to be able to drive significantly greater volume out of that new space as well. So as we look forward at our mall-based fleet, we know that we can be more productive and that will be our mission.

And about 2/3 of our leases are actionable over the next 3 years. So as we are taking action against each one of those leases, we'll be evaluating whether or not we want to reduce the square footage in each one of those locations, knowing that we can and will be more productive when we do that and give the customer a better experience. Our new experience at King of Prussia features larger fitting rooms, call buttons for associates when you need help from a fitting room, lounge areas outside the fitting rooms, tables and chairs with outlets so people can relax. So it's a much -- even though it's a smaller experience, it's a much better shopping experience.

Moving to Express Edit. Also very excited about the opportunity that we have with our Edit stores. As I said, I firmly believe in omnichannel retail, multichannel retail and getting to the customer where the customer is. And right now, our fleet is predominantly mall based. And we continue to have great success in many of those stores, and we'll continue to stay very focused on that. But we also need to expand outside of the mall and be where other people are. So Express Edit gives us that opportunity. These are much smaller footprints. Our typical mall-based store is around 8,500 square feet. These are 4,500 square feet or less. We have about 5 of them. And at this point, our focus has really been on getting those stores in highly trafficked street locations, street side locations.

And perhaps the most exciting thing that we've learned, we've been very productive in these stores as well. But the most exciting thing that we've experienced is what I called out in my comments, in my prepared comments, that nearly 50% of the customers at our Express Edit stores are new to Express. And over 20% of them are reactivated customers, customers that have lapsed, customers that may have shopped at Express many years ago but haven't and are coming in and rediscovering our brand and the evolution of our brand. So it's really exciting to be able to bring new customers in through these Express Edit concepts. And we're also evaluating what happens in these markets to our eCommerce business because we know when we have a stronger physical presence in a market, our eCommerce business accelerates as well. So very exciting.

Yes. The second question, I'll take on AOV, Oliver, is very simply, the AOV increases online are another proof point that our EXPRESSway Forward strategy is really gaining momentum. And really, it's driven by a combination of better fashion and fewer promos and that's coupled with enhanced capabilities on our website. So all the things we talked about from our outfitting tool that we've added, user-generated content, digital stylists and the enhancements we've made to our mobile app, all are contributing to the higher AOV.

Okay. And Perry, you mentioned supply chain and the industry is facing disruptions and volatility and inflation. Where are you with respect to that? And do you have enough inventory relative to the demand you're seeing? And what about inflation as you think about pricing and classifications?

Yes. Oliver, I'll take that one as well. So clearly, there are some logistics challenges across the industry right now. But our team has worked extraordinarily hard to mitigate a significant portion of the port disruptions and country-of-origin impacts that we have faced due to COVID closure. So we've done a lot of things, things such as reduced time from the port to the distribution centers and the time from the distribution centers to the stores. We've aired in some critical goods from Vietnam, Indonesia, Bangladesh, and we -- in anticipation of the issues, this spring, we also placed a fair number of fall orders early to give us a little more time, and we also have more agility in our supply chain to really be able to move product to different countries of origins as others are being impacted.

With all of these actions, we do see -- we feel good about the composition of our inventory. It's not going to be perfect heading into the holiday season, but we feel good about it. And with -- also with these actions, we do feel good about the level of inventory we're going to have heading into November and December. That being said, there is about a $15 million impact, primarily in Q4, related to these logistics actions that we have taken. And that is all included in the outlook that Perry went through earlier today. So that's all baked into our outlook for the year.

Okay. And last question, Tim. There's a lot of innovation happening digitally, including really embracing community. Which factors would you prioritize in terms of your digital innovation as being the key drivers going forward?

Well, that's a great question. I think that we have done a great job over the past year with the digital enhancements that I described in my prepared comments. And as we move forward, we are continuing to get our app in greater parity with the website experience. And so I think from an enhancement standpoint, we'll continue to push forward on those things, and that will be a driver. But the thing I'm really most excited about, and will share a lot more about tomorrow at our virtual investor event is the launch of Community Commerce, which is really the next step in our transformation from what I've called being known as a store at the mall to a brand with a purpose that's powered by this incredible styling community.

And I can't think of a better time than now to be launching a program like this as the world has changed dramatically and the way people want to work has changed dramatically. And this offers people that are fashion savvy and enjoy fashion and who share our desire to create confidence and inspire self-expression through apparel and accessories, it gives them the opportunity to build their own storefronts. And that's a really incredibly exciting thing for this group of people. They can build their own storefronts. We'll be designing product exclusively for this group of style editors, but they'll also have access to the entire Express assortment.

And they'll have the ability to earn commission to whatever extent they choose to make this a part of their lives. So it can be a full-time job or it could be a side hustle. But I do believe that, that's really the most compelling part and big next step in our digital transformation and a big driver of what will drive our $1 billion eCommerce goal by 2024.

Your next question comes from the line of Steve Marotta with CL King & Associates.

Congratulations on the second quarter. Maybe can you talk a little bit about that $15 million impact on the supply chain actions in the second half? I'm assuming that's a combination of sales as well as costs associated to accelerate the goods. Is that accurate?

Yes. That's a combination of airing in some goods along with expediting shipment -- shipments that are on the way. Basically, what we have seen is expanded gross margin. We think that will continue, although it will be a little bit more promotional in the back half of the year as it always is with the holiday season. But we feel good about mitigating a lot of the impact of that as well.

Yes. And Steve, if I may add. When you look at our merchandise margin improvement compared to 2019, it's pretty impressive. And right now, we're estimating that the back half of the year, we're going to have a slight contraction compared to 2019, driven by this impact of the $15 million because of increased costs. But on the gross margin level, we still expect that we'll see about a 200 basis point improvement compared to 2019.

That color is very helpful. The chatter that I'm hearing as it relates to back to office is largely -- and again, talking about this, there's a lot of sample bias here, but generally pushed out from what was hopefully Labor Day to something that's probably going to be past January 1 on a more widespread basis. Are you hearing the same? Do you see that in your business? And then I have a follow-up to that as well.

Well, actually, Steve, I think it is very regional. I think that many people are still returning post Labor Day in some sort of hybrid fashion. But to your point, many people have also pushed out to a later, potentially 2022 reopen date for their offices. So we are hearing that, but in our analysis of a lot of big companies, there's a predominantly hybrid situation that we're learning about. But I think the more important piece of this for us is that occasions have resumed. And our data indicates that occasions are actually going to continue to ramp up as we move through the back half of the year. And occasions are a big driver for us.

So very excited about what we're seeing in our occasion-based categories. As I said, those categories that we would have considered occasion-based and wear-to-work-based were extraordinarily challenged, as you know, throughout the pandemic, very challenged in the first quarter, down 36%. Total second quarter was down 12%, but we are tracking now close to flat in those categories. So while there may be a push out past Labor Day of some people returning to the office, it does not appear to be affecting our business in those categories. In fact, quite the opposite, we are seeing an acceleration in those categories.

Tim, that's very helpful. And here's a question I'll bet you've never been asked. Do you wish that demand would slow down a little bit? And by that, I mean considering the supply chain issues that are currently occurring, better matching demand and supply at this moment, I would assume, would ease managing and operating the business. If say -- I know you don't have a lot of control over, but if wear-to-work -- excuse me, if back to office was pushed out even more or there are more people that are pushed out to the back half of the year, would that be the worst thing in the world at this moment for you? Or maybe you can just comment on endeavoring at this juncture in time to best match demand as well as supply.

Steve, I will never be able to say that I wish demand would slow down. So I won't go down that path. What I will say is that I think our team has done an extraordinary job throughout the pandemic, navigating all of the incredible challenges that we have faced. And there have been supply chain challenges and logistics challenges throughout the course of this pandemic. They are continuing. In some countries, the challenges have gotten greater; in others, they have eased. And we will continue to effectively manage those challenges and logistics.

As Matt said earlier, we took an aggressive stance on some of our core categories knowing and anticipating that we might be experiencing some supply chain challenges. So we are very well positioned to capture the demand that exists in many of the categories. We may miss some. There's -- we may miss some. And I would tell you that I believe we missed some opportunity in the first part of the second quarter when demand was absolutely outpacing the supply that we had, particularly in our retail stores, where I said we ended up with a positive comp in July, and we had double-digit lower inventory in those stores. So there's no doubt in my mind that we actually didn't maximize and capture some of the demand that existed in the second quarter. But we will always, always be very excited about high demand for our product and do our very best to deliver to our customers.

(Operator Instructions) Our next question comes from the line of Roxanne Meyer with MKM Partners.

Great. Congratulations on the acceleration you saw in the quarter.

Thanks, Roxanne.

Couple -- sure. First off, I guess, I'll just start with a follow-up question on the inventory and supply chain. It sounds like you brought in product early. Do you believe you have access to enough inventory to sustain the double-digit comp that you're seeing and enjoying in August if the demand will be there?

Yes. What we did was we -- when we said we brought in product early, we're bringing product in early. So we placed orders in late spring for the fall season for October, November deliveries. And so those are coming in early. So we feel good about the levels of inventory we have for the holiday to support our business.

Okay. Great. And then a follow-up on the Edit stores. I did notice in your store plans that you are -- that you closed one, you're planning to close another already. So I am curious what maybe your learnings are that have led you to already close 2 of those stores. And clearly, those are -- you've had some very compelling stats on performance of those. What do you need to see and learn before you accelerate growth in those stores? And how many do you think you ultimately can have?

Well, I'll -- let me first take the first part of that. We closed stores only because, as I have said this before, but it's a good point to reiterate, we are signing very short-term leases on these stores in order to have flexibility. So particularly these first stores where we were testing this concept, we wanted to have extreme flexibility. So the stores that we've closed, we've closed only because we had to. We couldn't extend because there were already plans for those locations that were in place when we signed our leases. So they were temporary locations for us. So we certainly would not have closed actually either of the Express Edit store -- or the 1 Express Edit store, and we have a plan to close another, we wouldn't have closed them actually if we hadn't had to. So that's how strong the learning has been.

But to answer your question, what do we need to see? We need to continue to see new customers coming into the brand at an incredibly high rate. And just like any location, we need to see productivity that drives profitability. And I believe that we can do that in Express Edit. The stores that we are -- have -- currently have operating, the 5 that are operating, have proven that we can do that. And so we're going to open several more this year. I anticipate that we'll be operating around 10 by the end of the year. We're finalizing some things right now. So hopefully, we'd be operating around 10 by the end of the year. And if we continue to drive the same kind of results that we are driving right now, then Express Edit and street side locations -- smaller street side locations is something that we will absolutely pursue very aggressively in the years to come.

Okay. Great. And then I guess, moving on to marketing. How are you thinking about marketing in the second half of the year as a percent of sales and just perspective relative to what was spent on marketing in 2019 and historically?

Well, I'll start just with perspective and then Perry can chime in on percent of sales. But we have been significantly pulling back on promotion and reallocating dollars that had previously spent on -- been spent on markdowns into marketing, particularly marketing that is acquiring new customers and into investing in our loyalty program customers. And that has been obviously a strategy that's been very successful for us in the second quarter. And so from a strategic perspective, we intend to continue doing that in the back half of the year.

Yes. And as it relates to the back half of the year from a marketing standpoint, in 2019, we spent nearly 6% of sales. And now we're planning to spend this year at about 7% of sales. And to Tim's point, we continue to invest in that customer acquisition marketing tactics.

Okay. Great. And then last, I was -- wanted to see if you could elaborate on the $100 million operating profit target for 2024. Are there any assumptions or milestones that you can share, whether it's about stores or sales or certain margin targets at this time?

Roxanne, we hope you can join us tomorrow at 11:00 a.m. We're going to talk a lot about how we are going to drive that $100 million. But we're going to get there and it's exciting. So I hope you can join us for that.

Absolutely. Well, look forward to the color then. Best of luck.

Thanks, Roxanne.

(Operator Instructions) And our next question comes from the line of Sharon Edelson with Forbes.

Congratulations. I have a question about perceptions and marketing. And obviously, this is not your mother's Express anymore. How hard is it to change perceptions? And are you seeing generations, mothers and daughters, shopping at the Edit stores or the new King of Prussia?

That's a great question. I think that it can be difficult to change perception. But I think our marketing team has done an incredible job. And that's because we are focused all day, every day on our brand purpose and our -- to drive confidence, create confidence and inspire self-expression. So when we -- because we're so focused on that, if you look across our social media channels, if you look across our e-mail marketing, if you look on our website, if you look on our app, through every single one of our marketing vehicles, you're actually seeing images that create confidence and inspire self-expression.

And that has resonated so well with customers that user-generated content has become one of the most important and compelling parts of our website. And so we have -- that's why when we talk about the styling community, we actually have users generating their own content and giving other customers the confidence to try new products, try new things because they talk about how great the products are. So I do think that we are changing, certainly changing the perception. And those things do take time. But obviously, our brand purpose is something that is resonating across generations.

So to your second point, we talk a lot about who our target customer is. And we certainly know that our most valuable customer comes to us early in their lives. And we have a very, very strong base of 18- to 25-year olds. We have a very strong base of 25- to 40-year olds. And we have a good base of those over 40 in both men's and women's. And we are seeing growth across the spectrum. And we don't think about our target customer as a particular age. We think about them -- we actually call them the Express generation. It's not anything other than the Express generation because when you deliver great product that's on trend, that fits a wide range of people, people cross-generationally will respond to that product. And so we're certainly seeing that. And very excited about the opportunity for us in both men's and women's to drive great product cross-generationally.

Amazing. One other question, the most valuable customers for many retailers are omnichannel customers. Do you expect that the Community Commerce style editors will be driving and contributing and creating the omnichannel customer. Or have you -- sorry, go ahead.

Yes. Absolutely, Sharon. We're -- that's actually a real strategic differentiator for us. So we do expect that our style editors will be not just driving people to their storefronts, but ultimately be hosting events in our stores. In fact, we recently hosted events with our pilot group of style editors in Texas at stores in Houston and Dallas. And we had great success. Their followers love to have the opportunity to actually meet these people in real life and experience the product in real life. So yes, we do fully expect that our style editors will ultimately be driving our omnichannel customer experience.

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

Thank you all for joining us today and giving me the opportunity to share our second quarter results. Please join us tomorrow at 11:00 a.m. Eastern Time to hear about what's next on the EXPRESSway Forward and our plan to deliver over $100 million in annual operating profit in 2024.

Ladies and gentlemen, thank you for participating. You may now disconnect.