Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Express Inc (NYSE:EXPR)
Q1 2021 Earnings Call
Jun 3, 2021, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and thank you for standing by. Welcome to be Express, Inc. Q1 2021 Earnings Conference Call. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Dan Aldridge, Vice President of Investor Relations. Please go ahead.

Dan Aldridge -- Vice President of Investor Relations

Thank you, Mariano. 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 adjusted 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 a year -- on year-over-year comparisons and our prepared remarks today refer to 2020 unless otherwise noted.

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

I'll now turn the call over to Tim.

Timothy Baxter -- Chief Executive Officer

Thank you, Dan and good morning, everyone. Our top and bottom line performance in the first quarter exceeded our expectations. Although February was tough, March and April were considerably better and we experienced a significant inflection point in the business at Easter. Our comp trends have further accelerated and our second quarter comp volumes to date are now exceeding 2019 levels. Our results are now beginning to reflect the power of our product, brand and customer strategies. We have meaningfully advanced the EXPRESSway forward and made excellent progress on our transformation from a store in the mall to a modern relevant multichannel band with a compelling purpose, and we are well positioned for the post-pandemic world.

In the first quarter, we introduced a plan to drive a$1 billion in e-commerce demand by 2024. And our first quarter e-Commerce results are a strong start toward achieving that goal. We drove a 40% increase in transactions, a 19% increase in conversion and an 18% increase in traffic, all of which contributed to an e-commerce comp of up over 40% in the first quarter. We continue to see strong momentum with our fashion deliveries with sell-throughs up double digits compared to 2019. We established new core denim and Express Essentials, and both categories posted positive comps versus 2019, with denim up double digits in our retail channel.

We pulled back on promotions in the first quarter based on positive customer response to our new product and will continue to be less promotional going forward. We delivered a nearly 1,100 basis point improvement in merchandise margin and expect to improve further as our inventory composition reflects a higher penetration of new receipts. We drove greater brand awareness through influencer activations and saw demand driven by these channels increased by 30%. We completed the relaunch of our loyalty program, added 162% more new members than last year and 7% more new members than in 2019. We kicked off a customer reactivation strategy in April that has already led to a 22% increase in returning lapsed customers.

We maintained a sharp focus on conversion and saw increases in this important metric across all of our channels. We further bolstered our liquidity position and improved operating cash flow by $130 million. We delivered significant sequential improvements from the fourth quarter in all three of our channels and have seen further acceleration in the second quarter to date. I'll provide an update on our progress in each channel, starting with e-commerce, which is the biggest contributor to our comp growth. As we drive to our $1 billion and e-commerce demand goal by 2024, we will leverage data to provide more relevant, compelling experiences that bring the versatility of our assortment to life in a more personalized way for our customers.

We made significant progress toward this goal in the first quarter posting a positive 40% increase in demand and that is further accelerated to up over 70% in the second quarter to date. Conversion is up 19% compared to last year. And these results were all achieved on far fewer deep sitewide promotional days. Average order value showed sequential improvement during the quarter with AOV up 6% in March and April combined and compared to last year. AOV has been challenged by the impact of the pandemic on traditionally higher price point categories such as dresses and suits. So it is especially encouraging to see this improve. As more restrictions are lifted and more people resume social gatherings, occasions and going into offices, I expect it will continue to rise.

We enhanced our mobile app experience to bring it closer to parity with our website, including a new digital wallet functionality and outfit building tool. For the remainder of 2021, we will be adding capabilities including user generated content and live chat for real-time suggestions and advice from a digital stylist. We achieved a 41% increase in demand driven through the mobile app and are moving quickly toward a seamless digital customer experience. We launched a deferred payment feature through Klarna in the third quarter of last year and have seen a 27% higher AOV for customers who choose this payment option.

We increased the amount of user generated content and applied it across all of our digital properties with a particular focus on product pages and social media, where we know customers are making real-time purchase decisions. In the first quarter, we featured user generated content on approximately 40% of our product pages with 10% higher conversion than the average, and our goal is to double the number of pages that feature user generated content in the back half of this year. We continue to expand our digital stylist program and saw a 25% increase in demand and an 18% increase in AOV in the first quarter. Only a small percentage of our customers use this feature today. So as we increase coverage and expand the number of stylists, we expect this program to grow.

We continue to drive success with our outfitting recommendations tool with 20% higher conversion and 6% higher AOV on product pages with this feature. We will expand the use of this tool across our site and app experience, so customers will be able to shop trends and outfits as easily online as they already do in our physical stores. We have expanded our marketplace business and now feature over 80 brands that complements and broaden our Express brand assortment. Marketplace allows us to stay focused on what we do best while offering great product from complementary categories such as active, swimwear and home [Phonetic].

The Express Style trial rental program continues to resonate with our customers. We have more than doubled our women's membership and have exceeded our expectations in men's. This program offers our customers the opportunity to try our product and have newness in their closet with no ownership commitment. Our rental business is driving new customer acquisition. So we plan to double the membership over the next 18 months.

Turning to retail stores. We continue to see improvement from the fourth quarter and saw a dramatic acceleration in March and April, and we've seen further improvement in the second quarter. We continue to see encouraging trends in areas where coronavirus guidelines were less restrictive. In the first quarter were masks mandates were lifted, our comp performance was approximately 10 percentage points better and we are already seeing this performance materialize more broadly as states continue to lift mandates and restrictions. As I've said previously, our focus has now shifted from fleet rationalization in 2020 to fleet optimization in 2021. Fleet rationalization spoke to the number of stores we'll operate. Fleet optimization speaks to the location, size, concept, format and perhaps most importantly the role physical stores will play in customers post pandemic lives.

Our mall stores can and will be more productive and we will also expand beyond the mall. Our reduced square footage concept at the King of Prussia Mall has driven productivity double that of the balance of our fleet. And we will apply this approach to a new store at the NorthPark Mall in the second quarter. These stores and others like them will help us determine the optimal size of our mall-based stores. And we have tremendous flexibility with approximately two-thirds of our leases actionable over the next three years.

Our Express Edit Concept Stores are valuable test and learn opportunities. We see a higher percentage of both new and reactivated customers. In the first 90 days, our Columbus location reactivated customers at a 20% faster pace. and our Nashville location added 45% more new customers than the average store in the balance of the fleet. These stores also generated higher average dollar sales and higher conversion with the Columbus location achieving a conversion rate over twice the Company average. Express Edit stores have short-term leases in off-mall locations with strong foot traffic that allow us the flexibility to test, learn and modify going forward.

As an example, while the Columbus location I just mentioned had strong conversion, at 1,200 square feet, it was the smallest of these concepts, too small in our review. So we closed that store, a few weeks ago and opened a new store at Southlake Town Square near Dallas. We plan to operate approximately 10 Express Edit Concept Stores by the end of this year. We have already selected sites in Westport, Connecticut and Washington DC with footprints under 4,500 square feet, and true to the Express Edit Concept, the product mix will be curated to reflect local styles and trends within each market and neighborhood.

Another facet of the Express Edit strategy is the exploration of multiple stores in a single market. We will open two locations in Washington DC where we currently operate stores in the adjacent suburbs, so testing these smaller formats in the city center will allow us to read the impact on existing stores, e-commerce sales to these zip codes and new and existing customer activity overall.

Turning to our outlet stores. Once we began flowing the first deliveries that reflected the Express Edit design philosophy in March, we saw an acceleration in comparable sales that continued as we moved through the quarter, and our second quarter to date comp sales in our outlet channel are now tracking ahead of 2019.

We are bringing styles from retail to outlet more quickly, which is already generating strong response especially to our fashion product, denim and Express Essentials. The entire outlet assortment will reflect the Express Edit by the third quarter. And while outlets represent an important value component of our holistic channel strategy, all of the progress we have made from a product perspective has allowed us to be less promotional in this channel as well.

Now turning to the four foundational pillars of our strategy. Let me take you through what we've done, the results we've achieved to date, and what is still to come. I'll start with product. We established new core programs and introduced big ideas such as denim and Express Essentials. Balanced with fashion, tested and built inventory behind what worked, and we've seen incredible customer response. The new fashion deliveries are exceeding our expectations with sell-throughs in the first quarter up double digits compared to 2019. Average unit retail is 9% higher and merchandise margin is approximately 400 basis points higher. Our early second quarter deliveries in May have achieved a total sell-through of almost 40% higher than in 2019.

We put a stake in the ground last year to become a more powerful player in the denim market, and our results are outstanding. In 2019, only 8% of Express customers purchased our denim, and today we are at 24%. We saw significant acceleration in our denim business in the first quarter, selling over a million units, resulting in a positive double-digit comp in our retail channel across men's and women's as compared to 2019. This was driven by the introduction of new leg shapes, new fits, and the Denim by You customer co-creation assortment. This newness not only drove sales, it also attracted new customers. In the first quarter, we had over 18% new customer penetration in denim, 1.5 times that of 2019.

Our Express Essentials program is the second component of what we refer to as the new core, and we have also exceeded our expectations here. We made real progress during the quarter, selling over a million units across men's and women's and driving a 48% comp in our e-commerce channel. Express Essentials drove as much volume and as many unit sales in the first quarter as it did in the entire fall 2020 season. The performance was driven in women's by the launch of body contour, compression and high compression programs. In men's, the continued success of our Polo business, the expansion of our X logo icon and PK polos and tees, plus enhanced fabrics and fashion details contributed to a positive comp of 10% versus 2019 in men's knit tops.

As these new core elements of our business are performing well, the wear to work and occasion-based categories that have historically been our strength are starting to show signs of recovery. For example, store sales plus demand in men's suits went from down 41% in February to down 23% in March and April time periods, and second quarter to date are relatively flat. In women's, dresses went from down over 56% in February to down 25% in March and April, and second quarter to date are down just 14%. Our woven tops business has progressed from down 52% in February to down 31% in March and April, and are down single digits second quarter to date.

While it will of course take time to fully recover in these categories, we are very encouraged by these early signs and our core inventory is well positioned to take advantage of the demand. In fact, our first quarter receipts were down 25% compared to 2019 as we took a cautious planning approach coming into 2021. However, our confidence grew during the quarter and our new go-to-market process allowed us to be more agile and aggressive, and as a result our second quarter receipts are positioned to be 3% higher compared to 2019.

Turning to our second pillar, brand, restoring the relevance of the Express brand was a top priority, and brand tracking measures, social media engagement and customer feedback indicate that we have made good progress since first introducing our new brand positioning in August of 2020. Our brand purpose, to create confidence and inspire self expression comes through in all of our marketing, in the way we engage customers and in our marketing tactics across channels. Engagement metrics have increased across social channels with Instagram up 8% and Twitter up 140% compared to 2019. We are expanding our presence on TikTok, and just completed a campaign called ExpressReentry to inspire customers to reconnect with style as they get ready to return to some of their pre-pandemic routines. The campaign, which is a new and innovative way to connect our brand to our customers through a shared enthusiasm for fashion, has been viewed over 14 million times.

The health of our brand is improving as evidenced by the increase in traffic metrics, with organic search up 44%, direct load up 8%, and email-driven traffic up 3%. Our Dream Big project which launched at the end of 2020 supports organizations and individuals whose mission aligns with our brand purpose. In addition to financial support, we use our social platform to drive awareness and visibility for their efforts. Since the project began, we have raised over $500,000 to support those organizations who share our commitment to creating confidence and inspiring self expression.

We tested a purpose-based initiative in 40 of our retail stores, called random acts of confidence, which empowers sales associates to give product to customers in need of a confidence boost. The feedback from stores and customers has been overwhelming and we plan to expand the program in the third quarter. I'll share just one example of the very real and personal impact of our brand purpose.

A woman came into one of our stores in Carmel, Indiana and shared with a sales associate that she was making a career change and would be starting her new job in a few weeks. She had been a nurse for many years and always wore scrubs to work, but for her new job she would have to dress very differently. She needed a number of things but couldn't afford the piece that she loved most, a terrific drape sleeve mock neck dress. So we surprised her with a random act of confidence and gave her the dress as a gift from Express. The sales associate felt so good thinking about giving this customer confidence on her first day at her new job.

Our third pillar is customer, and we have driven strong results through the insider loyalty program we launched in the first quarter, delivering better engagement and increases across customer acquisition and reactivation while reducing the number of lapsed customers. Express Insider members have tremendous lifetime value. They spend on average two times more than non-members annually, their retention rate is eight times greater, and new members are nearly two times more likely to make a second visit within their first 90 days.

With the launch of the new tiers and earning structure at the end of March, we have seen improved profitability in the utilization of rewards, with a 6% increase in sales and a 38% decrease in markdowns tied to reward redemptions compared to 2019. Additionally, 19% of existing Express Insider customers reengaged with the loyalty program by qualifying for the new $5 Express cash reward.

We continue to have positive momentum with customer acquisition which was up 7%, with reactivations 25% and lapsed customers down 36% compared to 2019. Additionally, all channels saw an improvement in Express Insider transactions with e-commerce up 30% compared to 2019, while new Express Insiders drove an impressive 16 percentage point trend improvement in transactions quarter-over-quarter compared to 2019. We initiated a lapsed customer reactivation strategy at the end of the first quarter with direct mail messaging, a strategic customer targeting program and paid media, and the early results are very encouraging. Total reactivated customers increased by 22% in the quarter compared to 2019. These results were double what we anticipated.

Over the last year, we have completely reimagined our marketing approach and reallocated our investments across the marketing mix. We have increased engagement with our customers in new and creative ways and with more relevant and authentic content. Through ongoing dialog among our top loyalty program members and our design and merchandising teams, we are able to better understand our customers' evolving wardrobe needs and style preferences. As a result of this dialog, we developed a customer co-created denim assortment called Denim by You. This was one of our fastest selling collections for the quarter at over 230,000 units, generating over 100,000 new customers. As a result, we have exceeded our customer acquisition and retention plans. In fact, almost one third of our customers in the first quarter were new to the brand and new customers in our e-commerce channel increased by over 27% compared to 2019.

Our final pillar, execution, is both a through line across product, brand and customer and the evolution of our operating model as the result of more streamlined and disciplined systems and processes. Conversion is a key component of execution and we have successfully driven increases across all of our channels. In stores, conversion was driven by new customer experience models, new associate education programs, and continued focus on loyalty sign-ups.

Another key component of execution is inventory management, and we have significantly improved our inventory level and composition versus the end of the fourth quarter, which positions us well to flow more new product as we head into the second quarter and the back half of the year. Our historical strength in categories such as men's suits and women's dresses positions us well for continued improvement, especially as gatherings and occasions are expected to increase throughout the balance of the year. Products, brand, customer, and execution, across each one of these pillars, we have meaningfully advanced the Expressway Forward strategy and we are committed to driving long term value for our Company and our shareholders. I expect that our sales and profitability will accelerate as we move through 2021 and that we will deliver positive operating cash flow in the second quarter and positive EBITDA in the third quarter.

Perry will provide more detail on our first quarter results and share our view for the balance of the year.

Periclis V. Pericleous -- Senior Vice President, Chief Financial Officer and Treasurer

Thank you, Tim. I will start with our first quarter results, discuss our liquidity position, and provide a high level outlook on the balance of the year. My comments and comparisons will be to 2020 unless otherwise noted, and I will also make some quarter-over-quarter comparisons where those are relevant and meaningful.

First quarter net sales were $346 million, an increase of 64% as compared to 2020. Consolidated comparable sales were positive 5%, retail comps were positive 11%, and Express factory outlet comps were negative 19%. e-commerce demand compared to last year was up over 40% driven by the initiatives Tim discussed earlier. It is important to note that comparable sales calculations are not consistent across all retailers. Our comparable sales exclude sales from stores that were closed for at least one full day, including during the pandemic, consistent with our historical policy. Our sales showed significant recovery in the first quarter, particularly in the back half of the quarter. It is worth noting that these results were achieved with less promotional activity, reflecting the strength of our product and brand strategies.

We improved our merchandise margin by approximately 1,100 basis points compared to 2020 and expect to improve further as our inventory composition reflects a higher penetration of new receipts. In fact, new receipts delivered higher merchandise margin in the first quarter compared to 2019, reflecting a pull back on deep, storewide and sitewide promotions.

Buying and occupancy expenses were down $30 million compared to 2020, leveraging sales by approximately 3,400 basis points. This improvement was driven by significant reductions in our expense structure, mainly by rent savings achieved through landlord negotiations, fleet rationalization, and the November 2020 workforce reduction. Additionally, there was a $15 million impairment in the first quarter of last year. Compared to 2019, buying and occupancy was down $29 million.

During the first quarter, we had a gross profit of $79 million with a gross margin rate of 22.8%, increasing approximately 4,500 basis points as compared to the first quarter of 2020. This also reflects a sequential improvement to the fourth quarter of 2020 and we expect the gross margin rate to significantly improve throughout 2021 as sales continue to accelerate and our strategy continues to advance.

SG&A expenses were $119 million, an increase of $20 million compared to 2020 due mainly to last year's store closures and all of the mitigation actions we took during the pandemic. We leveraged SG&A expenses by approximately 1,300 basis points driven by our sales increases and the previously announced cost reductions associated with our corporate restructuring and fleet rationalization activities. Compared to 2019, SG&A expenses were down $16 million.

Our operating loss was $41 million as compared to an operating loss of $145 million in 2020. First quarter diluted loss per share was $0.70 on a GAAP basis compared to a loss of $2.41 per diluted share in the first quarter of 2020. Adjusting for a $10 million valuation allowance booked against our deferred tax assets, our adjusted diluted loss per share was $0.55.

Our effective tax rate for the first quarter was essentially zero and reflects the impact of the valuation allowance recorded against our deferred tax assets. Excluding this allowance, our effective tax rate for the first quarter was 22%.

Turning to our balance sheet and cash flow, we ended the quarter with $84 million of cash and cash equivalents, and our operating cash flow improved by $130 million. As we move forward, we expect to return to positive operating cash flow in the second quarter. Inventories at the end of the first quarter were $264 million, a 2% decrease as compared to last year's $269 million. We have made significant progress reducing red line inventory, which allows us to flow more new receipts in the back half of the second quarter and into the third quarter.

We also expect to realize significant liquidity benefits from the CARES Act in 2021. During the first quarter, we received $15 million and our balance sheet at the end of Q1 reflects $97 million of CARES Act receivable, of which $45 million was received subsequent to quarter end and we now expect to receive the remaining $52 million in the back half of the year. Our borrowings were $233 million, of which $105 million was drawn against our existing ABL credit facility, and the remaining $128 million was drawn on our term loans. During the quarter, we paid down $12 million on our term loan and quarter to date we have paid an additional $61 million against our debt.

Before moving to our outlook, I will review the equity offering press release we issued this morning. We filed a prospectus supplement with the SEC which gives us the ability over the next three years to sell up to 15 million shares of our common stock from time to time through an at-the-market, or ATM equity offering program. There is no timing associated with this announcement and no minimum offering amount.

Moving to our high level outlook, we expect the following for 2021, sequential comp sales improvement throughout the year; significant gross margin improvement for the year; buying and occupancy expense dollars to decrease double digits as a percent to 2019; SG&A expense dollars to decrease mid-single digits as a percent to 2019; net interest expense of $4 million in the second quarter and $16 million for the full year; effective tax rate of approximately 16% for the second quarter and approximately 20% for the third quarter, fourth quarter and for the year, excluding the impact of any valuation allowances recorded against deferred tax assets; positive EBITDA for the third quarter and the second half of the year; positive operating cash flow for the year beginning with Q2; and capital expenditures of approximately $35 million.

To summarize, based on the momentum we have seen in our business across all channels since Easter, further acceleration in the second quarter, continued strong response to new fashion receipts, our expectation that both sales and margin will continue to improve as we move forward, and the significant improvement in our operating cash flow, we are well positioned for 2021 and to achieve our long term goal of a mid-single digit operating margin.

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

Timothy Baxter -- Chief Executive Officer

Thanks, Perry. Before moving onto my closing thoughts, I want to briefly provide an update on another way in which we are driving long term investor value. Our digitally native brand, UpWest, had another exceptional quarter as the brand, product and purpose continued to resonate extremely well. UpWest.com experienced strong increases in traffic, conversion, and average order value in the first quarter, and the growth has been impressive with net sales increasing approximately 130% and gross margins expanding double digits in the first quarter.

We are continuing to explore retail through pop-up concepts with three locations already opened and three to four more planned for the second quarter. I am proud of the progress the team has made in a short amount of time, and although UpWest is not yet material to our overall results, I am confident that it will drive significant shareholder value in the future. The strong performance we have seen in the versatile side of our business continued in the first quarter and is now complemented by a resurgence in our wear-to-work and occasion-based categories, which positions us well for the post-pandemic environment. We are on track to reach our $1 billion e-commerce demand goal and achieve a mid-single digit operating margin.

The Expressway Forward strategy is moving ahead with momentum, and the inflection that we saw in the first quarter has accelerated quarter to date and we're now exceeding 2019 comp volumes. I expect these trends will continue to improve as we move through the second quarter and I am confident that we will return to positive operating cash flow in the second quarter and positive EBITDA in the third quarter.

Thank you for your continued interest in Express, and we'll now take your questions.

Questions and Answers:

Operator

[Operator instructions] Your first question comes from the line of Marni Shapiro with Retail Tracker. Your line is open.

Marni Shapiro -- The Retail Tracker -- Analyst

Hey guys, congratulations on the progress, and the stores have looked fantastic, though they need inventory in spots, in a good way. Could you talk a little bit about your best -- your best-sellers are sold out, so body contour, some of the Express Essentials. Denim is a really important category for you guys, especially in the back half of the year, so could you talk to us a little bit about how you're thinking about the store, those categories, inventory going forward, how it's going to affect your buys, just overall as you push forward in these big new pillars in your store.

Timothy Baxter -- Chief Executive Officer

Yeah, absolutely. Thanks Marni. I agree, we all agree that we do need more inventory in our stores. Our sell-throughs on both fashion and the big category distortions that you mentioned, like denim and Express Essentials, have far exceeded our expectations, particularly since the inflection point that we experienced at Easter. As we move forward, I did say our first quarter receipts, we were very conservative, they were down 25% to 2019's first quarter receipts. As we move through the second quarter, we've gotten very aggressive about going after the best-sellers within the fashion assortment and the big categories that are driving the business right now, and our second quarter receipts will be plus-3%.

Specifically, the two categories that you mentioned, I'll start with Express Essentials which have been fantastic in both men's and women's. Body contour specifically has been explosive for us. We more than doubled our inventory from the beginning of the first quarter to the end of the first quarter, and we will more than double our inventory position in body contour again in the next six weeks, so very aggressive -- we've taken a very aggressive stance on that category in addition to the other everyday essentials within that.

Denim is the same. Our performance has been explosive. Like I said, we actually drove a double-digit increase versus 2019 in denim in the first quarter, and that trend has also accelerated as we've moved into the second quarter, so we're also bolstering our inventory positions pretty significantly in denim, including in women's denim also more than doubling our current inventory position by the time we get near the end of the second quarter.

Marni Shapiro -- The Retail Tracker -- Analyst

Okay. I don't want to overstate this because I know there's a lot of work to do, but body contour in particular feels like it has changed the entire look of the women's business for you. I mean, how do you think about that? Is it just body contour or does it seep into dresses and other parts of the assortment for women's, because it feels to me as somebody walking in the stores that it can really change the trajectory of the brand. It's that impactful.

Timothy Baxter -- Chief Executive Officer

Yeah. Thank you, we agree, and it has been that impactful. And it is absolutely something that we are going after across categories. We've just delivered several dresses within the body contour collection. They have been outstanding. But to your point, it transcends just body contour. We've also had incredible success with sweaters that are body contoured, so this is an idea that we're going to go forward with in a very, very meaningful way, not just in the core product that you see, but also within our fashion deliveries across categories.

Marni Shapiro -- The Retail Tracker -- Analyst

Fantastic. Best of luck you guys. The stores just look great.

Timothy Baxter -- Chief Executive Officer

Thanks, Marni.

Operator

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

Susan Anderson -- B. Riley FBR, Inc. -- Analyst

Hi, good morning. Nice to see the improvement in the business. I'm curious on, so you're planning for positive EBITDA in third quarter and the back half. I guess I'm just curious, what's the puts and takes on that? How much is planned for improvement in gross margin or SG&A reduction? And then also how much is reliant on sales, I guess, remaining above 2019 levels?

Periclis V. Pericleous -- Senior Vice President, Chief Financial Officer and Treasurer

Really good questions, Susan. Obviously we haven't provided guidance in terms of our sales for the balance of the year, but based on our current plans, which obviously we exceeded our plans in the Q1 time frame from our own expectations. We're expecting that we're going to continue to see sequential improvements. If you look at Q1 to Q2 and then the back half of the year, those improvements will translate to obviously merchandise margin flow through and improvements there, and then continuing to leverage our buying and occupancy.

We have made over the last couple of years significant improvements in our buying and occupancy through rent reductions and store closures, so we expect significant leverage there translating to gross margins in the back half of the year that are going to be approaching the 2019 levels. Then from that, obviously through the sales improvements and the expense reductions that we've discussed, we get into the positive EBITDA for Q3 and the back half of the year.

Susan Anderson -- B. Riley FBR, Inc. -- Analyst

Okay, great. And then just on -- and maybe if you could give some more details on the liquidity. I think you said you repaid $61 million of debt after the first quarter. Was that from the CARES Act money that was received after the quarter also? And then with the remainder of that money, do you plan to pay down debt? And then finally, I guess with the ATM money, is that going to all go toward debt, and if so, I'm just curious what your expectation for debt levels are after both of those funds come in, and then by the end of the year too?

Periclis V. Pericleous -- Senior Vice President, Chief Financial Officer and Treasurer

Yeah, so from -- let's address first the CARES Act. From a CARES Act standpoint, we've used all the CARES Act money to pay down debt. We paid $61 million subsequent to quarter end. We've had really good operating cash flows in Q1, and we continue to improve on our operating cash flows. We're going to continue to pay down both on our $50 million delayed draw term loan and we're going to use CARES Act money for that, and then also from an ABL standpoint, we'll use positive operating cash flows to pay those down.

We haven't provided guidance as to our debt levels at the end of the year, but I do want to address the question around the ATM. From an ATM standpoint, we believe it's prudent to have the ATM on file, and it's effective, as you may know, through April of 2024 and simply provides us with optionality for future years. At this point, we haven't really discussed or disclosed when and how we will be in the market. It's something that obviously we won't be disclosing that ahead of time.

Susan Anderson -- B. Riley FBR, Inc. -- Analyst

Okay, great. And then just one clarification, I think you guys had said that store sales plus demand were trending above 2019 levels. Is that store comp sales, or does that include ecomm? Maybe if you could just clarify what that is. I think I heard that the outlet sales were above '19, maybe if you could talk about the full price store sales and what those trend levels are too. Thanks.

Periclis V. Pericleous -- Senior Vice President, Chief Financial Officer and Treasurer

Yeah, absolutely. The comment around the above 2019 levels is based on store comp sales plus demand, so if you look at it through Memorial weekend, through that Monday of Memorial Day, that is tracking from a comp standpoint ahead of the 2019 levels. Tim mentioned in his prepared remarks that the outlets are positive from a comp standpoint and the retail business, through the acceleration that we have seen, in demand is also positive.

Susan Anderson -- B. Riley FBR, Inc. -- Analyst

Got it. And what's the plus demand represent? Is that the ecomm sales, then?

Periclis V. Pericleous -- Senior Vice President, Chief Financial Officer and Treasurer

Yes.

Susan Anderson -- B. Riley FBR, Inc. -- Analyst

Great, OK. That's what I was confused on. Okay, great. Thanks so much you guys. Good luck the rest of the year.

Periclis V. Pericleous -- Senior Vice President, Chief Financial Officer and Treasurer

Thanks, Susan.

Timothy Baxter -- Chief Executive Officer

Thank you.

Operator

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

Roxanne Meyer -- MKM Partners -- Analyst

Great, good morning, and let me add my congratulations on the accelerated improvement. I appreciate your expectation for the sequential improvement in the gross margin, but I was hoping you could give us more perspective on gross margin versus 2019, I guess specifically for 1Q, how 1Q21 fared merch margin and buying and occupancy versus '19, and how we should think about the merchandise margin piece, the progression toward the quarters of 2019. Thanks a lot.

Periclis V. Pericleous -- Senior Vice President, Chief Financial Officer and Treasurer

Great question. So let me address the gross margin component first. From a Q1 standpoint, our gross margin came in at 22.8%, and when you look at that compared to the 2019 level, that is down approximately 400 basis points some, and we expect the gross margin to continue to improve compared to those 2019 levels. When you look at overall for the back half of the year, we expect the gross margin to get very, very close to the 2019 level. That is a combination of continued merchandise margin improvement.

Our merchandise margin in Q1 was obviously impacted by the mix of inventory, but as we move throughout the year, our inventory composition is improving significantly with the new receipts. Tim mentioned in his prepared remarks that our receipts in Q1 were down 25% -- that is new fashion deliveries, and then as we move into Q2, our receipts are going to be up and we're expecting our merchandise margin as the inventory composition improves to continue to improve and get closer from a merchandise margin standpoint to those 2019 levels. From a buying and occupancy, given all the reductions that we have made on those line items, we're expecting as the sales are improving, obviously the buying and occupancy should continue to expand and improve and get to levels that are higher than 2019, or better, therefore overall your gross margin getting closer to that 2019 level.

Roxanne Meyer -- MKM Partners -- Analyst

Okay, great. And then from a supply chain perspective, I know that shipments had been delayed on average three to four weeks, and certainly that was a factor in the first quarter. I'm assuming that's what's really driving your commentary around demand in general, that there are delayed shipments. Just wondering if you could talk to where your deliveries are now relative to where you'd like them in terms of being on track, and also can you actually quantify what that demand piece looks like, because you speak to it a lot. It feels like the sales trend in Q1 would have been a lot stronger if things were on time. I just want to better appreciate the qualification of demand, both in Q1 and Q2. Thanks a lot.

Matthew C. Moellering -- President and Chief Operating Officer

Sure, this is Matt. So we definitely felt an impact from the transportation issues, a lot of them driven by the Port of Long Beach and then back-ups subsequent to that on the east coast as well and where we did, to your point, see those three to four-week delays. Combined with the fact that we did plan very conservatively from a receipts stand point to begin with in Q1 as we were just starting -- you know, before we really started to come out of the pandemic, we were down 25% in receipts on top of that.

What we had done is pushed floor sets out, about two weeks before setting the floor sets. We're about two weeks later than originally planned on subsequent floor sets going forward, and in Q2, as Tim mentioned in his comments, the receipts will be up 3% versus down 25% in Q1. We definitely would like to have more inventory in our stores and online right now, and as we start to get more newness into our stores and our fulfillment center, we think that will definitely be a tailwind for us as we progress through Q2.

Roxanne Meyer -- MKM Partners -- Analyst

Okay, great. Thanks and best of luck.

Matthew C. Moellering -- President and Chief Operating Officer

Thank you.

Operator

Your next question comes from the line of Steve Marotta with C.L. King & Associates. Your line is open.

Steve Marotta -- C.L. King & Associates -- Analyst

Good morning, Tim, Perry and Matt. Tim, maybe at a very high level you could provide a little bit of context on your current market share overlaid with, say, the number of doors that may have closed, say, in the last 15 months or simply the competitive landscape is a little bit different now again than going into the pandemic, and the opportunities that presents for you in particular categories. Thanks.

Timothy Baxter -- Chief Executive Officer

Sure. Thank, Steve. As you know, we have enjoyed very strong market share penetration in categories that you would typically describe as occasion-based or wear-to-work, so we've had strong market share, held strong market share positions in categories like men's suits, which has historically been our biggest business in men's, men's dress shirts, our second biggest business historically in men's, big businesses like women's dress pants, dresses, blouses, wovens have all been historical strongholds for us. Our strength in those categories was a significant headwind for us, obviously, during the pandemic, much more significant headwind than our much more casual competitors faced.

Those headwinds are poised to become tailwinds as we emerge from the pandemic and as consumers begin to resume pre-pandemic activities and occasions, and going back into the office. I mentioned in my prepared remarks that we have seen that resurgence as states lift restrictions. We see a very distinct change in our business, and particularly in those categories, so as I described in my comments, we saw a major acceleration in those categories post-Easter and I expect that we will continue great progress in those categories as we move forward, particularly because, as you mentioned, many of our competitors in those categories have closed a substantial number of stores during the pandemic and the retail landscape, the physical retail landscape in those categories has changed very dramatically.

How much it has changed, I think remains to be seen, so I don't want to quantify market share -- a percentage of market share that I think we can go get, but I will say that we are very aggressively going after market share in those categories. We did not walk away from them during the pandemic and we are not walking away from them going forward. We have changed our approach in many cases in those categories because the one thing that I do think customers are going to expect moving forward is comfort, and so we have infused comfort characteristics, comfort qualities across all of our categories, including categories like men's suits and dress shirts, women's dress pants, even dresses, so that people can be as comfortable when they are dressed for work or for an occasion as they have been throughout the pandemic.

Steve Marotta -- C.L. King & Associates -- Analyst

That's really helpful. I'll take the balance of my questions offline. Thanks, again.

Timothy Baxter -- Chief Executive Officer

Thanks.

Operator

There are no further questions at this time. I will now turn the call back to presenters for closing remarks.

Timothy Baxter -- Chief Executive Officer

Thank you, everyone. We appreciate your continued interest in Express and your continued support.

Operator

[Operator Closing Remarks]

Duration: 53 minutes

Call participants:

Dan Aldridge -- Vice President of Investor Relations

Timothy Baxter -- Chief Executive Officer

Periclis V. Pericleous -- Senior Vice President, Chief Financial Officer and Treasurer

Matthew C. Moellering -- President and Chief Operating Officer

Marni Shapiro -- The Retail Tracker -- Analyst

Susan Anderson -- B. Riley FBR, Inc. -- Analyst

Roxanne Meyer -- MKM Partners -- Analyst

Steve Marotta -- C.L. King & Associates -- Analyst

More EXPR analysis

All earnings call transcripts

AlphaStreet Logo

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.