WHP Global Invests $260 Million Into Express; Acquires 7.4 Percent
Express is looking to go big, connecting with WHP Global with an eye toward consolidating the fashion space — and Wall Street liked the new direction, which also came with an infusion of cash.
Shares of the retailer jumped as much as 67 percent on Monday as investors looked past tough third-quarter results to gauge the future. The stock closed up 38.3 percent to $1.77 — giving the company a market capitalization of $120.8 million.
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WHP Global plans to invest $260 million into Express as part of a two-part deal that will allow the retailer to scale internationally, add categories by way of licensing deals and create a platform to acquire more brands.
The deal is expected to close in the fourth quarter.
“When we think of the Express brand, we love the brand,” Yehuda Shmidman, WHP Global chairman and chief executive officer, told WWD in an exclusive interview. “We see [the partnership] as a huge opportunity…to bring Express outside the U.S. and into the new categories. And when we’re in the marketplace looking at opportunities, our goal is to identify [them] with the Express team. That’s the winning formula. It really is the right time for this. What a perfect time to capitalize on a volatile macro environment where there is so much in flux. This is the time to partner together.”
Tim Baxter, CEO of Express, added: “Being able to leverage each other’s strengths and not only grow the Express brand together, but acquire new brands together and be able to leverage those same strengths with each and every brand we acquire…it’s just an incredible power combination that’s really never been done before.”
The deal is multilayered.
First, the brand management firm will invest $235 million for a 60 percent stake in an intellectual property joint venture. Express will retain a 40 percent stake. The deal will allow Express to scale internationally and into noncore categories — such as eyewear or children’s apparel — by way of licensing deals.
“We immediately strengthen our balance sheet at Express with a $260 million investment from WHP [and the deal will allow us to] upgrade our platform capabilities and eliminate our high-interest rate term loan,” Baxter said.
WHP will also purchase $25 million worth of Express common stock through a common equity PIPE investment. The company will purchase 5.4 million newly issued shares at $4.60 a share, which represents a 7.4 percent pro-forma ownership. Express will continue to operate as a publicly traded company on the New York Stock Exchange.
Lastly, the two firms will launch an omnichannel platform to acquire, operate and grow multiple fashion brands.
“This really positions us together to take advantage of retail industry consolidation that we know is happening already and we anticipate will continue to happen throughout the next year,” Baxter said. “Ultimately, we’re looking for brands that will provide the most synergies and the biggest opportunities for us to drive both top- and bottom-line growth. But we will be focused on fashion brands. That’s clearly where our expertise lies — on retail fashion brands.”
The Express brand will continue to operate as an independent business in the U.S. The partnership with WHP excludes the UpWest brand, which is part of the Express portfolio.
Shmidman added that with the current macro environment — the IPO market closed and brands struggling to secure investments — opportunities to acquire new brands have increased exponentially.
“When we think about the amount of fashion brands out there [for sale], there are a lot,” he said. “Historically there have always been opportunities in fashion here and there. But given the environment today, it’s increased for sure, the amount of opportunities. You can imagine the types of fashion brands that are out there that we’re very excited to pursue.
“The secret though, there’s this new combination out there built to pursue those acquisitions,” Shmidman continued. “This is going to be a completely new vehicle. And a powerful vehicle with a competitive edge to go pursue those acquisitions in a completely new and exciting way.”
In the meantime, Express — like many other retailers — is struggling in what seems to be a tough holiday season.
The company posted third-quarter net losses of $34.4 million, or 50 cents a diluted share, down from earnings a year ago of $13.1 million, or 19 cents. Sales for the three months ended Oct. 29 fell 8 percent to $434 million from $472 million.
Baxter told analysts on a conference call the quarter was “tougher than we anticipated.”
“The macroeconomic consumer and competitive environments were extremely challenging,” Baxter said. “And became more acute as the quarter progressed. Across the industry, we saw widespread aggressive promotional activity. Our strategy to elevate our brand through higher average unit retail and reduced storewide and site-wide promotions, which has driven steady growth for the past five quarters, came up against the consumers’ reduced spending in discretionary categories and increased appetite for deep discounts.”
The CEO also acknowledged “some misses in our women’s business” and said the assortments were being realigned.
While analysts on the call had plenty of questions on the quarter, they also wanted to dig into the partnership, which Baxter described as “a bold new chapter.”
Just what this new chapter looks like will become more clear as brands are added onto the Express platform.
Asked about the company’s criteria for acquisitions, Jason Judd, chief financial officer of Express said: “We’re going to be exploring multiple opportunities. And we’re going to be very, very focused on those opportunities that we believe will provide us with the most top- and bottom-line growth. Those are the two most important criteria. Will this be accretive to our top and bottom line? Can we drive growth through these acquisitions? And so it’s more than just about the revenue, and it’s more than just about whatever brand it is. It’s got to be able to drive both top- and bottom-line growth for us.”
