- Net sales decreased 7% to $506.1
million.
- Diluted EPS was $0.15, including a
$0.04 net tax benefit.
- Total inventory was down
6%.
Express, Inc. (NYSE:EXPR), a specialty retail apparel company,
announced its financial results for the third quarter of 2016.
These results, which cover the thirteen and thirty-nine weeks ended
October 29, 2016, are compared to the thirteen and thirty-nine
weeks ended October 31, 2015.
David Kornberg, the Company’s president and chief executive
officer, stated: “Our third quarter performance was highlighted by
sales and earnings in line with our guidance and progress made
addressing the areas noted for improvement during our second
quarter call. This progress included refocusing our brand
projection and marketing to be more consistent with our core
demographic and additional steps taken to drive customer
acquisition and retention. Notably, while mall traffic challenges
continued to impact our store performance, we achieved a double
digit increase in e-commerce sales.”
Mr. Kornberg, continued: "We expect the holiday season to remain
challenging as mall traffic and a highly promotional retail
environment continue to be headwinds. That being said, we believe
our focus and execution against our key priorities, which include
driving improved profitability through a balanced approach to
growth, elevating our brand and customer experience, investing in
the growth and development of our associates and achieving the
benefits from our systems implementations, will position our
Company to create shareholder value over the long term.”
Third Quarter 2016 Operating Results:
- Net sales decreased 7% to $506.1
million from $546.6 million in the third quarter of 2015.
- Comparable sales (including e-commerce
sales) decreased 8%, compared to a 6% increase in the third quarter
of 2015.
- E-commerce sales increased 15% to $96.3
million.
- Merchandise margin declined by 340
basis points driven by increased promotional activity. Buying and
occupancy as a percentage of net sales rose by 160 basis points. In
combination, this resulted in a 500 basis point decline in gross
margin, representing 30.0% of net sales compared to 35.0% in last
year’s third quarter.
- Selling, general, and administrative
(SG&A) expenses were $136.6 million versus $146.6 million in
last year's third quarter. As a percentage of net sales, SG&A
expenses increased by 20 basis points to 27.0%.
- Operating income was $15.1 million, or
3.0% of net sales, compared to $44.5 million, or 8.1% of net sales
in the third quarter of 2015.
- Income tax expense was $2.8 million, at
an effective tax rate of 19.6%, compared to $16.9 million, at an
effective tax rate of 39.2% in last year's third quarter. The
effective tax rate for the thirteen weeks
ended October 29, 2016 includes a net tax benefit of
approximately $2.9 million attributable to certain discrete items
that occurred during the third quarter.
- Net income was $11.6 million, or $0.15
per diluted share and includes a net $0.04 per diluted share
benefit related to the aforementioned income tax items. This
compares to net income of $26.3 million, or $0.31 per diluted
share, in the third quarter of 2015.
- Real estate activity for the third
quarter of 2016 is presented in Schedule 5.
Third Quarter 2016 Balance Sheet Highlights:
- Cash and cash equivalents totaled
$101.9 million versus $91.2 million at the end of the third quarter
of 2015. During the thirty-nine weeks ended October 29, 2016,
approximately $51.5 million was used to repurchase approximately
3.2 million shares of the Company's outstanding common stock.
- Capital expenditures totaled $80.9
million for the thirty-nine weeks ended October 29, 2016 compared
to $85.0 million for the thirty-nine weeks ended October 31,
2015.
- Inventory was $341.9 million compared
to $364.7 million at the end of the prior year’s third quarter, a
6% decrease.
2016 Guidance:
The table below compares the Company's projected results for the
thirteen week period ended January 28, 2017 to the actual results
for the thirteen week period ended January 30, 2016.
Fourth Quarter 2016 Guidance
Fourth Quarter 2015
Actual Results
Comparable Sales Negative low double digits 4% Effective Tax Rate
Approximately 39% 38.5% Interest Expense, Net $0.7 million $1.1
million Net Income $20 to $23 million $56.1 million Diluted
Earnings Per Share (EPS) $0.26 to $0.30 $0.67 Weighted Average
Diluted Shares Outstanding 78.8 million 83.3 million
The table below compares the Company's projected results for the
52 week period ended January 28, 2017 to the actual results for the
52 week period ended January 30, 2016.
Full Year 2016 Guidance
Full Year 2015
Actual Results
Comparable Sales Negative high single digits 6% Effective Tax Rate
Approximately 37% 38.9% Interest Expense, Net $13.5 million(1)
$15.9 million(2) Net Income $55 to $58 million(1) $116.5 million(2)
Adjusted Net Income $62 to $65 million(3) $122.4 million(3) Diluted
EPS $0.70 to $0.74(1) $1.38(2) Adjusted Diluted EPS $0.78 to
$0.82(3) $1.45(3) Weighted Average Diluted Shares Outstanding 79.1
million 84.6 million Capital Expenditures $100 to $105 million
$115.3 million (1) Includes
approximately $11.4 million of non-core items related to an
amendment to the Times Square Flagship store lease that allows for
early termination at the landlord's option. (2) Includes
approximately $9.7 million of non-core items in connection with the
redemption of our Senior Notes. These items consist of the
redemption premium paid, the write-off of unamortized debt issuance
costs, and the write-off of the unamortized debt discount.
(3)
Adjusted Net Income and Adjusted Diluted
EPS are non-GAAP financial measures. Refer to Schedule 4 for a
reconciliation of GAAP to Non-GAAP financial measures.
This guidance does not take into account any additional non-core
items that may occur.
See Schedule 5 for a discussion of projected real estate
activity.
Conference Call Information:
A conference call to discuss third quarter 2016 results is
scheduled for Thursday, December 1, 2016 at 9:00 a.m. Eastern Time
(ET). Investors and analysts interested in participating in the
call are invited to dial (877) 705-6003 approximately ten minutes
prior to the start of the call. The conference call will also be
webcast live at: http://www.express.com/investor and remain
available for 90 days. A telephone replay of this call will be
available at 12:00 p.m. ET on December 1, 2016 until 11:59 p.m. ET
on December 8, 2016 and can be accessed by dialing (877) 870-5176
and entering replay pin number 13650225.
About Express, Inc.:
Express is a specialty apparel and accessories retailer of
women's and men's merchandise, targeting the 20 to 30- year-old
customer. Express has more than 35 years of experience offering a
distinct combination of fashion and quality for multiple lifestyle
occasions at an attractive value addressing fashion needs across
work, casual, jeanswear, and going-out occasions. The Company
currently operates more than 650 retail and factory outlet stores,
located primarily in high-traffic shopping malls, lifestyle
centers, and street locations across the United States, Canada, and
Puerto Rico. Express merchandise is also available at franchise
locations in Latin America and the Middle East. Express also
markets and sells its products through its e-commerce
website, www.express.com, as well
as on its mobile app.
Forward-Looking Statements:
Certain statements are “forward-looking statements” made
pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements include
any statement that does not directly relate to any historical or
current fact and include, but are not limited to, (1) guidance and
expectations for the fourth quarter and full year 2016, including
statements regarding expected comparable sales, effective tax
rates, interest expense, net income, adjusted net income, diluted
earnings per share, adjusted diluted earnings per share, and
capital expenditures, (2) statements regarding expected store
openings, store closures, and gross square footage, and (3)
statements regarding the Company's future plans and initiatives,
including, but not limited to, results expected from such
initiatives. Forward-looking statements are based on our current
expectations and assumptions, which may not prove to be accurate.
These statements are not guarantees and are subject to risks,
uncertainties, and changes in circumstances that are difficult to
predict, and significant contingencies, many of which are beyond
the Company's control. Many factors could cause actual results to
differ materially and adversely from these forward-looking
statements. Among these factors are (1) changes in consumer
spending and general economic conditions; (2) our ability to
identify and respond to new and changing fashion trends, customer
preferences, and other related factors; (3) fluctuations in our
sales, results of operations, and cash levels on a seasonal basis
and due to a variety of other factors, including, our product
offerings relative to customer demand, the mix of merchandise we
sell, promotions, and inventory levels; (4) competition from other
retailers; (5) customer traffic at malls, shopping centers, and at
our stores and online; (6) our dependence on a strong brand image;
(7) our ability to develop and maintain a relevant and reliable
omni-channel experience for our customers; (8) the failure or
breach of information systems upon which we rely; (9) our ability
to protect customer data from fraud and theft; (10) our dependence
upon third parties to manufacture all of our merchandise; (11)
changes in the cost of raw materials, labor, and freight; (12)
supply chain disruption; (13) our dependence upon key executive
management; (14) our growth strategy, including our ability to
improve the productivity of our existing stores, open new stores,
and grow our e-commerce business; (15) our substantial lease
obligations; (16) our reliance on third parties to provide us with
certain key services for our business; (17) claims made against us
resulting in litigation or changes in laws and regulations
applicable to our business; (18) our inability to protect our
trademarks or other intellectual property rights which may preclude
the use of our trademarks or other intellectual property around the
world; (19) restrictions imposed on us under the terms of our
asset-based loan facility, including restrictions on our ability to
repurchase our common stock; (20) impairment charges on long-lived
assets; and (21) changes in tax requirements, results of tax
audits, and other factors that may cause fluctuations in our
effective tax rate. Additional information concerning these and
other factors can be found in Express, Inc.'s filings with the
Securities and Exchange Commission. We undertake no obligation to
publicly update or revise any forward-looking statement as a result
of new information, future events, or otherwise, except as
otherwise required by law.
Schedule 1
Express, Inc.
Consolidated Balance Sheets
(In thousands)
(Unaudited)
October 29, 2016
January 30, 2016 October 31, 2015 ASSETS
CURRENT ASSETS: Cash and cash equivalents $ 101,855 $ 186,903 $
91,215 Receivables, net 16,274 22,130 25,810 Inventories 341,936
255,350 364,662 Prepaid minimum rent 31,434 30,694 30,660 Other
21,786 18,342 28,788 Total current assets
513,285 513,419 541,135 PROPERTY AND EQUIPMENT 1,017,259
948,608 928,434 Less: accumulated depreciation (550,725 ) (504,211
) (484,929 ) Property and equipment, net 466,534 444,397 443,505
TRADENAME/DOMAIN NAMES/TRADEMARKS 197,618 197,597 197,597
DEFERRED TAX ASSETS 21,612 21,227 11,718 OTHER ASSETS 12,696
2,004 2,990 Total assets $ 1,211,745 $
1,178,644 $ 1,196,945
LIABILITIES AND
STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $
222,818 $ 149,884 $ 209,874 Deferred revenue 25,322 30,895 22,302
Accrued expenses 166,953 126,624 106,925 Total
current liabilities 415,093 307,403 339,101 DEFERRED LEASE
CREDITS 145,507 139,236 139,203 OTHER LONG-TERM LIABILITIES 40,451
114,052 112,518 Total liabilities 601,051
560,691 590,822 COMMITMENTS AND CONTINGENCIES Total
stockholders’ equity 610,694 617,953 606,123
Total liabilities and stockholders’ equity $ 1,211,745 $
1,178,644 $ 1,196,945
Schedule 2
Express, Inc.
Consolidated Statements of
Income
(In thousands, except per share
amounts)
(Unaudited)
Thirteen Weeks Ended
Thirty-Nine Weeks Ended
October 29, 2016
October 31, 2015
October 29, 2016
October 31, 2015
NET SALES $ 506,090 $ 546,616 $ 1,513,766 $ 1,584,576 COST OF GOODS
SOLD, BUYING AND OCCUPANCY COSTS 354,373 355,527
1,043,382 1,049,853 Gross profit 151,717 191,089 470,384
534,723 OPERATING EXPENSES: Selling, general, and administrative
expenses 136,633 146,585 405,547 420,334 Other operating (income)
expense, net (17 ) (29 ) 28 43 Total operating expenses
136,616 146,556 405,575 420,377 OPERATING INCOME 15,101
44,533 64,809 114,346 INTEREST EXPENSE, NET 567 1,207 12,845
14,751 OTHER EXPENSE (INCOME), NET 90 70 (404 ) 140
INCOME BEFORE INCOME TAXES 14,444 43,256 52,368 99,455 INCOME TAX
EXPENSE 2,827 16,949 17,725 39,058 NET INCOME
$ 11,617 $ 26,307 $ 34,643 $ 60,397 EARNINGS PER SHARE:
Basic $ 0.15 $ 0.31 $ 0.44 $ 0.72 Diluted $ 0.15 $ 0.31 $ 0.44 $
0.71 WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 78,401
84,240 78,754 84,453 Diluted 78,595 84,849 79,151 85,009
Schedule 3
Express, Inc.
Consolidated Statements of Cash
Flows
(In thousands)
(Unaudited)
Thirty-Nine Weeks Ended October 29,
2016 October 31, 2015 CASH FLOWS FROM
OPERATING ACTIVITIES: Net income $ 34,643 $ 60,397 Adjustments to
reconcile net income to net cash provided by operating activities:
Depreciation and amortization 58,960 56,103 Loss on disposal of
property and equipment 907 1,313 Impairment charge 829 —
Amortization of lease financing obligation discount 11,354 — Excess
tax benefit from share-based compensation — (334 ) Share-based
compensation 10,783 15,114 Non-cash loss on extinguishment of debt
— 5,314 Deferred taxes (385 ) (6,805 ) Landlord allowance
amortization (8,345 ) (9,208 ) Payment of original issue discount —
(2,812 ) Changes in operating assets and liabilities: Receivables,
net 5,883 (2,546 ) Inventories (86,468 ) (123,806 ) Accounts
payable, deferred revenue, and accrued expenses 28,749 42,514 Other
assets and liabilities 2,954 20,389 Net cash provided
by operating activities 59,864 55,633 CASH FLOWS FROM
INVESTING ACTIVITIES: Capital expenditures (80,900 ) (85,013 )
Purchase of intangible assets (21 ) (35 ) Investment in equity
interests (10,133 ) — Net cash used in investing activities
(91,054 ) (85,048 ) CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt — (198,038 ) Costs incurred in
connection with debt arrangements — (1,006 ) Payments on lease
financing obligations (1,186 ) (1,168 ) Excess tax benefit from
share-based compensation — 334 Proceeds from exercise of stock
options 2,735 1,265 Repurchase of common stock under share
repurchase program (51,538 ) (22,020 ) Repurchase of shares for tax
withholding obligations (4,498 ) (4,400 ) Net cash used in
financing activities (54,487 ) (225,033 ) EFFECT OF EXCHANGE
RATE ON CASH 629 (496 ) NET DECREASE IN CASH AND CASH
EQUIVALENTS (85,048 ) (254,944 ) CASH AND CASH EQUIVALENTS,
Beginning of period 186,903 346,159 CASH AND CASH
EQUIVALENTS, End of period $ 101,855 $ 91,215
Schedule 4
Supplemental Information - Consolidated
Statements of Income
Reconciliation of GAAP to Non-GAAP
Financial Measures
(Unaudited)
The Company supplements the reporting of its financial
information determined under United States generally accepted
accounting principles (GAAP) with certain non-GAAP financial
measures: adjusted net income and adjusted diluted earnings per
share. The Company believes that these non-GAAP measures provide
additional useful information to assist stockholders in
understanding its financial results and assessing its prospects for
future performance. Management believes adjusted net income and
adjusted diluted earnings per share are important indicators of the
Company's business performance because they exclude items that may
not be indicative of, or are unrelated to, the Company's underlying
operating results, and provide a better baseline for analyzing
trends in the business. In addition, adjusted diluted earnings per
share is used as a performance measure in the Company's executive
compensation program for purposes of determining the number of
equity awards that are ultimately earned. Because non-GAAP
financial measures are not standardized, it may not be possible to
compare these financial measures with other companies' non-GAAP
financial measures having the same or similar names. These adjusted
financial measures should not be considered in isolation or as a
substitute for reported net income and reported diluted earnings
per share. These non-GAAP financial measures reflect an additional
way of viewing the Company's operations that, when viewed with the
GAAP results and the below reconciliations to the corresponding
GAAP financial measures, provide a more complete understanding of
the Company's business. Management strongly encourages investors
and stockholders to review the Company's financial statements and
publicly-filed reports in their entirety and not to rely on any
single financial measure.
Thirty-Nine Weeks Ended October 29, 2016 (in thousands,
except per share amounts) Net Income
Diluted Earnings per
Share
Weighted Average
Diluted Shares
Outstanding
Reported GAAP Measure $ 34,643 $ 0.44 79,151 Interest Expense (a)
11,354 0.14 Income Tax Benefit (b) (4,428 ) (0.06 ) Adjusted
Non-GAAP Measure $ 41,569 $ 0.53
(a) Represents non-core items related to the amendment of
the Times Square Flagship store lease. (b) Represents the
tax impact of the interest expense adjustment at our statutory rate
of approximately 39% for the thirty-nine weeks ended October 29,
2016.
Thirty-Nine Weeks Ended
October 31, 2015 (in thousands, except per share
amounts) Net Income
Diluted Earnings per
Share
Weighted Average
Diluted Shares
Outstanding
Reported GAAP Measure $ 60,397 $ 0.71 85,009 Interest Expense (a)
9,657 0.11 Income Tax Benefit (b) (3,741 ) (0.04 ) Adjusted
Non-GAAP Measure $ 66,313 $ 0.78
(a) Includes the redemption premium paid, the write-off of
unamortized debt issuance costs, and the write-off of the
unamortized debt discount related to the redemption of all $200.9
million of our Senior Notes. (b) Represents the tax impact
of the interest expense adjustment at our statutory rate of
approximately 39% for the thirty-nine weeks ended October 31, 2015.
Schedule 4 (Continued)
Supplemental Information - Consolidated
Statements of Income
Reconciliation of GAAP to Non-GAAP
Financial Measures
(Unaudited)
Fifty-Two Weeks Ended January 28, 2017 (in
thousands, except per share amounts)
Projected Net
Income
Projected Diluted
Earnings per Share
Projected Weighted
Average Diluted
Shares Outstanding
Projected GAAP Measure * $ 56,500 $ 0.71 79,068 Interest Expense
(a) 11,354 0.14 Income Tax Benefit (b) (4,428 ) (0.06 ) Projected
Adjusted Non-GAAP Measure * $ 63,426 $ 0.80
(a) Represents non-core items related to the
amendment of the Times Square Flagship store lease. (b)
Represents the tax impact of the interest expense adjustment at our
statutory rate of approximately 39% for the fifty-two weeks ended
January 28, 2017.
* Represents mid-point of guidance
range.
Fifty-Two Weeks Ended January 30,
2016 (in thousands, except per share amounts) Net
Income
Diluted Earnings per
Share
Weighted Average
Diluted Shares
Outstanding
Reported GAAP Measure $ 116,513 $ 1.38 84,591 Interest Expense (a)
9,657 0.11 Income Tax Benefit (b) (3,741 ) (0.04 ) Adjusted
Non-GAAP Measure $ 122,429 $ 1.45
(a) Includes the redemption premium paid, the
write-off of unamortized debt issuance costs, and the write-off of
the unamortized debt discount related to the redemption of all
$200.9 million of our Senior Notes. (b) Represents the tax
impact of the interest expense adjustment at our statutory rate of
approximately 39% for the fifty-two weeks ended January 30, 2016.
Schedule 5
Express, Inc.
Real Estate Activity
(Unaudited)
Third Quarter 2016 - Actual
October 29, 2016 - Actual Company-Operated Stores
Opened Closed Conversion
Store Count
Gross Square
Footage
United States - Retail Stores — — — 537 United States
- Outlet Stores 5 — — 99 Canada — — — 17 Total 5 — —
653 5.6 million
Fourth Quarter 2016 - Projected
January 28, 2017 - Projected Company-Operated Stores
Opened Closed Conversion
Store Count
Gross Square
Footage
United States - Retail Stores — (1) (1) 535 United States - Outlet
Stores 4 — 1 104 Canada — — — 17 Total 4 (1) — 656
5.7 million
Full Year 2016 - Projected
Company-Operated Stores Opened
Closed Conversion United States - Retail
Stores — (16) (4) United States - Outlet Stores 19 — 4 Canada —
— — Total 19 (16) —
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161201005457/en/
Investors:ICR, Inc.Allison Malkin,
203-682-8225orMedia:Express, Inc.Robin
Hoffman, 614-474-4834Director, Communications
Express (NYSE:EXPR)
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