- Second quarter comparable sales
decreased by 4%
- Second quarter loss of $0.15 per
share, or income of $0.01 per share on an adjusted basis excluding
costs related to the exit of Canada
- E-commerce sales increased 28%,
accounting for 19% of net sales
- Omni-channel capabilities advance
with "ship from store" now active in 150 stores
- Closed 40 retail stores, 19 of which
were converted to outlets, and opened 4 new outlet stores, as part
of continued focus on optimizing the store footprint
- Remain on track to deliver $20
million in cost savings in 2017
- Strong balance sheet maintained with
$173 million in cash, up from $120 million last year, and no
debt
- Affirms full year 2017 guidance for
comparable sales and adjusted diluted earnings per share
Express, Inc. (NYSE:EXPR), a specialty retail apparel company,
announced its financial results for the second quarter of 2017.
These results, which cover the thirteen weeks ended July 29,
2017, are compared to the thirteen weeks ended July 30,
2016.
David Kornberg, the Company’s president and chief executive
officer, stated: “Comparable sales and earnings were at the top end
of our guidance, as our key initiatives gained further traction.
Our e-commerce performance was outstanding, increasing 28% over
last year, and store comps showed further sequential
improvement.”
Mr. Kornberg continued, "As we look ahead to the second half of
the year, we are optimistic about our ability to drive further
improved performance in a transforming retail industry. We expect
the momentum of our initiatives to continue to build and contribute
more meaningfully. Our marketing efforts are resulting in improved
trends in engagement and we believe they will drive increased
customer acquisition and retention. We expect e-commerce sales
growth to remain solid and store performance to sequentially
improve, driven in part by our expanded omni-channel capabilities.
We remain focused on managing our costs and see clear opportunities
to enhance the overall efficiency of our business. Our balance
sheet remains strong with more than $170 million in cash and no
debt, and we continue to expect to generate solid cash flow. Our
confidence in our strategy and conviction in our long-term
opportunity remains resolute and we are committed to driving
shareholder value.”
Second Quarter 2017 Operating Results:
- Net sales decreased 5% to $478.5
million from $504.8 million in the second quarter of 2016.
- Comparable sales (including e-commerce
sales) decreased 4%, compared to an 8% decrease in the second
quarter of 2016.
- E-commerce sales increased 28% year
over year to $90.0 million.
- Merchandise margin declined by 120
basis points, driven by the highly promotional environment and the
impact of exiting Canada. Buying and occupancy as a percentage of
net sales rose by 120 basis points. In combination, this resulted
in a 240 basis point decline in gross margin, representing 27.5% of
net sales compared to 29.9% in last year’s second quarter.
- Selling, general, and administrative
(SG&A) expenses were $131.7 million versus $133.2 million in
last year's second quarter. As a percentage of net sales, SG&A
expenses increased by 110 basis points year over year to
27.5%.
- Restructuring costs of $16.3 million in
the second quarter of 2017 represent costs incurred related to the
exit of Canada.
- Operating loss was $15.9 million and
includes a negative $17.6 million impact related to the exit of
Canada, consisting of $16.3 million in restructuring costs and $1.3
million related to an inventory adjustment. This compares to
operating income of $17.9 million in the second quarter of
2016.
- Income tax benefit was $4.3 million, at
an effective tax rate of 26.5%, compared to income tax expense of
$7.0 million, at an effective tax rate of 40.8% in last year's
second quarter. The effective tax rate for the second quarter
of 2017 includes an income tax benefit of $5.1 million related to
the exit of Canada.
- Net loss was $11.8 million, or $0.15
per diluted share, and includes a net negative $0.16 per diluted
share impact related to the exit of Canada. Adjusted earnings per
share was $0.01. This compares to net income of $10.1 million, or
$0.13 per diluted share, in the second quarter of 2016.
- Real estate activity for the second
quarter of 2017 is presented in Schedule 5.
Second Quarter 2017 Balance Sheet Highlights:
- Cash and cash equivalents totaled
$173.3 million versus $119.6 million at the end of the second
quarter of 2016.
- Capital expenditures totaled $30.2
million for the twenty-six weeks ended July 29, 2017, compared to
$50.4 million for the twenty-six weeks ended July 30, 2016.
- Inventory was $261.2 million compared
to $256.6 million at the end of the prior year’s second quarter, a
2% increase driven primarily by support for e-commerce growth and
retail-to-outlet conversions that occurred late in the second
quarter.
2017 Guidance:
The table below compares the Company's projected results for the
thirteen week period ended October 28, 2017 to the actual results
for the thirteen week period ended October 29, 2016.
Third Quarter 2017 Guidance
Third Quarter 2016 Actual
Results
Comparable Sales Negative low single digits -8% Effective Tax Rate
Approximately 40% 19.6% Interest Expense, Net $0.7 million $0.6
million Net Income $5 to $8 million $11.6 million Diluted Earnings
Per Share (EPS) $0.06 to $0.10 $0.15 Weighted Average Diluted
Shares Outstanding 78.9 million 78.6 million
The table below compares the Company's projected results for the
53 week period ended February 3, 2018 to the actual results for the
52 week period ended January 28, 2017.
Full Year 2017 Guidance
Full Year 2016
Actual Results
Comparable Sales Negative low single digits -9% Effective Tax Rate
Approximately 41% 36.6% Interest Expense, Net $3 million $13.5
million(3) Net Income $20 to $26 million(1) $57.4 million(3)
Adjusted Net Income $32 to $38 million(2) $64.3 million(2) Diluted
EPS $0.26 to $0.33(1) $0.73(3) Adjusted Diluted EPS $0.41 to
$0.48(2) $0.81(2) Weighted Average Diluted Shares Outstanding 79.0
million 79.0 million Capital Expenditures $60 to $65 million $98.7
million (1) Includes $23.9 million, or
$11.5 million net of tax and $0.15 per share, related to the exit
of Canada incurred during the twenty-six weeks ended July 29, 2017.
(2) 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. (3) Includes approximately
$11.4 million, or $6.9 million net of tax and $0.08 per share, of
non-core items related to an amendment to the Times Square Flagship
store lease.
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 second quarter 2017 results is
scheduled for August 23, 2017 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 August 23, 2017 until 11:59 p.m. ET
on August 30, 2017 and can be accessed by dialing (844) 512-2921
and entering replay pin number 13668336.
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 600 retail and factory outlet stores,
located primarily in high-traffic shopping malls, lifestyle
centers, and street locations across the United States and Puerto
Rico. Express merchandise is also available at franchise locations
and online in Latin America. 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 third quarter and full year 2017, including
statements regarding expected comparable sales, e-commerce sales,
store performance, 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 or other business disruption; (13) our dependence upon
key executive management; (14) our ability to achieve our strategic
objectives, including improving profitability through a balanced
approach to growth, increasing brand awareness and elevating our
customer experience, transforming and leveraging information
technology systems, and investing in the growth and development of
our people; (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; (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 required by law.
Schedule 1
Express, Inc.
Consolidated Balance Sheets
(In thousands)
(Unaudited)
July 29, 2017 January 28,
2017 July 30, 2016 ASSETS CURRENT ASSETS: Cash
and cash equivalents $ 173,314 $ 207,373 $ 119,564 Receivables, net
14,948 15,787 15,527 Inventories 261,222 241,424 256,602 Prepaid
minimum rent 30,187 31,626 31,576 Other 31,495 17,923
26,519 Total current assets 511,166 514,133 449,788
PROPERTY AND EQUIPMENT 1,029,902 1,029,176 991,377 Less:
accumulated depreciation (598,262 ) (577,890 ) (529,712 ) Property
and equipment, net 431,640 451,286 461,665 TRADENAME/DOMAIN
NAMES/TRADEMARKS 197,618 197,618 197,618 DEFERRED TAX ASSETS 7,797
7,926 21,510 OTHER ASSETS 13,100 14,226 11,965
Total assets $ 1,161,321 $ 1,185,189 $ 1,142,546
LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT
LIABILITIES: Accounts payable $ 166,479 $ 172,668 $ 162,457
Deferred revenue 22,801 29,428 23,462 Accrued expenses 112,779
80,301 165,700 Total current liabilities
302,059 282,397 351,619 DEFERRED LEASE CREDITS 140,321
146,328 145,002 OTHER LONG-TERM LIABILITIES 89,885 120,777
49,621 Total liabilities 532,265 549,502 546,242
COMMITMENTS AND CONTINGENCIES Total stockholders’
equity 629,056 635,687 596,304 Total
liabilities and stockholders’ equity $ 1,161,321 $ 1,185,189
$ 1,142,546
Schedule 2
Express, Inc.
Consolidated Statements of
Income
(In thousands, except per share
amounts)
(Unaudited)
Thirteen Weeks Ended
Twenty-Six Weeks Ended July 29, 2017 July
30, 2016 July 29, 2017 July 30, 2016 NET
SALES $ 478,536 $ 504,767 $ 945,565 $ 1,007,676 COST OF GOODS SOLD,
BUYING AND OCCUPANCY COSTS 347,066 353,848 687,097
689,009 Gross profit 131,470 150,919 258,468 318,667
OPERATING EXPENSES: Selling, general, and administrative expenses
131,736 133,152 261,808 268,914 Restructuring costs 16,340 — 22,611
Other operating (income) expense, net (724 ) (120 ) (323 ) 45
Total operating expenses 147,352 133,032 284,096 268,959
OPERATING (LOSS)/INCOME (15,882 ) 17,887 (25,628 ) 49,708
INTEREST EXPENSE, NET 696 547 1,493 12,278 OTHER EXPENSE
(INCOME), NET (525 ) 196 (537 ) (494 ) (LOSS)/INCOME BEFORE
INCOME TAXES (16,053 ) 17,144 (26,584 ) 37,924 INCOME TAX
(BENEFIT)/EXPENSE (4,251 ) 7,000 (10,251 ) 14,898 NET
(LOSS)/INCOME $ (11,802 ) $ 10,144 $ (16,333 ) $ 23,026
EARNINGS PER SHARE: Basic $ (0.15 ) $ 0.13 $ (0.21 )
$ 0.29 Diluted $ (0.15 ) $ 0.13 $ (0.21 ) $ 0.29 WEIGHTED
AVERAGE SHARES OUTSTANDING: Basic 78,786 78,798 78,616 78,930
Diluted 78,786 78,945 78,616 79,429
Schedule 3
Express, Inc.
Consolidated Statements of Cash
Flows
(In thousands)
(Unaudited)
Twenty-Six Weeks Ended July 29,
2017 July 30, 2016 CASH FLOWS FROM
OPERATING ACTIVITIES: Net (loss)/income $ (16,333 ) $ 23,026
Adjustments to reconcile net (loss)/income to net cash provided by
operating activities: Depreciation and amortization 45,258 36,365
Loss on disposal of property and equipment 1,256 875 Impairment
charge 5,479 829 Amortization of lease financing obligation
discount — 11,354 Loss on deconsolidation of Canada 10,672 —
Share-based compensation 7,460 7,580 Deferred taxes 1,168 (283 )
Landlord allowance amortization (6,537 ) (5,211 ) Other non-cash
adjustments (500 ) — Changes in operating assets and liabilities:
Receivables, net 415 6,635 Inventories (23,905 ) (1,011 ) Accounts
payable, deferred revenue, and accrued expenses (5,178 ) (37,350 )
Other assets and liabilities (9,054 ) 3,340 Net cash
provided by operating activities 10,201 46,149 CASH FLOWS
FROM INVESTING ACTIVITIES: Capital expenditures (30,154 ) (50,355 )
Decrease in cash and cash equivalents resulting from
deconsolidation of Canada (9,232 ) — Purchase of intangible assets
— (21 ) Investment in equity interests — (10,133 ) Net cash
used in investing activities (39,386 ) (60,509 ) CASH FLOWS
FROM FINANCING ACTIVITIES: Payments on lease financing obligations
(835 ) (785 ) Repayments of financing arrangements (2,040 ) —
Proceeds from exercise of stock options — 2,703 Repurchase of
common stock under share repurchase program — (51,538 ) Repurchase
of common stock for tax withholding obligations (1,562 ) (4,403 )
Net cash used in financing activities (4,437 ) (54,023 )
EFFECT OF EXCHANGE RATE ON CASH (437 ) 1,044 NET DECREASE IN
CASH AND CASH EQUIVALENTS (34,059 ) (67,339 ) CASH AND CASH
EQUIVALENTS, Beginning of period 207,373 186,903 CASH
AND CASH EQUIVALENTS, End of period $ 173,314 $ 119,564
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 operating income, 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 operating income, 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 operating income is
used as a performance measure in the Company's seasonal cash
incentive compensation program and 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 operating income, reported net income, or
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.
Thirteen Weeks Ended July 29, 2017
(in thousands, except per share amounts)
Operating
Loss
Net Loss
Diluted
Earnings per
Share
Weighted
Average
Diluted
Shares
Outstanding
Reported GAAP Measure $ (15,882 ) $ (11,802 ) $ (0.15 )
78,786 Impact of Canadian Exit (a) 17,622 17,622 0.22 Income Tax
Benefit - Canadian Exit — (5,074 ) (0.06 ) Adjusted Non-GAAP
Measure $ 1,740 $ 746 $ 0.01 78,810 (b)
(a) Includes $16.3 million in restructuring
costs and an additional $1.3 million in inventory adjustments
related to the Canadian exit. (b)
Weighted average diluted shares
outstanding for purpose of calculating adjusted diluted earnings
per share includes the dilutive effect of share-based awards as
determined under the treasury stock method.
Twenty-Six Weeks Ended July 29, 2017
(in thousands, except per share amounts)
Operating
Loss
Net Loss
Diluted
Earnings per
Share
Weighted
Average
Diluted
Shares
Outstanding
Reported GAAP Measure $ (25,628 ) $ (16,333 ) $ (0.21 ) 78,616
Impact of Canadian Exit (a) 23,893 23,893 0.30 Income Tax Benefit -
Canadian Exit — (12,371 ) (0.16 ) $ (1,735 ) $ (4,811 ) $
(0.06 ) (a) Includes $22.6 million in
restructuring costs and an additional $1.3 million in inventory
adjustments related to the Canadian exit.
Schedule 4 (Continued)
Supplemental Information - Consolidated
Statements of Income
Reconciliation of GAAP to Non-GAAP
Financial Measures
(Unaudited)
Twenty-Six Weeks Ended July 30, 2016
(in thousands, except per share amounts) Net Income
Diluted
Earnings per
Share
Weighted
Average
Diluted
Shares
Outstanding
Reported GAAP Measure $ 23,026 $ 0.29 79,429 Interest Expense (a)
11,354 0.14 Income Tax Benefit (b) (4,428 ) (0.06 ) Adjusted
Non-GAAP Measure $ 29,952 $ 0.38
(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 twenty-six weeks ended July 30, 2016.
Fifty-Three Weeks Ended February 3,
2018 (in thousands, except per share amounts)
Projected
Net Income
Projected
Diluted
Earnings per
Share
Projected
Weighted
Average
Diluted
Shares
Outstanding
Projected GAAP Measure* $ 23,500 $ 0.30 78,973 Projected Impact of
Canadian Exit 23,900 0.30 Projected Income Tax Benefit - Canadian
Exit (12,400 ) (0.16 ) Projected Adjusted Non-GAAP Measure* $
35,000 $ 0.44 *
Represents mid-point of guidance range. This guidance does
not take into account any additional non-core items that may occur.
Fifty-Two Weeks Ended January 28, 2017
(in thousands, except per share amounts) Net Income
Diluted
Earnings per
Share
Weighted
Average
Diluted
Shares
Outstanding
GAAP Measure $ 57,417 $ 0.73 79,049 Interest Expense (a) 11,354
0.14 Income Tax Benefit (b) (4,428 ) (0.06 ) Adjusted Non-GAAP
Measure $ 64,343 $ 0.81
(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.
Schedule 5
Express, Inc.
Real Estate Activity
(Unaudited)
Second Quarter 2017 - Actual July 29, 2017 - Actual
Company-Operated Stores
Opened Closed Conversion
Store Count
Gross Square
Footage
United States - Retail Stores — (4) (19) 503 United States - Outlet
Stores 4 — 19 132 Canada — (17) — —
Total 4 (21) — 635 5.4 million
Third Quarter 2017 -
Projected October 28, 2017 - Projected
Company-Operated Stores
Opened Closed Conversion
Store Count
Gross Square
Footage
United States - Retail Stores — (2) (2) 499 United States - Outlet
Stores 7 — 2 141 Canada — — — — Total 7
(2) — 640 5.5 million
Full Year 2017 - Projected
February 3, 2018 - Projected Company-Operated Stores
Opened Closed
Conversion Store Count
Gross Square
Footage
United States - Retail Stores — (20) (21) 494 United States -
Outlet Stores 17 — 21 142 Canada — (17) — —
Total 17 (37) — 636 5.4 million
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170823005271/en/
Express, Inc.Investors:Mark Rupe,
614-474-4465Vice President, Investor RelationsorMedia:Robin Hoffman, 614-474-4834Director,
Communications
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