- Second quarter comparable sales
increased by 1%
- Second quarter diluted earnings per
share (EPS) of $0.03
- E-commerce sales increased 37%,
accounting for 25% of net sales
- Gross and operating margins expanded
in the second quarter relative to the prior year
- Further optimized store footprint by
converting 27 retail stores to outlets during second
quarter
- Strong balance sheet maintained with
$191 million in cash and no debt
- Repurchased 6.1 million shares for
$49 million to date under existing $150 million share repurchase
program
Express, Inc. (NYSE: EXPR), a specialty retail apparel company,
announced its financial results for the second quarter of 2018.
These results, which cover the thirteen weeks ended August 4,
2018, are compared to the thirteen weeks ended July 29, 2017.
Comparable sales for the second quarter of 2018 were calculated
using the 13-week period ended August 4, 2018, as compared to the
13-week period ended August 5, 2017.
David Kornberg, the Company’s president and chief executive
officer, stated: “Our second quarter performance represents another
step forward in our pursuit of returning Express to sustainable and
profitable long-term growth. Comparable sales grew for the second
consecutive quarter, and for the third consecutive quarter we
increased earnings relative to the prior year. E-commerce had
another exceptional quarter, with sales increasing 37%, on top of
28% growth achieved in the prior year period.”
Mr. Kornberg continued, "As we look to the balance of the year,
we are focused on continuing to drive growth through important
initiatives across product, brand, and customer experience. We are
excited about our fall and holiday assortments and expect continued
strong sales momentum in our e-commerce business. Our launch of
extended sizes is performing well and we are seeing success build
from our expanded omni-channel capabilities, both of which are
expected to deliver more benefit in the second half of 2018 and
into 2019. Our financial position remains strong with $191 million
in cash at quarter end and no debt. Under our $150 million share
repurchase program, we have repurchased $49 million, or 6.1 million
shares to date, underscoring our confidence in the business and
commitment to driving shareholder value.”
Second Quarter 2018 Operating Results:
- Net sales increased 3% to $493.6
million from $481.2 million in the second quarter of 2017.
- Comparable sales (including e-commerce
sales) increased 1%, compared to a 4% decrease in the second
quarter of 2017.
- E-commerce sales increased 37% year
over year to $123.9 million.
- Gross margin improved 60 basis points
to 28.4% of net sales compared to 27.8% in last year's second
quarter. The improvement was driven by a 70 basis point decrease in
buying and occupancy costs as a percentage of net sales, partially
offset by a 10 basis point decrease in merchandise margin. In the
second quarter of 2017, gross profit was negatively impacted by a
$1.3 million inventory adjustment related to the exit of
Canada.
- Selling, general, and administrative
(SG&A) expenses were $137.7 million versus $134.2 million in
last year's second quarter. As a percentage of net sales, SG&A
expenses were flat at 27.9%.
- Operating income was $2.7 million. This
compares to an operating loss of $16.0 million in the second
quarter of 2017. The operating loss in the second quarter of 2017
included a $17.6 million impact related to the exit of Canada.
- Income tax expense was $1.0 million, at
an effective tax rate of 30.5%, compared to an income tax benefit
of $4.3 million, at an effective tax rate of 26.6% in last year's
second quarter. The effective tax rate for the second quarter of
2017 included a benefit of $5.1 million related to the exit of
Canada.
- Net income was $2.2 million, or $0.03
per diluted share. This compares to a net loss of $11.9 million, or
$(0.15) per diluted share, in the second quarter of 2017. Adjusted
Net Income (a non-GAAP financial measure) in the second quarter of
2017 was $0.7 million, or $0.01 per diluted share.
Refer to Schedule 4 for a reconciliation of GAAP to non-GAAP net
income.
- Real estate activity for the second
quarter of 2018 is presented in Schedule 5.
Second Quarter 2018 Balance Sheet Highlights:
- Cash and cash equivalents totaled
$190.8 million versus $173.3 million at the end of the second
quarter of 2017.
- Capital expenditures totaled $17.4
million for the twenty-six weeks ended August 4, 2018, compared to
$30.2 million for the twenty-six weeks ended July 29, 2017.
- Inventory was $270.4 million compared
to $256.0 million at the end of the prior year’s second
quarter.
Share Repurchase Program:
On November 28, 2017, the Company's Board of Directors
approved a new share repurchase program that authorized the Company
to repurchase up to $150 million of the Company’s
outstanding common stock using available cash. Under this program,
the Company has repurchased 6.1 million shares for $49.3 million,
including 1.8 million shares for $16.4 million during the second
quarter of 2018. Approximately $101 million remains
available under the share repurchase program. The Company’s third
quarter and full year 2018 guidance reflects share repurchases made
to date, however does not contemplate any future share
repurchases.
Revenue Recognition:
Effective February 4, 2018, the Company adopted the new revenue
recognition standard (“ASC 606”) on a full retrospective basis. As
a result, the condensed consolidated financial statements as of
February 3, 2018 and for the thirteen and twenty-six weeks ended
July 29, 2017, have been recast. For additional information,
regarding the adjustments see Exhibit 99.3 to the Company's Form
8-K filed with the SEC on March 14, 2018.
2018 Guidance:
The Company notes that 2018 is a fifty-two week period as
compared to a fifty-three week period in 2017. The fifty-third week
was in the fourth quarter and contributed approximately $0.04 in
diluted EPS in 2017. The table below compares the Company's
projected results for the thirteen week period ended November 3,
2018 to the actual results for the thirteen week period ended
October 28, 2017.
Third Quarter 2017 Third Quarter 2018
Guidance Actual Results Comparable Sales -1% to 1% -1%
Effective Tax Rate Approximately 29% 40.9%(1) Interest
Income/(Expense), Net $0.1 million $(0.6) million Net Income $6.0
to $8.0 million $6.0 million(1) Diluted EPS $0.08 to $0.11 $0.08
(1) Weighted Average Diluted Shares Outstanding 74.4 million 78.9
million
(1)
Retrospectively adjusted to reflect
adoption of the new revenue recognition accounting standard. For
additional information regarding the adjustments see Exhibit 99.3
to the Company's Form 8-K filed with the SEC on March 14, 2018.
The table below compares the Company's projected results for the
fifty-two week period ended February 2, 2019 to the actual results
for the fifty-three week period ended February 3, 2018.
Full Year 2017 Full Year 2018 Guidance
Actual Results Comparable Sales 0% to 1% -3% Effective Tax
Rate Approximately 32%(1) 34.6%(2,4) Interest Income/(Expense), Net
$0.6 million $(2.2) Million Net Income $32.5 to $36.5 million $18.9
million(2,3,4) Adjusted Net Income N/A $28.9 million (4,5) Diluted
EPS $0.43 to $0.49 $0.24 (2,3,4) Adjusted Diluted EPS N/A $0.37
(4,5) Weighted Average Diluted Shares Outstanding 75.0 million 78.9
million Capital Expenditures $58 to $63 million $57.4 million
(1) The Company's effective tax rate for the full
year is expected to be above its operating tax rate of
approximately 28% due to certain discrete tax items. (2) Includes a
net $12.1 million tax benefit related to the exit of Canada, as
well as a $2.1 million net tax benefit related to tax reform,
specifically the re-measurement of the Company's deferred taxes.
(3) Includes $24.2 million in restructuring costs and inventory
adjustments related to the exit of Canada. (4) Retrospectively
adjusted to reflect adoption of the new revenue recognition
accounting standard. For additional information regarding the
adjustments see Exhibit 99.3 to the Company's Form 8-K filed with
the SEC on March 14, 2018. (5) 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 second quarter 2018 results is
scheduled for August 29, 2018 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: investors.express.com and remain available for 90 days. A
telephone replay of this call will be available at 12:00 p.m. ET on
August 29, 2018 until 11:59 p.m. ET on September 5, 2018 and can be
accessed by dialing (844) 512-2921 and entering replay pin number
13681535.
About Express, Inc.:
Express is a specialty retailer of women's and men's apparel and
accessories, 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 2018 and 2019,
including statements regarding expected comparable sales, effective
tax rates, interest expense, net income, diluted earnings per
share, and capital expenditures, (2) statements regarding expected
store openings, store closures, store conversions, and gross square
footage, and (3) statements regarding the Company's strategy,
plans, and initiatives, including, but not limited to, results
expected from such strategy, plans, and 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) customer traffic at
malls, shopping centers, and at our stores; (5) competition from
other retailers; (6) our dependence on a strong brand image; (7)
our ability to adapt to changing consumer behavior and 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 execute our growth strategy, including improving profitability,
providing an exceptional brand and customer experience,
transforming and leveraging our systems and processes, and
cultivating a strong company culture, and achieving our strategic
objectives, including delivering compelling merchandise at an
attractive value, investing in growing brand awareness and
retaining and acquiring new customers to the Express brand, growing
e-commerce sales and expanding our omni-channel capabilities,
optimizing our store footprint, and managing our overall cost
structure; (15) our substantial lease obligations; (16) our
reliance on third parties to provide us with certain key services
for our business; (17) impairment charges on long-lived assets;
(18) claims made against us resulting in litigation or changes in
laws and regulations applicable to our business; (19) 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; (20) restrictions imposed on us under
the terms of our asset-based loan facility, including restrictions
on the ability to effect share repurchases; 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)
August 4, 2018 February 3, 2018 (1)
July 29, 2017 (1) ASSETS CURRENT ASSETS: Cash
and cash equivalents $ 190,845 $ 236,222 $ 173,314 Receivables, net
11,278 12,084 14,948 Inventories 270,445 260,728 255,998 Prepaid
minimum rent 30,734 30,779 30,187 Other 23,998 24,319
35,691 Total current assets 527,300 564,132 510,138
PROPERTY AND EQUIPMENT 1,058,171 1,047,447 1,029,902 Less:
accumulated depreciation (677,611 ) (642,434 ) (598,262 ) Property
and equipment, net 380,560 405,013 431,640 TRADENAME/DOMAIN
NAMES/TRADEMARKS 197,618 197,618 197,618 DEFERRED TAX ASSETS 7,372
7,346 8,011 OTHER ASSETS 13,407 12,815 13,100
Total assets $ 1,126,257 $ 1,186,924 $ 1,160,507
LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT
LIABILITIES: Accounts payable $ 143,727 $ 145,589 $ 166,479
Deferred revenue 38,946 41,240 31,885 Accrued expenses 86,368
110,563 108,146 Total current liabilities
269,041 297,392 306,510 DEFERRED LEASE CREDITS 132,181
137,618 140,321 OTHER LONG-TERM LIABILITIES 101,345 103,600
88,040 Total liabilities 502,567 538,610 534,871
COMMITMENTS AND CONTINGENCIES Total stockholders’
equity 623,690 648,314 625,636 Total
liabilities and stockholders’ equity $ 1,126,257 $ 1,186,924
$ 1,160,507 (1) The Company's balance
sheet as of February 3, 2018 and July 29, 2017 have been updated to
reflect the adoption of Accounting Standards Update No. 2014-09,
Revenue From Contracts with Customers (ASC 606) under the full
retrospective method on February 4, 2018.
Schedule 2 Express, Inc. Consolidated Statements
of Income
(In thousands, except per share
amounts)
(Unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended
August 4, 2018 July 29, 2017 (1)
August 4, 2018 July 29, 2017 (1) NET
SALES $ 493,605 $ 481,209 $ 972,957 $ 955,401
COST OF GOODS SOLD, BUYING AND OCCUPANCY
COSTS
353,202 347,452 689,392 689,363 Gross
profit 140,403 133,757 283,565 266,038 OPERATING EXPENSES: Selling,
general, and administrative expenses 137,655 134,169 278,289
266,508 Restructuring costs — 16,340 — 22,611 Other operating
(income) expense, net 71 (724 ) (176 ) (323 ) Total
operating expenses 137,726 149,785 278,113 288,796 OPERATING
INCOME/(LOSS) 2,677 (16,028 ) 5,452 (22,758 ) INTEREST
(INCOME)/EXPENSE, NET (38 ) 696 136 1,493 OTHER INCOME, NET (500 )
(525 ) (500 ) (537 ) INCOME/(LOSS) BEFORE INCOME TAXES 3,215
(16,199 ) 5,816 (23,714 ) INCOME TAX EXPENSE/(BENEFIT) 981
(4,308 ) 3,065 (9,155 ) NET INCOME/(LOSS) $ 2,234 $
(11,891 ) $ 2,751 $ (14,559 ) EARNINGS PER SHARE:
Basic $ 0.03 $ (0.15 ) $ 0.04 $ (0.19 ) Diluted $ 0.03 $ (0.15 ) $
0.04 $ (0.19 ) WEIGHTED AVERAGE SHARES OUTSTANDING: Basic
73,958 78,786 74,683 78,616 Diluted 74,675 78,786 75,399 78,616
(1) The Company's income statement for the thirteen
and twenty-six weeks ended July 29, 2017 has been updated to
reflect the adoption of Accounting Standards Update No. 2014-09,
Revenue From Contracts with Customers (ASC 606) under the full
retrospective method on February 4, 2018.
Schedule 3
Express, Inc. Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Twenty-Six Weeks Ended August 4, 2018
July 29, 2017(1) CASH FLOWS FROM OPERATING
ACTIVITIES: Net income/(loss) $ 2,751 $ (14,559 ) Adjustments to
reconcile net income/(loss) to net cash provided by operating
activities: Depreciation and amortization 42,434 45,258 Loss on
disposal of property and equipment 301 1,256 Impairment charge —
5,479 Loss on deconsolidation of Canada — 10,672 Share-based
compensation 7,266 7,460 Deferred taxes (25 ) 2,264 Landlord
allowance amortization (5,970 ) (6,537 ) Other non-cash adjustments
(500 ) (500 ) Changes in operating assets and liabilities:
Receivables, net 806 415 Inventories (9,717 ) (23,549 ) Accounts
payable, deferred revenue, and accrued expenses (30,379 ) (8,560 )
Other assets and liabilities 906 (8,898 ) Net cash provided
by operating activities 7,873 10,201 CASH FLOWS FROM
INVESTING ACTIVITIES: Capital expenditures (17,389 ) (30,154 )
Decrease in cash and cash equivalents resulting from
deconsolidation of Canada — (9,232 ) Net cash used in
investing activities (17,389 ) (39,386 ) CASH FLOWS FROM
FINANCING ACTIVITIES: Payments on lease financing obligations (916
) (835 ) Repayments of financing arrangements (303 ) (2,040 )
Repurchase of common stock under share repurchase program (32,000 )
— Repurchase of common stock for tax withholding obligations (2,642
) (1,562 ) Net cash used in financing activities (35,861 ) (4,437 )
EFFECT OF EXCHANGE RATE ON CASH — (437 ) NET DECREASE
IN CASH AND CASH EQUIVALENTS (45,377 ) (34,059 ) CASH AND CASH
EQUIVALENTS, Beginning of period 236,222 207,373 CASH
AND CASH EQUIVALENTS, End of period $ 190,845 $ 173,314
(1) The Company's cash flow statement for the
twenty-six weeks ended July 29, 2017 has been updated to reflect
the adoption of Accounting Standards Update No. 2014-09, Revenue
From Contracts with Customers (ASC 606) under the full
retrospective method on February 4, 2018.
Schedule 4
Supplemental Information - Consolidated
Statements of IncomeReconciliation 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
Weighted Diluted Average
Operating Net Earnings per Diluted
Shares
(in thousands, except per share
amounts)
Income/(Loss)
Income/(Loss)
Share
Outstanding
Recast GAAP Measure (a) $ (16,028 ) $ (11,891 ) $ (0.15 ) 78,786
Impact of Canadian Exit (b) 17,622 17,622 0.22 Income Tax Benefit -
Canadian Exit — (5,074 ) (0.06 ) Adjusted Non-GAAP Measure $
1,594 $ 657 $ 0.01 78,810 (c) (a)
Retrospectively adjusted to reflect adoption of the new
revenue recognition accounting standard. (b) Includes $16.3 million
in restructuring costs and an additional $1.3 million in inventory
adjustments related to the Canadian exit. (c) 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.
Fifty-Three Weeks Ended February 3, 2018
Weighted Diluted Average
Earnings per Diluted Shares
(in thousands, except per share
amounts)
Net Income Share Outstanding Recast GAAP
Measure (a) $ 18,873 $ 0.24 78,870 Impact of Canadian Exit 24,151
0.31 Income Tax Benefit - Canadian Exit (12,067 ) (0.15 ) Impact of
Tax Reform (a) (2,050 ) (0.03 ) Recast Non-GAAP Measure (a) $
28,907 $ 0.37 (a) Retrospectively adjusted to
reflect adoption of the new revenue recognition accounting
standard.
Schedule
5 Express, Inc. Real Estate Activity
(Unaudited)
Second Quarter 2018 - Actual August 4, 2018 -
Actual Store Gross Square
Company-Operated Stores Opened
Closed Conversion Count
Footage United States - Retail Stores — (3) (27) 455 United
States - Outlet Stores 3 — 27 176
Total 3 (3) — 631 5.4 million
Third Quarter 2018 -
Projected November 3, 2018 - Projected Store
Gross Square Company-Operated Stores
Opened Closed Conversion
Count Footage United States - Retail Stores —
— (2) 453 United States - Outlet Stores 3 — 2
181 Total 3 — — 634 5.4 million
Full Year
2018 - Projected February 2, 2019 - Projected
Store Gross Square Company-Operated Stores
Opened Closed Conversion
Count Footage United States - Retail Stores —
(11) (29) 450 United States - Outlet Stores 10 —
29 184 Total 10 (11) — 634 5.4 million
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180829005150/en/
Express, Inc.Mark Rupe, 614-474-4465Vice President, Investor
Relations
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