EXPRESS, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except Per Share Amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
August 4, 2018
|
|
February 3, 2018
|
ASSETS
|
|
|
|
CURRENT ASSETS:
|
|
|
|
Cash and cash equivalents
|
$
|
190,845
|
|
|
$
|
236,222
|
|
Receivables, net
|
11,278
|
|
|
12,084
|
|
Inventories
|
270,445
|
|
|
260,728
|
|
Prepaid minimum rent
|
30,734
|
|
|
30,779
|
|
Other
|
23,998
|
|
|
24,319
|
|
Total current assets
|
527,300
|
|
|
564,132
|
|
|
|
|
|
PROPERTY AND EQUIPMENT
|
1,058,171
|
|
|
1,047,447
|
|
Less: accumulated depreciation
|
(677,611
|
)
|
|
(642,434
|
)
|
Property and equipment, net
|
380,560
|
|
|
405,013
|
|
|
|
|
|
TRADENAME/DOMAIN NAMES/TRADEMARKS
|
197,618
|
|
|
197,618
|
|
DEFERRED TAX ASSETS
|
7,372
|
|
|
7,346
|
|
OTHER ASSETS
|
13,407
|
|
|
12,815
|
|
Total assets
|
$
|
1,126,257
|
|
|
$
|
1,186,924
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
Accounts payable
|
$
|
143,727
|
|
|
$
|
145,589
|
|
Deferred revenue
|
38,946
|
|
|
41,240
|
|
Accrued expenses
|
86,368
|
|
|
110,563
|
|
Total current liabilities
|
269,041
|
|
|
297,392
|
|
|
|
|
|
DEFERRED LEASE CREDITS
|
132,181
|
|
|
137,618
|
|
OTHER LONG-TERM LIABILITIES
|
101,345
|
|
|
103,600
|
|
Total liabilities
|
502,567
|
|
|
538,610
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 10)
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY:
|
|
|
|
Preferred stock – $0.01 par value; 10,000 shares authorized; no shares issued or outstanding
|
—
|
|
|
—
|
|
Common stock – $0.01 par value; 500,000 shares authorized; 93,632 shares and 92,647 shares issued at August 4, 2018 and February 3, 2018, respectively, and 73,381 shares and 76,724 shares outstanding at August 4, 2018 and February 3, 2018, respectively
|
936
|
|
|
926
|
|
Additional paid-in capital
|
206,355
|
|
|
199,099
|
|
Retained earnings
|
707,146
|
|
|
704,395
|
|
Treasury stock – at average cost; 20,251 shares and 15,923 shares at August 4, 2018 and February 3, 2018, respectively
|
(290,747
|
)
|
|
(256,106
|
)
|
Total stockholders’ equity
|
623,690
|
|
|
648,314
|
|
Total liabilities and stockholders’ equity
|
$
|
1,126,257
|
|
|
$
|
1,186,924
|
|
See Notes to Unaudited Consolidated Financial Statements.
EXPRESS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Amounts in Thousands, Except Per Share Amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
Twenty-Six Weeks Ended
|
|
August 4, 2018
|
|
July 29, 2017
|
|
August 4, 2018
|
|
July 29, 2017
|
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
|
)
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME:
|
|
|
|
|
|
|
|
Foreign currency translation gain
|
$
|
—
|
|
|
$
|
4,172
|
|
|
$
|
—
|
|
|
$
|
3,803
|
|
Other Comprehensive Income
|
$
|
—
|
|
|
$
|
4,172
|
|
|
$
|
—
|
|
|
$
|
3,803
|
|
COMPREHENSIVE INCOME/(LOSS)
|
$
|
2,234
|
|
|
$
|
(7,719
|
)
|
|
$
|
2,751
|
|
|
$
|
(10,756
|
)
|
|
|
|
|
|
|
|
|
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
|
|
See Notes to Unaudited Consolidated Financial Statements.
EXPRESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Twenty-Six Weeks Ended
|
|
August 4, 2018
|
|
July 29, 2017
|
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
|
|
See Notes to Unaudited Consolidated Financial Statements.
Notes to Unaudited Consolidated Financial Statements
1. Description of Business and Basis of Presentation
Business Description
Express, Inc., together with its subsidiaries (“Express” or the “Company”), is a specialty retailer of women’s and men’s apparel and accessories, targeting the
20
to
30
year old customer. Express merchandise is sold through retail and factory outlet stores and the Company’s e-commerce website, www.express.com, as well as its mobile app. As of
August 4, 2018
, Express operated
455
primarily mall-based retail stores in the United States and Puerto Rico as well as
176
factory outlet stores. Additionally, as of
August 4, 2018
, the Company earned revenue from
16
franchise stores in Latin America. These franchise stores are operated by franchisees pursuant to franchise agreements. Under the franchise agreements, the franchisees operate stand-alone Express stores that sell Express-branded apparel and accessories purchased directly from the Company.
On May 4, 2017, Express announced its intention to exit the Canadian market and Express Fashion Apparel Canada Inc. and
one
of its wholly-owned subsidiaries filed for protection in Canada under the Companies’ Creditors Arrangement Act (CCAA) with the Ontario Superior Court of Justice in Toronto. As of May 4, 2017, Canadian retail operations were deconsolidated from the Company’s financial statements. Canadian financial results prior to May 4, 2017 are included in the Company’s consolidated financial statements. See Note 12 for additional information.
Fiscal Year
The Company’s fiscal year ends on the Saturday closest to January 31. Fiscal years are referred to by the calendar year in which the fiscal year commences. References herein to “
2018
” and “
2017
” represent the 52-week period ended
February 2, 2019
and the 53-week period ended
February 3, 2018
, respectively. All references herein to “the
second quarter of 2018
“ and “the
second quarter of 2017
“ represent the thirteen weeks ended
August 4, 2018
and
July 29, 2017
, respectively.
Basis of Presentation
The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and therefore do not include all of the information or footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying unaudited Consolidated Financial Statements reflect all adjustments (which are of a normal recurring nature) necessary to state fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for
2018
. Therefore, these statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto for the year ended
February 3, 2018
, included in the Company’s Annual Report on Form 10-K, filed with the SEC on
April 4, 2018
.
Principles of Consolidation
The unaudited Consolidated Financial Statements include the accounts of Express, Inc. and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Segment Reporting
The Company defines an operating segment on the same basis that it uses to evaluate performance internally. The Company has determined that, together, its President and Chief Executive Officer and its Chief Operating Officer are the Chief Operating Decision Maker, and that there is
one
operating segment. Therefore, the Company reports results as a single segment, which includes the operation of its Express brick-and-mortar retail and outlet stores, e-commerce operations, and franchise operations.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited Consolidated Financial Statements and the reported amounts of revenue and expense during the reporting period, as well as the related disclosure of contingent assets and liabilities as of the date of the unaudited Consolidated Financial Statements. Actual results may differ from those estimates. The Company revises its estimates and assumptions as new information becomes available.
Recently Issued Accounting Pronouncements - Adopted
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASC 606”). ASC 606 supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605)”, and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The Company adopted ASC 606 in the first quarter of fiscal 2018 under the full retrospective method, which required the adjustment of each prior period presented. The primary impact of ASC 606 relates to the accounting for points earned under the Company’s customer loyalty program, the timing of revenue recognition for e-commerce sales, and the classification on the income statement of funds received and certain costs incurred related to our private label credit card program. Upon the adoption of ASC 606, the Company recognized a cumulative effect of a change in accounting principle through a reduction to retained earnings on January 31, 2016, the first day of fiscal 2016, in the amount of
$6.1 million
. The impact of the adoption of ASC 606 on previously issued financial statements included in this report are as follows:
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED BALANCE SHEET
(unaudited, in thousands except per share amounts)
|
February 3, 2018
|
ASSETS
|
As Reported
|
Adjustments for adoption of ASC 606
|
As Adjusted
|
CURRENT ASSETS:
|
|
|
|
Cash and cash equivalents
|
$
|
236,222
|
|
$
|
—
|
|
$
|
236,222
|
|
Receivables, net
|
12,084
|
|
—
|
|
12,084
|
|
Inventories
|
266,271
|
|
(5,543
|
)
|
260,728
|
|
Prepaid minimum rent
|
30,779
|
|
—
|
|
30,779
|
|
Other
|
19,780
|
|
4,539
|
|
24,319
|
|
Total current assets
|
565,136
|
|
(1,004
|
)
|
564,132
|
|
|
|
|
|
PROPERTY AND EQUIPMENT
|
1,047,447
|
|
—
|
|
1,047,447
|
|
Less: accumulated depreciation
|
(642,434
|
)
|
—
|
|
(642,434
|
)
|
Property and equipment, net
|
405,013
|
|
—
|
|
405,013
|
|
|
|
|
|
TRADENAME/DOMAIN NAMES/TRADEMARKS
|
197,618
|
|
—
|
|
197,618
|
|
DEFERRED TAX ASSETS
|
7,025
|
|
321
|
|
7,346
|
|
OTHER ASSETS
|
12,815
|
|
—
|
|
12,815
|
|
Total assets
|
$
|
1,187,607
|
|
$
|
(683
|
)
|
$
|
1,186,924
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
Accounts payable
|
$
|
145,589
|
|
$
|
—
|
|
$
|
145,589
|
|
Deferred revenue
|
28,920
|
|
12,320
|
|
41,240
|
|
Accrued expenses
|
116,355
|
|
(5,792
|
)
|
110,563
|
|
Total current liabilities
|
290,864
|
|
6,528
|
|
297,392
|
|
|
|
|
|
DEFERRED LEASE CREDITS
|
137,618
|
|
—
|
|
137,618
|
|
OTHER LONG-TERM LIABILITIES
|
105,125
|
|
(1,525
|
)
|
103,600
|
|
Total liabilities
|
533,607
|
|
5,003
|
|
538,610
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY:
|
|
|
|
Common stock
|
926
|
|
—
|
|
926
|
|
Additional paid-in capital
|
199,099
|
|
—
|
|
199,099
|
|
Retained earnings
|
710,081
|
|
(5,686
|
)
|
704,395
|
|
Treasury stock
|
(256,106
|
)
|
—
|
|
(256,106
|
)
|
Total stockholders’ equity
|
654,000
|
|
(5,686
|
)
|
648,314
|
|
Total liabilities and stockholders’ equity
|
$
|
1,187,607
|
|
$
|
(683
|
)
|
$
|
1,186,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF INCOME
|
Thirteen Weeks Ended July 29, 2017
|
(unaudited, in thousands, except per share amounts)
|
As Reported
|
|
Adjustments for adoption of ASC 606
|
|
As Adjusted
|
NET SALES
|
$
|
478,536
|
|
|
$
|
2,673
|
|
|
$
|
481,209
|
|
COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS
|
347,066
|
|
|
386
|
|
|
347,452
|
|
Gross profit
|
131,470
|
|
|
2,287
|
|
|
133,757
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
Selling, general and administrative expenses
|
131,736
|
|
|
2,433
|
|
|
134,169
|
|
Restructuring costs
|
16,340
|
|
|
—
|
|
|
16,340
|
|
Other operating expense, net
|
(724
|
)
|
|
—
|
|
|
(724
|
)
|
Total operating expenses
|
147,352
|
|
|
2,433
|
|
|
149,785
|
|
|
|
|
|
|
|
OPERATING INCOME
|
(15,882
|
)
|
|
(146
|
)
|
|
(16,028
|
)
|
|
|
|
|
|
|
INTEREST EXPENSE, NET
|
696
|
|
|
—
|
|
|
696
|
|
INTEREST INCOME
|
|
|
|
|
|
OTHER INCOME, NET
|
(525
|
)
|
|
—
|
|
|
(525
|
)
|
(LOSS) INCOME BEFORE INCOME TAXES
|
(16,053
|
)
|
|
(146
|
)
|
|
(16,199
|
)
|
INCOME TAX (BENEFIT) EXPENSE
|
(4,251
|
)
|
|
(57
|
)
|
|
(4,308
|
)
|
NET INCOME (LOSS)
|
$
|
(11,802
|
)
|
|
$
|
(89
|
)
|
|
$
|
(11,891
|
)
|
|
|
|
|
|
|
EARNINGS PER SHARE:
|
|
|
|
|
|
Basic
|
$
|
(0.15
|
)
|
|
$
|
—
|
|
|
$
|
(0.15
|
)
|
Diluted
|
$
|
(0.15
|
)
|
|
$
|
—
|
|
|
$
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF INCOME
|
Twenty-Six Weeks Ended July 29, 2017
|
(unaudited, in thousands, except per share amounts)
|
As Reported
|
|
Adjustments for adoption of ASC 606
|
|
As Adjusted
|
NET SALES
|
$
|
945,565
|
|
|
$
|
9,836
|
|
|
$
|
955,401
|
|
COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS
|
687,097
|
|
|
2,266
|
|
|
689,363
|
|
Gross profit
|
258,468
|
|
|
7,570
|
|
|
266,038
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
Selling, general and administrative expenses
|
261,808
|
|
|
4,700
|
|
|
266,508
|
|
Restructuring costs
|
22,611
|
|
|
—
|
|
|
22,611
|
|
Other operating expense, net
|
(323
|
)
|
|
—
|
|
|
(323
|
)
|
Total operating expenses
|
284,096
|
|
|
4,700
|
|
|
288,796
|
|
|
|
|
|
|
|
OPERATING INCOME
|
(25,628
|
)
|
|
2,870
|
|
|
(22,758
|
)
|
|
|
|
|
|
|
INTEREST EXPENSE, NET
|
1,493
|
|
|
—
|
|
|
1,493
|
|
INTEREST INCOME
|
|
|
|
|
|
OTHER INCOME, NET
|
(537
|
)
|
|
—
|
|
|
(537
|
)
|
(LOSS) INCOME BEFORE INCOME TAXES
|
(26,584
|
)
|
|
2,870
|
|
|
(23,714
|
)
|
INCOME TAX (BENEFIT) EXPENSE
|
(10,251
|
)
|
|
1,096
|
|
|
(9,155
|
)
|
NET INCOME (LOSS)
|
$
|
(16,333
|
)
|
|
$
|
1,774
|
|
|
$
|
(14,559
|
)
|
|
|
|
|
|
|
EARNINGS PER SHARE:
|
|
|
|
|
|
Basic
|
$
|
(0.21
|
)
|
|
$
|
0.02
|
|
|
$
|
(0.19
|
)
|
Diluted
|
$
|
(0.21
|
)
|
|
$
|
0.02
|
|
|
$
|
(0.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENT OF CASH FLOWS
|
Twenty-Six Weeks Ended July 29, 2017
|
(unaudited, in thousands)
|
As Reported
|
|
Adjustments for adoption of ASC 606
|
|
As Adjusted
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net (loss)/income
|
$
|
(16,333
|
)
|
|
$
|
1,774
|
|
|
$
|
(14,559
|
)
|
Adjustments to reconcile net (loss)/income to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
45,258
|
|
|
—
|
|
|
45,258
|
|
Loss on disposal of property and equipment
|
1,256
|
|
|
—
|
|
|
1,256
|
|
Impairment charge
|
5,479
|
|
|
—
|
|
|
5,479
|
|
Loss on deconsolidation of Canada
|
10,672
|
|
|
—
|
|
|
10,672
|
|
Share-based compensation
|
7,460
|
|
|
—
|
|
|
7,460
|
|
Deferred taxes
|
1,168
|
|
|
1,096
|
|
|
2,264
|
|
Landlord allowance amortization
|
(6,537
|
)
|
|
—
|
|
|
(6,537
|
)
|
Other non-cash adjustments
|
(500
|
)
|
|
—
|
|
|
(500
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Receivables, net
|
415
|
|
|
—
|
|
|
415
|
|
Inventories
|
(23,905
|
)
|
|
356
|
|
|
(23,549
|
)
|
Accounts payable, deferred revenue, and accrued expenses
|
(5,178
|
)
|
|
(3,382
|
)
|
|
(8,560
|
)
|
Other assets and liabilities
|
(9,054
|
)
|
|
156
|
|
|
(8,898
|
)
|
Net cash provided by operating activities
|
10,201
|
|
|
—
|
|
|
10,201
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
Capital expenditures
|
(30,154
|
)
|
|
—
|
|
|
(30,154
|
)
|
Decrease in cash and cash equivalents resulting from deconsolidation of Canada
|
(9,232
|
)
|
|
—
|
|
|
(9,232
|
)
|
Net cash used in investing activities
|
(39,386
|
)
|
|
—
|
|
|
(39,386
|
)
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
Payments on lease financing obligations
|
(835
|
)
|
|
—
|
|
|
(835
|
)
|
Repayments of financing arrangements
|
(2,040
|
)
|
|
—
|
|
|
(2,040
|
)
|
Repurchase of common stock under share repurchase program
|
—
|
|
|
—
|
|
|
—
|
|
Repurchase of common stock for tax withholding obligations
|
(1,562
|
)
|
|
—
|
|
|
(1,562
|
)
|
Net cash used in financing activities
|
(4,437
|
)
|
|
—
|
|
|
(4,437
|
)
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE ON CASH
|
(437
|
)
|
|
—
|
|
|
(437
|
)
|
|
|
|
|
|
|
|
NET DECREASE IN CASH AND CASH EQUIVALENTS
|
(34,059
|
)
|
|
—
|
|
|
(34,059
|
)
|
CASH AND CASH EQUIVALENTS, Beginning of period
|
207,373
|
|
|
—
|
|
|
207,373
|
|
CASH AND CASH EQUIVALENTS, End of period
|
$
|
173,314
|
|
|
$
|
—
|
|
|
$
|
173,314
|
|
Recently Issued Accounting Pronouncements - Not Yet Adopted
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” ASU 2016-02 requires entities to recognize lease assets and lease liabilities on the balance sheet and to disclose key information about leasing arrangements. Under ASU 2016-02, a lessee should recognize a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term on its balance sheet. The new standard is effective for annual and interim periods beginning after December 15, 2018. In July 2018, the FASB issued ASU 2018-11, “Leases: Targeted Improvements,” as an amendment to ASU 2016-02, which provides entities with an additional transition method to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company will adopt the new leasing standard in the first quarter of 2019 and is in the process of assessing its policies and procedures in conjunction with its review of lease agreements to support recognition and disclosure upon adoption. While the Company continues to assess all potential impacts of the standard, the Company currently believes the most significant impact relates to recording lease assets and related liabilities on
the Consolidated Balance sheets. The Company also continues to evaluate the potential impact on the Consolidated Statements of Income of the standard as a whole and more specifically as it relates to the available practical expedients.
2. Revenue Recognition
The following is information regarding the Company’s major product categories and sales channels:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
Twenty-Six Weeks Ended
|
|
August 4, 2018
|
|
July 29, 2017
|
|
August 4, 2018
|
|
July 29, 2017
|
|
(in thousands)
|
|
(in thousands)
|
Apparel
|
$
|
429,152
|
|
|
$
|
421,595
|
|
|
$
|
845,634
|
|
|
$
|
834,570
|
|
Accessories and other
|
51,845
|
|
|
50,972
|
|
|
100,147
|
|
|
98,249
|
|
Other revenue
|
12,608
|
|
|
8,642
|
|
|
27,176
|
|
|
22,582
|
|
Total net sales
|
$
|
493,605
|
|
|
$
|
481,209
|
|
|
$
|
972,957
|
|
|
$
|
955,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
Twenty-Six Weeks Ended
|
|
August 4, 2018
|
|
July 29, 2017
|
|
August 4, 2018
|
|
July 29, 2017
|
|
(in thousands)
|
|
(in thousands)
|
Stores
|
$
|
357,113
|
|
|
$
|
382,329
|
|
|
$
|
689,263
|
|
|
$
|
744,251
|
|
E-commerce
|
123,884
|
|
|
90,238
|
|
|
256,518
|
|
|
188,568
|
|
Other revenue
|
12,608
|
|
|
8,642
|
|
|
27,176
|
|
|
22,582
|
|
Total net sales
|
$
|
493,605
|
|
|
$
|
481,209
|
|
|
$
|
972,957
|
|
|
$
|
955,401
|
|
Other revenue consists primarily of sell-off revenue related to mark-out-of-stock inventory sales to third parties, shipping and handling revenue related to e-commerce activity, revenue earned from our private label credit card agreement, and revenue from franchise agreements.
Revenue related to the Company’s international franchise operations for the
twenty-six weeks ended
August 4, 2018
and
July 29, 2017
, respectively, were not material for any period presented and, therefore, are not reported separately from domestic revenue.
Revenue Recognition Policies
Merchandise Sales
The Company recognizes sales for in-store purchases at the point-of-sale. Revenue related to e-commerce transactions is recognized upon shipment based on the fact that control transfers to the customer at that time. The Company has made a policy election to treat shipping and handling as costs to fulfill the contract and as a result any amounts received from customers are included in the transaction price allocated to the performance obligation of providing goods with a corresponding amount accrued within cost of goods sold, buying and occupancy costs in the unaudited Consolidated Statements of Income and Comprehensive Income for amounts paid to applicable carriers. Associate discounts on merchandise purchases are classified as a reduction of net sales. Net sales excludes sales tax collected from customers and remitted to governmental authorities.
Loyalty Program
The Company maintains a customer loyalty program in which customers earn points toward rewards for qualifying purchases and other marketing activities. Upon reaching specified point values, customers are issued a reward, which they may redeem on merchandise purchases at the Company’s stores or on its website. Generally, rewards earned must be redeemed within
60
days from the date of issuance. The Company defers a portion of merchandise sales based on the estimated standalone selling price of the points earned. This deferred revenue is recognized as certificates are redeemed or expire. To calculate this deferral, the Company makes assumptions related to card holder redemption rates based on historical experience. The loyalty liability is included in deferred revenue on the unaudited Consolidated Balance Sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
Twenty-Six Weeks Ended
|
|
August 4, 2018
|
|
July 29, 2017
|
|
August 4, 2018
|
|
July 29, 2017
|
|
(in thousands)
|
|
(in thousands)
|
Beginning balance loyalty deferred revenue
|
$
|
15,073
|
|
|
$
|
11,520
|
|
|
$
|
14,186
|
|
|
$
|
15,662
|
|
Reduction in revenue/(revenue recognized)
|
3,240
|
|
|
48
|
|
|
4,127
|
|
|
(4,094
|
)
|
Ending balance loyalty deferred revenue
|
$
|
18,313
|
|
|
$
|
11,568
|
|
|
$
|
18,313
|
|
|
$
|
11,568
|
|
Sales Returns Reserve
The Company reduces net sales and provides a reserve for projected merchandise returns based on prior experience. Merchandise returns are often resalable merchandise and are refunded by issuing the same payment tender as the original purchase. The sales returns reserve was
$10.6 million
and
$10.6 million
as of
August 4, 2018
and
February 3, 2018
, respectively, and is included in accrued expenses on the unaudited Consolidated Balance Sheets. The asset related to projected returned merchandise is included in other assets on the unaudited Consolidated Balance Sheets.
Gift Cards
The Company sells gift cards in its stores, on its e-commerce website, and through third parties. These gift cards do not expire or lose value over periods of inactivity. The Company accounts for gift cards by recognizing a liability at the time a gift card is sold. The gift card liability balance was
$20.3 million
and
$26.7 million
, as of
August 4, 2018
and
February 3, 2018
, respectively, and is included in deferred revenue on the Consolidated Balance Sheets. The Company recognizes revenue from gift cards when they are redeemed by the customer. The Company also recognizes income on unredeemed gift cards, referred to as “gift card breakage.” Gift card breakage is recognized proportionately using a time-based attribution method from issuance of the gift card to the time when it can be determined that the likelihood of the gift card being redeemed is remote and that there is no legal obligation to remit the unredeemed gift cards to relevant jurisdictions. The gift card breakage rate is based on historical redemption patterns. Gift card breakage is included in net sales in the unaudited Consolidated Statements of Income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
Twenty-Six Weeks Ended
|
|
August 4, 2018
|
|
July 29, 2017
|
|
August 4, 2018
|
|
July 29, 2017
|
|
(in thousands)
|
|
(in thousands)
|
Beginning gift card liability
|
$
|
22,337
|
|
|
$
|
22,550
|
|
|
$
|
26,737
|
|
|
$
|
27,498
|
|
Issuances
|
8,598
|
|
|
7,085
|
|
|
16,983
|
|
|
15,313
|
|
Redemptions
|
(9,846
|
)
|
|
(8,924
|
)
|
|
(21,440
|
)
|
|
(20,970
|
)
|
Gift card breakage
|
(754
|
)
|
|
(697
|
)
|
|
(1,945
|
)
|
|
(1,827
|
)
|
Ending gift card liability
|
$
|
20,335
|
|
|
$
|
20,014
|
|
|
$
|
20,335
|
|
|
$
|
20,014
|
|
Private Label Credit Card
The Company has an agreement with Comenity Bank (the “Bank”) to provide customers with private label credit cards (the “Card Agreement”) which was amended on August 28, 2017 to extend the term of the arrangement through December 31, 2024. Each private label credit card bears the logo of the Express brand and can only be used at the Company’s store locations and e-commerce channel. The Bank is the sole owner of the accounts issued under the private label credit card program and absorbs the losses associated with non-payment by the private label card holders and a portion of any fraudulent usage of the accounts.
Pursuant to the Card Agreement, the Company receives amounts from the Bank during the term based on a percentage of private label credit card sales and is also eligible to receive incentive payments for the achievement of certain performance targets. These funds are recorded as net sales in the Consolidated Statements of Income and Comprehensive Income.
The Company also receives reimbursement funds from the Bank for expenses the Company incurs. These reimbursement funds are used by the Company to fund marketing and other programs associated with the private label credit card. The reimbursement funds received related to these private label credit cards are recorded as net sales in the unaudited Consolidated Statements of Income and Comprehensive Income.
In connection with the Card Agreement, the Bank agreed to pay the Company a
$20.0 million
refundable payment which the Company recognized upon receipt as deferred revenue within other long-term liabilities in the unaudited Consolidated Balance Sheets and began to recognize into income on a straight-line basis commencing January of 2018. The remaining deferred revenue balance of
$18.5 million
will be recognized over the term of the amended Card Agreement within the other revenue component of net sales. In addition, the Company received
$7.1 million
in non-refundable payments during 2017 which were recognized in the other revenue component of net sales on the unaudited Consolidated Statements of Income with the related expenses classified as cost of goods sold, buying and occupancy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
Twenty-Six Weeks Ended
|
|
August 4, 2018
|
|
July 29, 2017
|
|
August 4, 2018
|
|
July 29, 2017
|
|
(in thousands)
|
|
(in thousands)
|
Beginning balance refundable payment liability
|
$
|
19,187
|
|
|
$
|
—
|
|
|
$
|
19,906
|
|
|
$
|
—
|
|
Recognized in revenue
|
(720
|
)
|
|
—
|
|
|
(1,439
|
)
|
|
—
|
|
Ending balance refundable payment liability
|
$
|
18,467
|
|
|
$
|
—
|
|
|
$
|
18,467
|
|
|
$
|
—
|
|
3. Earnings Per Share
The following table provides a reconciliation between basic and diluted weighted-average shares used to calculate basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
Twenty-Six Weeks Ended
|
|
August 4, 2018
|
|
July 29, 2017
|
|
August 4, 2018
|
|
July 29, 2017
|
|
(in thousands)
|
Weighted-average shares - basic
|
73,958
|
|
|
78,786
|
|
|
74,683
|
|
|
78,616
|
|
Dilutive effect of stock options and restricted stock units
|
717
|
|
|
—
|
|
|
716
|
|
|
—
|
|
Weighted-average shares - diluted
|
74,675
|
|
|
78,786
|
|
|
75,399
|
|
|
78,616
|
|
Equity awards representing
2.7 million
and
3.5 million
shares of common stock were excluded from the computation of diluted earnings per share for the
thirteen and twenty-six weeks ended
August 4, 2018
, as the inclusion of these awards would have been anti-dilutive. Equity awards representing
4.7 million
shares of common stock were excluded from the computation of diluted earnings per share for the
thirteen and twenty-six weeks ended
July 29, 2017
, as the inclusion of these awards would have been anti-dilutive.
Additionally, for the
thirteen weeks ended
August 4, 2018
, approximately
1.5 million
shares were excluded from the computation of diluted weighted average shares because the number of shares that will ultimately be issued is contingent on the Company’s performance compared to pre-established performance goals which have not been achieved as of
August 4, 2018
.
4. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date.
Level 1-Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2-Valuation is based upon quoted prices for similar assets and liabilities in active markets or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3-Valuation is based upon other unobservable inputs that are significant to the fair value measurement.
Financial Assets
The following table presents the Company’s financial assets, recorded in cash and cash equivalents on the unaudited Consolidated Balance Sheet, measured at fair value on a recurring basis as of
August 4, 2018
and
February 3, 2018
, aggregated by the level in the fair value hierarchy within which those measurements fall.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 4, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
(in thousands)
|
Money market funds
|
$
|
171,123
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
February 3, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
(in thousands)
|
Money market funds
|
$
|
139,920
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial paper
|
—
|
|
|
79,908
|
|
|
—
|
|
|
$
|
139,920
|
|
|
$
|
79,908
|
|
|
$
|
—
|
|
The money market funds are valued using quoted market prices in active markets. The commercial paper is valued using other observable inputs for those securities based on information provided by an independent third party entity.
The carrying amounts reflected on the unaudited Consolidated Balance Sheets for the remaining cash and cash equivalents, receivables, prepaid expenses, and payables as of
August 4, 2018
and
February 3, 2018
approximated their fair values.
Non-Financial Assets
The Company’s non-financial assets, which include fixtures, equipment, improvements, and intangible assets, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur indicating the carrying value of these assets may not be recoverable, or annually in the case of indefinite lived intangibles, an impairment test is required. The impairment test requires the Company to estimate the fair value of the assets and compare this to the carrying value of the assets. If the fair value of the asset is less than the carrying value, then an impairment charge is recognized and the non-financial assets are recorded at fair value. The Company estimates the fair value using a discounted cash flow model. Factors used in the evaluation include, but are not limited to, management’s plans for future operations, recent operating results, and projected cash flows. During the
thirteen and twenty-six weeks ended
August 4, 2018
and the
thirteen weeks ended July 29, 2017
, the Company did
no
t recognize any impairment charges. During the
twenty-six weeks ended
July 29, 2017
, the Company recognized impairment charges of approximately
$5.5 million
related to its
17
Canadian stores, all of which were fully impaired and closed as part of the exit of the Canadian business. These charges are included in restructuring costs in the unaudited Consolidated Statements of Income. See Note 12 for additional discussion regarding the exit from Canada.
5. Intangible Assets
The following table provides the significant components of intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 4, 2018
|
|
Cost
|
|
Accumulated
Amortization
|
|
Ending Net Balance
|
|
(in thousands)
|
Tradename/domain names/trademarks
|
$
|
197,618
|
|
|
$
|
—
|
|
|
$
|
197,618
|
|
Licensing arrangements
|
425
|
|
|
294
|
|
|
131
|
|
|
$
|
198,043
|
|
|
$
|
294
|
|
|
$
|
197,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 3, 2018
|
|
Cost
|
|
Accumulated
Amortization
|
|
Ending Net Balance
|
|
(in thousands)
|
Tradename/domain names/trademarks
|
$
|
197,618
|
|
|
$
|
—
|
|
|
$
|
197,618
|
|
Licensing arrangements
|
425
|
|
|
270
|
|
|
155
|
|
|
$
|
198,043
|
|
|
$
|
270
|
|
|
$
|
197,773
|
|
The Company’s tradename, Internet domain names, and trademarks have indefinite lives. Licensing arrangements are amortized over a period of
ten years
and are included in other assets on the unaudited Consolidated Balance Sheets.
6. Income Taxes
The provision for income taxes is based on a current estimate of the annual effective tax rate adjusted to reflect the impact of discrete items. The Company’s effective income tax rate may fluctuate from quarter to quarter as a result of a variety of factors, including changes in the Company’s assessment of certain tax contingencies, valuation allowances, changes in tax law, outcomes of administrative audits, the impact of discrete items, and the mix of earnings.
The Company’s effective tax rate was
30.5%
and
26.6%
for the
thirteen weeks ended August 4, 2018
and
July 29, 2017
, respectively. The effective tax rate for the thirteen weeks ended July 29, 2017 reflects
$1.6 million
of discrete tax expense related to the cumulative translation loss reclassified to earnings as part of the Canadian business exit.
The Company’s effective tax rate was
52.7%
and
38.6%
for the twenty-six weeks ended August 4, 2018 and July 29, 2017, respectively. The effective tax rate for the
twenty-six weeks ended August 4, 2018
reflects
$1.3 million
of discrete tax expense related to a tax shortfall for share-based compensation. The effective tax rate for the twenty-six weeks ended July 29, 2017 reflects
$5.0 million
of discrete tax benefit related to the exit of the Canadian business. This benefit was partially offset by discrete charges of
$2.2 million
related to a tax shortfall for share-based compensation and
$1.2 million
for a valuation allowance that was recorded against the deferred tax asset for deferred compensation.
7. Lease Financing Obligations
In certain lease arrangements, the Company is involved in the construction of the building. To the extent the Company is involved in the construction of structural improvements or takes construction risk prior to commencement of a lease, it is deemed the owner of the project for accounting purposes. Therefore, the Company records an asset in property and equipment on the unaudited Consolidated Balance Sheets, including any capitalized interest costs, and related liabilities in accrued interest and lease financing obligations in other long-term liabilities on the unaudited Consolidated Balance Sheets, for the replacement cost of the Company’s portion of the pre-existing building plus the amount of construction costs incurred by the landlord as of the balance sheet date.
The initial terms of the lease arrangements for which the Company is considered the owner are expected to expire in 2023 and 2029. The net book value of landlord funded construction, replacement cost of pre-existing property, and capitalized interest in property and equipment on the unaudited Consolidated Balance Sheets was
$58.4 million
and
$60.2 million
, as of
August 4, 2018
and
February 3, 2018
, respectively. There was also
$65.9 million
and
$66.7 million
of lease financing obligations as of
August 4, 2018
and
February 3, 2018
, respectively, in other long-term liabilities on the unaudited Consolidated Balance Sheets.
Rent expense relating to the land is recognized on a straight-line basis over the lease term. The Company does not report rent expense for the portion of the rent payment determined to be related to the buildings which are owned for accounting purposes. Rather, this portion of the rent payment under the lease is recognized as interest expense and a reduction of the lease financing obligations.
In February 2016, the Company amended its lease arrangement with the landlord of the Times Square Flagship store. The amendment provided the landlord with the option to cancel the lease upon sufficient notice through December 31, 2016. The option was never exercised and therefore expired on December 31, 2016. In conjunction with amending the lease, the Company recognized an
$11.4 million
put option liability that is being amortized through interest expense over the remaining lease term. As of
August 4, 2018
, the remaining balance related to the put option was
$7.9 million
of which
$7.1 million
is included within other long-term liabilities on the Consolidated Balance Sheets.
8. Debt
A summary of the Company’s financing activities are as follows:
Revolving Credit Facility
On May 20, 2015, Express Holding, LLC, a wholly-owned subsidiary of the Company (“Express Holding”), and its subsidiaries entered into an Amended and Restated
$250.0 million
secured Asset-Based Credit Facility (“Revolving Credit Facility”). The expiration date of the facility is May 20, 2020. As of
August 4, 2018
, there were
no
borrowings outstanding and approximately
$247.0 million
was available for borrowing under the Revolving Credit Facility.
The Revolving Credit Facility requires Express Holding and its subsidiaries to maintain a fixed charge coverage ratio of at least
1.0
:
1.0
if excess availability plus eligible cash collateral is less than
10%
of the borrowing base. In addition, the Revolving Credit Facility contains customary covenants and restrictions on Express Holding’s and its subsidiaries’ activities, including, but not limited to, limitations on the incurrence of additional indebtedness, liens, negative pledges, guarantees, investments, loans, asset sales, mergers, acquisitions, prepayment of other debt, distributions, dividends, the repurchase of capital stock, transactions with affiliates, the ability to change the nature of its business or fiscal year, and permitted business activities. All obligations under the Revolving Credit Facility are guaranteed by Express Holding and its domestic subsidiaries (that are not borrowers) and secured by a lien on, among other assets, substantially all working capital assets including cash, accounts receivable, and inventory, of Express Holding and its domestic subsidiaries.
Letters of Credit
The Company may enter into stand-by letters of credit (“stand-by LCs”) on an as-needed basis to secure payment obligations for merchandise purchases and other general and administrative expenses. As of
August 4, 2018
and
February 3, 2018
, outstanding stand-by LCs totaled
$3.0 million
and
$3.3 million
, respectively.
9. Share-Based Compensation
The Company records the fair value of share-based payments to employees in the unaudited Consolidated Statements of Income as compensation expense, net of forfeitures, over the requisite service period.
Share-Based Compensation Plans
In 2010, the Board approved, and the Company implemented, the Express, Inc. 2010 Incentive Compensation Plan (as amended, the "2010 Plan"). The 2010 Plan authorized the Compensation Committee (the "Committee") of the Board and its designees to offer eligible employees and directors cash and stock-based incentives as deemed appropriate in order to attract, retain, and reward such individuals.
As of April 30, 2018, upon the recommendation of the Committee, the Board unanimously approved and adopted, subject to stockholder approval, the Express, Inc. 2018 Incentive Compensation Plan (the “2018 Plan”) to replace the 2010 Plan. On June 13, 2018, stockholders of the Company approved the 2018 Plan and all grants made subsequent to that approval will be made under the 2018 Plan. The primary change made by the 2018 Plan was to increase the number of shares of common stock available for equity-based awards by
2.4 million
shares. In addition to increasing the number of shares, the Company also made several enhancements to the 2010 Plan to reflect best practices in corporate governance. The 2018 Plan incorporates these concepts and also includes several other enhancements which are practices the Company already follows but were not explicitly stated in the 2010 Plan. None of these changes will have a significant impact on the accounting for awards made under the 2018 Plan.
The following summarizes share-based compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
Twenty-Six Weeks Ended
|
|
August 4, 2018
|
|
July 29, 2017
|
|
August 4, 2018
|
|
July 29, 2017
|
|
(in thousands)
|
Restricted stock units
|
$
|
2,933
|
|
|
$
|
3,051
|
|
|
$
|
6,332
|
|
|
$
|
6,206
|
|
Stock options
|
254
|
|
|
391
|
|
|
587
|
|
|
1,254
|
|
Performance-based restricted stock units
|
265
|
|
|
—
|
|
|
347
|
|
|
—
|
|
Total share-based compensation
|
$
|
3,452
|
|
|
$
|
3,442
|
|
|
$
|
7,266
|
|
|
$
|
7,460
|
|
The stock compensation related income tax benefit recognized by the Company during the
thirteen and twenty-six weeks ended
August 4, 2018
was
$0.3 million
and
$2.5 million
, respectively. The stock compensation related income tax benefit recognized by the Company during the
thirteen and twenty-six weeks ended
July 29, 2017
was
$0.2 million
and
$2.1 million
, respectively.
Restricted Stock Units
During the
twenty-six weeks ended August 4, 2018
, the Company granted restricted stock units (“RSUs”) under the 2010 Plan and the 2018 Plan. The fair value of RSUs is determined based on the Company’s closing stock price on the day prior to the grant date in accordance with the 2010 Plan. The RSUs granted in 2018 vest ratably over
four
years and the expense related to these RSUs will be recognized using the straight-line attribution method over this vesting period.
The Company’s activity with respect to RSUs, including awards with performance conditions granted prior to 2018, for the
twenty-six weeks ended August 4, 2018
was as follows:
|
|
|
|
|
|
|
|
Number of
Shares
|
Grant Date
Weighted Average
Fair Value Per Share
|
|
(in thousands, except per share amounts)
|
Unvested, February 3, 2018
|
2,902
|
|
$
|
11.06
|
|
Granted
|
2,018
|
|
$
|
7.06
|
|
Vested
|
(985
|
)
|
$
|
13.70
|
|
Forfeited
|
(125
|
)
|
$
|
11.44
|
|
Unvested, August 4, 2018
|
3,810
|
|
$
|
9.09
|
|
The total fair value of RSUs that vested during the
twenty-six weeks ended August 4, 2018
was
$13.5 million
. As of
August 4, 2018
, there was approximately
$26.2 million
of total unrecognized compensation expense related to unvested RSUs, which is expected to be recognized over a weighted-average period of approximately
1.9
years.
Stock Options
The Company’s activity with respect to stock options during the
twenty-six weeks ended August 4, 2018
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Grant Date
Weighted Average
Exercise Price Per Share
|
|
Weighted-Average Remaining Contractual Life (in years)
|
|
Aggregate Intrinsic Value
|
|
(in thousands, except per share amounts and years)
|
Outstanding, February 3, 2018
|
2,609
|
|
|
$
|
16.43
|
|
|
|
|
|
Granted
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Exercised
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Forfeited or expired
|
(127
|
)
|
|
$
|
17.05
|
|
|
|
|
|
Outstanding, August 4, 2018
|
2,482
|
|
|
$
|
16.39
|
|
|
5.1
|
|
$
|
220
|
|
Expected to vest at August 4, 2018
|
488
|
|
|
$
|
12.36
|
|
|
8.2
|
|
$
|
163
|
|
Exercisable at August 4, 2018
|
1,971
|
|
|
$
|
17.46
|
|
|
4.3
|
|
$
|
44
|
|
As of
August 4, 2018
, there was approximately
$1.8 million
of total unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted average period of approximately
1.5
years.
Performance-based Restricted Stock Units
In the first quarter of 2018, the Company granted performance shares to a limited number of senior executive-level employees, which entitle these employees to receive a specified number of shares of the Company’s common stock upon vesting. The number of shares earned could range between
0%
and
200%
of the target amount depending upon performance achieved over the
three
year vesting period. The performance conditions of the award include adjusted diluted earnings per share (EPS) targets and total shareholder return (TSR) of the Company’s common stock relative to a select group of peer companies. A Monte Carlo valuation model was used to determine the fair value of the awards. The TSR performance metric is a market condition. Therefore, fair value of the awards is fixed at the measurement date and is not revised based on actual performance. The number of shares that will ultimately vest will change based on estimates of the Company’s adjusted EPS performance in relation to the pre-established targets. The 2018 target grant currently corresponds to approximately
0.5 million
shares, with a grant date fair value of
$7.54
per share.
10. Commitments and Contingencies
In a complaint filed on January 31, 2017 by Mr. Jorge Chacon in the Superior Court for the State of California for the County of Orange, certain subsidiaries of the Company were named as defendants in a representative action alleging violations of California state wage and hour statutes and other labor standards. In a complaint filed on December 8, 2017 by Mr. Robert Jaurigue in the Superior Court for the State of California for the County of Los Angeles, a subsidiary of the Company was named as a defendant in a representative action alleging violations of California state wage and hour statutes and other labor standards. Both lawsuits seek unspecified monetary damages and attorneys’ fees. The case filed by Mr. Jaurigue has been stayed by the court pending resolution of the case filed by Mr. Chacon. On July 12, 2018, former associate Ms. Christie Carr filed suit in Alameda County Superior Court for the State of California naming certain subsidiaries of the Company in a representative action alleging violations of California State wage and hour statutes and other labor standards. The lawsuit seeks unspecified monetary damages and attorneys’ fees
.
The Company is vigorously defending itself against these claims and as of
August 4, 2018
, has established a reserve based on its best estimate of the outcome of the matters.
The Company is subject to various other claims and contingencies arising out of the normal course of business. Management
believes that the ultimate liability arising from such claims and contingencies, if any, is not likely to have a material adverse
effect on the Company’s results of operations, financial condition, or cash flows.
11. Investment in Equity Interests
In the second quarter of 2016, the Company made a
$10.1 million
investment in Homage, LLC, a privately held retail company based in Columbus, Ohio. The non-controlling investment in the entity is being accounted for under the equity method. Under the terms of the agreement governing the investment, the Company’s investment was increased by
$0.5 million
during both the second quarter of 2017 and 2018 as the result of an accrual of a non-cash preferred yield. The total
$11.1 million
investment is included in other assets on the unaudited Consolidated Balance Sheets.
12. Restructuring Costs
In April of 2017, Express made the decision to close all
17
of its retail stores in Canada and discontinue all operations through its Canadian subsidiary, Express Fashion Apparel Canada Inc. (“Express Canada”). In connection with the plan to close all of its Canadian stores, on May 4, 2017, certain of Express, Inc.’s Canadian subsidiaries filed an application with the Ontario Superior Court of Justice (Commercial List) in Toronto (the “Court”) seeking protection for Express, Inc.’s Canadian subsidiaries under the Companies’ Creditors Arrangement Act in Canada (the “Filing”) and the appointment of a monitor to oversee the liquidation and wind-down process. Express Canada began conducting store closing liquidation sales in the middle of May and closed all of its Canadian stores in June of 2017. On September 27, 2017, a Joint Plan of Compromise and Arrangement (the “Plan”) which sets forth the amounts to be distributed to creditors and others in connection with the liquidation of Express Canada was sanctioned and approved by the Court and the creditors of Express Canada. The Plan is in the process of being implemented and substantially all of the creditor distributions under the Plan have been made.
Asset Impairment
As a result of the decision to close the Canadian stores, Express determined that it was more likely than not that the fixed assets associated with the Canadian stores would be sold or otherwise disposed of prior to the end of their useful lives and therefore evaluated these assets for impairment in the first quarter of 2017. As a result of this evaluation, the Company recognized an
impairment charge of
$5.5 million
on the fixed assets in the first quarter of 2017, which is included in restructuring costs in the unaudited Consolidated Statements of Income.
Exit Costs
As of July 29, 2017, in addition to the impairment charges noted above, the Company incurred a
$6.4 million
write off of the investment in Express Canada,
$5.4 million
in lease related accruals,
$4.2 million
related to the reclassification into earnings of the cumulative translation loss, and approximately
$1.1 million
in professional fees.
No
restructuring costs were incurred during the
thirteen and twenty-six weeks ended
August 4, 2018
.
As of August 4, 2018 and February 3, 2018, a
$1.2 million
lease related accrual remained. The Company does not expect to incur significant additional restructuring costs and expects to make the majority of the remaining cash payments within the next
12
months.
13. Retirement Benefits
The Company previously sponsored a non-qualified deferred compensation plan for certain eligible employees. In the first quarter of 2017, the Company elected to terminate the non-qualified plan effective March 31, 2017. Outstanding participant balances were distributed via lump sum in the first quarter of 2018 in the amount of
$25.6 million
. The Company had no further liability under the non-qualified plan as of
August 4, 2018
. The Company continues to sponsor a qualified defined contribution retirement plan for eligible employees.
14. Stockholders’ Equity
On November 28, 2017, the Company’s Board of Directors (“Board”) 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 (the “2017 Repurchase Program”). Under the 2017 Repurchase Program, the Company may repurchase shares on the open market, including through Rule 10b5-1 plans, in privately negotiated transactions, through block purchases, or otherwise in compliance with applicable laws, including Rule 10b-18 of the Securities Exchange Act of 1934, as amended. The timing and amount of stock repurchases will depend on a variety of factors, including business and market conditions as well as corporate and regulatory considerations. The share repurchase program may be suspended, modified, or discontinued at any time and the Company has no obligation to repurchase any amount of its common stock under the program. In 2017, the Company repurchased
2.1 million
shares of its common stock under the 2017 Repurchase Program for an aggregate amount equal to
$17.3 million
, including commissions. During the
thirteen and twenty-six weeks ended
August 4, 2018
, the Company repurchased
1.8 million
and
4.0 million
shares of its common stock under the 2017 Repurchase Program, respectively, for an aggregate amount equal to
$16.4 million
and
$32.0 million
, respectively, including commissions. In addition, subsequent to
August 4, 2018
through September 13, 2018, the Company repurchased an additional
0.7 million
shares of its common stock under the 2017 Repurchase Program for an aggregate amount equal to
$7.3 million
, including commissions.