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Express, Inc. Reports Second Quarter 2013 Results; Introduces Third Quarter Outlook And Raises Full Year Guidance

- Second quarter net sales rise 7%; comparable sales increase 6%

- Second quarter diluted EPS increases 11% to $0.20

- Full year guidance raised to reflect strong second quarter and positive third quarter outlook

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COLUMBUS, Ohio, Aug. 28, 2013 /PRNewswire/ -- Express, Inc. (NYSE: EXPR), a specialty retail apparel chain operating over 620 stores, today announced its financial results for the second quarter and first six months of 2013.  These results cover the thirteen and twenty-six week periods ended August 3, 2013 and compare to the thirteen and twenty-six week periods ended July 28, 2012. 

Michael Weiss, Express, Inc.'s Chairman and Chief Executive Officer commented, "We delivered a very solid second quarter.  Financial highlights include high single digit sales growth, comparable sales that represent a return to mid-single digit growth and earnings per share that came near the upper end of our guidance. These results were driven by improved execution of our Go-to-Market strategy and by our ability to react quickly as the competitive environment evolved."

In terms of product offering, Mr. Weiss noted that, "Our customers are responding enthusiastically to our assortments, which are trend-right, differentiated and well-edited.  We are seeing this reflected in improved conversion rates.  As we move into the second half of the year, we are confident in our product and marketing strategies, and believe we are well positioned for the fall and holiday seasons."

He went on to add that, "We made progress on each of our four growth pillars during the second quarter.  At the same time, we took concrete steps to prepare for the launch of our outlet business in the second quarter of 2014, which represents another opportunity to drive significant top and bottom line growth." 

Second Quarter 2013 Operating Results:

  • Net sales increased 7% to $486.2 million from $454.9 million in the second quarter of 2012.
  • Comparable sales increased 6%, following a 1% comparable sales increase in last year's second quarter.  This includes e-commerce sales, which increased 27% to $59.9 million.  In last year's second quarter, e-commerce sales grew 24% to $47.2 million.
  • Gross margin declined to 31.4% of net sales compared to 32.2% in the second quarter of 2012.  Merchandise margin was down 40 basis points driven by increased promotional activity late in the second quarter in response to the competitive environment.  Buying and occupancy costs as a percentage of sales increased 40 basis points, driven primarily by the incremental non-cash rent expense associated with the New York City and San Francisco flagship stores.
  • Selling, general, and administrative (SG&A) expenses were $119.2 million versus $115.3 million in last year's second quarter.  As a percentage of net sales, SG&A expenses improved 80 basis points to 24.5% compared to 25.3% in the same period last year.  This improvement reflects continued discipline in managing these expenses.
  • Operating income was $33.4 million, or 6.9% of net sales, compared to $31.2 million, or 6.9% of net sales, in the second quarter of 2012.
  • The effective tax rate was 39.7% compared to 39.6% in last year's second quarter.
  • Net income was $16.9 million, or $0.20 per diluted share, compared to net income of $15.8 million, or $0.18 per diluted share, in the second quarter of 2012. 
  • Real estate activity for the second quarter of 2013 is detailed in Schedule 4.

Twenty-Six Week Operating Results:

  • Net sales increased 5% to $994.7 million from $950.8 million in the prior year period.
  • Comparable sales increased 3%, following a 2% comparable sales increase in the prior year period.  This includes e-commerce sales, which increased 37% to $130.6 million.  In the prior year period, e-commerce sales grew 26% to $95.1 million.
  • Gross margin declined to 32.5% of net sales compared to 35.3% in the prior year period.  Merchandise margin declined 150 basis points and buying and occupancy costs as a percentage of sales increased 130 basis points.
  • SG&A expenses were $231.8 million versus $229.5 million in the prior year period. As a percentage of net sales, SG&A expenses improved 80 basis points to 23.3% compared to 24.1% in the same period last year. 
  • Operating income was $92.1 million, or 9.3% of net sales, compared to $105.8 million, or 11.1% of net sales, in the prior year period.
  • The effective tax rate declined to 39.6% compared to 39.8% in the prior year period.
  • Net income was $49.3 million, or $0.58 per diluted share, compared to net income of $57.9 million, or $0.65 per diluted share, in the prior year period. 
  • Capital expenditures totaled $45.5 million, compared to $45.7 million in the prior year period.

Second Quarter 2013 Balance Sheet:

  • Cash and cash equivalents totaled $234.3 million versus $130.2 million at the end of the second quarter of 2012.
  • As expected, inventory rose to $241.9 million, an increase of 13.4%, compared to $213.3 million at the end of the second quarter of 2012.  The calendar shift due to last year's 53rd week accounted for approximately 4% of the increase.  Inventory per square foot increased 8.8% compared to the same period in 2012. 
  • Long-term debt was relatively unchanged at $199.0 million, with no borrowings outstanding under the Revolving Credit Facility. 
  • During the quarter the Company purchased approximately 0.6 million shares of its common stock at an aggregate cost of $13.9 million, to end the second quarter with approximately $21.1 million of its $100 million repurchase authorization still outstanding. Repurchases of an additional 1.0 million shares during the third quarter have completed the repurchase program.

2013 Guidance:
The table below compares the Company's projected results for the thirteen week period ended November 2, 2013 to the actual results for the thirteen week period ended October 27, 2012.           


Third Quarter 2013
Guidance


Third Quarter 2012

Actual Results

Comparable Sales

+Mid Single Digits


(5)%

Effective Tax Rate

Approximately 40%


41.4%

Interest Expense

$4.8 million


$4.8 million

Net Income

$18 - $22 million


$17.4 million

Diluted EPS

$0.21 - $0.26


$0.20

Weighted Average Diluted Shares Outstanding

85.1 million


86.2 million

 

See Schedule 4 for projected real estate activity.

The table below compares the Company's projected results for the fifty-two week period ended February 1, 2014 to the actual results for the fifty-three week period ended February 2, 2013.


Updated

Full Year 2013

Guidance


Full Year 2012

Actual Results

Comparable Sales

+Low to mid single digits (1)


Flat

Effective Tax Rate

39.3% - 39.8%


40%

Interest Expense

$19.4 million


$19.6 million

Net Income

$130 - $137 million


$139.3 million (2)

Diluted EPS

$1.52 - $1.60


$1.60 (3)

Weighted Average Diluted Shares Outstanding

85.4 million


87.2 million

Capital Expenditures

$110 - $115 million


$99.7 million

(1) Compares the 52-week period ended February 1, 2014 to the 52-week period     ended February 2, 2013.

(2) Includes approximately $3.0 million related to the 53rd week.

(3)  Includes approximately $0.04 related to the 53rd week.


 

See Schedule 4 for projected real estate activity.

Consistent with previous years, the quarterly and full year guidance excludes any non-core operating items that may occur.

Conference Call Information:
A conference call to discuss second quarter results is scheduled for Wednesday August 28, 2013, 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 from 12:00 p.m. ET on August 28, 2013 until 11:59 p.m. ET on September 4, 2013 and can be accessed by dialing (877) 870-5176 and entering replay pin number 418777.

About Express:
Express is a specialty apparel and accessories retailer of women's and men's merchandise, targeting the 20 to 30 year old customer. The Company has over 30 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 over 620 retail stores, located primarily in high-traffic shopping malls, lifestyle centers, and street locations across the United States, in Canada, and in Puerto Rico. Express merchandise is also available at franchise stores in the Middle East and Latin America. The Company also markets and sells its products through the Company's e-commerce website, www.express.com.

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 for the third quarter and full year 2013, including statements regarding expected comparable sales, effective tax rates, interest expense, net income and earnings per diluted share, (2) statements regarding expected store openings, store closures, and gross square footage, and (3) statements regarding growth strategies and plans. 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. 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 and results of operations on a seasonal basis and due to store events, promotions and a variety of other factors; (4) increased competition from other retailers; (5) changes in customer traffic at malls and shopping centers; (6) our dependence upon independent third parties to manufacture all of our merchandise; (7) changes in the cost of raw materials, labor, and freight; (8) supply chain disruption; (9) our growth strategy, including our international expansion plan; (10) our dependence on a strong brand image; (11) our dependence upon key executive management; (12) our reliance on third parties to provide us with certain key services for our business; and (13) our substantial indebtedness and lease obligations. Additional information concerning these and other factors can be found in Express, Inc.'s filings with the Securities and Exchange Commission. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

Schedule 1

Express, Inc.
Consolidated Balance Sheets
(In thousands)
(Unaudited)




August 3, 2013


February 2, 2013


July 28, 2012

ASSETS






CURRENT ASSETS:






Cash and cash equivalents

$

234,250



$

256,297



$

130,174


Receivables, net

13,510



11,024



13,825


Inventories

241,933



215,082



213,275


Prepaid minimum rent

26,030



25,166



23,543


Other

32,172



8,293



24,978


Total current assets

547,895



515,862



405,795








PROPERTY AND EQUIPMENT

686,777



625,344



569,534


Less: accumulated depreciation

(364,576)



(346,975)



(317,829)


Property and equipment, net

322,201



278,369



251,705








TRADENAME/DOMAIN NAME

197,787



197,719



197,694


DEFERRED TAX ASSETS

16,808



16,808



12,650


OTHER ASSETS

9,100



10,441



11,970


Total assets

$

1,093,791



$

1,019,199



$

879,814








LIABILITIES AND STOCKHOLDERS' EQUITY






CURRENT LIABILITIES:






Accounts payable

$

197,050



$

176,125



$

163,325


Deferred revenue

19,459



27,851



19,188


Accrued bonus

893



336



4,118


Accrued expenses

84,197



108,464



89,239


Accounts payable and accrued expenses – related
            parties






Total current liabilities

301,599



312,776



275,870








LONG-TERM DEBT

199,003



198,843



198,685


OTHER LONG-TERM LIABILITIES

174,928



136,418



107,960


Total liabilities

675,530



648,037



582,515








COMMITMENTS AND CONTINGENCIES












Total stockholders' equity

418,261



371,162



297,299


Total liabilities and stockholders' equity

$

1,093,791



$

1,019,199



$

879,814



Note: Certain prior period amounts have been reclassified or adjusted to conform to current year presentation.

 

Schedule 2

Express, Inc.
Consolidated Statements of Income and Comprehensive Income
(In thousands, except per share amounts)
(Unaudited)



Thirteen Weeks Ended


Twenty-Six Weeks Ended


August 3, 2013


July 28, 2012


August 3, 2013


July 28, 2012

NET SALES

$

486,158



$

454,879



$

994,682



$

950,831


COST OF GOODS SOLD, BUYING AND OCCUPANCY
      COSTS

333,611



308,358



671,358



615,543


Gross profit

152,547



146,521



323,324



335,288


OPERATING EXPENSES:








Selling, general, and administrative expenses

119,176



115,307



231,799



229,502


Other operating (income) expense, net

(44)



18



(584)



33


Total operating expenses

119,132



115,325



231,215



229,535










OPERATING INCOME

33,415



31,196



92,109



105,753










INTEREST EXPENSE, NET

4,776



4,773



9,581



9,555


OTHER EXPENSE, NET

576



220



805



12


INCOME BEFORE INCOME TAXES

28,063



26,203



81,723



96,186


INCOME TAX EXPENSE

11,154



10,374



32,377



38,284


NET INCOME

$

16,909



$

15,829



$

49,346



$

57,902










OTHER COMPREHENSIVE INCOME:








Foreign currency translation

146



81



216



3


COMPREHENSIVE INCOME

$

17,055



$

15,910



$

49,562



$

57,905










EARNINGS PER SHARE:








Basic

$

0.20



$

0.18



$

0.58



$

0.66


Diluted

$

0.20



$

0.18



$

0.58



$

0.65










WEIGHTED AVERAGE SHARES OUTSTANDING:








Basic

85,001



87,640



85,048



88,243


Diluted

85,572



87,979



85,531



88,645


 

 

Schedule 3

Express, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)



Twenty-Six Weeks Ended


August 3, 2013


July 28, 2012

CASH FLOWS FROM OPERATING ACTIVITIES:




Net income

$

49,346



$

57,902


Adjustments to reconcile net income to net cash provided by operating
            activities:




Depreciation and amortization

34,754



33,937


Loss on disposal of property and equipment

286



35


Excess tax benefit from share-based compensation

(64)



(277)


Share-based compensation

10,837



8,856


Deferred taxes



(188)


Changes in operating assets and liabilities:




Receivables, net

(2,408)



(4,802)


Inventories

(27,103)



(204)


Accounts payable, deferred revenue, and accrued expenses

(20,533)



(25,982)


Other assets and liabilities

(8,582)



5,005


Net cash provided by operating activities

36,533



74,282






CASH FLOWS FROM INVESTING ACTIVITIES:




Capital expenditures

(45,538)



(45,661)


Purchase of intangible assets

(69)



(185)


Net cash used in investing activities

(45,607)



(45,846)






CASH FLOWS FROM FINANCING ACTIVITIES:




Payments on capital lease obligation

(29)



(27)


Excess tax benefit from share-based compensation

64



277


Proceeds from share-based compensation

2,828



623


Repurchase of common stock

(15,756)



(51,497)


Net cash used in financing activities

(12,893)



(50,624)






EFFECT OF EXCHANGE RATE ON CASH

(80)








NET DECREASE IN CASH AND CASH EQUIVALENTS

(22,047)



(22,188)


CASH AND CASH EQUIVALENTS, Beginning of period

256,297



152,362


CASH AND CASH EQUIVALENTS, End of period

$

234,250



$

130,174



Note: Certain prior period amounts have been reclassified or adjusted to conform to current year presentation.

 

Schedule 4

Express, Inc.
Real Estate Activity
(Unaudited)







Second Quarter 2013 - Actual



August 3, 2013 - Actual

Company-Operated Stores

Opened

Closed


Store Count

Gross Square
Footage

United States

2


1



609



Canada




12



Total

2


1



621


5.4 million







Third Quarter 2013 - Projected



November 2, 2013 - Projected

Company-Operated Stores

Open

Close


Store Count

 Gross Square
Footage

United States

5




614



Canada

2




14



Total

7




628


5.5 million







Full Year 2013 - Projected



February 1, 2014 - Projected

Company-Operated Stores

Open

Close


Store Count

 Gross Square
Footage

United States

12


9



617



Canada

4




15



Total

16


9



632


5.5 million







 

SOURCE Express, Inc.



RELATED LINKS
http://www.express.com

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