Express, Inc. Reports First Quarter 2015 Results Exceeding Guidance; Introduces Second Quarter Guidance And Raises Full Year 2015 Outlook

- First quarter sales rise 9% to $502.4 million

- First quarter comparable sales increase 7%

- First quarter operating income rises 126% to $33.9 million

- First quarter diluted EPS rises to $0.15 or $0.22 on an adjusted basis

May 28, 2015, 07:00 ET from Express, Inc.

COLUMBUS, Ohio, May 28, 2015 /PRNewswire/ -- Express, Inc. (NYSE: EXPR), a specialty retail apparel chain operating approximately 630 stores, announced its financial results for the first quarter of 2015. These results cover the thirteen week period ended May 2, 2015.

David Kornberg, the Company's President and Chief Executive Officer, noted that, "2015 is off to a strong start. In the first quarter, comparable sales rose by 7% and our merchandise margin expanded by 200 basis points, driving earnings above our initial expectations. Our customers responded with enthusiasm to our assortment while we intensified our inventory discipline and scaled back our promotional activity. We also continued to execute against our growth pillars and our 2015 priorities. I am particularly pleased that the growth we delivered resulted from our balanced approach to running the business."

First Quarter 2015 Operating Results:

  • Net sales increased 9% to $502.4 million from $460.7 million in the first quarter of 2014.
  • Comparable sales (including e-commerce sales) increased 7%.
  • E-commerce sales rose 12% to $77.6 million.
  • Merchandise margin grew by 200 basis points, primarily attributable to better acceptance of our product assortment as well as a more restrained use of promotions compared to last year's first quarter. Buying and occupancy as a percent of net sales improved by 130 basis points as costs were leveraged against a larger revenue base. In combination, this resulted in a gross margin improvement of 330 basis points, with gross margin of 33.1% compared to 29.8% in last year's first quarter.
  • Selling, general, and administrative (SG&A) expenses were $133.2 million versus $122.9 million in last year's first quarter, primarily due to the timing of certain marketing activities and various payroll related expenses. As a percentage of net sales, SG&A expenses decreased by 20 basis points to 26.5% compared to 26.7% in last year's first quarter.
  • Operating income was $33.9 million, or 6.8% of net sales, compared to $15.0 million, or 3.3% of net sales in the first quarter of 2014.
  • Income tax expense was $8.9 million, at an effective tax rate of 40.6%, compared to $4.0 million, at an effective tax rate of 44.3% in last year's first quarter.
  • Net income was $13.1 million, or $0.15 per diluted share. This compares to net income of $5.1 million, or $0.06 per diluted share, in the first quarter of 2014. After considering approximately $9.7 million of pre-tax non-core operating expenses incurred in connection with the full redemption of our Senior Notes due 2018, adjusted net income was $19.0 million, or $0.22 per diluted share. Refer to Schedule 4 for a reconciliation of GAAP to Non-GAAP financial measures.
  • Real estate activity for the first quarter of 2015 is presented in Schedule 5.

First Quarter 2015 Balance Sheet Highlights:

  • Cash and cash equivalents totaled $127.7 million versus $250.2 million at the end of the first quarter of 2014. The lower cash balance reflects the redemption of the remaining $200.9 million of our 8.75% Senior Notes using approximately $215 million of cash for the payment of principal, accrued interest, and the call premium. This redemption eliminates approximately $19 million of interest expense annually.
  • Capital expenditures totaled $23.1 million compared to $26.9 million in the prior year's first quarter.
  • Inventory was $265.9 million compared to $235.0 million at the end of the prior year's first quarter and includes approximately $35.4 million related to Express Factory Outlet stores this year compared to approximately $10.6 million in the prior year's first quarter.

Asset-Based Loan Facility: On May 20, 2015, the Company amended and restated its existing asset-based loan facility. The amendment increased the borrowing capacity under the facility from $200 million to $250 million and extended the term of the facility to May 20, 2020. As of May 27, 2015, there were no borrowings outstanding under the facility. Further details regarding changes to the facility are available on the Form 8-K filed by the Company with the SEC on May 27, 2015.

2015 Guidance: The table below compares the Company's projected results for the thirteen week period ended August 1, 2015 to the actual results for the thirteen week period ended August 2, 2014.

Second Quarter 2015 Guidance

Second Quarter 2014 Actual Results

Comparable Sales

+Low single digits

-5%

Effective Tax Rate

Approximately 39%

20.6%

Interest Expense, Net

$1.2 million

$5.9 million

Net Income

$11 to $14 million

$6.9 million

Diluted Earnings Per Share (EPS)

$0.13 to $0.16

$0.08

Weighted Average Diluted Shares Outstanding

85.2 million

84.4 million

This guidance does not take into account any additional non-core operating items that may occur.

The table below compares the Company's projected results for the 52 week period ended January 30, 2016 to the actual results for the 52 week period ended January 31, 2015.

Full Year 2015 Guidance

Full Year 2014 Actual Results

Comparable Sales

+Low single digits

-5%

Effective Tax Rate

Approximately 40%

38.8%

Interest Expense, Net

$16.0 million(1)

$23.9 million

Net Income

$89 to $98 million(1)

$68.3 million

Adjusted Net Income

$95 to $104 million(2)

N/A

Diluted EPS

$1.04 to $1.15(1)

$0.81

Adjusted Diluted EPS

$1.11 to $1.22(2)

N/A

Weighted Average Diluted Shares Outstanding

85.3 million

84.6 million

Capital Expenditures

$114 to $119 million

$115.1 million

(1)

Includes approximately $9.7 million of non-core operating items in connection with the redemption of our Senior Notes. These items consist of the call premium, the write-off of unamortized debt issuance costs, and the write-off of the unamortized debt discount.

(2)

Adjusted Net Income and Adjusted Diluted EPS are non-GAAP financial measures. Refer to Schedule 4 for a reconciliation of GAAP to Non-GAAP financial measures.

This guidance does not take into account any additional non-core operating items that may occur.

See Schedule 5 for a discussion of projected real estate activity.

Conference Call Information: A conference call to discuss first quarter 2015 results is scheduled for Thursday, May 28, 2015, 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 May 28, 2015 until 11:59 p.m. ET on June 4, 2015 and can be accessed by dialing (877) 870-5176 and entering replay pin number 13607482.

About Express, Inc.: Express is a specialty apparel and accessories retailer of women's and men's merchandise, targeting the 20 to 30 year old customer. Express has 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 more than 600 retail and factory outlet stores, located primarily in high-traffic shopping malls, lifestyle centers, and street locations across the United States, Canada, and Puerto Rico. Express merchandise is also available at franchise locations in the Middle East, Latin America, and South Africa. Express also markets and sells its products through its e-commerce website, www.express.com, as well as its mobile app for iOS.

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 second quarter and full year 2015, including statements regarding expected comparable sales, effective tax rates, interest expense, net income, adjusted net income, earnings per diluted share, adjusted earnings per diluted share, and capital expenditures, (2) statements regarding expected store openings, store closures, and gross square footage, and (3) statements regarding the Company's future plans and initiatives, including, but not limited to, objectives for 2015 and the Company's growth pillars. 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, and promotions; (4) competition from other retailers; (5) customer traffic at malls, shopping centers, and at our stores and customer traffic to our website; (6) our dependence on a strong brand image; (7) our ability to develop and maintain a reliable omni-channel experience for our customers; (8) the failure or breach of information systems upon which we rely; (9) our ability to protect customer data from fraud and theft; (10) our dependence upon third parties to manufacture all of our merchandise; (11) changes in the cost of raw materials, labor, and freight; (12) supply chain disruption; (13) our dependence upon key executive management; (14) our growth strategy, including our new store, e-commerce, and international expansion plans; (15) our reliance on third parties to provide us with certain key services for our business; (16) claims made against us resulting in litigation or changes in laws and regulations applicable to our business; (17) 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; (18) impairment charges on long-lived assets; (19) substantial lease obligations; (20) changes in tax requirements, results of tax audits, and other factors that may cause fluctuations in our effective tax rates; and (21) restrictions imposed on us under the terms of our asset-based loan facility. 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)

May 2, 2015

January 31, 2015

May 3, 2014

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

127,698

$

346,159

$

250,208

Receivables, net

18,221

23,272

20,326

Inventories

265,908

241,063

235,033

Prepaid minimum rent

29,492

29,465

28,389

Other

15,194

14,277

20,302

Total current assets

456,513

654,236

554,258

PROPERTY AND EQUIPMENT

864,305

840,340

795,619

Less: accumulated depreciation

(450,269)

(432,733)

(400,256)

Property and equipment, net

414,036

407,607

395,363

TRADENAME/DOMAIN NAME

197,562

197,562

197,812

DEFERRED TAX ASSETS

12,348

12,371

17,558

OTHER ASSETS

2,289

6,374

7,153

Total assets

$

1,082,748

$

1,278,150

$

1,172,144

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable

$

157,737

$

153,745

$

151,861

Deferred revenue

24,482

28,575

23,278

Accrued expenses

95,296

105,139

89,571

Total current liabilities

277,515

287,459

264,710

LONG-TERM DEBT

199,527

199,257

DEFERRED LEASE CREDITS

129,259

128,450

117,962

OTHER LONG-TERM LIABILITIES

104,907

106,375

107,120

Total liabilities

511,681

721,811

689,049

COMMITMENTS AND CONTINGENCIES

Total stockholders' equity

571,067

556,339

483,095

Total liabilities and stockholders' equity

$

1,082,748

$

1,278,150

$

1,172,144

 

 

Schedule 2

Express, Inc.

Consolidated Statements of Income and Comprehensive Income

(In thousands, except per share amounts)

(Unaudited)

Thirteen Weeks Ended

May 2, 2015

May 3, 2014

NET SALES

$

502,378

$

460,652

COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS

335,934

323,279

Gross profit

166,444

137,373

OPERATING EXPENSES:

Selling, general, and administrative expenses

133,176

122,860

Other operating income, net

(680)

(478)

Total operating expenses

132,496

122,382

OPERATING INCOME

33,948

14,991

INTEREST EXPENSE, NET

12,313

5,897

OTHER INCOME, NET

(349)

(25)

INCOME BEFORE INCOME TAXES

21,984

9,119

INCOME TAX EXPENSE

8,922

4,036

NET INCOME

$

13,062

$

5,083

OTHER COMPREHENSIVE INCOME:

Foreign currency translation gain

721

382

COMPREHENSIVE INCOME

$

13,783

$

5,465

EARNINGS PER SHARE:

Basic

$

0.15

$

0.06

Diluted

$

0.15

$

0.06

WEIGHTED AVERAGE SHARES OUTSTANDING:

Basic

84,443

84,005

Diluted

84,978

84,424

 

 

 

Schedule 3

Express, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Thirteen Weeks Ended

May 2, 2015

May 3, 2014

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

13,062

$

5,083

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization

18,809

19,494

Loss on disposal of property and equipment

304

65

Impairment charge

785

Excess tax benefit from share-based compensation

(116)

Share-based compensation

3,851

6,336

Non-cash loss on extinguishment of debt

5,255

Deferred taxes

22

Landlord allowance amortization

(2,742)

(3,047)

Payment of original issue discount

(2,812)

Changes in operating assets and liabilities:

Receivables, net

5,066

(2,923)

Inventories

(24,696)

(22,453)

Accounts payable, deferred revenue, and accrued expenses

(13,122)

(33,371)

Other assets and liabilities

2,487

(1,156)

Net cash provided by (used in) operating activities

5,368

(31,187)

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures

(23,148)

(26,937)

Net cash used in investing activities

(23,148)

(26,937)

CASH FLOWS FROM FINANCING ACTIVITIES:

Repayment of long-term debt

(198,038)

Payments on lease financing obligations

(383)

(402)

Excess tax benefit from share-based compensation

116

Repurchase of shares for tax withholding obligations under the 2010 Plan

(2,912)

(3,274)

Net cash used in financing activities

(201,217)

(3,676)

EFFECT OF EXCHANGE RATE ON CASH

536

124

NET DECREASE IN CASH AND CASH EQUIVALENTS

(218,461)

(61,676)

CASH AND CASH EQUIVALENTS, Beginning of period

346,159

311,884

CASH AND CASH EQUIVALENTS, End of period

$

127,698

$

250,208

 

 

 

Schedule 4

Supplemental Information - Consolidated Statements of Income

Reconciliation of GAAP to Non-GAAP Financial Measures

The Company supplements the reporting of its financial information determined under United States generally accepted accounting principles (GAAP) with certain non-GAAP financial measures: adjusted net income and adjusted earnings per diluted share. The Company believes that these non-GAAP measures provide meaningful information to assist stockholders in understanding its financial results and assessing its prospects for future performance. Management believes adjusted net income and adjusted earnings per diluted share are important indicators of the Company's operations because they exclude items that may not be indicative of, or are unrelated to, the Company's core operating results and provide a better baseline for analyzing trends in their underlying business. 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 net income and earnings per diluted share. These non-GAAP financial measures reflect an additional way of viewing an aspect of the Company's operations that, when viewed with the GAAP results and reconciliations to the corresponding GAAP financial measures below, 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 to not rely on any single financial measure.

Thirteen Weeks Ended May 2, 2015

(in thousands, except per share amounts)

Net Income

Earnings per Diluted Share

Weighted Average Diluted Shares Outstanding

Reported GAAP Measure

$

13,062

$

0.15

84,978

Interest Expense (a) *

5,916

*

0.07

Adjusted Non-GAAP Measure

$

18,978

$

0.22

(a)

Includes premium paid and accelerated amortization of debt issuance costs and debt discount related to the redemption of $200.9 million of Senior Notes.

* Items were tax affected at our statutory rate of approximately 39% for the thirteen weeks ended May 2, 2015.

Fifty-Two Weeks Ended January 30, 2016

(in thousands, except per share amounts)

Projected Net Income

Projected Earnings per Diluted Share

Projected Weighted Average Diluted Shares Outstanding

Projected GAAP Measure**

$

93,500

$

1.10

85,326

Interest Expense (a) *

5,916

*

0.07

Projected Adjusted Non-GAAP Measure**

$

99,416

$

1.17

(a)

Includes premium paid and accelerated amortization of debt issuance costs and debt discount related to the redemption of $200.9 million of Senior Notes.

* Items were tax affected at our statutory rate of approximately 39% for the fifty-two weeks ended January 30, 2016.

** Represents mid-point of guidance range.

 

 

Schedule 5

Express, Inc.

Real Estate Activity

(Unaudited)

First Quarter 2015 - Actual

May 2, 2015

Company-Operated Stores

Opened

Closed

Conversion

Store Count

Gross Square Footage

United States - Retail Stores

(21)

562

United States - Outlet Stores

6

47

Canada

17

Total

6

(21)

626

5.5 million

Second Quarter 2015 - Projected

August 1, 2015

Company-Operated Stores

Opened

Closed

Conversion

Store Count

Gross Square Footage

United States - Retail Stores

(1)

(1)

560

United States - Outlet Stores

12

1

60

Canada

17

Total

12

(1)

637

5.6 million

Full Year 2015 - Projected

January 30, 2016

Company-Operated Stores

Opened

Closed

Conversion

Store Count

Gross Square Footage

United States - Retail Stores

1

(23)

(1)

560

United States - Outlet Stores

36

1

78

Canada

17

Total

37

(23)

655

5.7 million

 

SOURCE Express, Inc.



RELATED LINKS

http://www.express.com