Express, Inc. Reports Record Second Quarter 2015 Results; Introduces Third Quarter Guidance and Raises Full Year 2015 Outlook

- Sales increase 11% to a second quarter record of $535.6 million

- Comparable sales increase 7%

- Merchandise margin and gross margin increase 240 and 480 basis points, respectively

- Operating income rises to a second quarter record of $35.9 million

- Diluted EPS rises 213% to a second quarter record of $0.25

Aug 26, 2015, 07:00 ET from Express, Inc.

COLUMBUS, Ohio, Aug. 26, 2015 /PRNewswire/ -- Express, Inc. (NYSE: EXPR), a specialty retail apparel company, announced its financial results for the second quarter of 2015. These results cover the thirteen and twenty-six week periods ended August 1, 2015 and compare to the thirteen and twenty-six week periods ended August 2, 2014.

David Kornberg, the Company's President and Chief Executive Officer, noted that, "We delivered record second quarter sales, operating income and diluted earnings per share. Strong fashion supported by brand focused marketing and an elevation of our customer experience drove a 7% increase in comparable sales. Disciplined inventory management, combined with the appeal of our product assortment, enabled us to reduce the breadth, depth and frequency of our promotions. Growth continued across our distribution channels of retail stores, e-commerce and factory outlets. The various components of our business were managed consistently with our balanced approach to growth, and each contributed to our diluted earnings per share results, which rose 213% to $0.25."

Mr. Kornberg went on to note that, "Looking towards the second half of the year, I believe we are well positioned to further grow our business and enhance the Express brand. We expect the continued execution of our strategy to result in productivity and profitability gains for our Company and increased value for our shareholders."

Second Quarter 2015 Operating Results:

  • Net sales increased 11% to $535.6 million from $481.4 million in the second quarter of 2014.
  • Comparable sales (including e-commerce sales) increased 7%, compared to a 5% decrease in the second quarter of 2014.
  • E-commerce sales rose 21% to $75.0 million.
  • Merchandise margin grew by 240 basis points as we continued to manage inventory levels and promotions with restraint. Buying and occupancy as a percentage of net sales also improved by 240 basis points as costs were leveraged against higher sales. These led to a gross margin improvement of 480 basis points, with gross margin of 33.1% compared to 28.3% in last year's second quarter.
  • Selling, general, and administrative (SG&A) expenses were $140.6 million versus $121.9 million in last year's second quarter, primarily due to the addition of outlet related expenses and incentive compensation.  As a percentage of net sales, SG&A expenses increased by 90 basis points to 26.2% compared to 25.3% in last year's second quarter.
  • Operating income was $35.9 million, or 6.7% of net sales, compared to $14.6 million, or 3.0% of net sales in the second quarter of 2014.
  • Income tax expense was $13.2 million, at an effective tax rate of 38.5%, compared to $1.8 million, at an effective tax rate of 20.6% in last year's second quarter. The tax rate for the second quarter of 2014 reflected the release of uncertain tax positions following the conclusion of a multi-year IRS tax examination.
  • Net income was $21.0 million, or $0.25 per diluted share. This compares to net income of $6.9 million, or $0.08 per diluted share, in the second quarter of 2014.
  • Real estate activity for the second quarter of 2015 is presented in Schedule 5.

Twenty-Six Week Period Operating Results:

  • Net sales increased 10% to $1.038 billion from $942.1 million in the prior year period.
  • Comparable sales during the period (including e-commerce sales) increased 7%, compared to a decrease of 8% in the prior year period.
  • E-commerce sales of $152.6 million increased 17% from $130.8 million in the prior year period.
  • Merchandise margin increased 220 basis points and buying and occupancy costs as a percentage of net sales decreased 190 basis points. Gross margin increased to 33.1% of net sales compared to 29.0% in the prior year period.
  • SG&A expenses were $273.7 million versus $244.8 million in the prior year period. This represented 26.4% of net sales, compared to 26.0% in the same period last year.
  • Operating income was $69.8 million, or 6.7% of net sales, compared to $29.6 million, or 3.1% of net sales, in the prior year period.
  • The effective tax rate was 39.3% compared to 32.7% in the prior year period.
  • Net income was $34.1 million, or $0.40 per diluted share, compared to net income of $12.0 million, or $0.14 per diluted share, in the prior year period. After considering non-core operating expenses incurred in connection with the full redemption of our Senior Notes due 2018, adjusted net income was $40.0 million, or $0.47 per diluted share. Please refer to Schedule 4 for a reconciliation of GAAP to Non-GAAP financial measures.

Second Quarter 2015 Balance Sheet Highlights:

  • Cash and cash equivalents totaled $155.6 million versus $253.3 million at the end of the second quarter of 2014. The lower cash balance reflects the use of approximately $215 million of cash during the first quarter of 2015 to redeem the remaining Senior Notes due 2018. This redemption eliminates approximately $19 million of interest expense annually.
  • Capital expenditures totaled $50.9 million for the twenty-six weeks ended August 1, 2015, compared to $59.5 million for the twenty-six weeks ended August 2, 2014.
  • Inventory was $272.0 million compared to $239.9 million at the end of the prior year's second quarter, and includes approximately $42.4 million related to Express Factory Outlet stores this year compared to approximately $13.6 million in the prior year's second quarter.

2015 Guidance:

The table below compares the Company's projected results for the thirteen week period ended October 31, 2015 to the actual results for the thirteen week period ended November 1, 2014.

Third Quarter 2015 Guidance

Third Quarter 2014 Actual Results

Comparable Sales

+Mid single digits

-5%

Effective Tax Rate

Approximately 39%

40.0%

Interest Expense, Net

$1.2 million

$6.0 million

Net Income

$22 to $25 million

$14.6 million

Diluted Earnings Per Share (EPS)

$0.26 to $0.29

$0.17

Weighted Average Diluted Shares Outstanding

85.7 million

84.6 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

+Mid single digits

-5%

Effective Tax Rate

Approximately 39%

38.8%

Interest Expense, Net

$15.9 million(1)

$23.9 million

Net Income

$105 to $111 million(1)

$68.3 million

Adjusted Net Income

$111 to $117 million(2)

N/A

Diluted EPS

$1.23 to $1.30(1)

$0.81

Adjusted Diluted EPS

$1.30 to $1.37(2)

N/A

Weighted Average Diluted Shares Outstanding

85.5 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 redemption premium paid, 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 second quarter 2015 results is scheduled for Wednesday August 26, 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 August 26, 2015 until 11:59 p.m. ET on September 2, 2015 and can be accessed by dialing (877) 870-5176 and entering replay pin number 13615851.

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 on its mobile apps.

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 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, the Company's growth strategies and results expected from such strategies. 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)

August 1, 2015

January 31, 2015

August 2, 2014

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

155,645

$

346,159

$

253,327

Receivables, net

22,073

23,272

20,129

Inventories

272,011

241,063

239,898

Prepaid minimum rent

29,926

29,465

28,511

Other

27,563

14,277

25,318

Total current assets

507,218

654,236

567,183

PROPERTY AND EQUIPMENT

894,246

840,340

820,187

Less: accumulated depreciation

(467,230)

(432,733)

(410,330)

Property and equipment, net

427,016

407,607

409,857

TRADENAME/DOMAIN NAME

197,597

197,562

197,822

DEFERRED TAX ASSETS

12,348

12,371

17,480

OTHER ASSETS

3,097

6,374

6,580

Total assets

$

1,147,276

$

1,278,150

$

1,198,922

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable

$

179,120

$

153,745

$

168,818

Deferred revenue

22,151

28,575

20,609

Accrued expenses

110,554

105,139

87,904

Total current liabilities

311,825

287,459

277,331

LONG-TERM DEBT

199,527

199,345

DEFERRED LEASE CREDITS

132,597

128,450

121,861

OTHER LONG-TERM LIABILITIES

105,123

106,375

106,482

Total liabilities

549,545

721,811

705,019

COMMITMENTS AND CONTINGENCIES

Total stockholders' equity

597,731

556,339

493,903

Total liabilities and stockholders' equity

$

1,147,276

$

1,278,150

$

1,198,922

 

 

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 1, 2015

August 2, 2014

August 1, 2015

August 2, 2014

NET SALES

$

535,582

$

481,420

$

1,037,960

$

942,072

COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS

358,392

345,395

694,326

668,674

Gross profit

177,190

136,025

343,634

273,398

OPERATING EXPENSES:

Selling, general, and administrative expenses

140,573

121,923

273,749

244,783

Other operating expense (income), net

752

(506)

72

(984)

Total operating expenses

141,325

121,417

273,821

243,799

OPERATING INCOME

35,865

14,608

69,813

29,599

INTEREST EXPENSE, NET

1,231

5,941

13,544

11,838

OTHER EXPENSE (INCOME), NET

419

22

70

(3)

INCOME BEFORE INCOME TAXES

34,215

8,645

56,199

17,764

INCOME TAX EXPENSE

13,187

1,778

22,109

5,814

NET INCOME

$

21,028

$

6,867

$

34,090

$

11,950

OTHER COMPREHENSIVE INCOME:

Foreign currency translation (loss) gain

(1,177)

102

(456)

484

COMPREHENSIVE INCOME

$

19,851

$

6,969

$

33,634

$

12,434

EARNINGS PER SHARE:

Basic

$

0.25

$

0.08

$

0.40

$

0.14

Diluted

$

0.25

$

0.08

$

0.40

$

0.14

WEIGHTED AVERAGE SHARES OUTSTANDING:

Basic

84,677

84,172

84,560

84,088

Diluted

85,201

84,440

85,089

84,432

 

 

Schedule 3

Express, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Twenty-Six Weeks Ended

August 1, 2015

August 2, 2014

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

34,090

$

11,950

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

Depreciation and amortization

37,085

39,048

Loss on disposal of property and equipment

1,314

121

Impairment charge

2,800

Excess tax benefit from share-based compensation

(262)

(32)

Share-based compensation

11,069

10,267

Non-cash loss on extinguishment of debt

5,314

Deferred taxes

22

Landlord allowance amortization

(5,980)

(5,842)

Payment of original issue discount

(2,812)

Changes in operating assets and liabilities:

Receivables, net

1,201

(2,721)

Inventories

(31,049)

(27,298)

Accounts payable, deferred revenue, and accrued expenses

13,320

(21,372)

Other assets and liabilities

171

(2,116)

Net cash provided by operating activities

63,483

4,805

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures

(50,904)

(59,466)

Purchase of intangible assets

(35)

(10)

Net cash used in investing activities

(50,939)

(59,476)

CASH FLOWS FROM FINANCING ACTIVITIES:

Repayment of long-term debt

(198,038)

Costs incurred in connection with debt arrangements

(852)

Payments on lease financing obligations

(773)

(752)

Excess tax benefit from share-based compensation

262

32

Proceeds from exercise of stock options

361

Repurchase of shares for tax withholding obligations under the 2010 Plan

(3,690)

(3,343)

Net cash used in financing activities

(202,730)

(4,063)

EFFECT OF EXCHANGE RATE ON CASH

(328)

177

NET DECREASE IN CASH AND CASH EQUIVALENTS

(190,514)

(58,557)

CASH AND CASH EQUIVALENTS, Beginning of period

346,159

311,884

CASH AND CASH EQUIVALENTS, End of period

$

155,645

$

253,327

 

 

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 the 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 not to rely on any single financial measure.

Twenty-Six Weeks Ended August 1, 2015

(in thousands, except per share amounts)

Net Income

Earnings per Diluted Share

Weighted Average Diluted Shares Outstanding

Reported GAAP Measure

$

34,090

$

0.40

85,089

Interest Expense (a) *

5,916

*

0.07

Adjusted Non-GAAP Measure

$

40,006

$

0.47

(a)  Includes the redemption premium paid, the write-off of unamortized debt issuance costs, and the write-off of the unamortized debt discount related to the redemption of all $200.9 million of our Senior Notes.

* Items were tax affected at our statutory rate of approximately 39% for the twenty-six weeks ended August 1, 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**

$

108,000

$

1.26

85,525

Interest Expense (a) *

5,916

*

0.07

Projected Adjusted Non-GAAP Measure**

$

113,916

$

1.33

(a)  Includes the redemption premium paid, the write-off of unamortized debt issuance costs, and the write-off of the unamortized debt discount related to the redemption of all $200.9 million of our 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)

Second Quarter 2015 - Actual

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

Third Quarter 2015 - Projected

October 31, 2015

Company-Operated Stores

Opened

Closed

Conversion

Store Count

Gross Square Footage

United States - Retail Stores

1

(1)

(1)

559

United States - Outlet Stores

17

1

78

Canada

17

Total

18

(1)

654

5.7 million

Full Year 2015 - Projected

January 30, 2016

Company-Operated Stores

Opened

Closed

Conversion

Store Count

Gross Square Footage

United States - Retail Stores

1

(24)

(2)

558

United States - Outlet Stores

38

2

81

Canada

17

Total

39

(24)

656

5.7 million

 

 

SOURCE Express, Inc.



RELATED LINKS

http://www.express.com