Express, Inc. Reports Second Quarter Results, Exceeding Expectations on Strong Sales Growth and Gross Margin Expansion of 170 Basis Points

COLUMBUS, Ohio, Aug. 24, 2011 - Express, Inc. (NYSE: EXPR), a specialty retail apparel chain operating 599 stores, today announced its second quarter financial results for the thirteen and twenty-six week periods ended July 30, 2011, which compares to the same periods ended July 31, 2010.

Second Quarter Operating Results:

• Net sales increased 10% to $446.0 million from $407.3 million in the second quarter of 2010;
• Comparable sales increased 6% following an 8% increase in comparable sales in the second quarter of 2010;
• Gross margin increased 170 bps to 33.6% of net sales compared to 31.9% in the second quarter of 2010;
• Selling, general, and administrative (SG&A) expenses totaled $117.7 million, or 26.4% of net sales. This compares to SG&A expenses of $110.9 million, or 27.2% of net sales in the second quarter of 2010, which included $0.9 million of non-core operating costs associated with the initial public offering completed on May 18, 2010;
• Other operating expense, net was $0.4 million, or 0.1% of net sales. This compares to other operating expense, net of $14.0 million, or 3.4% of net sales in the second quarter of 2010, which included $13.3 million of one-time fees paid to Golden Gate Capital and Limited Brands related to the termination of advisory arrangements with them in connection with the initial public offering;
• Operating income increased more than five-fold to $31.7 million, or 7.1% of net sales, compared to $5.1 million, or 1.2% of net sales, in the second quarter of 2010;
• Interest expense was $10.5 million and included a $3.7 million loss on extinguishment of debt associated with the $24.2 million repurchases of Senior Notes and the Opco Revolving Credit Facility amendment. This compares to interest expense of $23.3 million in the second quarter of 2010 which included a $13.6 million loss on extinguishment of debt related to the prepayment of debt using proceeds from the initial public offering;
• Income tax expense was $8.6 million, at an effective tax rate of approximately 40.6%, compared to a tax benefit of $38.9 million in the second quarter of 2010. The change in tax expense is a result of the Company's conversion to a corporation in connection with its initial public offering in the second quarter of 2010;
• Net income was $12.6 million, or $0.14 per diluted share on 88.9 million weighted average shares outstanding, and included a $2.2 million, or $0.03 per diluted share, after tax loss on extinguishment of debt related to the $24.2 million repurchases of Senior Notes and the Opco Revolving Credit Facility amendment. This compares to net income of $22.1 million, or $0.25 per diluted share on 88.7 million weighted average shares outstanding, in the second quarter of 2010 which included the following non-core operating costs after tax: (i) $0.5 million, or $0.01 per diluted share, of costs related to the initial public offering; (ii) $8.0 million, or $0.09 per diluted share, of fees paid to Golden Gate Capital and Limited Brands related to the termination of advisory arrangements with them in connection with the initial public offering; and (iii) $8.2 million, or $0.09 per diluted share, loss on extinguishment of debt related to the prepayment of debt in connection with the initial public offering. These costs were more than offset by a one-time tax benefit of $31.8 million, or $0.36 per diluted share, recognized in connection with the Company's conversion to a corporation; and
• Net income, adjusted for non-core operating costs noted above related primarily to the repurchases of Senior Notes (see Schedule 4 for discussion of non-GAAP measures), was $14.9 million, or $0.17 per diluted share, in the second quarter of 2011, exceeding the Company's guidance of $0.12 to $0.15 per diluted share. This compares to net income, adjusted for non-core operating costs noted above related to the initial public offering (see Schedule 4 for discussion of non-GAAP measures), of $7.1 million, or $0.08 per diluted share, in the second quarter of 2010.

Michael Weiss, Express, Inc.'s President and Chief Executive Officer commented: "The continued optimization of our go-to-market strategy combined with the successful execution of our four growth pillars fueled a strong second quarter performance for Express.  The quarter included strong sales gains, a 140 basis point expansion in merchandise margin, with adjusted operating income increasing 65% from the prior year.  Our customers responded very favorably to both our in-season and new fall assortments, which drove increased full price selling in our stores and online.  Our new stores performed positively, and we were pleased to introduce our new store design in Philadelphia and Cincinnati."  

"We are optimistic as we begin the second half of the year," Mr. Weiss continued. "Our second quarter product tests have provided us with great insight into the key styles we will offer during the fall and holiday seasons.  We continue to see significant opportunity to increase sales productivity, as we recapture historical sales volumes in key categories and introduce new product offerings that complement our brand.  Most recently, we expanded our offering of shoes with encouraging results and look forward to our men's watch launch planned for November.  Our new store openings remain on track, and we look forward to entering the Canadian market in September.  While acknowledging that recent events may impact consumer confidence, we remain confident in our strategies and ability to continue to gain profitable market share. We are a fashion authority for our demographic, which is growing and has a high discretionary spend.  In addition, we believe our data driven processes provide us with a key competitive advantage.  We continue to expect 2011 to represent a year of significant accomplishments and increased value for our stakeholders."

Twenty-Six Week Operating Results:

• Net sales increased 10% to $913.4 million from $833.7 million in the prior year period, and year-to-date comparable sales increased 7%. This follows an 11% increase in comparable sales in the prior year period;
• Gross margin increased 150 bps to 35.9% of net sales compared to 34.4% of net sales in the prior year period;
• SG&A expenses totaled $227.2 million, or 24.9% of net sales, and included $0.6 million of non-core operating costs related to the secondary offering completed on April 6, 2011. This compares to SG&A expenses of $213.8 million, or 25.6% of net sales, in the prior year period, which included $2.7 million in non-core operating costs related to the Senior Notes offering completed on March 5, 2010 and initial public offering completed on May 18, 2010;
• Other operating income, net was $0.2 million. This compares to other operating expense, net of $17.0 million, or 2.0% of net sales, in the prior year period which included a $13.3 million one-time fee paid to Golden Gate Capital and Limited Brands related to the termination of the advisory arrangements with them in connection with the initial public offering;
• Operating income increased approximately 80% to $101.2 million, or 11.1% of net sales, compared to $56.3 million, or 6.8% of net sales, in the prior year period;
• Interest expense was $21.5 million and included a $7.2 million loss on extinguishment of debt related to the $49.2 million repurchases of Senior Notes and the Opco Revolving Credit Facility amendment. This compares to interest expense of $44.1 million in the prior year period which included a $20.8 million loss on extinguishment of debt related to the prepayment of debt in connection with the Senior Notes offering and initial public offering;
• Income tax expense was $32.0 million, at an effective tax rate of approximately 40.2%, compared to a tax benefit of $38.6 million in the prior year period. The change in tax expense is a result of the Company's conversion to a corporation effective May 2, 2010 in connection with its initial public offering in the second quarter of last year;
• Net income was $47.6 million, or $0.54 per diluted share on 88.8 million weighted average shares outstanding, and included the following non-core operating costs after tax: (i) $0.3 million, or $0.01 per diluted share, of costs related to the secondary offering completed on April 6, 2011; and (ii) $4.3 million, or $0.04 per diluted share, loss on extinguishment related to the $49.2 million repurchases of Senior Notes and Opco Revolving Credit Facility amendment. This compares to net income of $52.7 million, or $0.63 per diluted shares on 83.4 million weighted average shares outstanding, in the prior year period which included the following non-core operating costs after tax: (i) $2.3 million, or $0.03 per diluted share, of costs related to the Senior Notes offering and initial public offering; (ii) $8.0 million, or $0.10 per diluted share, of fees paid to Golden Gate Capital and Limited Brands related to the termination of advisory arrangements with them in connection with the initial public offering; and (iii) $15.3 million, or $0.18 per diluted share, loss on extinguishment of debt related to the prepayment of debt in connection with the Senior Notes offering and initial public offering. These costs were more than offset by a one-time tax benefit of $31.8 million, or $0.38 per diluted share, recognized in connection with the Company's conversion to a corporation; and
• Net income, adjusted for non-core operating costs noted above primarily related to the Senior Notes repurchased and the secondary offering (see Schedule 4 for discussion of non-GAAP measures), was $52.3 million, or $0.59 per diluted share. This compares to net income, adjusted for one-time items noted above related to the Senior Notes offering and the initial public offering (see Schedule 4 for discussion of non-GAAP measures), of $46.5 million, or $0.56 per diluted share.

Second Quarter Balance Sheet Highlights:

• Cash and cash equivalents totaled $144.6 million compared to $86.9 million at the end of the second quarter 2010;
• Inventories were $207.4 million, an increase of 12.5%, compared to $184.3 million at the end of the second quarter of 2010. The increase in inventory compared to the second quarter of last year supports the Company's e-commerce growth, new store openings, expansion of shoes, jewelry, and personal care categories, and strategic pre-positioning of fabric. Inventory per square foot increased approximately 4% compared to the second quarter of 2010;
• Debt declined by $49.5 million to $318.4 million compared to $367.9 million at the end of the second quarter 2010 driven by $49.2 million of Senior Notes repurchased during the first and second quarters of 2011. 

Store Expansion:

During the second quarter of 2011, the Company opened 9 new stores and closed 1 store in the United States, ending the quarter with 599 stores and approximately 5.2 million gross square feet in operation.

Credit Facility:

On July 29, 2011, the Company amended and restated its existing Opco Revolving Credit Facility.  The Opco Revolving Credit Facility amends, restates, and extends the existing $200.0 million Opco Revolving Credit Facility, which was scheduled to expire in July 2012.  The amendment extends the expiration date of the credit facility to July 2016 and lowers the applicable interest rates on borrowings from between 2.00% to 2.25% to between 1.50% and 2.00%.  Additionally, the unused line fee was reduced by 12.5 basis points to 0.375%. Further details regarding this refinancing transaction are available on the Form 8-K filed with SEC on August 4, 2011.

2011 Guidance:

Tax Rate:

The Company estimates that its effective tax rate for the third quarter and full year 2011 will be approximately 40.3%. This compares to an effective tax rate (excluding discrete items) of approximately 41.2% and 10.1% for the third quarter of 2010 and full year 2010, respectively.  The expected increase in the effective tax rate for the full year 2011 compared to the prior year period reflects the Company's conversion to a corporation in connection with its initial public offering in the second quarter of 2010.

Third Quarter:

The Company currently expects third quarter 2011 comparable sales to increase mid single digits compared to an increase of 5% in the third quarter of 2010.  Net income is expected in the range of $29 million to $32 million, or $0.33 to $0.36 per diluted share on 89.0 million shares outstanding.  This compares to adjusted net income of $26.4 million, or $0.30 per diluted share on 88.7 million shares outstanding, in the third quarter of 2010 (see Schedule 4 for discussion of non-GAAP measures). The Company plans to open 8 new stores in the United States and Canada, ending the quarter with 607 locations and approximately 5.3 million gross square feet in operation.  

Full Year 2011:

The Company is increasing its full year 2011 guidance.  The Company currently expects full year comparable sales to increase mid single digits compared to an increase of 10% for full year 2010.  Adjusted earnings are expected in the range of $1.57 to $1.63 per diluted share on 88.9 million shares outstanding (see Schedule 4 for discussion of non-GAAP measures), which is increased from its previous guidance of adjusted earnings in the range of $1.52 to $1.61 per diluted share.  This compares to adjusted earnings of $1.42 per diluted share on 86.1 million shares outstanding in 2010 (see Schedule 4 for discussion of non-GAAP measures). This guidance implies adjusted operating income growth between 21% and 25% over adjusted operating income for full year 2010 (see Schedule 4 discussion non-GAAP measures).  The Company plans to open 27 new stores in the United States and Canada and close 9 existing locations in the United States, ending the year with 609 locations and approximately 5.3 million gross square feet in operation.  

Conference Call Information:

A conference call to discuss second quarter results is scheduled for today, August 24, 2011, at 4:30 p.m. Eastern Daylight Time. Investors and analysts interested in participating in the call are invited to dial (877) 407-0784 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 until 11:59 p.m. (EDT) on August 31, 2011 and can be accessed by dialing (877) 870-5176 and entering replay pin number 376529.

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.  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 599 retail stores, located primarily in high-traffic shopping malls, lifestyle centers, and street locations across the United States and in Puerto Rico, and also distributes its products through the Company's e-commerce website, 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 may herein include, but are not limited to, statements regarding expected net income, comparable store sales, earnings per diluted share, effective tax rates, and store expansion and closures.  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) the success of the malls and shopping centers in which our stores are located; (6) our dependence upon independent third parties to manufacture all of our merchandise; (7) our growth strategy, including our international expansion plan; (8) our dependence on a strong brand image; (9) our dependence upon key executive management; (10) our reliance on Limited Brands to provide us with certain key services for our business; (11) our substantial indebtedness and lease obligations; and (12) increased costs as a result of being a public company.  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.

Supplemental Information - Consolidated Statements of Income
Reconciliation of GAAP to Non-GAAP Financial Measures

The Company supplements the reporting of their financial information determined under U.S. generally accepted accounting principles (GAAP) with certain non-GAAP financial measures: adjusted operating income, 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 their financial results and assessing their prospects for future performance. Management believes adjusted operating income, adjusted net income, and adjusted earnings per diluted share are important indicators of their operations because they exclude items that may not be indicative of, or are unrelated to, their 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 operating income, 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 our GAAP results and the reconciliations to the corresponding GAAP financial measures below, provide a more complete understanding of our business. Management strongly encourages investors and stockholders to review their financial statements and publicly-filed reports in their entirety and not rely on any single financial measure.

Company Contact:
Matthew C. Moellering
Chief Administrative Officer &
Chief Financial Officer
(614) 474-4400

Media Contact:
Barbara Coleman
Corporate Communications
(614) 474-4083

Investor Contacts:
ICR, Inc.
Allison Malkin / Anne Rakunas
(203) 682-8200 / (310) 954-1113

SOURCE Express, Inc.