Express, Inc. Reports First Quarter 2017 EPS in Line with Guidance; Introduces Second Quarter Guidance and Revises Full Year 2017 Outlook

  • First quarter net sales decreased by 7% to $467.0 million
  • First quarter loss of $0.06 per share, including a net negative $0.03 per share impact related to certain discrete tax items and the exit of Canada
  • E-commerce sales increased 27% in the first quarter, accounting for 21% of net sales
  • Remain on track to deliver $20 million in cost savings in 2017
  • First quarter operating cash flow improved by $16.6 million; strong balance sheet maintained with more than $190 million in cash and no debt

COLUMBUS, Ohio--()--Express, Inc. (NYSE:EXPR), a specialty retail apparel company, announced its financial results for the first quarter of 2017. These results, which cover the thirteen weeks ended April 29, 2017, are compared to the thirteen weeks ended April 30, 2016.

David Kornberg, the Company’s president and chief executive officer, stated: “We are pleased with the recent trends in our business and believe that our initiatives are gaining traction in a challenging retail environment. E-commerce sales accelerated in the first quarter, increasing 27%, and are on track for another record year. Store performance is also showing sequential progress. This led to a comparable sales improvement as we moved through the first quarter, a trend that has continued into the second quarter."

Mr. Kornberg continued, "As we look to the balance of the year, we are increasingly optimistic about our ability to drive improved performance. We are excited about our summer and fall assortments and expect continued sales momentum in our e-commerce business, along with sequential improvement in stores. Our work on customer loyalty is showing meaningful progress with improving customer acquisition trends, and our omni-channel initiatives are on track with the successful pilot of 'ship from store'. We remain focused on carefully managing our cost base, further optimizing our store footprint, and improving profitability. Our balance sheet remains strong with more than $190 million in cash and no debt, and we continue to have solid cash flow. We strongly believe we have the right initiatives in place and are committed to driving shareholder value.”

First Quarter 2017 Operating Results:

  • Net sales decreased 7% to $467.0 million from $502.9 million in the first quarter of 2016.
  • Comparable sales (including e-commerce sales) decreased 10%, compared to a 3% decrease in the first quarter of 2016.
  • E-commerce sales increased 27% year over year to $97.6 million.
  • Merchandise margin declined by 380 basis points, driven by increased promotional activity. Buying and occupancy as a percentage of net sales rose by 240 basis points. In combination, this resulted in a 620 basis point decline in gross margin, representing 27.2% of net sales compared to 33.4% in last year’s first quarter.
  • Selling, general, and administrative (SG&A) expenses were $130.1 million versus $135.8 million in last year's first quarter. As a percentage of net sales, SG&A expenses increased by 90 basis points year over year to 27.9%.
  • Restructuring costs of $6.3 million in the first quarter of 2017 represent costs incurred related to the exit of Canada, including the impairment of Canadian assets in the amount of $5.5 million.
  • Operating loss was $9.7 million and includes a $6.3 million impact related to the exit of Canada. This compares to operating income of $31.8 million in the first quarter of 2016.
  • Income tax benefit was $6.0 million, at an effective tax rate of 57.0%, compared to income tax expense of $7.9 million, at an effective tax rate of 38.0% in last year's first quarter. The effective tax rate for the first quarter of 2017 includes a tax benefit of $7.3 million related to the exit of Canada, partially offset by a net tax impact of approximately $3.2 million attributable to certain discrete items that occurred during the first quarter.
  • Net loss was $4.5 million, or $0.06 per diluted share, and includes a negative $0.04 per diluted share impact related to the aforementioned discrete tax items and a net benefit of $0.01 per diluted share related to the exit of Canada. This compares to net income of $12.9 million, or $0.16 per diluted share, in the first quarter of 2016. First quarter 2016 net income included $11.4 million of non-core expenses related to the amendment of the Times Square Flagship store lease.
  • Real estate activity for the first quarter of 2017 is presented in Schedule 5.

First Quarter 2016 Balance Sheet Highlights:

  • Cash and cash equivalents totaled $191.0 million versus $111.0 million at the end of the first quarter of 2016.
  • Capital expenditures totaled $14.6 million for the thirteen weeks ended April 29, 2017 compared to $18.2 million for the thirteen weeks ended April 30, 2016.
  • Inventory was $287.5 million compared to $281.3 million at the end of the prior year’s first quarter, a 2% increase.

2017 Guidance:

The table below compares the Company's projected results for the thirteen week period ended July 29, 2017 to the actual results for the thirteen week period ended July 30, 2016.

  Second Quarter 2017 Guidance   Second Quarter 2016 Actual Results
Comparable Sales Negative mid single digits -8%
Effective Tax Rate Approximately 31% 40.8%
Interest Expense, Net $0.7 million $0.5 million
Net Income ($19) to ($16) million(1) $10.1 million
Adjusted Net Income ($2) to $1 million(2) N/A
Diluted Earnings Per Share (EPS) ($0.24) to ($0.20)(1) $0.13
Adjusted Diluted EPS ($0.03) to $0.01(2) N/A
Weighted Average Diluted Shares Outstanding 78.8 million 78.9 million

(1)

 

Includes estimated impact of the exit of Canada in the amount of approximately $17 million, or $0.21 per share, which represents the mid-point of the $15 to $19 million guidance range.

 

(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.

The table below compares the Company's projected results for the 53 week period ended February 3, 2018 to the actual results for the 52 week period ended January 28, 2017.

  Full Year 2017 Guidance   Full Year 2016

Actual Results

Comparable Sales Negative low single digits -9%
Effective Tax Rate Approximately 41% 36.6%
Interest Expense, Net $3 million $13.5 million(3)
Net Income $16 to $22 million(1) $57.4 million(3)
Adjusted Net Income $32 to $38 million(2) $64.3 million(2)
Diluted EPS $0.21 to $0.28(1) $0.73(3)
Adjusted Diluted EPS $0.41 to $0.48(2) $0.81(2)
Weighted Average Diluted Shares Outstanding 79.1 million 79.0 million
Capital Expenditures $62 to $67 million $98.7 million

(1)

 

Includes estimated net impact of the exit of Canada in the amount of approximately $16 million, or $0.20 per share, which represents the mid-point of the $14 to $18 million guidance range.

 

(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.

 

(3)

Includes approximately $11.4 million, or $6.9 million net of tax and $0.08 per share, of non-core items related to an amendment to the Times Square Flagship store lease.

The Company's full year 2017 GAAP net income and diluted EPS guidance includes a net negative $14 to $18 million, or $0.18 to $0.23 per share, impact from the exit of Canada and a net negative $0.04 per share impact related to discrete tax items incurred in the first quarter of 2017.

The Company's full year 2017 non-GAAP adjusted diluted EPS guidance includes a net negative $0.04 per share impact incurred in the first quarter of 2017 related to discrete tax items and excludes a negative $14 to $18 million, or $0.18 to $0.23 per share, impact from the exit of Canada. This guidance does not take into account any additional non-core 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 2017 results is scheduled for June 1, 2017 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 at 12:00 p.m. ET on June 1, 2017 until 11:59 p.m. ET on June 8, 2017 and can be accessed by dialing (844) 512-2921 and entering replay pin number 13661836.

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 more than 35 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 650 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 and online in Latin America. Express also markets and sells its products through its e-commerce website, www.express.com, as well as on its mobile app.

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 and expectations for the second quarter and full year 2017, including statements regarding expected comparable sales, e-commerce sales, store performance, effective tax rates, interest expense, net income, adjusted net income, diluted earnings per share, adjusted diluted earnings per 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, results expected from such initiatives. 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, promotions, and inventory levels; (4) competition from other retailers; (5) customer traffic at malls, shopping centers, and at our stores and online; (6) our dependence on a strong brand image; (7) our ability to develop and maintain a relevant and 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 or other business disruption; (13) our dependence upon key executive management; (14) our ability to achieve our strategic objectives, including improving profitability through a balanced approach to growth, increasing brand awareness and elevating our customer experience, transforming and leveraging information technology systems, and investing in the growth and development of our people; (15) our substantial lease obligations; (16) our reliance on third parties to provide us with certain key services for our business; (17) claims made against us resulting in litigation or changes in laws and regulations applicable to our business; (18) 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; (19) restrictions imposed on us under the terms of our asset-based loan facility; (20) impairment charges on long-lived assets; and (21) changes in tax requirements, results of tax audits, and other factors that may cause fluctuations in our effective tax rate. 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 required by law.

     

Schedule 1

Express, Inc.

Consolidated Balance Sheets

(In thousands)

(Unaudited)

 

 

April 29, 2017 January 28, 2017 April 30, 2016
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 190,992 $ 207,373 $ 111,033
Receivables, net 16,218 15,787 16,538
Inventories 287,496 241,424 281,348
Prepaid minimum rent 31,109 31,626 30,677
Other 21,785   17,923   19,863  
Total current assets 547,600 514,133 459,459
 
PROPERTY AND EQUIPMENT 1,039,467 1,029,176 958,626
Less: accumulated depreciation (599,126 ) (577,890 ) (511,352 )
Property and equipment, net 440,341 451,286 447,274
 
TRADENAME/DOMAIN NAMES/TRADEMARKS 197,618 197,618 197,597
DEFERRED TAX ASSETS 7,797 7,926 21,461
OTHER ASSETS 13,413   14,226   1,909  
Total assets $ 1,206,769   $ 1,185,189   $ 1,127,700  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 197,751 $ 172,668 $ 146,019
Deferred revenue 25,179 29,428 27,773
Accrued expenses 112,344   80,301   169,260  
Total current liabilities 335,274 282,397 343,052
 
DEFERRED LEASE CREDITS 147,313 146,328 142,115
OTHER LONG-TERM LIABILITIES 90,910   120,777   48,962  
Total liabilities 573,497 549,502 534,129
 
COMMITMENTS AND CONTINGENCIES
 
Total stockholders’ equity 633,272   635,687   593,571  
Total liabilities and stockholders’ equity $ 1,206,769   $ 1,185,189   $ 1,127,700  
 

Schedule 2

Express, Inc.

Consolidated Statements of Income

(In thousands, except per share amounts)

(Unaudited)

 
Thirteen Weeks Ended
April 29, 2017   April 30, 2016
NET SALES $ 467,029 $ 502,909
COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS 340,031   335,161  
Gross profit 126,998 167,748
OPERATING EXPENSES:
Selling, general, and administrative expenses 130,072 135,762
Restructuring costs 6,271
Other operating (income) expense, net 401   165  
Total operating expenses 136,744 135,927
 
OPERATING (LOSS)/INCOME (9,746 ) 31,821
 
INTEREST EXPENSE, NET 797 11,731
OTHER EXPENSE (INCOME), NET (12 ) (690 )
(LOSS)/INCOME BEFORE INCOME TAXES (10,531 ) 20,780
INCOME TAX (BENEFIT)/EXPENSE (6,000 ) 7,898  
NET (LOSS)/INCOME $ (4,531 ) $ 12,882  
 
EARNINGS PER SHARE:
Basic $ (0.06 ) $ 0.16
Diluted $ (0.06 ) $ 0.16
 
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 78,446 79,063
Diluted 78,446 79,914
 

Schedule 3

Express, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 
Thirteen Weeks Ended
April 29, 2017   April 30, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)/income $ (4,531 ) $ 12,882
Adjustments to reconcile net (loss)/income to net cash provided by operating activities:
Depreciation and amortization 22,893 16,783
Loss on disposal of property and equipment 403 290
Impairment charge 5,512
Amortization of lease financing obligation discount 11,354
Share-based compensation 4,018 4,368
Deferred taxes 1,133 (235 )
Landlord allowance amortization (3,126 ) (2,138 )
Changes in operating assets and liabilities:
Receivables, net (442 ) 5,633
Inventories (46,220 ) (25,600 )
Accounts payable, deferred revenue, and accrued expenses 20,635 (42,534 )
Other assets and liabilities 676   3,536  
Net cash provided by/(used in) operating activities 951 (15,661 )
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (14,623 ) (18,247 )
Net cash used in investing activities (14,623 ) (18,247 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on lease financing obligations (414 ) (389 )
Repayments of financing arrangements (303 )
Proceeds from exercise of stock options 2,703
Repurchase of common stock under share repurchase program (41,527 )
Repurchase of common stock for tax withholding obligations (1,534 ) (4,340 )
Net cash used in financing activities (2,251 ) (43,553 )
 
EFFECT OF EXCHANGE RATE ON CASH (458 ) 1,591
 
NET DECREASE IN CASH AND CASH EQUIVALENTS (16,381 ) (75,870 )
CASH AND CASH EQUIVALENTS, Beginning of period 207,373   186,903  
CASH AND CASH EQUIVALENTS, End of period $ 190,992   $ 111,033  

 

 

Schedule 4

Supplemental Information - Consolidated Statements of Income

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited)

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 operating income, adjusted net income and adjusted diluted earnings per share. The Company believes that these non-GAAP measures provide additional useful information to assist stockholders in understanding its financial results and assessing its prospects for future performance. Management believes adjusted operating income, adjusted net income, and adjusted diluted earnings per share are important indicators of the Company's business performance because they exclude items that may not be indicative of, or are unrelated to, the Company's underlying operating results, and provide a better baseline for analyzing trends in the business. In addition, adjusted operating income and adjusted diluted earnings per share are used as a performance measures in the Company's incentive compensation program and the Company's executive compensation program for purposes of determining the number of equity awards that are ultimately earned. 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 reported operating income, reported net income, or reported diluted earnings per share. These non-GAAP financial measures reflect an additional way of viewing the Company's operations that, when viewed with the GAAP results and the below reconciliations to the corresponding GAAP financial measures, 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.

  Thirteen Weeks Ended April 29, 2017
(in thousands, except per share amounts) Operating Loss   Net Loss   Diluted Earnings per Share Weighted Average Diluted Shares Outstanding
Reported GAAP Measure $ (9,746 ) $ (4,531 ) $ (0.06 ) 78,446
Impact of Canadian Exit 6,271 6,271 0.08
Income Tax Benefit - Canadian Exit   (7,297 ) (0.09 )
Adjusted Non-GAAP Measure $ (3,475 ) $ (5,557 ) $ (0.07 ) (a)

(a)

 

Adjusted net loss of $0.07 per diluted share includes $0.04 per diluted share of income tax expense for discrete tax items that were not included in the Company's first quarter 2017 guidance.

  Thirteen Weeks Ended April 30, 2016
(in thousands, except per share amounts) Net Income   Diluted Earnings per Share   Weighted Average Diluted Shares Outstanding
Reported GAAP Measure $ 12,882 $ 0.16 79,914
Interest Expense (a) 11,354 0.14
Income Tax Benefit (b) (4,428 ) (0.06 )
Adjusted Non-GAAP Measure $ 19,808   $ 0.25  

(a)

 

Represents non-core items related to the amendment of the Times Square Flagship store lease.

 

(b)

Represents the tax impact of the interest expense adjustment at our statutory rate of approximately 39% for the thirteen weeks ended April 30, 2016.

 

 

Schedule 4 (Continued)

Supplemental Information - Consolidated Statements of Income

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited)

  Thirteen Weeks Ended July 29, 2017
(in thousands, except per share amounts) Projected Net Income   Projected Diluted Earnings per Share   Projected Weighted Average Diluted Shares Outstanding

Projected GAAP Measure*

$ (17,500 ) $ (0.22 ) 78,815
Projected Impact of Canadian Exit 25,000 0.32
Projected Income Tax Benefit - Canadian Exit (8,000 ) (0.10 )

Projected Adjusted Non-GAAP Measure*

$ (500 ) $ (0.01 )

* Represents mid-point of guidance range.

  Fifty-Three Weeks Ended February 3, 2018
(in thousands, except per share amounts) Projected Net Income   Projected Diluted Earnings per Share   Projected Weighted Average Diluted Shares Outstanding

Projected GAAP Measure*

$ 19,300 $ 0.24 79,069
Projected Impact of Canadian Exit 31,000 $ 0.39
Projected Income Tax Benefit - Canadian Exit (15,300 ) $ (0.19 )

Projected Adjusted Non-GAAP Measure*

$ 35,000   $ 0.44  

* Represents mid-point of guidance range.

The Company's full year 2017 GAAP net income and diluted EPS guidance includes a net negative $14 to $18 million, or $0.18 to $0.23 per share, impact from the exit of Canada and a net negative $0.04 per share impact related to discrete tax items incurred in the first quarter of 2017.

The Company's full year 2017 non-GAAP adjusted diluted EPS guidance includes a net negative $0.04 per share impact incurred in the first quarter of 2017 related to discrete tax items and excludes a negative $14 to $18 million, or $0.18 to $0.23 per share, impact from the exit of Canada. This guidance does not take into account any additional non-core items that may occur.

 

Schedule 4 (Continued)

Supplemental Information - Consolidated Statements of Income

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited)

 
Fifty-Two Weeks Ended January 28, 2017
(in thousands, except per share amounts) Net Income   Diluted Earnings per Share   Weighted Average Diluted Shares Outstanding
GAAP Measure * $ 57,417 $ 0.73 79,049
Interest Expense (a) 11,354 0.14
Income Tax Benefit (b) (4,428 ) (0.06 )
Adjusted Non-GAAP Measure * (c) $ 64,343   $ 0.81  

(a)

 

Represents non-core items related to the amendment of the Times Square Flagship store lease.

 

(b)

Represents the tax impact of the interest expense adjustment at our statutory rate of approximately 39% for the fifty-two weeks ended January 28, 2017.

 

(c)

Includes a net tax benefit of approximately $2.9 million, or $0.04 per diluted share, attributable to certain discrete items.

     

Schedule 5

Express, Inc.

Real Estate Activity

(Unaudited)

 
First Quarter 2017 - Actual     April 29, 2017 - Actual
Company-Operated Stores   Opened   Closed   Conversion Store Count   Gross Square Footage
United States - Retail Stores     (9 ) 526
United States - Outlet Stores 5 109
Canada           17    
Total 5 (9 ) 652 5.6 million
 
Second Quarter 2017 - Projected     July 29, 2017 - Projected
Company-Operated Stores   Opened   Closed   Conversion Store Count   Gross Square Footage
United States - Retail Stores (4 ) (20 ) 502
United States - Outlet Stores 4 20 133
Canada     (17 )        
Total 4 (21 ) 635 5.4 million
 
Full Year 2017 - Projected     February 3, 2018 - Projected
Company-Operated Stores   Opened   Closed   Conversion Store Count   Gross Square Footage
United States - Retail Stores (20 ) (20 ) 495
United States - Outlet Stores 19 20 143
Canada     (17 )        
Total 19 (37 ) 638 5.5 million

Contacts

Express, Inc.
Investor:
Mark Rupe, Vice President, Investor Relations, (614) 474-4465
or
Media:
Robin Hoffman, Director, Communications, (614) 474-4834

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