Attached files
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| 8-K - 8-K - EXPRESS, INC. | a8-kq32015earningsreleasec.htm |
Investor Contacts:
Marisa Jacobs
Express, Inc.
Vice President Investor Relations
(614) 474-4465
Allison Malkin
ICR, Inc.
(203) 682-8225
Media Contact:
Marisa Jacobs
Express, Inc.
Vice President Investor Relations
(614) 474-4465
EXPRESS, INC. REPORTS SOLID TOP LINE AND PROFIT GROWTH FOR THE THIRD QUARTER;
RAISES FULL YEAR 2015 OUTLOOK
• | Sales increase 10% to $546.6 million |
• | Comparable sales increase 6% |
• | Merchandise margin and gross margin increase 160 and 330 basis points, respectively |
• | Operating income rises to $44.5 million |
• | Diluted EPS rises 82% to $0.31, beating guidance |
Columbus, Ohio - December 3, 2015 - Express, Inc. (NYSE: EXPR), a specialty retail apparel company, announced its financial results for the third quarter of 2015. These results cover the thirteen and thirty-nine week periods ended October 31, 2015 and compare to the thirteen and thirty-nine week periods ended November 1, 2014.
David Kornberg, the Company's President and Chief Executive Officer, noted that “I am pleased with our third quarter performance. We presented our customers with compelling fashion. We maintained our balanced approach to running the business, used promotions with restraint and managed inventory with discipline. This led to a 10% increase in sales, with retail stores, outlets and e-commerce each growing. Comparable sales increased by 6%, operating margin expanded to 8.1%, and diluted EPS increased 82% compared to last year’s third quarter. I also want to highlight that our balanced approach to managing the business has enabled us to deliver comparable sales growth, margin expansion and significant earnings growth in each of the past three quarters on a year over year basis. I believe we can deliver consistent and profitable growth in 2016 and beyond by continuing to follow this approach.”
Looking ahead to the remainder of the holiday season, Mr. Kornberg went on to note that, “Our holiday 2015 assortment consists of great fashion pieces blended with strong key items, whether for gifting or self-purchase. While we expect the holiday season to remain highly competitive, we believe we are well positioned, and our positive outlook for the season is reflected in our guidance.”
Third Quarter 2015 Operating Results:
• | Net sales increased 10% to $546.6 million from $497.6 million in the third quarter of 2014. |
• | Comparable sales (including e-commerce sales) increased 6%, compared to a 5% decrease in the third quarter of 2014. |
• | E-commerce sales rose 6% to $83.8 million. |
• | Merchandise margin grew by 160 basis points through disciplined management of inventory levels and a reduction in promotions. Buying and occupancy as a percentage of net sales also improved by 170 basis points as costs were leveraged against higher sales. Together, these led to a gross margin improvement of 330 basis points, with gross margin of 35.0% compared to 31.7% in last year’s third quarter. |
• | Selling, general, and administrative (SG&A) expenses were $146.6 million versus $126.5 million in last year's third quarter, primarily due to outlet related expenses and incremental incentive compensation expenses. As a percentage of net sales, SG&A expenses increased by 140 basis points to 26.8% compared to 25.4% in last year’s third quarter. |
• | Operating income was $44.5 million, or 8.1% of net sales, compared to $30.5 million, or 6.1% of net sales in the third quarter of 2014. |
• | Income tax expense was $16.9 million, at an effective tax rate of 39.2%, compared to $9.7 million, at an effective tax rate of 40.0% in last year's third quarter. |
• | Net income was $26.3 million, or $0.31 per diluted share. This compares to net income of $14.6 million, or $0.17 per diluted share, in the third quarter of 2014. |
Third Quarter 2015 Balance Sheet Highlights:
• | Cash and cash equivalents totaled $91 million versus $218 million at the end of the third 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 and the use of approximately $22 million to repurchase approximately 1.1 million shares of our outstanding common stock pursuant to our $100 million share repurchase program. |
• | Capital expenditures totaled $85 million for the thirty-nine weeks ended October 31, 2015, compared to $87 million for the thirty-nine weeks ended November 1, 2014. |
• | Inventory was $365 million compared to $350 million at the end of the prior year’s third quarter, and includes approximately $59 million related to Express Factory Outlet stores this year compared to approximately $25 million in the prior year's third quarter. |
2015 Guidance:
The table below compares the Company's projected results for the thirteen week period ended January 30, 2016 to the actual results for the thirteen week period ended January 31, 2015.
Fourth Quarter 2015 Guidance | Fourth Quarter 2014 Actual Results | ||
Comparable Sales | +Low single digits | -2% | |
Effective Tax Rate | 39% to 40% | 39.8% | |
Interest Expense, Net | $1.2 million | $6.0 million | |
Net Income | $50 to $54 million | $41.8 million | |
Diluted Earnings Per Share (EPS) | $0.60 to $0.64(1) | $0.49 | |
Weighted Average Diluted Shares Outstanding | 83.9 million(1) | 84.7 million | |
(1) Includes the impact of approximately 1.0 million shares repurchased since the end of the third quarter for an aggregate amount equal to $18.0 million.
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 | $110 to $114 million(1) | $68.3 million | |
Adjusted Net Income | $116 to $120 million(2) | N/A | |
Diluted EPS | $1.31 to $1.35(1)(3) | $0.81 | |
Adjusted Diluted EPS | $1.38 to $1.42(2)(3) | N/A | |
Weighted Average Diluted Shares Outstanding | 84.7 million(3) | 84.6 million | |
Capital Expenditures | $112 to $117 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.
(3) Includes the impact of approximately 1.0 million shares repurchased since the end of the third quarter for an aggregate amount equal to $18.0 million.
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 third quarter 2015 results is scheduled for Thursday December 3, 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 December 3, 2015 until 11:59 p.m. ET on December 10, 2015 and can be accessed by dialing (877) 870-5176 and entering replay pin number 13624807.
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 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 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 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 for the fourth 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, (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, and (4) statements regarding expectations for the holiday season. 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 online; (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)
October 31, 2015 | January 31, 2015 | November 1, 2014 | |||||||||
ASSETS | |||||||||||
CURRENT ASSETS: | |||||||||||
Cash and cash equivalents | $ | 91,215 | $ | 346,159 | $ | 217,814 | |||||
Receivables, net | 25,810 | 23,272 | 20,468 | ||||||||
Inventories | 364,662 | 241,063 | 350,269 | ||||||||
Prepaid minimum rent | 30,660 | 29,465 | 29,084 | ||||||||
Other | 28,788 | 14,277 | 22,414 | ||||||||
Total current assets | 541,135 | 654,236 | 640,049 | ||||||||
PROPERTY AND EQUIPMENT | 928,434 | 840,340 | 840,452 | ||||||||
Less: accumulated depreciation | (484,929 | ) | (432,733 | ) | (424,672 | ) | |||||
Property and equipment, net | 443,505 | 407,607 | 415,780 | ||||||||
TRADENAME/DOMAIN NAMES/TRADEMARKS | 197,597 | 197,562 | 197,822 | ||||||||
DEFERRED TAX ASSETS | 11,718 | 12,371 | 17,434 | ||||||||
OTHER ASSETS | 2,990 | 6,374 | 6,985 | ||||||||
Total assets | $ | 1,196,945 | $ | 1,278,150 | $ | 1,278,070 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
CURRENT LIABILITIES: | |||||||||||
Accounts payable | $ | 209,874 | $ | 153,745 | $ | 226,291 | |||||
Deferred revenue | 22,302 | 28,575 | 20,248 | ||||||||
Accrued expenses | 106,925 | 105,139 | 86,354 | ||||||||
Total current liabilities | 339,101 | 287,459 | 332,893 | ||||||||
LONG-TERM DEBT | — | 199,527 | 199,435 | ||||||||
DEFERRED LEASE CREDITS | 139,203 | 128,450 | 128,161 | ||||||||
OTHER LONG-TERM LIABILITIES | 112,518 | 106,375 | 105,802 | ||||||||
Total liabilities | 590,822 | 721,811 | 766,291 | ||||||||
COMMITMENTS AND CONTINGENCIES | |||||||||||
Total stockholders’ equity | 606,123 | 556,339 | 511,779 | ||||||||
Total liabilities and stockholders’ equity | $ | 1,196,945 | $ | 1,278,150 | $ | 1,278,070 | |||||
Schedule 2
Express, Inc.
Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||
October 31, 2015 | November 1, 2014 | October 31, 2015 | November 1, 2014 | ||||||||||||
NET SALES | $ | 546,616 | $ | 497,608 | $ | 1,584,576 | $ | 1,439,680 | |||||||
COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS | 355,527 | 340,050 | 1,049,853 | 1,008,724 | |||||||||||
Gross profit | 191,089 | 157,558 | 534,723 | 430,956 | |||||||||||
OPERATING EXPENSES: | |||||||||||||||
Selling, general, and administrative expenses | 146,585 | 126,526 | 420,334 | 371,309 | |||||||||||
Other operating (income) expense, net | (29 | ) | 508 | 43 | (476 | ) | |||||||||
Total operating expenses | 146,556 | 127,034 | 420,377 | 370,833 | |||||||||||
OPERATING INCOME | 44,533 | 30,524 | 114,346 | 60,123 | |||||||||||
INTEREST EXPENSE, NET | 1,207 | 6,042 | 14,751 | 17,880 | |||||||||||
OTHER EXPENSE, NET | 70 | 160 | 140 | 157 | |||||||||||
INCOME BEFORE INCOME TAXES | 43,256 | 24,322 | 99,455 | 42,086 | |||||||||||
INCOME TAX EXPENSE | 16,949 | 9,737 | 39,058 | 15,551 | |||||||||||
NET INCOME | $ | 26,307 | $ | 14,585 | $ | 60,397 | $ | 26,535 | |||||||
EARNINGS PER SHARE: | |||||||||||||||
Basic | $ | 0.31 | $ | 0.17 | $ | 0.72 | $ | 0.32 | |||||||
Diluted | $ | 0.31 | $ | 0.17 | $ | 0.71 | $ | 0.31 | |||||||
WEIGHTED AVERAGE SHARES OUTSTANDING: | |||||||||||||||
Basic | 84,240 | 84,189 | 84,453 | 84,122 | |||||||||||
Diluted | 84,849 | 84,605 | 85,009 | 84,490 | |||||||||||
Schedule 3
Express, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Thirty-Nine Weeks Ended | |||||||
October 31, 2015 | November 1, 2014 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net income | $ | 60,397 | $ | 26,535 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 56,103 | 57,965 | |||||
Loss on disposal of property and equipment | 1,313 | 741 | |||||
Impairment charge | — | 5,087 | |||||
Excess tax benefit from share-based compensation | (334 | ) | (47 | ) | |||
Share-based compensation | 15,114 | 14,306 | |||||
Non-cash loss on extinguishment of debt | 5,314 | — | |||||
Deferred taxes | (6,805 | ) | 668 | ||||
Landlord allowance amortization | (9,208 | ) | (8,637 | ) | |||
Payment of original issue discount | (2,812 | ) | — | ||||
Changes in operating assets and liabilities: | |||||||
Receivables, net | (2,546 | ) | (3,101 | ) | |||
Inventories | (123,806 | ) | (137,746 | ) | |||
Accounts payable, deferred revenue, and accrued expenses | 42,514 | 33,431 | |||||
Other assets and liabilities | 20,389 | 8,805 | |||||
Net cash provided by (used in) operating activities | 55,633 | (1,993 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Capital expenditures | (85,013 | ) | (86,571 | ) | |||
Purchase of intangible assets | (35 | ) | (1,010 | ) | |||
Net cash used in investing activities | (85,048 | ) | (87,581 | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Repayment of long-term debt | (198,038 | ) | — | ||||
Costs incurred in connection with debt arrangements | (1,006 | ) | — | ||||
Payments on lease financing obligations | (1,168 | ) | (1,105 | ) | |||
Excess tax benefit from share-based compensation | 334 | 47 | |||||
Proceeds from exercise of stock options | 1,265 | — | |||||
Repurchase of common stock under share repurchase plan | (22,020 | ) | — | ||||
Repurchase of shares for tax withholding obligations under the 2010 Plan | (4,400 | ) | (3,481 | ) | |||
Net cash used in financing activities | (225,033 | ) | (4,539 | ) | |||
EFFECT OF EXCHANGE RATE ON CASH | (496 | ) | 43 | ||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | (254,944 | ) | (94,070 | ) | |||
CASH AND CASH EQUIVALENTS, Beginning of period | 346,159 | 311,884 | |||||
CASH AND CASH EQUIVALENTS, End of period | $ | 91,215 | $ | 217,814 | |||
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. In addition, adjusted earnings per diluted share is used as a performance measure in 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 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.
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** | $ | 112,397 | $ | 1.33 | 84,736 | (a) | |||||
Interest Expense (b) * | 5,916 | 0.07 | |||||||||
Projected Adjusted Non-GAAP Measure** | $ | 118,313 | $ | 1.40 | |||||||
(a) | Includes the impact of approximately 1.0 million shares repurchased since the end of the third quarter for an aggregate amount equal to $18.0 million. |
(b) | 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)
Third Quarter 2015 - Actual | October 31, 2015 - Actual | |||||
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 | |
Fourth Quarter 2015 - Projected | January 30, 2016 - Projected | |||||
Company-Operated Stores | Opened | Closed | Conversion | Store Count | Gross Square Footage | |
United States - Retail Stores | — | (3) | — | 556 | ||
United States - Outlet Stores | 3 | — | — | 81 | ||
Canada | — | — | — | 17 | ||
Total | 3 | (3) | — | 654 | 5.7 million | |
Full Year 2015 - Projected | ||||||
Company-Operated Stores | Opened | Closed | Conversion | |||
United States - Retail Stores | 1 | (26) | (2) | |||
United States - Outlet Stores | 38 | — | 2 | |||
Canada | — | — | — | |||
Total | 39 | (26) | — | |||