Attached files
file | filename |
---|---|
EX-99.1 - PRESS RELEASE - EXPRESS, INC. | businessupdatepressrelease.htm |
8-K - 8-K - EXPRESS, INC. | a8-kbusinessupdatejanuary2.htm |
January 2017
Cautionary Statement Regarding
Forward-Looking Statements
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 fourth quarter and full year 2016, including statements regarding
expected net sales, comparable sales, operating income and operating margin, net income, adjusted net income, diluted earnings per
share, adjusted diluted earnings per share, cash, debt, operating cash flow, free cash flow, and capital expenditures, (2) statements
regarding expected store openings, store closures, and gross square footage, (3) statements regarding expected cost savings, (4) capital
expenditure plans for 2017, and (5) statements regarding the Company's future plans and initiatives, including, but not limited to, those
related to increasing profitability, increasing store productivity, growing e-commerce sales, expanding the outlet store base and optimizing
the retail footprint, increasing brand awareness and elevating the customer experience, transforming and leveraging IT systems, investing
in Associates, and 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 disruption; (13) our dependence upon key executive management; (14) our growth strategy,
including our ability to improve the productivity of our existing stores, open new stores, and grow our e-commerce business; (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
otherwise required by law.
2
♦ One of the largest specialty retail apparel companies with over $2 billion in annual sales
♦ Strong and enduring brand, uniquely positioned within industry
♦ Focused on improving profitability through balanced growth and cost savings
♦ Strong, tenured leadership team
Sales Profile Footprint
♦ Iconic dual-gender lifestyle brand appealing to 20-30 year olds
♦ Balanced assortment of core styles and the latest fashions
♦ Address fashion needs across multiple wearing occasions
♦ Quality products at an attractive value
♦ 656 company operated stores across the U.S., Canada and
Puerto Rico
♦ E-commerce and mobile platform
♦ 18 international franchise locations in Latin America
3
Express Overview
1 For the fiscal year ended January 30, 2016. 2 Excludes “other revenue” of $45 million. 3 January 28, 2017 projection.
♦ Strong and Enduring Brand, Uniquely Positioned Within Industry
Established lifestyle brand with over 35 years of heritage
Attractive customer demographic profile – targeting both women and men between 20 and 30 years old
Products that serve the lifestyle needs of our core demographic
♦ Strategy Focused on Improving Profitability
Balanced approach to growth
Increase brand awareness and elevate customer experience
Transform and leverage IT systems
Significant cost savings initiatives
Invest in our Associates
♦ Solid Financial Characteristics
Net sales of $2.3 billion and EBITDA of $238 million for the 52-weeks ended October 29, 2016 1
Sound balance sheet with over $100 million in cash and no debt 2
Strong operating and free cash flow generation
4
Investment Thesis
1 EBITDA is earnings before interest, taxes, depreciation and amortization. EBITDA is a Non-GAAP financial measure. Refer to pages 30-35 for information about Non-GAAP
financial measures and reconciliations of GAAP to Non-GAAP financial measures.
2 As of the quarterly period ended October 29, 2016.
A fashion authority for men and women since 1980
Highly focused on delivering:
Consistently strong fashion, along with
Exceptional customer experience, and
A strong value proposition
Fashion designed by in-house teams
Narrow edit point for Express girl and guy (Age 25)
Curated point of view
Brand essence: Confident, Sexy & Vibrant
Towards the front end of the fashion lifecycle, but not
cutting edge
Emphasize style and quality
Address four key wearing occasions
Karlie
Kloss
Kris
Bryant
5
Strong and Enduring Brand
Work Casual Jeanswear Going Out
Teens
20-30s
Mid - Late 30's
Online:
Amazon
ASOS
6
Serving Four Wearing Occasions
Our Strategy
♦ Strong and Enduring Brand, Uniquely Positioned Within Industry
Established lifestyle brand with over 35 years of heritage
Attractive customer demographic profile – targeting both women and men between 20 and 30 years old
Products that serve the lifestyle needs of our core demographic
♦ Strategy Focused on Improving Profitability
Balanced approach to growth
Increase brand awareness and elevate customer experience
Transform and leverage IT systems
Significant cost savings initiatives
Invest in our Associates
♦ Solid Financial Characteristics
Net sales of $2.3 billion and EBITDA of $238 million for the 52-weeks ended October 29, 2016 1
Sound balance sheet with over $100 million in cash and no debt 2
Strong operating and free cash flow generation
8
Investment Thesis
1 EBITDA is earnings before interest, taxes, depreciation and amortization. EBITDA is a Non-GAAP financial measure. Refer to pages 30-35 for information about Non-GAAP
financial measures and reconciliations of GAAP to Non-GAAP financial measures.
2 As of the quarterly period ended October 29, 2016.
Why Invest in Express?EXPRESS
Increase
Existing Store
Productivity
e-Commerce
Growth
Optimize
Retail &
Expand Outlet
Real Estate
Balanced Approach To Growth
9
Deliver compelling product with high emotional content
Introduce increased newness & new categories to drive growth
Product launches: Petites, Karlie Kloss collection, and others
Disciplined testing and tightly controlled inventory to reduce risk
More effective marketing to drive traffic and brand awareness
Relaunching NEXT loyalty program
Optimize customer engagement across all touch points
Leverage IT systems – we have modernized 95% of our
portfolio of systems over the past four years
10
Increase Store Productivity
Objective: Consistent positive comparable sales and margin expansion
E-Commerce Sales
Launched in 2008
E-commerce sales continue to grow and outpace
store growth
+11% in 2015
+3% through Q3 2016 (+15% in Q3-16)
Mobile growing as a percentage of sales
Driving sales through:
A focus on fashion and story telling
A mobile first approach to development
Improved search and checkout capabilities
More targeted customer outreach and
segmentation using analytics
Exclusive product, color and size offerings
$ in millions
% of Total Sales
11
Grow E-Commerce Sales
Total store count and net square footage
growth up slightly in recent years
Expansion of outlet store base
Contraction of retail store footprint
~13% decrease since FY13
International opportunity remains significant
18 international franchise stores in
Latin America
Store Count1
12
Total Stores
Net Sq Ft Growth 3% 3% 3% 1% 2% 0% 1%
# of Stores
1 Chart excludes international franchise stores.
2 January 28, 2017 projection.
2
552 Express retail stores
First store opened in 1980
535 in the U.S. and 17 in Canada
Profitable store base with diverse location mix
High-traffic malls, lifestyle centers and
street locations
Continue to optimize footprint
Rationalization plan: close ~ 50 stores as
leases expire
43 closures achieved to date
Remaining to be closed in 2017
Increase flexibility with lease renewals
Regularly assess overall store profitability
Retail Stores
13
Optimize Retail Footprint
1 January 28, 2017 projection.
1
1
104 Express Factory Outlet stores
First store opened in 2014
Long-term target of 140-150 stores
Highly profitable format with solid return on
investment characteristics
Favorable lease terms relative to retail
Attracts a different customer compared to Express
retail stores
Differentiated merchandise focusing on the prior
year’s best sellers in Express retail stores
Successfully tested conversion of select mall
stores to outlet format
Outlet Stores
14
Expand Outlet Store Base
% of Total Stores
1 January 28, 2017 projection.
1
1
Leverage marketing spend to increase awareness and purchase intent for both women’s
and men’s offering
Direct marketing, social media, broadcast TV advertising, ambassadors, influencers
and bloggers
Improve customer experience and increase conversion rates
Express NEXT loyalty re-launch
Omni-channel initiatives
15
Elevate Brand Awareness And Experience
Transitioned to a new call center and fulfillment center during Q2-16
New order management system in Q2-16
New retail management system in Q3-16
New enterprise planning system in Q3-16
16
Transform and Leverage IT Systems
Transform IT
Systems
Leverage IT
Systems
We have modernized 95% of our portfolio of systems over the past four years
Foundation to pursue omni-channel capabilities
Possess greater insight into customers’ shopping preferences
Quicker decision making and increased speed to market
Ability to conduct planning and allocation to a more precise level across channels
Maximize inventory productivity and reduce markdowns
On track to deliver $44 to $54 million in cost
savings opportunities across various areas of the
business
Merchandise margin savings
Expansion of factory sourcing base
Buying & occupancy cost savings
Sustainability efforts within stores (e.g.
lighting, HVAC)
SG&A expense savings
Enhanced focus on overall productivity
Also manage to a zero-based budgeting
approach
17
Significant Cost Savings Initiatives
Savings By Category
Expected Savings Timeline
$ in millions
Commitment to ensuring Express remains a great place to
work, develop and grow professionally, and that we
continue to attract outstanding talent to the brand
Offer a variety of unique associate development programs
that have received national recognition by leading industry
publications
Express Values
We are…
Collaborative
Authentic
Resilient
18
Invest In Our Associates
Financial Discussion
♦ Strong and Enduring Brand, Uniquely Positioned Within Industry
Established lifestyle brand with over 35 years of heritage
Attractive customer demographic profile – targeting both women and men between 20 and 30 years old
Products that serve the lifestyle needs of our core demographic
♦ Strategy Focused on Improving Profitability
Balanced approach to growth
Increase brand awareness and elevate customer experience
Transform and leverage IT systems
Significant cost savings initiatives
Invest in our Associates
♦ Solid Financial Characteristics
Net sales of $2.3 billion and EBITDA of $238 million for the 52-weeks ended October 29, 2016 1
Sound balance sheet with over $100 million in cash and no debt 2
Strong operating and free cash flow generation
20
Investment Thesis
1 EBITDA is earnings before interest, taxes, depreciation and amortization. EBITDA is a Non-GAAP financial measure. Refer to pages 30-35 for information about Non-GAAP
financial measures and reconciliations of GAAP to Non-GAAP financial measures.
2 As of the quarterly period ended October 29, 2016.
Comparable Sales Growth
1 Based on our 2016 guidance as of January 10, 2017.
Net Sales
21
Financial Performance
$ in millions
1
1
After a solid year in 2015, sales have been under pressure in 2016
Fiscal 2016 net sales estimated to be approximately $2.2 billion
Diluted EPSOperating Margin
1 Operating Margin is calculated based on adjusted operating income which excludes the impact of non-core items. Adjusted Operating Income is a Non-GAAP financial
measure. Refer to pages 30-35 for information about Non-GAAP financial measures and reconciliations of GAAP to Non-GAAP financial measures.
2 Based on the mid-point of our 2016 guidance as of January 10, 2017.
3 Diluted EPS is adjusted to exclude the impact of non-core items. Adjusted Diluted EPS is a Non-GAAP financial measure. Refer to pages 30-35 for information about Non-
GAAP financial measures and reconciliations of GAAP to Non-GAAP financial measures.
4 Based on our 2016 guidance as of January 10, 2017. Diluted EPS is adjusted to exclude the impact of non-core items. Adjusted Diluted EPS is a Non-GAAP financial
measure. Refer to pages 30-35 for information about Non-GAAP financial measures and reconciliations of GAAP to Non-GAAP financial measures.
22
Financial Performance
2016 operating margin and diluted EPS negatively impacted by net sales decrease
1 1 2 3 3 3 4
~ -410 bps
23
Financial Guidance
Based on our holiday results, we reaffirmed our EPS guidance for Q4 and 2016
Q4 comparable sales are expected to be negative 13%
Q4 net income expected to range from $20 to $23 million
Diluted EPS expected to range from $0.26 to $0.30
Guidance as of January 10, 2017
Q4 2016 FY 2016
Comparable Sales: -13% -9%
N t Inc me $20 to $23 million $55 to $58 million
Adjusted Net Income: N/A $62 to $65 million (1,2)
Diluted EPS $0.26 to $0.30 $0.70 to $0.74
Adjusted Diluted EPS: N/A $0.78 to $0.82 (2)
78.8 million 79.1 million
Weighted Average
Diluted Shares:
(1) Adjusted net income excludes approximately $11.4 million, or $6.9 million net of tax benefit, of non-core operating items related to an
amendment to the Times Square Flagship store lease.
(2) Adjusted Net Income and Adjusted Diluted EPS are non-GAAP financial measures. Refer to pages 30-35 for information about Non-GAAP
financial measures and reconciliations of GAAP to Non-GAAP financial measures.
This guidance does not take into account any additional non-core items that may occur.
Operating Cash FlowCash and Debt
24
Balance Sheet and Cash Flow
$ in millions
$ in millions
2 2
≥ $150
~$150
Sound balance sheet with cash of $102 million at the end of Q3 1
We expect over $150 million in cash and no debt at the end of 2016 2
Fiscal 2016 operating cash flow estimated to be approximately $150 million
1 As of the quarterly period ended October 29, 2016.
2 Estimate based on our 2016 guidance as of January 10, 2017.
Free Cash Flow2Capital Expenditures
25
Capital Spend and Free Cash Flow
$ in millions
$ in millions
1 2016 guidance as of January 10, 2017.
2 Free cash flow is a Non-GAAP financial measure. Free cash flow represents cash flow from operations less capital expenditures. Refer to pages 30-35 for information
about Non-GAAP financial measures and reconciliations of GAAP to Non-GAAP financial measures.
3 Estimate based on our 2016 guidance as of January 10, 2017.
1
1 3
Elevated due to
significant IT
investments
Priorities of cash use include:
Reinvesting back into the business (e.g. new outlet stores and retail remodels)
Plan to lower capital spend in 2017 by ~25%
Fiscal 2016 free cash flow estimated to be approximately $45-50 million
~$45-50
Summary
♦ Strong and Enduring Brand, Uniquely Positioned Within Industry
Established lifestyle brand with over 35 years of heritage
Attractive customer demographic profile – targeting both women and men between 20 and 30 years old
Products that serve the lifestyle needs of our core demographic
♦ Strategy Focused on Improving Profitability
Balanced approach to growth
Increase brand awareness and elevate customer experience
Transform and leverage IT systems
Significant cost savings initiatives
Invest in our Associates
♦ Solid Financial Characteristics
Net sales of $2.3 billion and EBITDA of $238 million for the 52-weeks ended October 29, 2016 1
Sound balance sheet with over $100 million in cash and no debt 2
Strong operating and free cash flow generation
27
Investment Thesis
1 EBITDA is earnings before interest, taxes, depreciation and amortization. EBITDA is a Non-GAAP financial measure. Refer to pages 30-35 for information about Non-GAAP
financial measures and reconciliations of GAAP to Non-GAAP financial measures.
2 As of the quarterly period ended October 29, 2016.
Non-GAAP Reconciliations
Cautionary Statement Regarding
Non GAAP Financial Measures
Non-GAAP Financial Measures
This presentation contains references to Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), Adjusted
Operating Margin, Adjusted Operating Income, Adjusted Net Income, Adjusted Diluted Earnings Per Share (EPS), and Free
Cash Flow which are Non-GAAP financial measures. These measures should be considered supplemental to and not a
substitute for financial information prepared in accordance with generally accepted accounting principles (GAAP) included in
Express, Inc.’s filings with the Securities and Exchange Commission and may differ from similarly titled measures used by
others. Please refer to slides 31-35 in this presentation for additional information and reconciliations of these measures to the
most directly comparable financial measures calculated in accordance with GAAP. Management believes that EBITDA,
Adjusted Operating Margin, Adjusted Operating Income, Adjusted Net Income, and Adjusted Diluted EPS provide useful
information because they exclude items that may not be indicative of or are unrelated to our underlying business results, and
provide a better baseline for analyzing trends in our underlying business. Management believes that Free Cash Flow
provides useful information regarding liquidity as it shows our operating cash flow generation less cash reinvested back into
the business (capital expenditures).
30
31
EBITDA
Non-GAAP Reconciliations
52-weeks
($ in millions) Ended
October 29,
2016
Net Income $91
Depreciation and amortization $80
Interest expense $15
Provision for income taxes $53
EBITDA $238
32
Non-GAAP Reconciliations
2015 and 2016 Adjusted Net Income and Adjusted EPS
Fifty-Two Weeks Ended January 28, 2017
(in thousands, except per share amounts)
Projected Net
Income
Projected Diluted
Earnings per Share
Projected Weighted
Average Diluted
Shares Outstanding
Projected GAAP Measure * $ 56,500 $ 0.71 79,068
Interest Expense (a) 11,354 0.14
Income Tax Benefit (b) (4,428 ) (0.06 )
Projected Adjusted Non-GAAP Measure * $ 63,426 $ 0.80
(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.
* Represents mid-point of guidance range.
Fifty-Two Weeks Ended January 30, 2016
(in thousands, except per share amounts) Net Income
Earnings per Diluted
Share
Weighted Average
Diluted Shares
Outstanding
Reported GAAP Measure $ 116,513 $ 1.38 84,591
Interest Expense (a) 9,657 0.11
Income Tax Benefit (b) (3,741 ) (0.04 )
Adjusted Non-GAAP Measure $ 122,429 $ 1.45
(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.
(b) Represents the tax impact of the interest expense adjustment at our statutory rate of approximately
39% for the fifty-two weeks ended January 30, 2016.
33
Non-GAAP Reconciliations
2011 Adjusted Operating Income, Adjusted Net Income and
Adjusted EPS
Fifty-Two Weeks Ended January 28, 2012
(in thousands, except per share amounts) Operating Income Net Income
Earnings per
Diluted Share
Weighted Average
Diluted Shares
Outstanding
GAAP measure $ 270,946 $ 140,697 $ 1.58 88,896
Transaction costs (a) 1,011 1,011 0.01
Interest expense (b) — 9,583 0.11
Income tax benefit (c) —
---
(4,165 ) (0.05 )
Adjusted non-GAAP measure $ 271,957 $ 147,126 $ 1.66
(a) Includes transaction costs related to the secondary offerings completed in April 2011 and December
2011.
(b) Includes premium paid and accelerated amortization of debt issuance costs and debt discount related
debt reductions and amendments.
(c) Represents the tax impact at our statutory rate of approximately 39% for the fifty -two weeks ended
January 28, 2012.
34
Non-GAAP Reconciliations
2010 Adjusted Operating Income, Adjusted Net Income and
Adjusted EPS
Fifty-Two Weeks Ended January 29, 2011
(in thousands, except per share amounts) Operating Income Net Income
Earnings per
Diluted Share
Weighted Average
Diluted Shares
Outstanding
Reported GAAP measure $ 199,251 $ 127,388 $ 1.48 86,050
Transaction costs (a) 3,333 3,333 0.04
Advisory/LLC fees (b) 13,333 13,333 0.15
Interest expense (c) — 20,781 0.24
Income tax benefit related to
adjustments above (d) —
(11,238 ) (0.13 )
Non-cash tax benefit (e) — (31,807 ) (0.37 )
Adjusted non-GAAP measure $ 215,917 $ 121,790 $ 1.42
(a) Includes transaction costs related to the Senior Notes offering, the initial public offering, and the
secondary offering completed in December 2010.
(b) Includes fees paid for terminating certain advisory arrangements.
(c) Includes prepayment penalty and acceleration of amortization of debt issuance costs and debt
discount related to early repayment of debt.
(d) Represents the aggregate tax impact of approximately 30 % for th e fifty-two weeks ended January
29, 2011.
(e) Represents one -time, non -cash tax benefit in connection with the Company's conversion to a
corporation.
35
FY 2010 – FY 2016 Free Cash Flow
Non-GAAP Reconciliations
Projected
52-weeks 52-weeks 53-weeks 52-weeks 52-weeks 52-weeks 52-weeks
($ in millions) Ended Ended Ended Ended Ended Ended Ended
January 29, January 28, February 2, February 1, January 31, January 30, January 28,
2011 2012 2013 2014 2015 2016 2017
Cash flow from operations $220 $213 $269 $195 $157 $230 ~$150
Less:
Capital expenditures $55 $77 $100 $105 $115 $115 $100-105
Free Cash Flow $165 $135 $170 $90 $41 $114 ~$45-50
1 Estimate based on our 2016 guidance as of January 10, 2017.
1