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Express, Inc. Reports Third Quarter Results



                 Express, Inc. Reports Third Quarter Results

-- Third quarter diluted EPS of $0.20, at high-end of updated guidance

-- Inventory per square foot decreased 1.3%

-- Invested $15.0 million to repurchase 1.3 million shares

-- Updates fourth quarter diluted EPS guidance to a range of $0.62 to $0.68

PR Newswire

COLUMBUS, Ohio, Nov. 28, 2012

COLUMBUS, Ohio, Nov. 28, 2012 /PRNewswire/ -- Express, Inc. (NYSE: EXPR), a
specialty retail apparel chain operating more than 600 stores, today announced
its third quarter 2012 financial results for the thirteen and thirty-nine week
periods ended October 27, 2012, which compares to the same period ended
October 29, 2011 last year.

Michael Weiss, Express, Inc.'s Chairman and Chief Executive Officer commented:
"The third quarter was a very challenging one for our Company.  We were
disappointed with our results, which included a net sales decrease of 4% and a
comparable sales decrease of 5% compared to the prior year third quarter. 
However, we believe we have identified the issues impacting our performance
and have developed, and begun to execute, a plan to fix them.  To that end, we
re-balanced our sweater assortment, introduced entry price point fashion items
in key categories, and began to set and communicate clearer pricing and
promotional strategies for our customers. We believe that these actions will
position us well for the future.  We also continued to focus on our four
growth pillars. We saw continued positive momentum in our men's business,
experienced double digit growth in e-commerce sales versus the prior year, and
achieved our store expansion goals with the opening of eight new stores,
including one in Canada. In addition, we continued our international expansion
with the opening of four additional franchise stores in the Middle East.  As
we begin the fourth quarter, we are pleased to report that our clear
promotional messaging contributed to a record Black Friday performance that
exceeded our expectations.  However, we remain cautious on the overall
performance of the fourth quarter given that the majority of the holiday
season lies ahead.  We expect to make sequential improvement as our corrective
measures get further underway.  We remain confident in, and committed to, our
strategies and four pillars of growth, which we believe position us for
improved results over the long term."

Third Quarter Operating Results:

  o Net sales decreased 4% to $468.5 million from $486.8 million in the third
    quarter of 2011;
  o Comparable sales decreased 5%, following a 5% increase in the third
    quarter of 2011;
  o Gross margin was 32.3% of net sales compared to 36.2% in the third quarter
    of 2011, driven by a 240 basis point increase in occupancy costs and a 150
    basis point decline in merchandise margin;
  o Selling, general, and administrative (SG&A) expenses totaled $117.7
    million, or 25.1% of net sales, compared to $115.1 million, or 23.6% of
    net sales, in the third quarter of 2011;
  o Operating income was $34.4 million, or 7.3% of net sales, compared to
    $60.9 million, or 12.5% of net sales, in the third quarter of 2011;
  o Interest expense totaled $4.8 million compared to $6.3 million in the
    third quarter of 2011;
  o Income tax expense was $12.3 million, at an effective tax rate of 41.4%,
    compared to $22.0 million, at an effective tax rate of 40.3%, in the third
    quarter of 2011; and
  o Net income was $17.4 million, or $0.20 per diluted share, compared to net
    income of $32.7 million, or $0.37 per diluted share, in the third quarter
    of 2011.

Thirty-Nine Week Operating Results:

  o Net sales increased 1% and year-to-date comparable sales were flat,
    following a 6% increase in comparable sales in the prior year period;
  o Gross margin was 34.3% of net sales compared to 36.0% in the prior year
    period, driven by a 60 basis point increase in occupancy costs and a 110
    basis point decline in merchandise margin;
  o SG&A expenses totaled $347.2 million, or 24.5% of net sales, compared to
    $342.2 million, or 24.4% of net sales, in the prior year period;
  o Operating income decreased 13.5% to $140.2 million, or 9.9% of net sales,
    compared to $162.0 million, or 11.6% of net sales, in the prior year
    period;
  o Interest expense totaled $14.3 million compared to $27.8 million in the
    prior year period, which included a $7.2 million loss on extinguishment of
    debt related to the repurchases of $49.2 million of Senior Notes and the
    amendment of the $200 million Revolving Credit Facility;
  o Income tax expense was $50.6 million, at an effective tax rate of 40.2%,
    compared to $54.1 million, at an effective tax rate of 40.2%, in the prior
    year period; and
  o Net income was $75.3 million, or $0.86 per diluted share. This compares to
    net income of $80.3 million, or $0.90 per diluted share, in the prior year
    period, which 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 in April  2011; and (ii) $4.3 million, or
    $0.04 per diluted share, loss on extinguishment related to the repurchases
    of $49.2 million of Senior Notes and the amendment of the $200 million
    Revolving Credit Facility.  Net income in the prior year period adjusted
    for non-core operating costs noted above was $85.0 million, or $0.96 per
    diluted share (see Schedule 4 for discussion of non-GAAP measures).

Third Quarter Balance Sheet Highlights:

  o Cash and cash equivalents decreased $42.6 million and totaled $102.4
    million compared to $145.0 million at the end of the third quarter of
    2011, primarily driven by $65.1 million of cash used to repurchase 4.0
    million shares of the Company's common stock since May 2012, including
    $15.0 million used to repurchase 1.3 million shares in the third quarter
    of 2012;
  o Inventories were $286.9 million, an increase of 3.0%, compared to $278.5
    million at the end of the third quarter of 2011, and inventory per square
    foot decreased 1.3% compared to 2011; and
  o Debt declined by $119.4 million to $198.8 million compared to $318.2
    million at the end of the third quarter of 2011, driven by the $119.7
    million prepayment of the $125 million Term Loan outstanding balance in
    the fourth quarter of 2011.

Real Estate:

During the third quarter of 2012, the Company opened 8 new stores, including 1
in Canada, and closed 1 store.  At quarter end, the Company had  618 locations
and 5.4 million gross square feet in operation.

2012 Guidance:

Fourth Quarter:
The Company is revising its fourth quarter 2012 guidance and currently expects
fourth quarter comparable sales to decrease low single digits compared to an
increase of 5% in the fourth quarter of 2011.  The effective tax rate is
expected to be approximately 40% for the fourth quarter of 2012.  Net income
is expected in the range of $53 million to $58 million, or $0.62 to $0.68 per
diluted share on 85.2 million weighted average shares outstanding.  This
compares to adjusted net income of $62.1 million, or $0.70 per diluted share,
in the fourth quarter of 2011 (see Schedule 4 for a discussion of non-GAAP
measures).  The Company expects to open 8 new stores in the fourth quarter,
including 5 stores in the United States and 3 stores in Canada, and close 1
store to end the quarter with 625 locations and approximately 5.4 million
gross square feet in operation.

Full Year:
The Company is revising its full year 2012 guidance and currently expects full
year comparable sales to decrease low single digits compared to an increase of
6% in 2011.  The effective tax rate is expected to be between 39.9% and 40.2%
for the full year 2012.  Earnings for the fifty-three week period in 2012 are
currently expected in the range of $1.47 to $1.53 per diluted share on 87.2
million weighted average shares outstanding. This compares to adjusted
earnings of $1.66 per diluted share in 2011 (see Schedule 4 for a discussion
of non-GAAP measures).  The Company notes that 2012 is a fifty-three week
period compared to a fifty-two week period in 2011 and expects the positive
contribution from the fifty-third week to be in the range of $0.03 to $0.04
per diluted share.  The Company now expects to open 28 new stores in 2012,
including 23 in the United States and 5 in Canada, and close 12 stores to end
the year with 625 locations and approximately 5.4 million gross square feet in
operation.  Consistent with previous years, this guidance excludes any
non-core operating items that may occur, such as debt extinguishment costs.

Conference Call Information:

A conference call to discuss third quarter results is scheduled for November
28, 2012, 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
November 28, 2012 until 11:59 p.m. ET on December 5, 2012 and can be accessed
by dialing (877) 870-5176 and entering replay pin number 403560.

About Express:

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 over 600 retail stores, located primarily in high-traffic shopping
malls, lifestyle centers, and street locations across the United States, in
Canada and in Puerto Rico. Express merchandise is also available at franchise
stores in the Middle East and Latin America. The Company also markets and
sells its products through the Company's e-commerce website, www.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 sales, earnings per
diluted share, effective tax rates, store expansion and closures, and plans to
improve and grow the business.  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) our dependence
upon independent third parties to manufacture all of our merchandise; (6) our
growth strategy, including our international expansion plan; (7) our
dependence on a strong brand image; (8) our dependence upon key executive
management; (9) our reliance on third parties to provide us with certain key
services for our business; and (10) our substantial indebtedness and lease
obligations.  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 27, 2012  January 28, 2012  October 29, 2011
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $    102,438      $    152,362      $    144,982
Receivables, net          9,416             9,027             7,869
Inventories               286,877           208,954           278,540
Prepaid minimum rent      24,233            23,461            22,792
Other                     28,949            18,232            34,571
Total current assets      451,913           412,036           488,754
PROPERTY AND EQUIPMENT    614,145           521,860           504,542
Less: accumulated         (333,279)         (294,554)         (280,759)
depreciation
Property and equipment,   280,866           227,306           223,783
net
TRADENAME/DOMAIN NAME     197,719           197,509           197,474
DEFERRED TAX ASSETS       9,640             12,462            3,933
OTHER ASSETS              11,216            12,886            16,205
Total assets              $    951,354      $    862,199      $    930,149
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable          $    207,472      $    133,679      $    187,973
Deferred revenue          18,524            27,684            18,335
Accrued bonus             85                14,689            6,523
Accrued expenses          87,638            109,161           91,595
Accounts payable and
accrued expenses –        —                 5,997             4,207
related parties  
Total current liabilities 313,719           291,210           308,633
LONG-TERM DEBT            198,760           198,539           316,906
OTHER LONG-TERM           135,780           91,303            86,531
LIABILITIES
Total liabilities         648,259           581,052           712,070
COMMITMENTS AND
CONTINGENCIES
Total stockholders'       303,095           281,147           218,079
equity
Total liabilities and     $    951,354      $    862,199      $    930,149
stockholders' equity

 

Schedule 2
Express, Inc.

Consolidated Statements of Income and Comprehensive Income

(In thousands, except per share amounts)

(Unaudited)

 
                            Thirteen Weeks Ended      Thirty-Nine Weeks Ended
                            October 27,  October 29,  October 27,  October 29,
                            2012         2011         2012         2011
NET SALES                   $  468,527   $  486,784   $ 1,419,358  $ 1,400,202
COST OF GOODS SOLD, BUYING
AND                         316,989      310,816      932,532      896,088

OCCUPANCY COSTS
Gross profit                151,538      175,968      486,826      504,114
OPERATING EXPENSES:
Selling, general, and       117,722      115,061      347,224      342,236
administrative expenses 
Other operating (income)    (586)        34           (553)        (166)
expense, net
Total operating expenses    117,136      115,095      346,671      342,070
OPERATING INCOME            34,402       60,873       140,155      162,044
INTEREST EXPENSE            4,782        6,328        14,338       27,843
INTEREST INCOME             —            (2)          (1)          (7)
OTHER INCOME, NET           (116)        (148)        (104)        (148)
INCOME BEFORE INCOME TAXES  29,736       54,695       125,922      134,356
INCOME TAX EXPENSE          12,314       22,025       50,598       54,053
NET INCOME                  $  17,422    $  32,670    $ 75,324     $ 80,303
OTHER COMPREHENSIVE INCOME:
Foreign currency            (49)         2            (46)         —
translation
COMPREHENSIVE INCOME        $  17,373    $  32,672    $ 75,278     $ 80,303
EARNINGS PER SHARE:
Basic                       $  0.20      $  0.37      $ 0.86       $ 0.91
Diluted                     $  0.20      $  0.37      $ 0.86       $ 0.90
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Basic                       85,980       88,643       87,489       88,573
Diluted                     86,216       88,903       87,835       88,838

 

Schedule 3
Express, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 
                                            Thirty-Nine Weeks Ended
                                            October 27, 2012  October 29, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                  $    75,324       $    80,303
Adjustments to reconcile net income to net
cash provided by operating

activities:
Depreciation and amortization               50,733            51,198
Loss on disposal of property and equipment  67                89
Excess tax benefit from share-based         (409)             —
compensation
Share-based compensation                    12,207            7,483
Non-cash loss on extinguishment of debt     —                 2,744
Deferred taxes                              3,713             (2,764)
Changes in operating assets and
liabilities:
Receivables, net                            (379)             2,043
Inventories                                 (77,900)          (93,325)
Accounts payable, deferred revenue, and     18,555            10,168
accrued expenses 
Other assets and liabilities                7,231             6,404
Net cash provided by operating activities   89,142            64,343
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures                        (73,354)          (55,915)
Purchase of intangible assets               (210)             (60)
Net cash used in investing activities       (73,564)          (55,975)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt arrangements   —                 (50,087)
Costs incurred in connection with debt      —                 (1,192)
arrangements and Senior Notes
Payments on capital lease obligation        (41)              —
Excess tax benefit from share-based         409               —
compensation
Proceeds from share-based compensation      623               234
Repurchase of common stock                  (66,534)          (103)
Net cash used in financing activities       (65,543)          (51,148)
EFFECT OF EXCHANGE RATE ON CASH             41                —
NET DECREASE IN CASH AND CASH EQUIVALENTS   (49,924)          (42,780)
CASH AND CASH EQUIVALENTS, Beginning of     152,362           187,762
period
CASH AND CASH EQUIVALENTS, End of period    $    102,438      $    144,982

 

Schedule 4

 
Supplemental Information - Consolidated Statements of Income and Comprehensive
Income

Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands, except per share amounts)

(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 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, Company 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 reported
net income and reported 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
filings with the SEC in their entirety and to not rely on any single financial
measure.

 

The tables below reconcile the non-GAAP financial measures, adjusted net
income and adjusted earnings per diluted share, with the most directly
comparable GAAP financial measures, net income and earnings per diluted share.

 

 
                Thirty-Nine Weeks Ended October 29, 2011
                                                              Weighted Average
                                        Earnings per
                   Net Income                                 Diluted Shares
                                        Diluted Share
                                                              Outstanding
Reported GAAP      $    80,303          $      0.90           88,838
measure
Transaction        348              *   0.01
costs (a)
Interest           4,346            *   0.04
expense (b)
Adjusted
non-GAAP           $    84,997          $      0.96
measure 
 

(a) Includes transaction costs related to the secondary offering completed in
April 2011.
(b) Includes premium paid and accelerated amortization of debt issuance costs
and debt discount related to the

      repurchases of $49.2 million of Senior Notes and the amendment of the
$200 million Revolving Credit Facility.

 
* Items were tax affected at the Company's statutory rate of approximately 39%
for the thirty-nine weeks ended

  October 29, 2011.

 
                Thirteen Weeks Ended January 28, 2012
                                                              Weighted Average
                                        Earnings per
                   Net Income                                 Diluted Shares
                                        Diluted Share
                                                              Outstanding
GAAP measure       $    60,394          $      0.68           89,072
Transaction        266              *   0.01
costs (a)
Interest           1,468            *   0.01
expense (b)
Adjusted
non-GAAP           $    62,128          $      0.70
measure
 

(a) Includes transaction costs related to the secondary offering completed in
December 2011.
(b) Includes accelerated amortization of debt issuance costs related to the
prepayment of the $125 million Term

      Loan outstanding balance.

 
* Items were tax affected at the Company's statutory rate of approximately 39%
for the thirteen weeks ended   

  January 28, 2012.

 

Schedule 4 (Continued)

 
Supplemental Information - Consolidated Statements of Income and Comprehensive
Income

Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands, except per share amounts)

(Unaudited)

 
The table below reconcile the non-GAAP financial measures, adjusted net income
and adjusted earnings per diluted share, with the most directly comparable
GAAP financial measures, net income and earnings per diluted share.

 

 
                      Fifty-Two Weeks Ended January 28, 2012
                                                              Weighted Average
                                           Earnings per
                         Net Income                           Diluted Shares
                                           Diluted Share
                                                              Outstanding
GAAP measure             $    140,697      $     1.58         88,896
Transaction costs (a)    614            *  0.01
Interest expense (b)     5,815          *  0.07
Adjusted non-GAAP        $    147,126      $     1.66
measure
 

(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 to the

      repurchases of $49.2 million of Senior Notes, the amendment of the $200
million Revolving Credit Facility, and

      the prepayment of the $125 million Term Loan outstanding balance.

 
* Items were tax affected at the Company's statutory rate of approximately 39%
for the fifty-two weeks ended

  January 28, 2012.

 

SOURCE Express, Inc.

Website: http://www.express.com
Contact: Company Contact: D. Paul Dascoli, Senior Vice President & Chief
Financial Officer, +1-614-474-4300; Media Contact: Amy Hughes, Corporate
Communications & Events, +1-614-474-4325; Investor Contacts: ICR, Inc.,
Allison Malkin, +1-203-682-8200, or Anne Rakunas, +1-310-954-1113
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