Express, Inc. Reports First Quarter Results And Updates Guidance BOARD APPROVES NEW $100 MILLION SHARE REPURCHASE PROGRAM LONG TERM DEBT REFINANCING TO PROCEED AT $300 MILLION PR Newswire COLUMBUS, Ohio, May 29, 2014 COLUMBUS, Ohio, May 29, 2014 /PRNewswire/ -- oFirst quarter comparable sales decline 11%; EPS totals $0.06 per diluted share oCost reduction initiatives expected to result in approximately $18 million of annual savings Express, Inc. (NYSE: EXPR), a specialty retail apparel chain operating approximately 630 stores, today made several announcements. First Quarter 2014: The Company announced first quarter financial results covering the 13 week period ended May 3, 2014 compared to the 13 week period ended May 4, 2013. Michael Weiss, the Company's Chairman and Chief Executive Officer, noted that, "We had anticipated a very challenging first quarter, but our actual results were weaker than planned. Our business strengthened in April, but not to the degree that we anticipated when we formulated our first quarter guidance. While external challenges contributed to the decline in our first quarter performance, we also did not execute as well as we could have." Commenting on second quarter and full year 2014 guidance, Mr. Weiss noted that, "Our second quarter results will be impacted by the need to move through slow selling Spring inventory and a Memorial Day event that did not drive traffic as successfully as last year. Our full year guidance incorporates the impact of a very challenging first half, while also anticipating sequential improvements in comparable sales in quarters two through four as we deliver new product we believe will be more in line with customer expectations. We also expect to benefit from cost saving initiatives and, upon completion of our debt refinancing, lower interest expense. I am also delighted to note that the 17 Express Factory Outlet Stores now in operation are exceeding our plans and being met with great enthusiasm; we expect them to contribute to a stronger second half. In light of this performance, we are accelerating future outlet store openings." First Quarter 2014 Operating Results: oNet sales decreased to $460.7 million from $509.4 million in the first quarter of 2013, a decline of 10%. oComparable sales (including e-commerce sales) decreased 11%, following flat comparable sales in last year's first quarter. E-commerce sales declined 2% to $69.0 million following a 48% increase in last year's first quarter. oGross margin as a percentage of net sales declined 370 basis points over last year's first quarter and represented 29.8% of net sales. Merchandise margin declined by 30 basis points and buying and occupancy costs as a percentage of sales rose by 340 basis points compared to last year's first quarter. The lower merchandise margin is attributable to heightened promotional activity, while the buying and occupancy de-leverage was the result of the decline in sales together with increased depreciation expense. oSelling, general, and administrative (SG&A) expenses were $122.9 million versus $112.6 million in last year's first quarter. As a percentage of net sales, SG&A expenses rose by 460 basis points to 26.7% compared to 22.1% in last year's first quarter. This de-leveraging is also attributable to lower sales, and increased marketing spend. oOperating income was $15.0 million, or 3.3% of net sales, compared to $58.7 million, or 11.5% of net sales, in the first quarter of 2013. oIncome tax expense was $4.0 million, at an effective tax rate of 44.3%, compared to $21.2 million, at an effective tax rate of 39.6% in last year's first quarter. The effective tax rate was adversely impacted by nondeductible stock based compensation expenses. oNet income was $5.1 million, or $0.06 per diluted share. This compares to net income of $32.4 million, or $0.38 per diluted share, in the first quarter of 2013. oReal estate activity for the first quarter of 2014 is detailed in Schedule 4. First Quarter 2014 Balance Sheet Highlights: oCash and cash equivalents totaled $250.2 million versus $244.2 million at the end of 2013's first quarter. oCapital expenditures totaled $26.9 million, compared to $16.9 million in the prior year's first quarter. oInventory was $235.0 million, an increase of 4%, compared to $226.3 million at the end of the first quarter of 2013. Inventory per square foot was essentially flat compared to the comparable period in 2013. The inventory balance at the end of the first quarter of 2014 includes $10.6 million related to the Express Factory Outlets. 2014 Guidance: The second quarter and full year guidance takes into account the impact of certain strategic cost reductions as discussed below. The guidance does not take into account any actions the Company will be taking with respect to its long-term debt, which the Company intends to refinance in the second quarter of 2014, or any additional non-core operating items that may occur. The table below compares the Company's projected results for the thirteen week period ended August 2, 2014 to the actual results for the thirteen week period ended August 3, 2013. Second Quarter 2014 Second Quarter 2013 Guidance Actual Results Comparable Sales Negative mid to high single 6% digits Effective Tax Rate Approximately 42% 39.7% Interest Expense, Net $5.5 - $6.0 million $4.8 million Net Income ($2.5) - $2.5 million $16.9 million Diluted Earnings Per Share (EPS) ($0.03) - $0.03 $0.20 Weighted Average Diluted Shares 84.4 million 85.6 million Outstanding See Schedule 4 for projected real estate activity. The table below compares the Company's projected results for the fifty-two week period ended January 31, 2015 to the actual results for the fifty-two week period ended February 1, 2014. Full Year 2014 Full Year 2013 Guidance Actual Results Comparable Sales Negative mid single digits 3% Effective Tax Rate Approximately 40% 39.7% Interest Expense, Net $23 - $25 million $19.5 million Net Income $63 - $76 million $116.5 million Diluted EPS $0.74 - $0.90 $1.37 Weighted Average Diluted Shares 84.6 million 85.1 million Outstanding Capital Expenditures $110 - $115 million $105.4 million See Schedule 4 for projected real estate activity. Strategic Cost Reductions: The Company has undertaken a comprehensive review of its operations and expense structure and determined that certain changes can be implemented to reduce costs without materially impacting business operations. Savings from these reductions, as well as one time costs associated with their implementation, have been incorporated into the Company's guidance. In total, these actions represent approximately $18 million of annualized savings, with the impact in 2014 being approximately $15 million. Store Closures: The Company has completed a review of its store fleet and has decided to close approximately 50 stores over the next 36 months primarily at the natural expiration of their leases. These store closures are expected to result inprofit improvementof $5 to $8 million once all stores are closed. Because these closures are expected to start at the end of this fiscal year or the beginning of the next fiscal year, no costs or savings associated with planned store closings have been included in the Company's guidance. Refinancing of Long-Term Debt: The Company had previously announced its plan to redeem all of its outstanding 8 ¾% Senior Notes due 2018, which total approximately $200 million, and to refinance the Senior Notes using proceeds from a term loan bearing a substantially lower interest rate. Both transactions are expected to be completed in the second quarter of 2014. To take advantage of currently low interest rates, the Company plans to enter into a $300 million term loan. Details regarding the interest rate and the impact on the Company's annual interest expense along with related costs will be provided after the refinancing has been completed. Share Repurchase Program: The Company also announced today that its Board of Directors has authorized it to repurchase up to $100 million of its common stock. The share repurchases are expected to be made over the next 18 months and will be funded through the Company's available cash. The Company may repurchase shares of its outstanding common stock from time to time on the open market, including through Rule 10b5-1 plans, in privately negotiated transactions, through block purchases, or otherwise in compliance with applicable laws, including Rule 10b-18 of the Securities Exchange Act of 1934, as amended. The timing and amount of stock repurchases will depend on a variety of factors, including business and market conditions as well as corporate and regulatory considerations. The share repurchase program may be suspended, modified, or discontinued at any time and the Company has no obligation to repurchase any amount of its common stock under the program. Conference Call Information: A conference call to discuss first quarter 2014 results is scheduled for Thursday, May 29, 2014, at 5:00 p.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 8:00 p.m. ET on May 29, 2014 until 11:59 p.m. ET on June 5, 2014 and can be accessed by dialing (877) 870-5176 and entering replay pin number 13581956. 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 more than 600 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 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 include, but are not limited to, (1) guidance for the second quarter and full year 2014, including statements regarding expected comparable sales, effective tax rates, interest expense, net income, 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 plans to refinance the Company's long-term debt and plans to reduce expenses, (4) statements regarding expectations for the Company's outlet stores and new product; and (5) statements regarding the Company's intention to repurchase shares of common stock and the sources of funding for such repurchases. 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) competition from other retailers; (5) customer traffic at malls, shopping centers, and our stores; (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 independent 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) impairment charges on long-lived assets; and (18) lease obligations and our substantial indebtedness, including restrictions imposed by such indebtedness on current and future operations and our ability to effect share repurchases. 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) May 3, 2014 February 1, 2014 May 4, 2013 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 250,208 $ 311,884 $ 244,214 Receivables, net 20,326 17,384 10,773 Inventories 235,033 212,510 226,329 Prepaid minimum rent 28,389 28,554 25,362 Other 20,302 13,129 9,850 Total current assets 554,258 583,461 516,528 PROPERTY AND EQUIPMENT 795,619 767,661 650,899 Less: accumulated depreciation (400,256) (391,539) (354,879) Property and equipment, net 395,363 376,122 296,020 TRADENAME/DOMAIN NAME 197,812 197,812 197,734 DEFERRED TAX ASSETS 17,558 17,558 16,808 OTHER ASSETS 7,153 7,717 9,773 Total assets $ 1,172,144 $ 1,182,670 $ 1,036,863 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 151,861 $ 154,736 $ 158,394 Deferred revenue 23,278 28,436 22,117 Accrued bonus 84 694 468 Accrued expenses 89,487 115,341 94,857 Total current liabilities 264,710 299,207 275,836 LONG-TERM DEBT 199,257 199,170 198,923 DEFERRED LEASE CREDITS 117,962 114,509 98,033 OTHER LONG-TERM LIABILITIES 107,120 95,215 56,464 Total liabilities 689,049 708,101 629,256 COMMITMENTS AND CONTINGENCIES Total stockholders' equity 483,095 474,569 407,607 Total liabilities and $ 1,172,144 $ 1,182,670 $ 1,036,863 stockholders' equity Note: Certain prior period amounts have been reclassified or adjusted to conform to current year presentation. Schedule 2 Express, Inc. Consolidated Statements of Income and Comprehensive Income (In thousands, except per share amounts) (Unaudited) Thirteen Weeks Ended May 3, 2014 May 4, 2013 NET SALES $ 460,652 $ 509,362 COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS 323,279 338,585 Gross profit 137,373 170,777 OPERATING EXPENSES: Selling, general, and administrative expenses 122,860 112,623 Other operating income, net (478) (540) Total operating expenses 122,382 112,083 OPERATING INCOME 14,991 58,694 INTEREST EXPENSE, NET 5,897 4,805 OTHER (INCOME) EXPENSE, NET (25) 229 INCOME BEFORE INCOME TAXES 9,119 53,660 INCOME TAX EXPENSE 4,036 21,223 NET INCOME $ 5,083 $ 32,437 OTHER COMPREHENSIVE INCOME: Foreign currency translation gain 382 70 COMPREHENSIVE INCOME $ 5,465 $ 32,507 EARNINGS PER SHARE: Basic $ 0.06 $ 0.38 Diluted $ 0.06 $ 0.38 WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 84,005 85,095 Diluted 84,424 85,490 Note: Certain prior period amounts have been reclassified or adjusted to conform to current year presentation. Schedule 3 Express, Inc. Consolidated Statements of Cash Flows (In thousands) (Unaudited) 2014 2013 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 5,083 $ 32,437 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 19,494 17,441 Loss on disposal of property and equipment 65 64 Impairment charge 785 — Excess tax benefit from share-based compensation — (1) Share-based compensation 6,336 5,011 Landlord allowance amortization (3,047) (2,212) Changes in operating assets and liabilities: Receivables, net (2,923) 287 Inventories (22,453) (11,296) Accounts payable, deferred revenue, and accrued (33,371) (44,776) expenses Other assets and liabilities (1,156) 8,406 Net cash (used in) provided by operating activities (31,187) 5,361 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (26,937) (16,853) Net cash used in investing activities (26,937) (16,853) CASH FLOWS FROM FINANCING ACTIVITIES: Payments on capital lease obligation (402) (15) Excess tax benefit from share-based compensation — 1 Proceeds from share-based compensation — 1,082 Repurchase of common stock (3,274) (1,785) Net cash used in financing activities (3,676) (717) EFFECT OF EXCHANGE RATE ON CASH 124 126 NET DECREASE IN CASH AND CASH EQUIVALENTS (61,676) (12,083) CASH AND CASH EQUIVALENTS, Beginning of period 311,884 256,297 CASH AND CASH EQUIVALENTS, End of period $ 250,208 $ 244,214 Note: Certain prior period amounts have been reclassified or adjusted to conform to current year presentation. Schedule 4 Express, Inc. Real Estate Activity (Unaudited) First Quarter 2014 - Actual May 3, 2014 Company-Operated Stores Opened Closed Conversion Store Gross Square Count Footage United States - Retail 2 (9) (15) 595 Stores United States - Outlet 2 — 15 17 Stores Canada 1 — — 16 Total 5 (9) — 628 5.5 million Second Quarter 2014 - Projected August 2, 2014 Company-Operated Stores Opened Closed Conversion Store Gross Square Count Footage United States - Retail 1 (4) — 592 Stores United States - Outlet 4 — — 21 Stores Canada 1 — — 17 Total 6 (4) — 630 5.5 million Full Year 2014 - Projected January 31, 2015 Company-Operated Stores Opened Closed Conversion Store Gross Square Count Footage United States - Retail 7 (17) (17) 590 Stores United States - Outlet 18 — 17 35 Stores Canada 2 — — 17 Total 27 (17) — 642 5.6 million SOURCE Express, Inc. Website: http://www.express.com Contact: Investor Contacts: Marisa Jacobs, Express, Inc., Vice President Investor Relations, (614) 474-4465; Allison Malkin / Anne Rakunas, ICR, Inc., (203) 682-8225 / (310) 954-1113; Media Contact: Amy Hughes, Express, Inc., Corporate Communications & Events, (614) 474-4325
Express, Inc. Reports First Quarter Results And Updates Guidance
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