Fashion apparel retailer Express, Inc. (NYSE: EXPR), announced
its financial results for the third quarter of 2022. These results,
which cover the thirteen weeks ended October 29, 2022, are compared
to the thirteen weeks ended October 30, 2021.
"The third quarter was tougher than we anticipated and that is
reflected in our results. The macroeconomic, consumer and
competitive environments were extremely challenging, and became
more acute as the quarter progressed," said Tim Baxter, Chief
Executive Officer. "Our strategy to elevate our brand through
higher average unit retails and reduced promotions, which has
driven steady growth for the past five quarters, came up against
the consumer's reduced spending in discretionary categories and
increased appetite for deep discounts. At the same time, we had
some misses in our women's business that further impacted our
performance. We did, however, post our sixth consecutive quarter of
positive comps in our men's business."
Third Quarter 2022 Results
- Comparable sales declined by 8%
- Gross margin decreased by 540 basis points
- Operating loss of $30 million and negative EBITDA of $14
million
- Inventory increase of 10%; down from a 30% increase in the
second quarter of 2022
- Continued to operate with the highest number of active Express
Insider loyalty members in the Company's history
- Subsequent to the third quarter, strengthened balance sheet
through refinancing transactions, increased Amended Asset-Backed
Revolving Credit Facility by $40 million to $290 million,
refinanced $90 million First-In-Last-Out Term Loan and terminated
$50 million Direct Draw Term Loan
"Despite these results, we remain confident in our ability to
achieve our stated goal of long-term, profitable growth in the
Express brand. We are in the midst of a large-scale transformation
which we expect to be further accelerated by the strategic
partnership with WHP Global that we announced today," Baxter
concluded.
Third Quarter 2022 Operating
Results
- Consolidated net sales decreased 8% to $434.1 million from
$472.0 million in the third quarter of 2021, with consolidated
comparable sales down 8%
- Comparable retail sales, which includes both Express stores and
eCommerce, were down 11% compared to the third quarter of 2021.
Retail stores decreased 6% while eCommerce demand declined
17%.
- Comparable outlet store sales remained flat versus the third
quarter of 2021
- Gross margin was 27.8% of net sales compared to 33.2% in last
year's third quarter, a decrease of approximately 540 basis points
- Merchandise margin contracted by 360 basis points primarily
driven by the challenging macroeconomic and highly promotional
retail environments
- Buying and occupancy expenses deleveraged approximately 180
basis points due to the decline in comparable sales
- Selling, general and administrative (SG&A) expenses were
$150.1 million, 34.6% of net sales, versus $141.1 million, 29.9% of
net sales, in last year's third quarter. The deleverage in the
SG&A rate was driven by an increase in labor expenses and by
the decline in comparable sales
- Operating loss was $29.5 million compared to income of $16.3
million in the third quarter of 2021
- Income tax expense was $0.8 million at an effective tax rate of
(2.3)%. Income tax expense was $0.3 million at an effective tax
rate of 2.2% during the third quarter of 2021
- Net loss was $34.4 million, or $0.50 per diluted share. This
compares to net income of $13.1 million, or $0.19 per diluted
share, for the third quarter of 2021
- Earnings before interest, taxes, depreciation, and amortization
(EBITDA) was negative $14.5 million compared to EBITDA of $31.9
million in the third quarter of 2021
Balance Sheet and Cash Flow
Highlights
- Cash and cash equivalents totaled $24.6 million at the end of
the third quarter of 2022 versus $36.8 million at the end of the
third quarter of 2021
- Inventory was $422.7 million at the end of the third quarter,
up 10% compared to $383.6 million at the end of the prior year’s
third quarter
- Short-term debt was $4.5 million and long-term debt was $230.9
million at the end of the third quarter of 2022 compared to
short-term debt of $10.1 million and long-term debt of $108.4
million at the end of the prior year’s third quarter
- At the end of the third quarter of 2022, $47.0 million remained
available for borrowing under the revolving credit facility
- Operating cash flow was negative $95.9 million for the
thirty-nine weeks ended October 29, 2022, compared to $78.3 million
for the thirty-nine weeks ended October 30, 2021
- Capital expenditures totaled $24.3 million for the thirty-nine
weeks ended October 29, 2022, compared to $18.1 million for the
thirty-nine weeks ended October 30, 2021
Refinancing Transactions
Subsequent to the third quarter, the Company completed the
following transactions:
- $250 million Senior Secured Asset-Based Revolving Credit
Facility (the "Amended Revolving Credit Facility"), jointly led by
Wells Fargo Bank, N.A. (“Wells Fargo”) and Bank of America, N.A.
(“Bank of America”), was amended and increased by $40 million to
$290 million with Wells Fargo serving as administrative agent and
collateral agent. The interest rate has been reduced by replacing
the London Interbank Offered Rate (“LIBOR”) interest rate
benchmark, which had an applicable margin of 2.00% to 2.25%, with
the Secured Overnight Financing Rate (“SOFR”) interest rate
benchmark, which has an applicable margin of 1.60% to 1.85%. The
Amended Revolving Credit Facility will mature on November 26,
2027.
- $140 million Senior Secured Asset-Based Term Loan Credit
Facility (the "Term Loan Facility") was amended by refinancing its
$90 million First-In-Last-Out ("FILO") Term Loan and terminating
its $50 million Delayed Draw Term Loan ("DDTL"). Wells Fargo will
serve as administrative agent and collateral agent for the Amended
Term Loan Facility. ReStore Capital acted as lead lender, with
Wells Fargo and Bank of America also participating as lenders. The
interest rate has been reduced by replacing LIBOR, which had an
applicable margin of 7.00% to 8.25%, as the interest rate benchmark
with SOFR, which has an applicable margin of 7.50%. The Amended
Term Loan Facility will mature on November 26, 2027.
Full Year 2022 Outlook
This outlook is based on our year-to-date performance and the
advancements we have made in each of the four foundational pillars
of our EXPRESSway Forward strategy (Product, Brand, Customer,
Execution), balanced against the increasingly challenging
macroeconomic and retail apparel environment, ongoing uncertainty
of the supply chain and geopolitical events and other uncertainties
that may impact our business.
The Company expects the following for the full year 2022
compared to the full year 2021:
- Comparable sales of flat to up 1%
- Gross margin rate to decrease approximately 150 basis
points
- SG&A expenses as a percent of sales to delever
approximately 200 basis points
- Net interest expense of $17 million
- Effective tax rate essentially zero percent
- Diluted loss per share of $1.12 to $1.22
- Capital expenditures of approximately $50 million
- Inventory to move closer to parity with sales trends by the end
of the year
Assumptions in the Company's outlook may be affected by the
continued uncertainty of the pandemic and geopolitical events and
their impacts throughout the supply chain.
This outlook does not reflect the expected benefits of the
transaction or the strategic partnership with WHP Global announced
today.
See Schedule 5 for a discussion of projected real estate
activity.
Conference Call Information
In a separate press release issued today, Express announced that
it has entered into a strategic partnership with WHP Global. The
press release is available at www.express.com/investor.
A conference call to discuss third quarter 2022 results is
scheduled for December 8, 2022 at 8:00 a.m. Eastern Time (ET).
Investors and analysts interested in participating in the earnings
call are invited to dial (888) 550-5723 approximately ten minutes
prior to the start of the call. The conference call will also be
webcast live at www.express.com/investor. A telephone replay of
this call will be available beginning at 12:00 p.m. ET on December
8, 2022, until 11:59 p.m. ET on December 15, 2022, and can be
accessed by dialing (800) 770-2030 and entering the replay pin
number 1790468. In addition, an investor presentation of third
quarter 2022 results will be available at www.express.com/investor
beginning at approximately 7:00 a.m. ET on December 8, 2022.
About Express, Inc.
Express is a modern, multichannel apparel and accessories brand
grounded in versatility, guided by its purpose - We Create
Confidence. We Inspire Self-Expression. - and powered by a styling
community. Launched in 1980 with the idea that style, quality and
value should all be found in one place, Express has been a part of
some of the most important and culture-defining fashion trends. The
Express Edit design philosophy ensures that the brand is always ‘of
the now’ so people can get dressed for every day and any occasion
knowing that Express can help them look the way they want to look
and feel the way they want to feel.
The Company operates over 550 retail and outlet stores in the
United States and Puerto Rico, the express.com online store and the
Express mobile app. Express, Inc. is comprised of the brands
Express and UpWest, and is traded on the NYSE under the symbol
EXPR. For more information, please visit www.express.com or
www.upwest.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 and
expectations, including statements regarding expected operating
margins, comparable sales, effective tax rates, interest income,
net income, diluted earnings per share, cash tax refunds,
liquidity, EBITDA, free cash flow, eCommerce demand, and capital
expenditures, (2) statements regarding expected store openings,
store closures, store conversions, and gross square footage, and
(3) statements regarding the Company's strategy, plans, and
initiatives, including, but not limited to, results expected from
such strategy, plans, and initiatives. You can identify these
forward-looking statements by the use of words in the future tense
and statements accompanied by words such as “outlook,” “indicator,”
“believes,” “expects,” “potential,” “continues,” “may,” “will,”
“should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,”
“scheduled,” “estimates,” “anticipates,” “opportunity,” “leads” or
the negative version of these words or other comparable words.
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) the COVID-19 pandemic
and its continued impact on our business operations, store traffic,
employee availability, financial condition, liquidity and cash
flow; (3) geopolitical risks, including impacts from the ongoing
conflict between Russia and Ukraine and increased tensions between
China and Taiwan; (4) our ability to operate our business
efficiently, manage capital expenditures and costs, and obtain
financing when required; (5) our ability to identify and respond to
new and changing fashion trends, customer preferences, and other
related factors; (6) 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; (7) customer traffic at malls, shopping centers,
and at our stores; (8) competition from other retailers; (9) our
dependence on a strong brand image; (10) our ability to adapt to
changing consumer behavior and develop and maintain a relevant and
reliable omni-channel experience for our customers; (11) the
failure or breach of information systems upon which we rely; (12)
our ability to protect customer data from fraud and theft; (13) our
dependence upon third parties to manufacture all of our
merchandise; (14) changes in the cost of raw materials, labor, and
freight; (15) supply chain or other business disruption, including
as a result of the coronavirus; (16) our dependence upon key
executive management; (17) our ability to execute our growth
strategy, EXPRESSway Forward, including engaging our customers and
acquiring new ones, executing with precision to accelerate sales
and profitability, creating great product and reinvigorating our
brand; (18) our substantial lease obligations; (19) our reliance on
third parties to provide us with certain key services for our
business; (20) impairment charges on long-lived assets; (21) claims
made against us resulting in litigation or changes in laws and
regulations applicable to our business; (22) 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; (23) restrictions imposed on us under
the terms of our asset-based loan facility, including restrictions
on the ability to effect share repurchases; (24) changes in tax
requirements, results of tax audits, and other factors that may
cause fluctuations in our effective tax rate; (25) changes in
tariff rates; (26) natural disasters, extreme weather, public
health issues, including pandemics, fire, acts of terrorism or war
and other events that cause business interruption, and (27) risks
related to our partnership with WHP Global. These factors should
not be construed as exhaustive and should be read in conjunction
with the additional information concerning these and other factors
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)
October 29, 2022
January 29, 2022
October 30, 2021
ASSETS
Current Assets:
Cash and cash equivalents
$
24,592
$
41,176
$
36,795
Receivables, net
16,669
11,744
14,033
Income tax receivable
1,532
53,665
53,350
Inventories
422,666
358,795
383,588
Prepaid rent
5,964
5,602
4,309
Other
26,100
19,755
19,464
Total current assets
497,523
490,737
511,539
Right of Use Asset, Net
533,506
615,462
656,995
Property and Equipment
1,002,902
975,802
971,230
Less: accumulated depreciation
(869,910
)
(827,820
)
(820,728
)
Property and equipment, net
132,992
147,982
150,502
Non-Current Income Tax Receivable
52,278
—
—
Other Assets
4,672
5,273
5,092
TOTAL ASSETS
$
1,220,971
$
1,259,454
$
1,324,128
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current Liabilities:
Short-term lease liability
$
190,874
$
196,628
$
204,827
Accounts payable
229,661
231,974
252,752
Deferred revenue
31,947
35,985
30,412
Short-term debt
4,500
11,216
10,091
Accrued expenses
118,984
110,850
126,151
Total current liabilities
575,966
586,653
624,233
Long-Term Lease Liability
437,091
536,905
579,117
Long-Term Debt
230,861
117,581
108,394
Other Long-Term Liabilities
9,454
17,007
20,553
Total Liabilities
1,253,372
1,258,146
1,332,297
Commitments and Contingencies
Total Stockholders’ (Deficit)/Equity
(32,401
)
1,308
(8,169
)
TOTAL LIABILITIES AND STOCKHOLDERS’
EQUITY
$
1,220,971
$
1,259,454
$
1,324,128
Schedule 2
Express, Inc.
Consolidated Statements of
Income
(In thousands, except per share
amounts)
(Unaudited)
Thirteen Weeks Ended
Thirty-Nine Weeks
Ended
October 29, 2022
October 30, 2021
October 29, 2022
October 30, 2021
Net Sales
$
434,145
$
471,981
$
1,349,849
$
1,275,367
Cost of Goods Sold, Buying and Occupancy
Costs
313,528
315,173
944,031
890,448
GROSS PROFIT
120,617
156,808
405,818
384,919
Operating Expenses:
Selling, general, and administrative
expenses
150,090
141,055
434,461
395,010
Other operating expense/(income), net
36
(501
)
(443
)
(565
)
TOTAL OPERATING EXPENSES
150,126
140,554
434,018
394,445
OPERATING (LOSS)/INCOME
(29,509
)
16,254
(28,200
)
(9,526
)
Interest Expense, Net
4,668
2,879
11,962
12,246
Other Income, Net
(509
)
—
(1,385
)
—
(LOSS)/INCOME BEFORE INCOME
TAXES
(33,668
)
13,375
(38,777
)
(21,772
)
Income Tax Expense
780
289
549
227
NET (LOSS)/INCOME
$
(34,448
)
$
13,086
$
(39,326
)
$
(21,999
)
EARNINGS PER SHARE:
Basic
$
(0.50
)
$
0.20
$
(0.58
)
$
(0.33
)
Diluted
$
(0.50
)
$
0.19
$
(0.58
)
$
(0.33
)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic
68,272
67,006
67,878
66,244
Diluted
68,272
69,856
67,878
66,244
Schedule 3
Express, Inc.
Consolidated Statements of
Cash Flows
(In thousands)
(Unaudited)
Thirty-Nine Weeks
Ended
October 29, 2022
October 30, 2021
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss
$
(39,326
)
$
(21,999
)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Depreciation and amortization
45,076
51,964
Loss on disposal of property and
equipment
57
74
Share-based compensation
7,617
7,856
Landlord allowance amortization
(310
)
(319
)
Changes in operating assets and
liabilities:
Receivables, net
(4,925
)
523
Income tax receivable
(145
)
57,992
Inventories
(63,871
)
(119,228
)
Accounts payable, deferred revenue, and
accrued expenses
(4,865
)
95,621
Other assets and liabilities
(35,177
)
5,800
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES
(95,869
)
78,284
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures
(24,340
)
(18,095
)
NET CASH USED IN INVESTING
ACTIVITIES
(24,340
)
(18,095
)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from borrowings under the
revolving credit facility
252,000
73,000
Repayment of borrowings under the
revolving credit facility
(143,000
)
(154,050
)
Proceeds from borrowings under the term
loan facility
—
50,000
Repayment of borrowings under the term
loan facility
(3,375
)
(43,263
)
Repayments of financing arrangements
—
(769
)
Costs incurred in connection with debt
arrangements
—
(471
)
Repurchase of common stock for tax
withholding obligations
(2,000
)
(3,715
)
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES
103,625
(79,268
)
NET DECREASE IN CASH AND CASH
EQUIVALENTS
(16,584
)
(19,079
)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD
41,176
55,874
CASH AND CASH EQUIVALENTS, END OF
PERIOD
$
24,592
$
36,795
Schedule 4
Express, Inc.
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 such as EBITDA. 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.
EBITDA
EBITDA is defined as net (loss)/income before interest expense
(net of interest income), income tax expense and depreciation and
amortization expense.
How This Measure Is Useful
When used in conjunction with GAAP financial measures, EBITDA is
a supplemental measure of operating performance that the Company
believes is a useful measure to facilitate comparisons to
historical performance. EBITDA is used as a performance measure in
the Company's long-term executive compensation program for purposes
of determining the number of equity awards that are ultimately
earned and is also a metric used in our short-term cash incentive
compensation plan.
Limitations of the Usefulness of This Measure
Because non-GAAP financial measures are not standardized, EBITDA
may differ from similarly titled measures used by other companies
due to different methods of calculation. Presentation of EBITDA is
not intended to be considered in isolation or as a substitute for
the financial information prepared and presented in accordance with
GAAP. EBITDA excludes certain normal recurring expenses. Therefore,
these measures may not provide a complete understanding of the
Company's performance and should be reviewed in conjunction with
the GAAP financial measures. A reconciliation of EBITDA to the most
directly comparable GAAP measures, is set forth below:
Thirteen Weeks Ended
Thirty-Nine Weeks
Ended
(in thousands)
October 29, 2022
October 30, 2021
October 29, 2022
October 30, 2021
Net (loss)/income
$
(34,448
)
$
13,086
$
(39,326
)
$
(21,999
)
Interest expense, net
4,668
2,879
11,962
12,246
Income tax expense
780
289
549
227
Depreciation and amortization
14,550
15,662
43,763
48,418
EBITDA (Non-GAAP Measure)
$
(14,450
)
$
31,916
$
16,948
$
38,892
Schedule 5
Express, Inc.
Real Estate Activity
(Unaudited)
Third Quarter 2022 -
Actual
October 29, 2022 -
Actual
Company-Operated
Stores
Opened
Closed
Store Count
Gross Square Footage
Retail Stores
—
(1)
342
Outlet Stores
—
—
202
Express Edit Stores
4
—
9
UpWest Stores
1
(2)
13
TOTAL
5
(3)
566
4.7 million
Fourth Quarter 2022 -
Projected
January 28, 2023 -
Projected
Company-Operated
Stores
Opened
Closed
Store Count
Gross Square Footage
Retail Stores
—
(8)
334
Outlet Stores
—
(2)
200
Express Edit Stores
2
(1)
10
UpWest Stores
2
(1)
14
TOTAL
4
(12)
558
4.6 million
Full Year 2022 -
Projected
January 28, 2023 -
Projected
Company-Operated
Stores
Opened
Closed
Store Count
Gross Square Footage
Retail Stores
—
(12)
334
Outlet Stores
—
(3)
200
Express Edit Stores
7
(2)
10
UpWest Stores
10
(3)
14
TOTAL
17
(20)
558
4.6 million
View source
version on businesswire.com: https://www.businesswire.com/news/home/20221207005932/en/
INVESTOR CONTACT Greg
Johnson VP, Investor Relations gjohnson@express.com (614)
474-4890
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