Express, Inc. Exceeds Second Quarter 2018 EPS Guidance; Introduces Third Quarter Guidance and Raises Full Year 2018 Outlook
COLUMBUS, Ohio--(BUSINESS WIRE)--Aug 29, 2018--Express, Inc. (NYSE: EXPR), a specialty retail apparel company, announced its financial results for the second quarter of 2018. These results, which cover the thirteen weeks ended August 4, 2018, are compared to the thirteen weeks ended July 29, 2017. Comparable sales for the second quarter of 2018 were calculated using the 13-week period ended August 4, 2018, as compared to the 13-week period ended August 5, 2017.
David Kornberg, the Company’s president and chief executive officer, stated: “Our second quarter performance represents another step forward in our pursuit of returning Express to sustainable and profitable long-term growth. Comparable sales grew for the second consecutive quarter, and for the third consecutive quarter we increased earnings relative to the prior year. E-commerce had another exceptional quarter, with sales increasing 37%, on top of 28% growth achieved in the prior year period.”
Mr. Kornberg continued, “As we look to the balance of the year, we are focused on continuing to drive growth through important initiatives across product, brand, and customer experience. We are excited about our fall and holiday assortments and expect continued strong sales momentum in our e-commerce business. Our launch of extended sizes is performing well and we are seeing success build from our expanded omni-channel capabilities, both of which are expected to deliver more benefit in the second half of 2018 and into 2019. Our financial position remains strong with $191 million in cash at quarter end and no debt. Under our $150 million share repurchase program, we have repurchased $49 million, or 6.1 million shares to date, underscoring our confidence in the business and commitment to driving shareholder value.”
Second Quarter 2018 Operating Results:Net sales increased 3% to $493.6 million from $481.2 million in the second quarter of 2017. Comparable sales (including e-commerce sales) increased 1%, compared to a 4% decrease in the second quarter of 2017. E-commerce sales increased 37% year over year to $123.9 million. Gross margin improved 60 basis points to 28.4% of net sales compared to 27.8% in last year’s second quarter. The improvement was driven by a 70 basis point decrease in buying and occupancy costs as a percentage of net sales, partially offset by a 10 basis point decrease in merchandise margin. In the second quarter of 2017, gross profit was negatively impacted by a $1.3 million inventory adjustment related to the exit of Canada. Selling, general, and administrative (SG&A) expenses were $137.7 million versus $134.2 million in last year’s second quarter. As a percentage of net sales, SG&A expenses were flat at 27.9%. Operating income was $2.7 million. This compares to an operating loss of $16.0 million in the second quarter of 2017. The operating loss in the second quarter of 2017 included a $17.6 million impact related to the exit of Canada. Income tax expense was $1.0 million, at an effective tax rate of 30.5%, compared to an income tax benefit of $4.3 million, at an effective tax rate of 26.6% in last year’s second quarter. The effective tax rate for the second quarter of 2017 included a benefit of $5.1 million related to the exit of Canada. Net income was $2.2 million, or $0.03 per diluted share. This compares to a net loss of $11.9 million, or $(0.15) per diluted share, in the second quarter of 2017. Adjusted Net Income (a non-GAAP financial measure) in the second quarter of 2017 was $0.7 million, or $0.01 per diluted share. Refer to Schedule 4 for a reconciliation of GAAP to non-GAAP net income. Real estate activity for the second quarter of 2018 is presented in Schedule 5.
Second Quarter 2018 Balance Sheet Highlights:Cash and cash equivalents totaled $190.8 million versus $173.3 million at the end of the second quarter of 2017. Capital expenditures totaled $17.4 million for the twenty-six weeks ended August 4, 2018, compared to $30.2 million for the twenty-six weeks ended July 29, 2017. Inventory was $270.4 million compared to $256.0 million at the end of the prior year’s second quarter.
Share Repurchase Program:
On November 28, 2017, the Company’s Board of Directors approved a new share repurchase program that authorized the Company to repurchase up to $150 million of the Company’s outstanding common stock using available cash. Under this program, the Company has repurchased 6.1 million shares for $49.3 million, including 1.8 million shares for $16.4 million during the second quarter of 2018. Approximately $101 million remains available under the share repurchase program. The Company’s third quarter and full year 2018 guidance reflects share repurchases made to date, however does not contemplate any future share repurchases.
Effective February 4, 2018, the Company adopted the new revenue recognition standard (“ASC 606”) on a full retrospective basis. As a result, the condensed consolidated financial statements as of February 3, 2018 and for the thirteen and twenty-six weeks ended July 29, 2017, have been recast. For additional information, regarding the adjustments see Exhibit 99.3 to the Company’s Form 8-K filed with the SEC on March 14, 2018.
The Company notes that 2018 is a fifty-two week period as compared to a fifty-three week period in 2017. The fifty-third week was in the fourth quarter and contributed approximately $0.04 in diluted EPS in 2017. The table below compares the Company’s projected results for the thirteen week period ended November 3, 2018 to the actual results for the thirteen week period ended October 28, 2017.
The table below compares the Company’s projected results for the fifty-two week period ended February 2, 2019 to the actual results for the fifty-three week period ended February 3, 2018.
This guidance does not take into account any additional non-core items that may occur.
See Schedule 5 for a discussion of projected real estate activity.
Conference Call Information:
A conference call to discuss second quarter 2018 results is scheduled for August 29, 2018 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: investors.express.com and remain available for 90 days. A telephone replay of this call will be available at 12:00 p.m. ET on August 29, 2018 until 11:59 p.m. ET on September 5, 2018 and can be accessed by dialing (844) 512-2921 and entering replay pin number 13681535.
About Express, Inc.:
Express is a specialty retailer of women’s and men’s apparel and accessories, targeting the 20 to 30-year-old customer. Express has more than 35 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 and Puerto Rico. Express merchandise is also available at franchise locations and online in Latin America. Express also markets and sells its products through its e-commerce website, www.express.com, as well as on its mobile app.
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 third quarter and full year 2018 and 2019, including statements regarding expected comparable sales, effective tax rates, interest expense, net income, diluted earnings per share, 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. 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) customer traffic at malls, shopping centers, and at our stores; (5) competition from other retailers; (6) our dependence on a strong brand image; (7) our ability to adapt to changing consumer behavior and 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 or other business disruption; (13) our dependence upon key executive management; (14) our ability to execute our growth strategy, including improving profitability, providing an exceptional brand and customer experience, transforming and leveraging our systems and processes, and cultivating a strong company culture, and achieving our strategic objectives, including delivering compelling merchandise at an attractive value, investing in growing brand awareness and retaining and acquiring new customers to the Express brand, growing e-commerce sales and expanding our omni-channel capabilities, optimizing our store footprint, and managing our overall cost structure; (15) our substantial lease obligations; (16) our reliance on third parties to provide us with certain key services for our business; (17) impairment charges on long-lived assets; (18) claims made against us resulting in litigation or changes in laws and regulations applicable to our business; (19) 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; (20) restrictions imposed on us under the terms of our asset-based loan facility, including restrictions on the ability to effect share repurchases; 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 required by law.
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