EXPRESS, INC. The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity, and cash flows of the Company as of the dates and for the periods presented below. The following discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year endedJanuary 30, 2021 ("Annual Report") and our unaudited Consolidated Financial Statements and the related Notes included in Item 1 of this Quarterly Report on Form 10-Q ("Quarterly Report"). This discussion contains forward-looking statements that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors. See " Forward-Looking Statements ." All references herein to "the third quarter of 2021" and "the third quarter of 2020" represent the thirteen weeks endedOctober 30, 2021 andOctober 31, 2020 , respectively. Due to the significant impact of COVID-19 on our Fiscal 2020 results and continued impact on our first quarter 2021, comparisons to the third quarter of our fiscal year endedFebruary 1, 2020 ("Fiscal 2019"), where meaningful, have been included for additional context.
Our management's discussion and analysis of financial condition and results of operations is presented in the following sections:
Page
Overview 25
COVID-19 Pandemic 25
Financial Details 26
Outlook 27
How We Assess the Performance of Our Business 28
Results of Operations 32
Liquidity and Capital Resources 38
Critical Accounting Policies 40
OVERVIEW
Grounded in versatility and powered by a styling community, Express is a modern,
multichannel apparel and accessories brand whose purpose is to Create Confidence
& Inspire Self-Expression. 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. We operate 570
retail and factory outlet stores in the United States and Puerto Rico , the
express.com online store and the Express mobile app.
COVID-19 PANDEMIC
InMarch 2020 , theWorld Health Organization declared the novel strain of coronavirus ("COVID-19") a global pandemic and recommended containment and mitigation measures. Our business operations and financial performance have been materially impacted by the COVID-19 pandemic. The COVID-19 pandemic has significantly impacted global economies, resulting in travel restrictions, business slowdowns or shutdowns and changes in consumer behavior. InMarch 2020 , we temporarily closed all of our retail and factory outlet stores and offices, and as a result all store associates and a number of home office employees were furloughed. As mandated shutdowns and stay-at-home orders went into effect across the country, we experienced an immediate reduction in sales levels compared to the prior year. We continued to be materially impacted by COVID-19 throughout fiscal year 2020, even after all of our stores re-opened, as customer traffic continued to be depressed, especially in our retail stores, and two of our key categories, wear to work and occasion wear, saw significant declines in demand.EXPRESS, INC. | Q3 2021 Form 10-Q | 24 -------------------------------------------------------------------------------- Table of Contents During the latter part of the first quarter of 2021 and throughout the second and third quarters of 2021, we have seen improved trends coinciding with the vaccination rollout and the lifting of COVID-19 related restrictions, especially in areas where COVID-19 guidelines were less restrictive. We continue to monitor and comply with all governmental regulations imposed. The extent of the pandemic's impact on our business and financial results will depend, however, on future developments, including the remaining duration and severity of the pandemic (including any variants of COVID-19), the distribution, rate of public acceptance and efficacy of vaccines and other treatments, as well as potential impacts of any vaccine mandates on our workforce, related impacts on consumer confidence and spending, and the effect of any additional governmental regulations imposed, all of which are highly uncertain. Additionally, COVID-19 has caused disruptions and rising costs to global supply chains. Although we have successfully managed these challenges thus far, our ability to continue to replenish our inventory to meet continued levels of consumer demand could be impacted by further delays or disruptions. We expect these impacts to continue for as long as the global supply chain is experiencing these challenges. Given the dynamic nature of the COVID-19 pandemic, we cannot reasonably estimate the impacts of the COVID-19 pandemic on our future financial condition, results of operations or cash flows. For additional information regarding risks related to the COVID-19 pandemic, see "Item 1A. Risk Factors: External Risk Factors" in our Annual Report.
FINANCIAL DETAILS FOR THE THIRD QUARTER OF 2021
•Net sales increased 47% to$472.0 million •Net sales decreased 3% compared to 2019 •Comparable sales increased 46% •Comparable sales increased 3% compared to 2019 •Comparable retail sales (includes both retail stores and eCommerce sales) increased 52% •Comparable outlet sales increased 33% •Gross margin percentage increased 2,890 basis points to 33.2% •Gross margin increased 500 basis points compared to 2019 •Operating income increased$127.2 million to$16.3 million •Operating income increased$22.9 million compared to 2019 •Net income increased$103.4 million to$13.1 million •Diluted earnings per share increased$1.58 to$0.19 EXPRESS, INC. | Q3 2021 Form 10-Q | 25 -------------------------------------------------------------------------------- Table of Contents The following charts show key performance metrics for the third quarter of 2021 compared to the third quarter of 2020. [[Image Removed: expr-20211030_g1.jpg]] [[Image Removed: expr-20211030_g2.jpg]] [[Image Removed: expr-20211030_g3.jpg]] [[Image Removed: expr-20211030_g4.jpg]]
OUTLOOK & THIRD QUARTER UPDATE
Our strong third quarter 2021 results reflect the second consecutive quarter of profitable growth and positive consolidated comparable sales compared to the third quarter of 2019, and we significantly improved our operating cash flow by$329.9 million compared to the third quarter of 2020 and$45.5 million compared to the third quarter of 2019, respectively. We believe these results demonstrate the power of the EXPRESSway Forward strategy and provide tangible evidence that the versatility, quality, and value of our products are resonating with consumers. The following defines each pillar of the EXPRESSway Forward strategy and provides an update on each priority:
PRODUCT BRAND CUSTOMER EXECUTION
Product
We set out to completely reinvent our product across every category and each
item, taking a more modern approach and building our assortments to reflect the
way our customers build their wardrobes.
We established a design and merchandising philosophy called the Express Edit
that has guided every one of our seasonal assortments to be sharp, smart, and
focused. Versatility is one of the key ideas within the Express Edit,
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and we identified denim and knits as two of the most important elements of a
modern versatile wardrobe. Our new core of denim and Express Essentials are an
integral part of the redefinition of Express, and customer response has been
incredibly strong in both categories.
We reimagined our assortments in the categories we have long been known for and
held strong market share such as dresses, suits and knits for women and suits
and shirts for men. We brought innovation to each one of these categories and
had strong performance as we moved through the third quarter of 2021.
Brand
We set out to reinvigorate our brand, clarify our message and articulate a clear, compelling brand purpose, to create confidence and inspire self-expression. Restoring the relevance of the Express brand is a top priority and we believe we have made good progress in a relatively short period of time.
We have reinvented our marketing model, optimized the investment and allocation of our marketing spend, and completely changed how and where our brand is presented.
We have increased our spending on customer acquisition, while decreasing spending related to store-wide and site-wide promotions, and reinvested those markdown dollars into marketing programs and activations that we believe drive customer traffic, engagement and conversion at much higher profits.
Customer
We believe that we can drive higher retention, frequency and spend. We also believe that our loyalty program is the most effective way to drive higher retention, frequency and spend; to that end we rebranded and relaunched Express Insider during the first quarter of 2021 to a strong reception from our customers. Since the relaunch, we have brought nearly 2.0 million new customers into the program and reactivated 1.8 million lapsed customers.
Execution
Execution is the through line across Product, Brand, and Customer that will
drive our operating model. Our third quarter of 2021 results reflect the
strength of our go-to-market model and our alignment as an organization. We
effectively responded to the ongoing impacts of the pandemic, particularly
navigating through the many supply chain challenges and disruptions, and applied
discipline around our expenses and our investments. Outstanding execution is
also what helped drive momentum in each one of our channels and reinforce the
ability of our strategy to effectively advance our eCommerce, retail, and outlet
businesses.
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HOW WE ASSESS THE PERFORMANCE OF OUR BUSINESS
In assessing the performance of our business, we consider a variety of
performance and financial measures. These key measures include net sales,
comparable sales, eCommerce demand, transactions, cost of goods sold, buying and
occupancy costs, gross profit/(loss)/gross margin, and selling, general, and
administrative expenses. The following table describes and discusses these
measures.
Net Sales
Description
Revenue from the sale of merchandise, less returns and discounts, as well as shipping and
handling revenue related to eCommerce, revenue from the rental of our LED sign in Times Square ,
gift card breakage, revenue earned from our private label credit card agreement, and revenue
earned from our franchise agreements.
Discussion
Our business is seasonal, and we have historically realized a higher portion of our net sales in the third and fourth quarters, due primarily to the impact of the holiday season. Generally, approximately 45% of our annual net sales occur in the Spring season (first and second quarters) and 55% occur in the Fall season (third and fourth quarters). In 2020, this split was approximately 38% in the Spring and 62% in the Fall as a result of the COVID-19 pandemic and the related store closures in the Spring season. Comparable Sales Description Comparable sales is a measure of the amount of sales generated in a period relative to the amount of sales generated in the comparable prior year period. Comparable sales for the third quarter of 2021 was calculated using the thirteen weeks endedOctober 30, 2021 as compared to the thirteen weeks endedOctober 31, 2020 . Comparable retail sales includes: •Sales from retail stores that were open 12 months or more as of the end of the reporting period •eCommerce shipped sales Comparable outlet sales includes: •Sales from outlet stores that were open 12 months or more as of the end of the reporting period, including conversions Comparable sales excludes: •Sales from stores where the square footage has changed by more than 20% due to remodel or relocation activity •Sales from stores in a phased remodel where a portion of the store is under construction and therefore not productive selling space •Sales from stores where the store cannot open due to weather damage or other catastrophes, including pandemics
Discussion
Our business and our comparable sales are subject, at certain times, to calendar shifts, which may occur during key selling periods close to holidays such as Easter,Thanksgiving , and Christmas, and regional fluctuations for events such as sales tax holidays. We believe comparable sales provides a useful measure for investors by removing the impact of new stores and closed stores. Management considers comparable sales a useful measure in evaluating continuing store performance. eCommerce Demand Description eCommerce demand is defined as gross orders for Express and/or third party merchandise that originate through our eCommerce platform, including our website, mobile app, and buy online pick-up in store.
Discussion
We believe eCommerce demand is a useful operational metric for investors and management as it provides visibility for orders placed but not yet shipped.
EXPRESS, INC. | Q3 2021 Form 10-Q | 28 -------------------------------------------------------------------------------- Table of Contents Transactions Description Transactions are defined as the number of units sold as compared to the dollar amount of sales.
Discussion
We believe this metric is useful as it removes the impact of promotions and provides a better indicator of the acceptance of our product.
Cost of Goods Sold, Buying and Occupancy Costs Description Includes the following: •Direct cost of purchased merchandise •Inventory shrink and other adjustments •Inbound and outbound freight •Merchandising, design, planning and allocation, and manufacturing/production costs •Occupancy costs related to store operations (such as rent and common area maintenance, utilities, and depreciation on assets) •Logistics costs associated with our eCommerce business •Impairments on long-lived assets and right of use lease assets
Discussion
Our cost of goods sold typically increases in higher volume quarters because the direct cost of purchased merchandise is tied to sales.
The primary drivers of the costs of individual goods are raw materials, labor in the countries where our merchandise is sourced, and logistics costs associated with transporting our merchandise.
Buying and occupancy costs related to stores are largely fixed and do not necessarily increase as volume increases.
Changes in the mix of products sold by type of product or by channel may also impact our overall cost of goods sold, buying and occupancy costs.
Extended periods of declined business and sales could result in additional impairment of our assets.
Gross Profit/(Loss)/Gross Margin Description Gross profit/(loss) is net sales minus cost of goods sold, buying and occupancy costs. Gross margin measures gross profit/(loss) as a percentage of net sales.
Discussion
Gross profit/(loss)/gross margin is impacted by the price at which we are able to sell our merchandise and the cost of our product.
We review our inventory levels on an on-going basis in order to identify slow-moving merchandise and generally use markdowns to clear such merchandise. The timing and level of markdowns are driven primarily by seasonality and customer acceptance of our merchandise and have a direct effect on our gross margin.
Any marked down merchandise that is not sold is marked-out-of-stock. We use third-party vendors to dispose of this marked-out-of-stock merchandise.
EXPRESS, INC. | Q3 2021 Form 10-Q | 29 -------------------------------------------------------------------------------- Table of Contents Selling, General, and Administrative Expenses Description Includes operating costs not included in cost of goods sold, buying and occupancy costs such as: •Payroll and other expenses related to operations at our corporate offices •Store expenses other than occupancy costs •Marketing expenses, including production, mailing, print, and digital advertising costs, among other things
Discussion
With the exception of store payroll, certain marketing expenses, and incentive compensation,
selling, general, and administrative expenses generally do not vary proportionally with net
sales. As a result, selling, general, and administrative expenses as a percentage of net sales
are usually higher in lower volume quarters and lower in higher volume quarters.
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RESULTS OF OPERATIONS
The Third Quarter of 2021 compared to the Third Quarter of 2020
Net Sales
Thirteen Weeks Ended
October 30, 2021 October 31, 2020
Net sales (in thousands) $ 471,981 $ 322,061
Comparable retail sales 52 % (33) %
Comparable outlet sales 33 % (20) %
Total comparable sales percentage change 46 % (30) %
Gross square footage at end of period (in thousands) 4,744 5,031
Number of:
Stores open at beginning of period 567 593
New retail stores - 1
New outlet stores 1 -
New Express Edit concept stores 2 -
New UpWest stores 1 -
Retail stores converted to outlets - -
Closed stores (1) (2)
Stores open at end of period 570 592
Net sales in the third quarter of 2021 increased approximately $149.9 million
compared to the third quarter of 2020, primarily attributed to our product and
brand strategies resonating with our customers coupled with the vaccination
rollout and the lifting of COVID-related restrictions during 2021, as compared
to the material adverse impact the COVID-19 pandemic had during the third
quarter of 2020. Our retail comparable sales percentage increases are lower than
our total retail sales percentage increases for the third quarter of 2021. This
is due to our comparable sales calculation excluding sales for stores that were
closed in the comparable period last year due to the COVID-19 pandemic. Net
sales decreased $16.5 million from $488.5 million in the third quarter of 2019
due primarily to reduced store count. Comparable sales increased 3% compared to
the third quarter of 2019.
Gross Profit
The following table shows cost of goods sold, buying and occupancy costs, gross
profit in dollars, and gross margin percentage for the stated periods:
Thirteen Weeks Ended
October
30, 2021
(in thousands, except percentages)
Cost of goods sold, buying and occupancy costs $ 315,173 $ 308,115
Gross profit $ 156,808 $ 13,946
Gross margin percentage 33.2 % 4.3 %
The 2,890 basis point increase in gross margin percentage, or gross profit as a
percentage of net sales, in the third quarter of 2021 compared to the third
quarter of 2020 was comprised of an increase in merchandise margin of 1,350
basis points and a decrease in buying and occupancy costs as a percentage of net
sales of 1,540 basis points. The increase in merchandise margin was primarily
driven by positive customer response to our new receipts and a significant
reduction in promotional activity. The improvement in buying and occupancy costs
leverage was due to increased sales and rent reductions. In addition, we had a
$8.4 million impairment in the third quarter of 2020. Compared to the third
quarter of 2019, gross margin percentage increased 500 basis points primarily
driven by significant reductions in our buying and occupancy expense structure.
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Selling, General, and Administrative Expenses
The following table shows selling, general, and administrative expenses in
dollars and as a percentage of net sales for the stated periods:
Thirteen Weeks Ended
October 30, 2021 October 31, 2020
(in thousands, except percentages)
Selling, general, and administrative expenses $
141,055
29.9 % 38.8 %
The $16.2 million increase in selling, general, and administrative expenses in
the third quarter of 2021 as compared to the third quarter of 2020 was primarily
driven last year's pandemic related store closures and current year investments
in customer acquisition related marketing expense.
Interest Expense, Net
The following table shows interest expense in dollars for the stated periods:
Thirteen Weeks Ended
October 30, 2021 October 31, 2020
(in thousands)
Interest expense, net $ 2,879 $ 936
The $1.9 million increase in interest expense in the third quarter of 2021 as
compared to the third quarter of 2020 was the result of borrowing under our
Amended Revolving Credit Facility and Term Loan Facility, which bear interest at
variable rates. Refer to Note 7 in our unaudited Consolidated Financial
Statements included elsewhere in this Quarterly Report for further discussion
regarding our borrowings during the thirteen weeks ended October 30, 2021 .
Income Tax Expense/(Benefit)
The following table shows income tax expense/(benefit) in dollars for the stated
periods:
Thirteen Weeks Ended
October 30, 2021 October 31, 2020
(in thousands)
Income tax expense/(benefit) $ 289 $ (21,503)
The effective tax rate was 2.2% and 19.2% for the thirteen weeks ended October
30, 2021 and October 31, 2020 , respectively. The effective tax rate for the
thirteen weeks ended October 30, 2021 is driven by changes to our full year
forecasted effective tax rate due to improved operational forecast offset by a
reduction to the forecasted valuation allowance needed for the current year
results. The effective tax rate for the thirteen weeks ended October 31, 2020
reflects the impact of recording an additional valuation allowance of
$16.0 million against 2020 U.S. federal and state deferred tax assets and other
tax credits of which a portion relates to 2020 U.S. federal net operating losses
that could not be carried back to offset taxable income in the five-year
carryback period as part of the CARES Act. This was partially offset by
$8.0 million of tax benefit related to the portion of the 2020 U.S. federal net
operating losses that are able to be carried back to years with a higher federal
statutory tax rate than is currently enacted.
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The Thirty-Nine Weeks Ended October 30, 2021 compared to the Thirty-Nine Weeks
Ended October 31, 2020
Net Sales
Thirty-Nine Weeks Ended
October 30, 2021 October 31, 2020
Net sales (in thousands) $ 1,275,367 $ 778,039
Comparable retail sales 39 % (30) %
Comparable outlet sales 21 % (17) %
Total comparable sales percentage change 34 % (27) %
Gross square footage at end of period (in thousands) 4,744 5,031
Number of:
Stores open at beginning of period 570 595
New retail stores - 1
New outlet stores 1 1
New Express Edit concept stores 6 -
New UpWest stores 7 -
Retail stores converted to outlets - -
Closed stores (14) (5)
Stores open at end of period 570 592
Net sales for the thirty-nine weeks ended October 30, 2021 increased
approximately $497.3 million compared to the thirty-nine weeks ended October 31,
2020 . The sales increase is primarily attributed to our product and brand
strategies resonating with our customers coupled with the vaccination rollout
and the lifting of COVID-related restrictions during the thirty-nine weeks ended
October 30, 2021 , as compared to the material adverse impact the COVID-19
pandemic had during the thirty-nine weeks ended October 31, 2020 . Our retail
comparable sales percentage increases are lower than our total retail sales
percentage increases for the thirty-nine weeks ended October 30, 2021 . This is
due to our comparable sales calculation excluding sales for stores that were
closed in the comparable period last year due to the COVID-19 pandemic.
Gross Profit/(Loss)
The following table shows cost of goods sold, buying and occupancy costs, gross
profit/(loss) in dollars, and gross margin percentage for the stated periods:
Thirty-Nine Weeks Ended
(in thousands, except percentages)
Cost of goods sold, buying and occupancy costs $ 890,448 $ 854,357
Gross profit/(loss) $ 384,919 $ (76,318)
Gross margin percentage 30.2 % (9.8) %
The 4,000 basis point increase in gross margin percentage, or gross
profit/(loss) as a percentage of net sales, for the thirty-nine weeks ended
October 30, 2021 compared to the thirty-nine weeks ended October 31, 2020 was
comprised of an increase in merchandise margin of 1,650 basis points and a
decrease in buying and occupancy costs as a percentage of net sales of 2,350
basis points. The increase in merchandise margin was primarily driven by
positive customer response to our new receipts and significant reduction in
promotional activity. The improvement in buying and occupancy costs leverage was
driven by increased sales and rent reductions. In addition, we had a
$29.9 million impairment during the thirty-nine weeks ended October 31, 2020 .
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Selling, General, and Administrative Expenses
The following table shows selling, general, and administrative expenses in
dollars and as a percentage of net sales for the stated periods:
Thirty-Nine Weeks Ended
(in thousands, except percentages)
Selling, general, and administrative expenses $
395,010
31.0 % 40.7 %
The $78.2 million increase in selling, general, and administrative expenses for
the thirty-nine weeks ended October 30, 2021 compared to the thirty-nine weeks
ended October 31, 2020 was primarily the result of an increase in variable costs
driven by the sales increase, current year investments in customer acquisition
related marketing expense, and our stores being fully open during the
thirty-nine weeks ended October 30, 2021 while our stores were temporarily
closed beginning in mid-March through the remainder of the first quarter of 2020
and continued partial closures through the third quarter of 2020 due to the
COVID-19 pandemic.
Interest Expense, Net
The following table shows interest expense in dollars for the stated periods:
Thirty-Nine Weeks Ended
October 30, 2021 October 31, 2020
(in thousands)
Interest expense, net $ 12,246 $ 2,015
The $10.2 million increase in interest expense for the thirty-nine weeks ended
October 30, 2021 compared to the thirty-nine weeks ended October 31, 2020 was
the result of borrowing under our Amended Revolving Credit Facility and Term
Loan Facility, which bear interest at variable rates. Refer to Note 7 in our
unaudited Consolidated Financial Statements included elsewhere in this Quarterly
Report for further discussion regarding our borrowings during the thirty-nine
weeks ended October 30, 2021 .
Income Tax Expense/(Benefit)
The following table shows income tax expense/(benefit) in dollars for the stated
periods:
Thirty-Nine Weeks Ended
October 30, 2021 October 31, 2020
(in thousands)
Income tax expense/(benefit) $ 227 $ (45,068)
The effective tax rate was (1.0)% and 11.3% for the thirty-nine weeks ended
October 30, 2021 and October 31, 2020 , respectively. The effective tax rate for
the thirty-nine weeks ended October 30, 2021 reflects the impact of
non-deductible executive compensation and the release of a valuation allowance
of $0.5 million against current year forecasted taxable earnings. The effective
tax rate for the thirty-nine weeks ended October 31, 2020 was less than the
statutory rate due to the impact of establishing a valuation allowance against
our net deferred tax assets, which includes $54.2 million of discrete tax
expense from a valuation allowance against previously recognized deferred tax
assets and $39.1 million valuation allowance against 2020 U.S. federal and state
deferred tax assets and other tax credits of which a portion relates to 2020
U.S. federal net operating losses that could not be carried back to offset
taxable income in the five-year carryback period as part of the CARES Act. This
was partially offset by a $36.6 million tax benefit related to the portion of
the 2019 and 2020 U.S. federal net operating losses that are able to be carried
back to years with a higher federal statutory tax rate than is currently
enacted.
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Operating Income/(Loss), Net Income/(Loss), Diluted Earnings Per Share and
EBITDA
Included in the table below is operating income/(loss), net income/(loss),
diluted earnings per share and earnings before interest, taxes, depreciation,
and amortization ("EBITDA") for the thirteen and thirty-nine weeks ended
October 30, 2021 and October 31, 2020 , respectively. We supplement the reporting
of our financial information determined under United States generally accepted
accounting principles ("GAAP") with certain non-GAAP financial measures:
adjusted operating income/(loss), adjusted net income/(loss), adjusted diluted
earnings per share and EBITDA. The following table presents these financial
measures, each a non-GAAP financial measure, for the stated periods which
eliminate certain non-core operating costs:
Thirteen Weeks Ended
October 30, 2021 October 31, 2020
(in thousands, except per share amounts)
Operating income/(loss) $ 16,254 $ (110,916)
Adjusted operating income/(loss) (Non-GAAP) $ 16,254 * $ (102,546)
Net income/(loss) $ 13,086 $ (90,349)
Adjusted net income/(loss) (Non-GAAP) $ 11,601 $ (76,192)
Diluted earnings per share $ 0.19 $ (1.39)
Adjusted diluted earnings per share (Non-GAAP) $ 0.17 $ (1.17)
EBITDA (Non-GAAP) $ 31,916 $ (92,600)
* No adjustments were made to operating income for the thirteen weeks ended
Thirty-Nine Weeks Ended
October 30, 2021 October 31, 2020
(in thousands, except per share amounts)
Operating loss $ (9,526) $ (392,489)
Adjusted operating loss (Non-GAAP) $ (9,526) * $ (362,636)
Net loss $ (21,999) $ (352,169)
Adjusted net loss (Non-GAAP) $ (22,489) $ (271,251)
Diluted earnings per share $ (0.33) $ (5.46)
Adjusted diluted earnings per share (Non-GAAP) $ (0.34) $ (4.20)
EBITDA (Non-GAAP) $ 38,892 $ (339,703)
* No adjustments were made to operating loss for the thirty-nine weeks ended
October 30, 2021 .
How These Measures Are Useful
We believe that these non-GAAP measures provide additional useful information to
assist stockholders in understanding our financial results and assessing our
prospects for future performance. Management believes adjusted operating
income/(loss), adjusted net income/(loss), adjusted diluted earnings per share
and EBITDA are important indicators of our business performance because they
exclude items that may not be indicative of, or are unrelated to, our underlying
operating results, and may provide a better baseline for analyzing trends in the
business. In addition, adjusted diluted earnings per share and EBITDA are used
as performance measures in our long-term executive compensation program for
purposes of determining the number of equity awards that are ultimately earned
and EBITDA is also a metric used in our short-term cash incentive compensation
plan.
Limitations of the Usefulness of These Measures
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/(loss), operating income/(loss), or diluted earnings per share. These
non-GAAP financial measures reflect an additional way of viewing our operations
that, when viewed with the GAAP results and the below reconciliations to the
corresponding GAAP financial measures, provide a more complete understanding of
our business. Management strongly
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encourages investors and stockholders to review our financial statements and
publicly-filed reports in their entirety and not to rely on any single financial
measure.
The following table reconciles the non-GAAP financial measures (adjusted
operating income/(loss), adjusted net income/(loss), and adjusted diluted
earnings per share) with the most directly comparable GAAP financial measures
(operating income/(loss), net income/(loss), and diluted earnings per share,
respectively) for the thirteen and thirty-nine weeks ended October 30, 2021 and
October 31, 2020 , respectively.
Thirteen Weeks Ended
Diluted Weighted Average
(in thousands, except per share Operating Income Income Tax Impact Net Income Earnings per Diluted Shares
amounts) Share Outstanding
Reported GAAP Measure $ 16,254 $ 13,086 $ 0.19 69,856
Valuation allowance on deferred taxes
(a) - (1,485) (1,485) (0.02)
Adjusted Non-GAAP Measure $ 16,254 $ 11,601 $ 0.17 a.Valuation allowance released due to improvement in forecasted 2021 pre-tax results.
Thirty-Nine Weeks Ended
Diluted Weighted Average
(in thousands, except per share Operating Loss Income Tax Impact Net Loss Earnings per Diluted Shares
amounts) Share Outstanding
Reported GAAP Measure $ (9,526) $ (21,999) $ (0.33) 66,244
Valuation allowance on deferred taxes
(a) - (490) (490) (0.01)
Adjusted Non-GAAP Measure $ (9,526) $ (22,489) $ (0.34) a.Valuation allowance released due to improvement in forecasted 2021 pre-tax results.
Thirteen Weeks Ended
Diluted Weighted Average
(in thousands, except per share Operating Loss Income Tax Impact Net Loss Earnings per Diluted Shares
amounts) Share Outstanding
Reported GAAP Measure $ (110,916) $ (90,349) $ (1.39) 64,868
Impairment of property, equipment and 8,370 (2,215) (a) 6,155 0.09
lease assets
Valuation allowance on deferred taxes
(b) - 15,998 15,998 0.25
Tax impact of the CARES Act (c) - (7,996) (7,996) (0.12)
Adjusted Non-GAAP Measure $ (102,546) $ (76,192) $ (1.17)
a.Items tax affected at the applicable deferred or statutory rate.
b.Valuation allowance provided against previously recognized deferred tax assets
and 2020 losses, less net operating losses utilized under the CARES Act.
c.Income tax benefit primarily due to a net operating loss carryback under the
CARES Act to years with a higher federal statutory tax rate than is currently
enacted.
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Thirty-Nine Weeks Ended
Diluted Weighted Average
(in thousands, except per share Operating Loss Income Tax Impact Net Loss Earnings per Diluted Shares
amounts) Share Outstanding
Reported GAAP Measure $ (392,489) $ (352,169) $ (5.46) 64,515
Impairment of property, equipment and 29,853 (7,901) (a) 21,952 0.34
lease assets
Equity method investment impairment
(b) - (642) 2,091 0.03
Valuation allowance on deferred taxes
(c) - 93,317 93,317 1.45
Tax impact of the CARES Act (d) - (36,553) (36,553) (0.57)
Tax impact of executive departures (e) - 111 111 -
Adjusted Non-GAAP Measure $ (362,636) $ (271,251) $ (4.20)
a.Items tax affected at the applicable deferred or statutory rate.
b.Impairment before tax was $2.7 million and was recorded in other expense, net.
c.Valuation allowance provided against previously recognized deferred tax assets
and 2020 losses, less net operating losses utilized under the CARES Act.
d.Income tax benefit primarily due to a net operating loss carryback under the
CARES Act to years with a higher federal statutory tax rate than is currently
enacted.
e.Represents the tax impact related to the expiration of former executive
non-qualified stock options.
The following table reconciles the non-GAAP financial measure EBITDA with the
most directly comparable GAAP financial measures for the thirteen and
thirty-nine weeks ended October 30, 2021 and October 31, 2020 , respectively.
Thirteen Weeks Ended Thirty-Nine Weeks Ended
(in thousands) October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020
Net income/(loss) $ 13,086 $ (90,349) $ (21,999) $ (352,169)
Interest expense, net 2,879 936 12,246 2,015
Income tax expense/(benefit) 289 (21,503) 227 (45,068)
Depreciation and amortization 15,662 18,316 48,418 55,519
EBITDA (Non-GAAP Measure) $ 31,916 $ (92,600) $ 38,892 $ (339,703) LIQUIDITY AND CAPITAL RESOURCES
Forward-Looking Liquidity Discussion Our liquidity position benefits from the fact that we generally collect cash from sales to customers the same day or, in the case of credit or debit card transactions, within three to five days of the related sale, and we have up to 75 days to pay certain merchandise vendors and 45 days to pay the majority of our non-merchandise vendors. We also have commitments under lease agreements and debt agreements that will require future cash outlays. Based upon the sales and profitability recovery seen during the thirty-nine weeks endedOctober 30, 2021 , as well as the availability of additional liquidity under the Amended Revolving Credit Facility, and expense control and other measures taken to date, our liquidity position has improved significantly. We continue to be in compliance with the financial covenants under our Amended Revolving Credit Facility and Term Loan Facility and plan to continue our cost reduction measures taken to date, including rent concessions agreed to, and we are forecasting continued strength in both sales and profitability for the remainder of 2021. This will result in sufficient cash flows to support our ongoing operations and to meet our covenant requirements under the Amended Revolving Credit Facility and Term Loan Facility for one year following the date that these unaudited Consolidated Financial Statements in Part I, Item 1
of
this Quarterly Report are issued.
EXPRESS, INC. | Q3 2021 Form 10-Q | 37
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Analysis of Cash Flows
A summary of cash provided by or used in operating, investing, and financing
activities is shown in the following table:
Thirty-Nine Weeks Ended
October 30, 2021 October 31, 2020
(in thousands)
Provided by (used in) operating activities $ 78,284 $ (251,602)
Used in investing activities (18,095) (13,550)
(Used in) provided by financing activities (79,268) 165,360
Decrease in cash and cash equivalents (19,079) (99,792)
Cash and cash equivalents at end of period $ 36,795 $ 107,347
Operating Activities
Our business relies on cash flows from operations as our primary source of
liquidity, with the majority of those cash flows being generated in the fourth
quarter of the year. Our primary operating cash needs are for merchandise
inventories, payroll, store rent and marketing. For the thirty-nine weeks ended
October 30, 2021 , our cash flows provided by operating activities were $78.3
million compared to $251.6 million used in operating activities for the
thirty-nine weeks ended October 31, 2020 . This $329.9 million improvement in
cash flows from operating activities for the thirty-nine weeks ended October 30,
2021 as compared to the same period in 2020 was primarily driven by the
temporary closure of our stores as a result of COVID-19 during the thirty-nine
weeks ended October 31, 2020 and our improved operating results during the
thirty-nine weeks ended October 30, 2021 . In addition, we received approximately
$60.0 million of CARES Act receivables during the thirty-nine weeks ended
October 30, 2021 ($43.3 million and $13.7 million related to our 2020 and 2019
income tax returns, respectively, and $3.0 million related to the employee
retention credit). This was partially offset by the fact that we did not
initially make our store rent payments for April, May or June of 2020, as a
result of the COVID-19 related store closures. We established an accrual for the
rent payments that were not made and have continued to recognize accrued rent
expense. As a result of negotiations with certain landlords, we have since made
rent payments for the majority of stores and some landlords have agreed to abate
certain rent payments. The appropriate adjustments were made to accrued rent and
are reflected in the cash flows from operations.
Investing Activities
We also use cash for investing activities. Our capital expenditures consist
primarily of new and remodeled store construction and fixtures and investments
in information technology. We had capital expenditures of approximately $18.1
million and $13.6 million for the thirty-nine weeks ended October 30, 2021 and
October 31, 2020 , respectively. The $4.5 million increase in investing
activities was primarily driven by investments in information technology to
support our strategic business initiatives. We expect capital expenditures for
the remainder of 2021 to be approximately $17.0 million , primarily driven by new
and remodeled store construction and investments in information technology.
Financing Activities
Credit Facilities
On January 13, 2021 , we entered into a definitive loan agreement with Sycamore
Partners as lead lender, along with Wells Fargo and Bank of America Merrill
Lynch . The new financing included a $90.0 million FILO Term Loan received in
2020, and a $50.0 million Delayed Draw Term Loan ("DDTL"), that was drawn down
in March 2021 . During the thirty-nine weeks ended October 30, 2021 , we received
approximately $43.3 million of CARES Act income tax refunds that was used to
repay a portion of the DDTL. The remainder of the CARES Act tax refunds are
expected to be received in 2022, at which time we will be required to repay the
remaining balance on the DDTL. This financing is in addition to our existing
$250.0 million Amended Revolving Credit Facility under which we drew down
$165.0 million in the first quarter of 2020 in response to the COVID-19
outbreak. Upon the receipt of the proceeds from the FILO Term Loan, we repaid
$59.0 million of the amount borrowed under our Amended Revolving Credit
Facility, and during the thirty-nine weeks ended October 30, 2021 , we repaid a
net of an additional $81.1 million . The expiration date of the facilities is May
24, 2024 .
EXPRESS, INC. | Q3 2021 Form 10-Q | 38
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As of October 30, 2021 , the net amount outstanding under our facilities was
$118.5 million , of which $10.1 million is classified as short-term debt and
$108.4 million is classified as long-term debt on the unaudited Consolidated
Balance Sheet, net of unamortized costs, and approximately $155.3 million was
available for borrowing under our Amended Revolving Credit Facility subject to
certain borrowing base limitations and after outstanding letters of credit in
the amount of $34.6 million , primarily related to our third party logistics
contract. Refer to Note 7 of our unaudited Consolidated Financial Statements
included elsewhere in this Quarterly Report on Form 10-Q for additional
information on our Amended Revolving Credit Facility and Term Loan Facility.
Share Repurchases
On November 28, 2017 , the Board approved a share repurchase program that
authorizes us to repurchase up to $150.0 million of our outstanding common stock
using available cash. During the thirteen and thirty-nine weeks ended October
30, 2021 and October 31, 2020 , respectively, we did not repurchase shares under
the stock repurchase program.
ATM Equity Offering
On June 3, 2021 , we entered into the Sales Agreement with BofA , as the sales
agent to sell up to 15.0 million shares of our common stock, par value $0.01 per
share, through an "at-the-market" offering program. During the thirteen and
thirty-nine weeks ended October 30, 2021 , we did not sell any shares under the
Sales Agreement. We intend to use net proceeds, if any, from the sale of the
common stock pursuant to the Sales Agreement for general corporate purposes,
which may include investments in working capital, or capital expenditures,
including the acceleration of investments to grow and enhance our eCommerce
channel and omni-channel assets, the repayment of indebtedness, and other
investments.
CRITICAL ACCOUNTING POLICIES
Management has determined that our most critical accounting policies are those
related to store asset impairment, merchandise inventory valuation and valuation
allowance on deferred tax assets. We continue to monitor our accounting policies
to ensure proper application of current rules and regulations. There have been
no significant changes to the policies discussed in our Annual Report.
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