Express, Inc. Reports Third Quarter Results

Express, Inc., a specialty retail apparel chain operating more than 600 stores, today announced its third quarter 2012 financial results for the thirteen and thirty-nine week periods ended October 27, 2012, which compares to the same period ended October 29, 2011 last year.

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

Third Quarter Operating Results:

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

Thirty-Nine Week Operating Results:

Net sales increased 1% and year-to-date comparable sales were flat, following a 6% increase in comparable sales in the prior year period;
Gross margin was 34.3% of net sales compared to 36.0% in the prior year period, driven by a 60 basis point increase in occupancy costs and a 110 basis point decline in merchandise margin;
SG&A expenses totaled $347.2 million, or 24.5% of net sales, compared to $342.2 million, or 24.4% of net sales, in the prior year period;
Operating income decreased 13.5% to $140.2 million, or 9.9% of net sales, compared to $162.0 million, or 11.6% of net sales, in the prior year period;
Interest expense totaled $14.3 million compared to $27.8 million in the prior year period, which included a $7.2 million loss on extinguishment of debt related to the repurchases of $49.2 million of Senior Notes and the amendment of the $200 million Revolving Credit Facility;
Income tax expense was $50.6 million, at an effective tax rate of 40.2%, compared to $54.1 million, at an effective tax rate of 40.2%, in the prior year period; and
Net income was $75.3 million, or $0.86 per diluted share. This compares to net income of $80.3 million, or $0.90 per diluted share, in the prior year period, which included the following non-core operating costs after tax: (i) $0.3 million, or $0.01 per diluted share, of costs related to the secondary offering completed in April 2011; and (ii) $4.3 million, or $0.04 per diluted share, loss on extinguishment related to the repurchases of $49.2 million of Senior Notes and the amendment of the $200 million Revolving Credit Facility. Net income in the prior year period adjusted for non-core operating costs noted above was $85.0 million, or $0.96 per diluted share (see Schedule 4 for discussion of non-GAAP measures).

Third Quarter Balance Sheet Highlights:

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

Real Estate:

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

2012 Guidance:

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

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

20121129-220647.jpg

Advertisements
This entry was posted in Retail, UK. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s