Express(EXPR) - 2024 Q3 - Quarterly Report

Forward-Looking Statements The report contains forward-looking statements subject to risks that could cause actual results to differ materially from expectations - This report contains forward-looking statements concerning the company's financial condition, results of operations, and business strategies. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from expectations[7] - The company identifies several categories of risks that could impact its performance, including[8][9][10][11] - Operational and Industry Risks: General economic conditions, consumer spending, competition, supply chain disruptions, and reliance on third parties[10] - Strategic Risks: Ability to respond to fashion trends, dependence on brand image, execution of growth strategy, and realizing benefits from the Bonobos acquisition[10] - Risks Related to WHP Partnership: Ability to realize success and synergies from the strategic partnership with WHP Global[10] - Financial, IT, Legal, and Stock Ownership Risks: Including lease obligations, credit facility covenants, data security, and stock price volatility[13] PART I - FINANCIAL INFORMATION This section provides the company's unaudited consolidated financial statements and management's discussion and analysis for the period Item 1. Financial Statements (Unaudited) This section presents unaudited consolidated financial statements, including balance sheets, income statements, cash flows, and notes detailing key events like the Bonobos acquisition and going concern assessment Consolidated Balance Sheets The balance sheet shows changes in assets, liabilities, and equity, reflecting increased inventories and debt, and decreased cash and equity Consolidated Balance Sheet Highlights (in thousands) | Account | Oct 28, 2023 | Jan 28, 2023 | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $34,643 | $65,612 | -$30,969 | | Inventories | $480,867 | $365,649 | +$115,218 | | Total Assets | $1,467,758 | $1,398,325 | +$69,433 | | Total Debt (Short & Long-Term) | $274,672 | $122,000 | +$152,672 | | Total Liabilities | $1,319,803 | $1,090,756 | +$229,047 | | Total Stockholders' Equity | $147,955 | $307,569 | -$159,614 | Consolidated Statements of Income and Comprehensive Income This statement details the company's net sales, gross profit, operating loss, and net loss for the quarter and year-to-date periods Q3 2023 vs Q3 2022 Performance (in thousands, except EPS) | Metric | Thirteen Weeks Ended Oct 28, 2023 | Thirteen Weeks Ended Oct 29, 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $454,063 | $434,145 | +4.6% | | Gross Profit | $109,517 | $120,617 | -9.2% | | Operating Loss | $(28,742) | $(29,509) | +2.6% | | Net Loss | $(36,811) | $(34,448) | -6.9% | | Diluted EPS | $(9.83) | $(10.09) | +2.6% | YTD 2023 vs YTD 2022 Performance (in thousands, except EPS) | Metric | Thirty-Nine Weeks Ended Oct 28, 2023 | Thirty-Nine Weeks Ended Oct 29, 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,272,664 | $1,349,849 | -5.7% | | Gross Profit | $273,679 | $405,818 | -32.6% | | Operating Loss | $(138,428) | $(28,200) | -391% | | Net Loss | $(154,294) | $(39,326) | -292% | | Diluted EPS | $(41.42) | $(11.59) | -257% | Consolidated Statements of Cash Flows This statement summarizes cash flows from operating, investing, and financing activities, showing a net decrease in cash YTD Cash Flow Summary (in thousands) | Cash Flow Activity | Thirty-Nine Weeks Ended Oct 28, 2023 | Thirty-Nine Weeks Ended Oct 29, 2022 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | $(131,367) | $(95,869) | | Net Cash Used in Investing Activities | $(51,692) | $(24,340) | | Net Cash Provided by Financing Activities | $152,090 | $103,625 | - The net decrease in cash and cash equivalents was $31.0 million for the first thirty-nine weeks of 2023, compared to a decrease of $16.6 million in the same period of 2022[20] Notes to Unaudited Consolidated Financial Statements These notes detail accounting policies, multi-brand structure, the Bonobos acquisition, a reverse stock split, debt facilities, and a going concern assessment - The company operates two brand-based segments: Express (including UpWest) and Bonobos. As of October 28, 2023, it operated 600 total stores[23][24] - On May 23, 2023, the company acquired the operating assets of Bonobos for approximately $28.3 million in cash, funded by borrowings under its Revolving Credit Facility[25][84] - The company faces substantial doubt about its ability to continue as a going concern due to challenging macroeconomic conditions, but management believes its plans to reduce expenses and improve liquidity will mitigate these risks for at least one year[38][40][42] - On September 5, 2023, the company entered into a $65.0 million "first-in, last-out" (FILO) asset-based term loan to expand liquidity access[42][110][111] - A 1-for-20 reverse stock split was effected on August 30, 2023, and all share and per-share amounts have been retroactively adjusted[27][28][142] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2023 performance, highlighting Bonobos-driven sales growth, declining comparable sales, eroded gross margins, and a refined strategy with significant cost-saving initiatives Business Trends and Outlook The company faces macroeconomic challenges, implementing cost-saving measures and a refined strategy focused on profitable growth, omnichannel leverage, and financial discipline - The company is facing a challenging macroeconomic environment with reduced consumer spending and increased price sensitivity, which has significantly impacted performance[38][155] - Management has a stated goal to deliver over $200 million in annualized savings by 2025 versus 2022[156][174] - Specific cost reduction targets have been identified and are being implemented: $80 million for fiscal 2023 and $120 million in annualized reductions for fiscal 2024, compared to 2022[157][158][175] - The company is also pursuing at least $50 million in gross margin expansion opportunities through efficiencies in sourcing, production, and supply chain[158][176] Results of Operations Q3 2023 consolidated net sales increased due to Bonobos, but comparable sales declined, and gross margin decreased significantly due to promotional activity Q3 2023 vs Q3 2022 Net Sales (in thousands) | Brand/Metric | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Express | $401,971 | $434,145 | -7.4% | | Bonobos | $52,092 | $0 | N/A | | Total Net Sales | $454,063 | $434,145 | +4.6% | | Total Comp Sales | -6% | -8% | - | - Q3 2023 gross margin decreased by 370 basis points to 24.1% from 27.8% in Q3 2022. This was driven by a 440 basis point drop in merchandise margin due to promotions and royalty expenses, partially offset by a 70 basis point improvement in buying and occupancy costs as a percentage of sales[206] YTD 2023 vs YTD 2022 Net Sales (in thousands) | Brand/Metric | YTD 2023 | YTD 2022 | Change | | :--- | :--- | :--- | :--- | | Express | $1,179,644 | $1,349,849 | -12.6% | | Bonobos | $93,020 | $0 | N/A | | Total Net Sales | $1,272,664 | $1,349,849 | -5.7% | | Total Comp Sales | -12% | +6% | - | - YTD 2023 gross margin decreased by 860 basis points to 21.5% from 30.1% in YTD 2022, driven by a 660 basis point decline in merchandise margin and a 200 basis point deleverage in buying and occupancy costs[216] Liquidity and Capital Resources The company's liquidity relies on cash from operations and its Revolving Credit Facility, bolstered by a new $65.0 million FILO Term Loan - Cash used in operating activities was $131.4 million for the first thirty-nine weeks of 2023, an increase from $95.9 million used in the same period of 2022, primarily due to a larger operating loss and changes in working capital[240][241] - On September 5, 2023, the company secured a $65.0 million first-in-last-out (FILO) asset-based term loan to expand liquidity access[239] - As of October 28, 2023, the company had $21.7 million available for borrowing under its Revolving Credit Facility[239][245] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is exposure to interest rate fluctuations on its variable-rate debt, totaling approximately $277.7 million - A hypothetical 100 basis point (1%) change in underlying interest rates would impact the company's annual interest expense by approximately $2.8 million, based on debt levels at October 28, 2023[248] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective, with the Bonobos business to be excluded from internal control assessment for the current fiscal year - The principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of October 28, 2023[252] - No material changes were made to the company's internal control over financial reporting during the third quarter of 2023[254] PART II - OTHER INFORMATION This section covers legal proceedings, updated risk factors, equity security sales, other information, and a list of exhibits Item 1. Legal Proceedings The company is involved in legal claims, including wage and hour lawsuits in California, where a proposed settlement awaits final court approval - The company is involved in representative actions in California alleging violations of wage and hour statutes. A proposed settlement was reached in June 2022, received preliminary court approval in August 2023, and a final approval hearing is scheduled for January 2024[136][137][139] Item 1A. Risk Factors This section updates risk factors, including new risks related to the Bonobos acquisition and the potential failure to achieve targeted cost savings - A new risk factor highlights that the company may fail to realize the expected strategic and financial benefits of the Bonobos acquisition due to challenges with customer retention, supplier relationships, and operational integration[257] - Another new risk factor states that the company may not fully realize the benefits of its workforce reduction and other cost-saving actions within the anticipated timeline, which could weaken its ability to support operations and meet debt obligations[258][259] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase shares under its program during Q3 2023, with approximately $34.2 million remaining authorized for repurchase - No shares were repurchased under the publicly announced program during the quarter. Approximately 800 shares were purchased to satisfy employee tax withholding obligations[261] - The remaining authorization under the share repurchase program is approximately $34.2 million as of October 28, 2023[141][261] Item 5. Other Information No directors or officers adopted or terminated Rule 10b5-1 trading plans or other trading arrangements during the most recent fiscal quarter - No directors or officers adopted or terminated any Rule 10b5-1 trading plans during the third quarter of 2023[264] Item 6. Exhibits This section lists exhibits filed with the Quarterly Report, including corporate documents, debt agreements, and Sarbanes-Oxley certifications