Express(EXPR) - 2022 Q2 - Quarterly Report

Forward-Looking Statements Forward-Looking Statements This report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially - The report identifies several categories of risks that could impact future performance[7] - Key risk categories include: - External Risks: Changes in consumer spending, mall traffic, impacts from COVID-19, competition, and supply chain disruptions - Strategic Risks: Ability to respond to fashion trends, manage seasonal sales fluctuations, maintain brand image, and execute growth strategies - Information Technology Risks: System failures or breaches and protection of customer data - Financial Risks: Substantial lease obligations, restrictions under credit facilities, and potential impairment charges - Legal, Regulatory and Compliance Risks: Litigation, intellectual property protection, and changes in tax laws - Stock Ownership Risks: Inability to pay dividends, stock price volatility, and potential for 'short squeezes'[8][9][10] Part I - Financial Information Item 1. Financial Statements (Unaudited) The unaudited statements show a shift from net loss to net income, driven by a strong sales recovery and improved margins Consolidated Balance Sheets Total assets and liabilities decreased, while stockholders' equity shifted to a deficit of $23.5 million Consolidated Balance Sheet Highlights (in thousands) | Account | July 31, 2021 | January 30, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $33,852 | $55,874 | | Inventories | $266,593 | $264,360 | | Total current assets | $384,113 | $474,510 | | Total Assets | $1,250,380 | $1,458,457 | | Liabilities & Equity | | | | Total current liabilities | $520,049 | $515,053 | | Long-Term Lease Liability | $624,582 | $722,949 | | Long-Term Debt | $109,207 | $192,032 | | Total Liabilities | $1,273,874 | $1,448,768 | | Total stockholders' (deficit)/equity | ($23,494) | $9,689 | Consolidated Statements of Income and Comprehensive Income The company reported net income of $10.6 million in Q2 2021, a significant turnaround from a $107.8 million loss in Q2 2020 Q2 Income Statement Comparison (in thousands, except per share data) | Metric | Thirteen Weeks Ended July 31, 2021 | Thirteen Weeks Ended August 1, 2020 | | :--- | :--- | :--- | | Net Sales | $457,627 | $245,703 | | Gross Profit/(Loss) | $149,307 | ($44,057) | | Operating Income/(Loss) | $14,776 | ($136,294) | | Net Income/(Loss) | $10,639 | ($107,770) | | Diluted EPS | $0.15 | ($1.67) | Year-to-Date Income Statement Comparison (in thousands, except per share data) | Metric | Twenty-Six Weeks Ended July 31, 2021 | Twenty-Six Weeks Ended August 1, 2020 | | :--- | :--- | :--- | | Net Sales | $803,386 | $455,978 | | Gross Profit/(Loss) | $228,111 | ($90,264) | | Operating Income/(Loss) | ($25,780) | ($281,573) | | Net Income/(Loss) | ($35,085) | ($261,820) | | Diluted EPS | ($0.53) | ($4.07) | Consolidated Statements of Cash Flows Net cash from operations was $67.6 million, a major improvement from the $170.4 million used in the prior-year period Cash Flow Summary (in thousands) | Activity | Twenty-Six Weeks Ended July 31, 2021 | Twenty-Six Weeks Ended August 1, 2020 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $67,591 | ($170,383) | | Net Cash from Investing Activities | ($10,558) | ($10,130) | | Net Cash from Financing Activities | ($79,055) | $166,268 | | Net Decrease in Cash | ($22,022) | ($14,245) | | Cash at End of Period | $33,852 | $192,894 | Notes to Unaudited Consolidated Financial Statements The notes detail accounting policies, revenue, debt, and leases, confirming sufficient liquidity for the next year - The company operates 566 retail and factory outlet stores in the U.S. and Puerto Rico, as well as an online store, and reports as a single operating segment[23][27] Net Sales by Product Category (Thirteen Weeks Ended, in thousands) | Category | July 31, 2021 | August 1, 2020 | | :--- | :--- | :--- | | Apparel | $404,961 | $207,421 | | Accessories and other | $40,896 | $25,888 | | Other revenue | $11,770 | $12,394 | | Total net sales | $457,627 | $245,703 | - No impairment charges were recognized in the first half of 2021, compared to $21.5 million in impairment charges for property, equipment, and lease assets in the same period of 2020[60] - As of July 31, 2021, total outstanding debt was $121.7 million, consisting of a $96.7 million Term Loan and $25.0 million on the Revolving Facility, a reduction from $196.1 million at the start of the year[73] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the Q2 2021 financial recovery, driven by the 'EXPRESSway Forward' strategy and improved consumer trends COVID-19 Pandemic and Business Overview The pandemic materially impacted 2020 operations, but improved trends emerged in H1 2021 with vaccine rollouts - Business operations and financial performance were materially impacted by the COVID-19 pandemic throughout fiscal 2020, with depressed customer traffic and declines in certain apparel categories[131] - Improved trends were seen in the latter part of Q1 and throughout Q2 2021, coinciding with vaccination rollouts and the lifting of COVID-19 restrictions[132] Financial Details and Outlook Q2 2021 showed strong performance with a 42% increase in comparable sales versus 2020 and a 3% increase versus 2019 Q2 2021 Key Performance Metrics vs. 2020 and 2019 | Metric | vs. Q2 2020 | vs. Q2 2019 | | :--- | :--- | :--- | | Net Sales | +86% | -3% | | Comparable Sales | +42% | +3% | | Gross Margin | +5,050 bps | +580 bps | | Operating Income | +$151.1M | +$24.5M | - The 'EXPRESSway Forward' strategy focuses on four key areas: Product, Brand, Customer, and Execution[138] - The company has increased spending on customer acquisition while decreasing promotional spending, reinvesting markdown dollars into marketing programs[144] - The relaunched 'Express Insider' loyalty program onboarded 1.1 million new members since its Q1 2021 launch[145] Results of Operations Q2 2021 net sales rose to $457.6 million, and gross margin improved dramatically to 32.6% from -17.9% YoY Q2 2021 vs Q2 2020 Performance | Metric | Q2 2021 | Q2 2020 | | :--- | :--- | :--- | | Net Sales (in thousands) | $457,627 | $245,703 | | Total Comparable Sales % Change | 42% | (24)% | | Gross Margin % | 32.6% | (17.9)% | | SG&A (in thousands) | $134,562 | $92,805 | - The 5,050 basis point increase in Q2 gross margin was driven by a 2,500 bps increase in merchandise margin and a 2,550 bps improvement in buying and occupancy costs as a percentage of sales[165] - The company provides non-GAAP reconciliations for operating income, net income, and EBITDA to exclude certain items for better trend analysis[180] Liquidity and Capital Resources Liquidity improved with $67.6 million in operating cash flow for H1 2021, a $238.0 million YoY improvement - The company projects sufficient liquidity to fund future operations and meet obligations for at least one year[193] - The $238.0 million YoY improvement in operating cash flow was driven by improved operating results and the receipt of approximately $60.0 million in CARES Act receivables[197] - As of July 31, 2021, the company had $118.2 million in net outstanding debt and approximately $137.2 million available for borrowing under its Revolving Credit Facility[200][201] - In June 2021, the company established an "at-the-market" (ATM) equity offering program to sell up to 15.0 million shares, though no shares were sold in Q2 2021[203] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations on its $121.7 million of variable-rate debt - The company's primary market risk is interest rate risk from its variable-rate debt facilities[205] - Based on borrowings of $121.7 million as of July 31, 2021, a 100 basis point increase in interest rates would increase annual interest expense by about $1.2 million[206] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of July 31, 2021 - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of July 31, 2021[210] - No changes occurred during Q2 2021 that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[211] Part II - Other Information Item 1. Legal Proceedings The company is involved in several wage and hour lawsuits in California and has established an estimated liability - The company is a defendant in multiple representative action lawsuits in California concerning alleged violations of wage, hour, and labor standards[116][117][120] - The Rosete case was settled after July 31, 2021, and an estimated liability is established for remaining matters[118][121] Item 1A. Risk Factors This section highlights new risks related to extreme stock price volatility driven by social media and short squeezes - The market price and trading volume of the company's common stock have experienced, and may again experience, extreme volatility, which could cause substantial losses for investors[214][215] - A 'short squeeze' has led to, and could again lead to, extreme price volatility unrelated to the company's operating performance[218][219] - The company warns that information published by third parties on social media may be unreliable and could materially impact the stock's trading price[220][221] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company purchased 284,000 shares in Q2 2021 for employee tax obligations, with $34.2 million remaining in its buyback program Share Purchases in Q2 2021 | Month | Total Shares Purchased (thousands) | Average Price Paid per Share | | :--- | :--- | :--- | | May 2021 | 17 | $3.23 | | June 2021 | 3 | $4.71 | | July 2021 | 264 | $4.79 | | Total | 284 | | - The shares purchased were related to employee tax withholding obligations and not part of the public share repurchase plan; approximately $34.2 million remains authorized for repurchase[223] Item 3. Defaults Upon Senior Securities Not applicable - Not applicable[224] Item 4. Mine Safety Disclosures Not applicable - Not applicable[226] Item 5. Other Information None - None[228] Item 6. Exhibits This section lists exhibits filed with the report, including Sarbanes-Oxley certifications and XBRL files - The exhibits filed with this report include certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act and various Inline XBRL documents[231]