Express, Inc. Reports Fourth Quarter and Full Year 2019 Results; Introduces First Quarter 2020 Outlook

Express, Inc. (NYSE: EXPR), a leading fashion apparel retailer, announced its financial results for the fourth quarter and full year 2019. These results, which cover the thirteen and fifty-two weeks ended February 1, 2020, are compared to the thirteen and fifty-two weeks ended February 2, 2019.

“Our results show the third consecutive quarter of sequential improvement in our comp sales trend, as the actions we have taken in the early stages of our transformation are resonating with customers,” said Tim Baxter, Chief Executive Officer. “While there is certainly volatility surrounding the coronavirus, our lean inventory position gives us the flexibility to invest appropriately in new product in response to business trends in the coming months.”

Fourth Quarter 2019 Operating Results:

• Consolidated net sales decreased 3% to $606.7 million from $628.4 million in the fourth quarter of 2018, with consolidated comparable sales down 3%.
  • Comparable retail sales, which includes both Express stores and e-commerce, decreased 5% compared to the fourth quarter of 2018. In total, retail sales decreased to $444.6 million from $479.0 million in the fourth quarter of 2018.
  • Comparable outlet sales increased 2% versus the fourth quarter of 2018. In total, outlet sales increased to $143.8 million from $129.4 million in the fourth quarter of 2018.
• Merchandise margin decreased by 60 basis points driven by increased promotional activity. Buying and occupancy as a percentage of net sales was flat. In combination, this resulted in a 60 basis point decrease in gross margin, representing 27.0% of net sales compared to 27.6% in last year’s fourth quarter.
• Selling, general, and administrative (SG&A) expenses were $148.9 million versus $160.8 million in last year’s fourth quarter. As a percentage of net sales, SG&A expenses decreased by 110 basis points to 24.5%.
• Operating loss was $189.9 million, and includes the impact of a $197.6 million non-cash impairment charge related to our intangible assets and $7.3 million in pre-tax restructuring charges. On an adjusted basis, operating income was $15.1 million in the fourth quarter 2019. This compares to operating income of $12.6 million, and $18.0 million on an adjusted basis, in the fourth quarter of 2018. The impairment charge resulted from the annual impairment testing performed by the company and was determined using market and income approaches but was significantly weighted toward the market approach due to our decline in market capitalization.
• Income tax benefit was $47.5 million, at an effective tax rate of 25.1%, compared to income tax expense of $5.4 million, at an effective tax rate of 125.3% in last year’s fourth quarter. The fourth quarter 2019 tax benefit primarily relates to the impairment of intangible assets.
• Net loss was $141.6 million, or a loss of $2.21 per diluted share, compared to net loss of $1.1 million, or a loss of $0.02 per diluted share, in last year’s fourth quarter. Excluding costs related to our intangible asset impairment, restructuring, and executive departures, adjusted net income was $12.2 million, or $0.19 per diluted share, in the fourth quarter of 2019, compared to adjusted net income of $12.8 million, or $0.19 per diluted share, in the fourth quarter of 2018.

Full Year 2019 Operating Results:

• Consolidated net sales decreased 5% to $2,019 million from $2,116 million in 2018.
  • Comparable retail sales, which includes both Express stores and e-commerce, decreased 6% compared to 2018. In total, retail sales decreased to $1,467 million from $1,616 million in 2018.
  • Comparable outlet sales decreased 1% versus 2018. In total, outlet sales increased to $485.6 million from $435.3 million in 2018.
• Operating loss was $217.9 million, and on an adjusted basis operating loss was $11.2 million in 2019. This compares to operating income of $28.2 million, and $33.7 million on an adjusted basis, in 2018. The 2019 adjusted amount excludes the restructuring and non-cash impairment charges recorded during the fourth quarter.
• Net loss was $164.4 million, or a loss of $2.49 per diluted share, compared to net income of $9.6 million, or $0.13 per diluted share, in 2018. Adjusted net loss was $8.4 million, or a loss of $0.13 per diluted share, compared to adjusted net income of $23.6 million, or $0.32 per diluted share, in 2018.

Balance Sheet And Cash Flow Highlights:

• Cash and cash equivalents totaled $207.1 million at the end of 2019 versus $171.7 million at the end of 2018.
• Operating cash flow was $90.7 million for 2019, with free cash flow of $53.7 million.
• Capital expenditures totaled $37.0 million for 2019 compared to $49.8 million for 2018.
• Inventory was $220.3 million at the end of 2019, down 18% compared to $267.8 million at the end of 2018.

Share Repurchase Program:

Under its current share repurchase authorization, the Company has repurchased 16.4 million shares for $116.0 million, including 0.6 million shares for $2.0 million during the fourth quarter of 2019. The Company has approximately $34 million remaining under this authorization. The Company’s first quarter 2020 guidance reflects share repurchases made to date, however does not contemplate any future share repurchases.

First Quarter 2020 Guidance:

The table below compares the Company’s projected results for the thirteen week period ended May 2, 2020 to the actual results for the thirteen week period ended May 4, 2019.

This guidance does not take into account any additional non-core items that may occur and excludes the impact of future share repurchases.

Full Year 2020 Capital Expenditure Guidance:

Capital expenditures are expected to be in the range of $45 to $50 million for the full year 2020.

See Schedule 5 for a discussion of projected real estate activity.

Conference Call Information:

A conference call to discuss fourth quarter and full year 2019 results is scheduled for March 11, 2020 at 9:00 a.m. Eastern Time (ET). Investors and analysts interested in participating in the call are invited to dial (877) 683-0508 approximately ten minutes prior to the start of the call. The conference call will also be webcast live at http://www.express.com/investor and remain available for 90 days. A telephone replay of this call will be available at 12:00 p.m. ET on March 11, 2020 until 11:59 p.m. ET on March 18, 2020 and can be accessed by dialing (800) 585-8367 and entering the replay pin number 5584743. In addition, an investor presentation of fourth quarter and full year 2019 results will be available at http://www.express.com/investor at approximately 7:00 a.m. ET on March 11, 2020.