Express Earnings 2020-10-31

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

expr-20201031

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended October 31, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ______ TO ______

Commission File Number 001-34742

EXPRESS, INC.

(Exact name of registrant as specified in its charter)


Delaware						26-2828128
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

1 Express Drive Columbus, Ohio						43230
(Address of principal executive offices)						(Zip Code)

Telephone: (614) 474-4001

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $.01 par value

EXPR

The New York Stock Exchange

Preferred Stock Purchase Rights

EXPR

The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of outstanding shares of the registrant’s common stock was 64,947,502 as of November 28, 2020.

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EXPRESS, INC.

INDEX TO FORM 10-Q



FORWARD-LOOKING STATEMENTS			3


PART I		FINANCIAL INFORMATION	5
	Item 1.	Financial Statements (Unaudited)	5
		Consolidated Balance Sheets	5
		Consolidated Statements of Income and Comprehensive Income	6
		Consolidated Statements of Changes in Stockholders' Equity	7
		Consolidated Statements of Cash Flows	8
		Notes to Unaudited Consolidated Financial Statements	9
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
	Item 4.	Controls and Procedures	38


PART II		OTHER INFORMATION	39
	Item 1.	Legal Proceedings	39
	Item 1A.	Risk Factors	39
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
	Item 3.	Defaults Upon Senior Securities	41
	Item 4.	Mine Safety Disclosures	41
	Item 5.	Other Information	41
	Item 6.	Exhibits	42


SIGNATURES			43

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements within the “safe harbor” provisions of the Private Securities Reform Act of 1995 that are subject to risks and uncertainties. All statements other than statements of historical fact included in this Quarterly Report are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance, and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “potential,” “intend,” “believe,” “may,” “will,” “should,” “can have,” “likely,” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected costs, expenditures, cash flows, and financial results, our plans and objectives for future operations, growth, initiatives, or strategies, plans to repurchase shares of our common stock, or the expected outcome or impact of pending or threatened litigation are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including:

External Risks such as:

•changes in consumer spending and general economic conditions;

•customer traffic at malls, shopping centers, and at our stores;

•the novel coronavirus outbreak, declared a pandemic by the World Health Organization, is adversely affecting and may continue to adversely affect our business operations, store traffic, employee availability, financial condition, liquidity and cash flow;

•competition from other retailers;

•our dependence upon independent third parties to manufacture all of our merchandise;

•changes in the cost of raw materials, labor, and freight;

•supply chain disruption and increased tariffs;

•difficulties associated with our distribution facilities;

•natural disasters, extreme weather, public health issues, including pandemics, fire, and other events that cause business interruption; and

•our reliance on third parties to provide us with certain key services for our business.

Strategic Risks such as:

•our ability to identify and respond to new and changing fashion trends, customer preferences, and other related factors;

•fluctuations in our sales, results of operations, and cash levels on a seasonal basis and due to a variety of other factors, including our product offerings relative to customer demand, the mix of merchandise we sell, promotions, inventory levels, and sales mix between stores and eCommerce;

•our dependence on a strong brand image;

•our ability to adapt to changes in consumer behavior and develop and maintain a relevant and reliable omnichannel experience for our customers;

•our dependence upon key executive management; and

•our ability to execute our growth strategy, including but not limited to, engaging our customers and acquiring new ones, executing with precision to accelerate sales and profitability, putting product first, and reinvigorating our brand.

Information Technology Risks such as:

•the failure or breach of information systems upon which we rely;

•the increase of our employees working remotely and use of technology for work functions; and

•our ability to protect our customer data from fraud and theft.

Financial Risks such as:

•our substantial lease obligations;

•restrictions imposed on us under the terms of our asset-based loan facility, including restrictions on our ability to repurchase shares of our common stock; and

•impairment charges on long-lived assets and our lease assets.

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Legal, Regulatory and Compliance Risks such as:

•claims made against us resulting in litigation or changes in laws and regulations applicable to our business;

•our inability to protect our trademarks or other intellectual property rights that may preclude the use of our trademarks or other intellectual property around the world;

•our ability to regain compliance with the continued listing criteria of the NYSE within the available cure period, and risks arising from the potential suspension of trading of our common stock on the NYSE;

•changes in tax requirements, results of tax audits, and other factors that may cause fluctuations in our effective tax rate; and

•our failure to maintain adequate internal controls.

We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. For a discussion of these risks and other risks and uncertainties that could cause actual results to differ materially from those contained in our forward-looking statements, please refer to “Item 1A. Risk Factors” included elsewhere in this Quarterly Report and in our Annual Report on Form 10-K for the year ended February 1, 2020 (“Annual Report”), filed with the Securities and Exchange Commission (“SEC”) on March 17, 2020. The forward-looking statements included in this Quarterly Report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events, or otherwise, except as required by law.

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PART I – FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS.

EXPRESS, INC.

CONSOLIDATED BALANCE SHEETS

(Amounts in Thousands, Except Per Share Amounts) (Unaudited)


	October 31, 2020		February 1, 2020
ASSETS
Current Assets:
Cash and cash equivalents	$	107,347	$	207,139
Receivables, net	12,657		10,824
Income tax receivable	112,014		3,000
Inventories	350,643		220,303
Prepaid rent	6,683		6,850
Other	24,397		22,573
Total current assets	613,741		470,689



Right of Use Asset, Net	855,116		1,010,216

Property and Equipment	990,300		979,639
Less: accumulated depreciation	(791,036)		(731,309)
Property and equipment, net	199,264		248,330


Deferred Tax Assets	—		54,973
Other Assets	3,950		6,531
TOTAL ASSETS	$	1,672,071	$	1,790,739

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Short-term lease liability	$	208,375	$	226,174
Accounts payable	239,624		126,863
Deferred revenue	30,005		38,227

Accrued expenses	158,597		76,211
Total current liabilities	636,601		467,475

Long-Term Lease Liability	776,838		897,304
Long-Term Debt	165,000		—

Other Long-Term Liabilities	32,812		19,658
Total Liabilities	1,611,251		1,384,437

Commitments and Contingencies (Note 9)

Stockholders’ Equity:
Preferred stock – $0.01 par value; 10,000 shares authorized; no shares issued or outstanding	—		—
Common stock – $0.01 par value; 500,000 shares authorized; 93,632 shares and 93,632 shares issued at October 31, 2020 and February 1, 2020, respectively, and 64,905 shares and 63,922 shares outstanding at October 31, 2020 and February 1, 2020, respectively	936		936
Additional paid-in capital	220,047		215,207

Retained earnings	169,038		533,690
Treasury stock – at average cost; 28,727 shares and 29,710 shares at October 31, 2020 and February 1, 2020, respectively	(329,201)		(343,531)
Total stockholders’ equity	60,820		406,302
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,672,071	$	1,790,739

See Notes to Unaudited Consolidated Financial Statements.

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EXPRESS, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Amounts in Thousands, Except Per Share Amounts) (Unaudited)


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
Net Sales	$	322,061	$	488,483	$	778,039	$	1,412,469
Cost of Goods Sold, Buying and Occupancy Costs	308,115		350,810		854,357		1,025,795
GROSS PROFIT/(LOSS)	13,946		137,673		(76,318)		386,674
Operating Expenses:
Selling, general, and administrative expenses	124,863		144,301		316,833		415,391

Other operating (income)/expense, net	(1)		47		(662)		(728)
TOTAL OPERATING EXPENSES	124,862		144,348		316,171		414,663

OPERATING LOSS	(110,916)		(6,675)		(392,489)		(27,989)


Interest Expense/(Income), Net	936		(690)		2,015		(2,185)
Other Expense, Net	—		—		2,733		—
LOSS BEFORE INCOME TAXES	(111,852)		(5,985)		(397,237)		(25,804)
Income Tax Benefit	(21,503)		(2,880)		(45,068)		(3,062)
NET LOSS	$	(90,349)	$	(3,105)	$	(352,169)	$	(22,742)





COMPREHENSIVE LOSS	$	(90,349)	$	(3,105)	$	(352,169)	$	(22,742)

EARNINGS PER SHARE:
Basic	$	(1.39)	$	(0.05)	$	(5.46)	$	(0.34)
Diluted	$	(1.39)	$	(0.05)	$	(5.46)	$	(0.34)

WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic	64,868		66,438		64,515		66,845
Diluted	64,868		66,438		64,515		66,845

See Notes to Unaudited Consolidated Financial Statements.

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EXPRESS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Amounts in Thousands) (Unaudited)



	Common Stock									Treasury Stock
	Shares Outstanding	Par Value		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Shares	At Average Cost		Total














BALANCE, February 1, 2020	63,922	$	936	$	215,207	$	533,690	$	—	29,710	$	(343,531)	$	406,302
Net loss	—	—		—		(154,050)		—		—	—		(154,050)
Exercise of stock options and restricted stock	802	—		(1,609)		(7,659)		—		(802)	9,268		—
Share-based compensation	—	—		2,502		—		—		—	—		2,502
Repurchase of common stock	(268)	—		—		—		—		268	(540)		(540)
BALANCE, May 2, 2020	64,456	$	936	$	216,100	$	371,981	$	—	29,176	$	(334,803)	$	254,214
Net loss	—	—		—		(107,770)		—		—	—		(107,770)
Exercise of stock options and restricted stock	386	—		(732)		(3,682)		—		(386)	4,414		—
Share-based compensation	—	—		2,460		—		—		—	—		2,460
Repurchase of common stock	(12)	—		—		—		—		12	(28)		(28)
BALANCE, August 1, 2020	64,830	$	936	$	217,828	$	260,529	$	—	28,802	$	(330,417)	$	148,876
Net loss	—	—		—		(90,349)		—		—	—		(90,349)
Exercise of stock options and restricted stock	109	—		(105)		(1,142)		—		(109)	1,247		—
Share-based compensation	—	—		2,324		—		—		—	—		2,324
Repurchase of common stock	(34)	—		—		—		—		34	(31)		(31)
BALANCE, October 31, 2020	64,905	$	936	$	220,047	$	169,038	$	—	28,727	$	(329,201)	$	60,820


	Common Stock									Treasury Stock
	Shares Outstanding	Par Value		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Shares	At Average Cost		Total














BALANCE, February 2, 2019	67,424	$	936	$	211,981	$	713,864	$	—	26,208	$	(341,603)	$	585,178
Adoption of ASC Topic 842	—	—		—		(5,482)		—		—	—		(5,482)
Net loss	—	—		—		(9,934)		—		—	—		(9,934)
Exercise of stock options and restricted stock	1,024	—		(4,316)		(8,735)		—		(1,024)	13,051		—
Share-based compensation	—	—		2,372		—		—		—	—		2,372
Repurchase of common stock	(1,273)	—		—		—		—		1,273	(6,387)		(6,387)
BALANCE, May 4, 2019	67,175	$	936	$	210,037	$	689,713	$	—	26,457	$	(334,939)	$	565,747
Net loss	—	—		—		(9,703)		—		—	—		(9,703)
Exercise of stock options and restricted stock	93	—		(311)		(867)		—		(93)	1,178		—
Share-based compensation	—	—		2,424		—		—		—	—		2,424
Repurchase of common stock	(1)	—		—		—		—		1	(4)		(4)
BALANCE, August 3, 2019	67,267	$	936	$	212,150	$	679,143	$	—	26,365	$	(333,765)	$	558,464
Net loss	—	—		—		(3,105)		—		—	—		(3,105)
Exercise of stock options and restricted stock	55	—		(169)		(499)		—		(55)	668		—
Share-based compensation	—	—		2,408		—		—		—	—		2,408
Repurchase of common stock	(2,821)	—		—		—		—		2,821	(8,765)		(8,765)
BALANCE, November 2, 2019	64,501	$	936	$	214,389	$	675,539	$	—	29,131	$	(341,862)	$	549,002

See Notes to Unaudited Consolidated Financial Statements.

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EXPRESS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands) (Unaudited)


	Thirty-Nine Weeks Ended
	October 31, 2020		November 2, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(352,169)	$	(22,742)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	55,699		64,121
Loss on disposal of property and equipment	1		1,098
Impairment of property, equipment and lease assets	29,853		2,282
Equity method investment impairment	3,233		500


Share-based compensation	7,286		7,204

Deferred taxes	65,358		212
Landlord allowance amortization	(312)		(1,782)

Other non-cash adjustments	(500)		(500)
Changes in operating assets and liabilities:
Receivables, net	(1,833)		5,169
Income tax receivable	(109,014)		(3,950)
Inventories	(130,340)		(78,165)
Accounts payable, deferred revenue, and accrued expenses	183,129		71,891
Other assets and liabilities	(1,993)		(12,504)
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES	(251,602)		32,834

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(13,550)		(20,503)



NET CASH USED IN INVESTING ACTIVITIES	(13,550)		(20,503)

CASH FLOWS FROM FINANCING ACTIVITIES:

Costs incurred in connection with debt arrangements	(382)		(849)
Proceeds from financing arrangements	167,634		—
Payments on lease financing obligations	—		(81)
Repayments of financing arrangements	(1,293)		—


Repurchase of common stock under share repurchase program	—		(13,603)
Repurchase of common stock for tax withholding obligations	(599)		(1,553)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	165,360		(16,086)



NET DECREASE IN CASH AND CASH EQUIVALENTS	(99,792)		(3,755)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	207,139		171,670
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	107,347	$	167,915

See Notes to Unaudited Consolidated Financial Statements.

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EXPRESS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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NOTE 1 | DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Business Description

Express, Inc., together with its subsidiaries (“Express” or the “Company”), is a modern, versatile, dual gender apparel and accessories brand that helps people get dressed for every day and any occasion. Launched in 1980 with the idea that style, quality and value should all be found in one place, Express has been a brand of the now, offering some of the most important and enduring fashion trends. Express aims to Create Confidence & Inspire Self-Expression through a design & merchandising view that brings forward The Best of Now for Real Life Versatility. The Company operates 592 retail and factory outlet stores in the United States and Puerto Rico, as well as an online destination.

As of October 31, 2020, Express operated 378 primarily mall-based retail stores in the United States and Puerto Rico as well as 214 factory outlet stores. Additionally, as of October 31, 2020, the Company earned revenue from 7 franchise stores in Latin America. These franchise stores are operated by franchisees pursuant to franchise agreements. Under the franchise agreements, the franchisees operate stand-alone Express stores that sell Express-branded apparel and accessories purchased directly from the Company.

Fiscal Year

The Company’s fiscal year ends on the Saturday closest to January 31. Fiscal years are referred to by the calendar year in which the fiscal year commences. References herein to “2020” and “2019” represent the 52-week period ended January 30, 2021 and the 52-week period ended February 1, 2020, respectively. All references herein to “the third quarter of 2020” and “the third quarter of 2019” represent the thirteen weeks ended October 31, 2020 and November 2, 2019, respectively.

Basis of Presentation

The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and the U.S. Securities and Exchange Commission’s Article 10, Regulation S-X and therefore do not include all of the information or footnotes required for complete financial statements. In the opinion of management, the accompanying unaudited Consolidated Financial Statements reflect all adjustments (which are of a normal recurring nature) necessary to state fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for 2020. Therefore, these statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto for the year ended February 1, 2020, included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 17, 2020.

Principles of Consolidation

The unaudited Consolidated Financial Statements include the accounts of Express, Inc. and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Segment Reporting

The Company defines an operating segment on the same basis that it uses to evaluate performance internally. The Company has determined that, together, its Chief Executive Officer and its President and Chief Operating Officer are the Chief Operating Decision Maker, and that there is one operating segment. Therefore, the Company reports results as a single segment, which includes the operation of its Express brick-and-mortar retail and outlet stores, eCommerce operations, and franchise operations.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited Consolidated Financial Statements and the reported amounts of revenue and expense during the reporting period, as well as the related disclosure of contingent assets and liabilities as of the date of the unaudited Consolidated Financial Statements. Actual results may differ from those estimates. The Company revises its estimates and assumptions as new information becomes available.

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Impact of the COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of a novel strain of coronavirus ("COVID-19") a global pandemic and recommended containment and mitigation measures. Since then, extraordinary actions have been taken by international, federal, state, and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19. The pandemic has significantly impacted global economies, resulting in workforce and travel restrictions, supply chain and production disruptions and reduced demand and spending across many industries.

During March 2020, in response to the COVID-19 outbreak and business disruption resulting from quarantines, stay-at-home orders, and similar mandates, Express temporarily closed all its Company stores and offices, and as a result, all store associates and a number of home office employees were furloughed. For the remainder of the home office employees, remote work arrangements were put in place and were designed to allow for continued operation of the business, including financial reporting systems and internal controls. The Company's website, www.express.com, remained open, supported by third-party logistics providers and Company employees working remotely.

During the third quarter of 2020, all of the Company's stores were re-opened. The COVID-19 pandemic remains a rapidly evolving situation and Express continued to be materially impacted in the third quarter, as customer traffic continued to be pressured, especially in the Company's retail stores. The retail environment continues to evolve, and COVID-19 continues to create uncertainty in the retail industry, which could lead results and cash flows to be significantly different than the Company's forecasts.

The Company has considered the impact of COVID-19 on our unaudited Consolidated Financial Statements and expects it to have future impacts, the extent of which is uncertain and largely subject to whether the severity of the pandemic worsens and/or its duration lengthens. These impacts could include but may not be limited to risks and uncertainty in the near to medium term related to federal, state, and local store closure requirements, customer demand, worker availability, the Company's ability to procure inventory, distribution facility closures, shifts in demand between sales channels, and market volatility in supply chain and store rents. Consequently, this may subject the Company to future risk of long-lived asset and lease right of use asset impairments, increased reserves for uncollectible accounts, and adjustments for inventory, including the lower of cost or net realizable value adjustment. The Company writes down inventory, the impact of which is reflected in cost of goods sold, buying and occupancy costs in the unaudited Consolidated Statements of Income and Comprehensive Income, if the cost of specific inventory items on hand exceeds the amount the Company expects to realize from the ultimate sale or disposal of the inventory. These estimates are based on management's judgment regarding future demand and market conditions and analysis of historical experience. The lower of cost or net realizable value adjustment to inventory as of October 31, 2020 and February 1, 2020 was $12.1 million and $10.4 million, respectively.

Going Concern and Management’s Plans

As previously disclosed, the COVID-19 pandemic has and continues to result in significant disruption to the Company’s business. As a result, the Company’s revenues, results of operations and cash flows continue to be materially adversely impacted. For the thirty-nine weeks ended October 31, 2020, the Company reported a net loss of $352.2 million and negative operating cash flows of $251.6 million. In response to the COVID-19 pandemic the Company borrowed $165.0 million under its Revolving Credit Facility. The Revolving Credit Facility contains certain affirmative and negative covenants. Refer to Note 7 in our unaudited Consolidated Financial Statements included elsewhere in this Quarterly Report for further details regarding the Revolving Credit Facility. The Company is currently in compliance with its covenants, however, due to the uncertainty related to the duration of COVID-19, the Company could experience material further decreases to revenues and cash flows and may experience difficulty remaining in compliance with financial covenants under the Credit Facility. When conditions and events, in the aggregate, impact an entity's ability to continue as a going concern, management evaluates the mitigating effect of its plans to determine if it is probable that the plans will be effectively implemented and, when implemented, the plans will mitigate the relevant conditions or events.

The Company’s plans are focused on improving its results and liquidity through cost reductions and the active pursuit of additional financing. In addition, the Company has entered into agreements, or is in discussions with, most of its retail landlords to modify rent payments, receive rent concessions or otherwise reduce operating costs. The Company also has contingency plans in which it would further reduce or defer additional expenses and cash outlays, should operations weaken beyond current forecasts or additional financing is not obtained. The Company believes these plans are probable of being successfully implemented, which will result in adequate cash flows to

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support its ongoing operations and to meet its covenant requirements for one year following the date these financial statements are issued.

The accompanying unaudited Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

NOTE 2 | REVENUE RECOGNITION

The following is information regarding the Company’s major product categories and sales channels:


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
	(in thousands)
Apparel	$	277,818	$	422,468	$	664,822	$	1,219,628
Accessories and other	34,586		48,355		81,854		144,846
Other revenue	9,657		17,660		31,363		47,995
Total net sales	$	322,061	$	488,483	$	778,039	$	1,412,469


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
	(in thousands)
Retail	$	222,093	$	356,758	$	546,375	$	1,022,703
Outlet	90,311		114,065		200,301		341,771
Other revenue	9,657		17,660		31,363		47,995
Total net sales	$	322,061	$	488,483	$	778,039	$	1,412,469

Other revenue consists primarily of revenue earned from our private label credit card agreement, shipping and handling revenue related to eCommerce activity, sell-off revenue related to marked-out-of-stock inventory sales to third parties, revenue from gift card breakage and revenue from franchise agreements.

Revenue related to the Company’s international franchise operations was not material for any period presented and, therefore, is not reported separately from domestic revenue.

Revenue Recognition Policies

Merchandise Sales

The Company recognizes sales for in-store purchases at the point-of-sale. Revenue related to eCommerce transactions is recognized upon shipment based on the fact that control transfers to the customer at that time. The Company has made a policy election to treat shipping and handling as costs to fulfill the contract and as a result any amounts received from customers are included in the transaction price allocated to the performance obligation of providing goods with a corresponding amount accrued within cost of goods sold, buying and occupancy costs in the unaudited Consolidated Statements of Income and Comprehensive Income for amounts paid to applicable carriers. Associate discounts on merchandise purchases are classified as a reduction of net sales. Net sales excludes sales tax collected from customers and remitted to governmental authorities.

Loyalty Program

The Company maintains a customer loyalty program in which customers earn points toward rewards for qualifying purchases and other marketing activities. Upon reaching specified point values, customers are issued a reward, which they may redeem on merchandise purchases at the Company’s stores or on its website. Generally, rewards earned must be redeemed within 60 days from the date of issuance. The Company defers a portion of merchandise sales based on the estimated standalone selling price of the points earned. This deferred revenue is recognized as

EXPRESS, INC. | Q3 2020 Form 10-Q | 12

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certificates that are redeemed or expire. To calculate this deferral, the Company makes assumptions related to card holder redemption rates based on historical experience. The loyalty liability is included in deferred revenue on the unaudited Consolidated Balance Sheets.


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
	(in thousands)
Beginning balance loyalty deferred revenue	$	9,869	$	14,766	$	14,063	$	15,319
Revenue recognized	(41)		(1,313)		(4,235)		(1,866)
Ending balance loyalty deferred revenue	$	9,828	$	13,453	$	9,828	$	13,453

Sales Returns Reserve

The Company reduces net sales and provides a reserve for projected merchandise returns based on prior experience. Merchandise returns are often resalable merchandise and are refunded by issuing the same payment tender as the original purchase. The sales returns reserve was $10.1 million and $9.1 million as of October 31, 2020 and February 1, 2020, respectively, and is included in accrued expenses on the unaudited Consolidated Balance Sheets. The asset related to projected returned merchandise is included in other assets on the unaudited Consolidated Balance Sheets.

Gift Cards

The Company sells gift cards in its stores, on its eCommerce website, and through third parties. These gift cards do not expire or lose value over periods of inactivity. The Company accounts for gift cards by recognizing a liability at the time a gift card is sold. The gift card liability balance was $20.1 million and $24.1 million, as of October 31, 2020 and February 1, 2020, respectively, and is included in deferred revenue on the unaudited Consolidated Balance Sheets. The Company recognizes revenue from gift cards when they are redeemed by the customer. The Company also recognizes income on unredeemed gift cards, referred to as “gift card breakage.” Gift card breakage is recognized proportionately using a time-based attribution method from issuance of the gift card to the time when it can be determined that the likelihood of the gift card being redeemed is remote and that there is no legal obligation to remit unredeemed gift cards to relevant jurisdictions. The gift card breakage rate is based on historical redemption patterns. Gift card breakage is included within the other revenue component of net sales.


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
	(in thousands)
Beginning gift card liability	$	20,865	$	19,966	$	24,142	$	25,133
Issuances	4,642		7,157		13,035		22,826
Redemptions	(4,988)		(7,699)		(15,134)		(26,617)
Gift card breakage	(444)		(623)		(1,968)		(2,541)
Ending gift card liability	$	20,075	$	18,801	$	20,075	$	18,801

Private Label Credit Card

The Company has an agreement with Comenity Bank (the “Bank”) to provide customers with private label credit cards (the “Card Agreement”) which was amended on August 28, 2017 to extend the term of the arrangement through December 31, 2024. Each private label credit card bears the logo of the Express brand and can only be used at the Company’s store locations and eCommerce channel. The Bank is the sole owner of the accounts issued under the private label credit card program and absorbs the losses associated with non-payment by the private label card holders and a portion of any fraudulent usage of the accounts.

Pursuant to the Card Agreement, the Company receives amounts from the Bank during the term based on a percentage of private label credit card sales and is also eligible to receive incentive payments for the achievement of certain performance targets. These funds are recorded within the other revenue component of net sales. The Company also receives reimbursement funds from the Bank for certain expenses the Company incurs. These reimbursement funds are used by the Company to fund marketing and other programs associated with the private

EXPRESS, INC. | Q3 2020 Form 10-Q | 13

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label credit card. The reimbursement funds received related to private label credit cards are recorded within the other revenue component of net sales.

In connection with the Card Agreement, the Bank agreed to pay the Company a $20.0 million refundable payment which the Company recognized upon receipt as deferred revenue within other long-term liabilities in the Consolidated Balance Sheets and began to recognize into income on a straight-line basis commencing January of 2018. As of October 31, 2020, the deferred revenue balance of $12.0 million will be recognized over the remaining term of the amended Card Agreement within the other revenue component of net sales.


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
	(in thousands)
Beginning balance refundable payment liability	$	12,711	$	15,589	$	14,150	$	17,028

Recognized in revenue	(719)		(719)		(2,158)		(2,158)
Ending balance refundable payment liability	$	11,992	$	14,870	$	11,992	$	14,870

NOTE 3 | EARNINGS PER SHARE

The following table provides a reconciliation between basic and diluted weighted-average shares used to calculate basic and diluted earnings per share:


	Thirteen Weeks Ended		Thirty-Nine Weeks Ended
	October 31, 2020	November 2, 2019	October 31, 2020	November 2, 2019
	(in thousands)
Weighted-average shares - basic	64,868	66,438	64,515	66,845
Dilutive effect of stock options and restricted stock units	—	—	—	—
Weighted-average shares - diluted	64,868	66,438	64,515	66,845

Equity awards representing 10.9 million and 10.6 million shares of common stock were excluded from the computation of diluted earnings per share for the thirteen and thirty-nine weeks ended October 31, 2020, respectively, as the inclusion of these awards would have been anti-dilutive. Equity awards representing 8.9 million and 7.2 million shares of common stock were excluded from the computation of diluted earnings per share for the thirteen and thirty-nine weeks ended November 2, 2019, respectively, as the inclusion of these awards would have been anti-dilutive.

Additionally, for the thirteen weeks ended October 31, 2020, approximately 0.2 million shares were excluded from the computation of diluted weighted average shares because the number of shares that will ultimately be issued is contingent on the Company’s performance compared to pre-established performance goals which have not been achieved as of October 31, 2020.

NOTE 4 | FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date.

■Level 1 - Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets.

EXPRESS, INC. | Q3 2020 Form 10-Q | 14

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■Level 2 - Valuation is based upon quoted prices for similar assets and liabilities in active markets or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

■Level 3 - Valuation is based upon other unobservable inputs that are significant to the fair value measurement.

Financial Assets

The following table presents the Company’s financial assets, recorded in cash and cash equivalents on the unaudited Consolidated Balance Sheets, measured at fair value on a recurring basis as of October 31, 2020 and February 1, 2020, aggregated by the level in the fair value hierarchy within which those measurements fall.


	October 31, 2020
	Level 1		Level 2		Level 3
	(in thousands)
Money market funds	$	82,027	$	—	$	—



	February 1, 2020
	Level 1		Level 2		Level 3
	(in thousands)
Money market funds	$	188,182	$	—	$	—

The money market funds are valued using quoted market prices in active markets.

The carrying amounts reflected on the unaudited Consolidated Balance Sheets for the remaining cash and cash equivalents, receivables, prepaid expenses, and payables as of October 31, 2020 and February 1, 2020 approximated their fair values.

Non-Financial Assets

The Company’s non-financial assets, which include fixtures, equipment, improvements, and right of use assets are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur indicating the carrying value of these assets may not be recoverable, an impairment test is required. For stores determined to have a triggering event, a recovery test is performed first comparing the undiscounted cash flows to the net assets of the store. The second step impairment test requires the Company to estimate the fair value of the assets and compare this to the carrying value of the assets. If the fair value of the asset is less than the carrying value, then an impairment charge is recognized, and the non-financial assets are recorded at fair value. The Company estimates the fair value using a discounted cash flow model or other fair value models as appropriate. Factors used in the evaluation include, but are not limited to, management’s plans for future operations, recent operating results, projected cash flows, and overall economic factors, including the current global outbreak of COVID-19. As a result of the COVID-19 pandemic, which included temporary store closures and a related decline in sales beginning in March 2020 and continuing through the third quarter, the Company concluded that a triggering event had occurred. Consequently, the Company performed interim impairment testing. As a result of this testing, during the thirteen and thirty-nine weeks ended October 31, 2020, the Company recognized impairment charges of approximately $8.4 million and $29.9 million, respectively, related to store-level property and equipment and right of use assets. During the thirteen weeks ended November 2, 2019, the Company did not recognize any impairment charges. During the thirty-nine weeks ended November 2, 2019, the Company recognized impairment charges of approximately $2.3 million. Impairment charges are recorded in cost of goods sold, buying and occupancy costs in the unaudited Consolidated Statements of Income and Comprehensive Income.

NOTE 5 | INCOME TAXES

The provision for income taxes is based on a current estimate of the annual effective tax rate, adjusted to reflect the effect of discrete items. The Company’s effective income tax rate may fluctuate from quarter to quarter as a result of a variety of factors, including the estimate of annual pre-tax income, the related changes in the estimate, and the

EXPRESS, INC. | Q3 2020 Form 10-Q | 15

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effect of discrete items. The impact of these items on the effective tax rate will be greater at lower levels of pre-tax earnings.

On March 27, 2020, the Coronavirus Aid Relief and Economic Security (“CARES”) Act was enacted into law. The CARES Act provides several provisions that impact the Company including the establishment of a five-year carryback of net operating losses originating in the tax years 2018, 2019, and 2020, temporarily suspending the 80% limitation on the use of net operating losses, relaxing limitation rules on business interest deductions, and retroactively clarifying that businesses may immediately write-off certain qualified leasehold improvement property dating back to January 1, 2018.

The Company’s effective tax rate was 19.2% and 48.1% for the thirteen weeks ended October 31, 2020 and November 2, 2019, respectively. 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 estimated 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 estimated 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. The effective tax rate for the thirteen weeks ended November 2, 2019 reflects a $1.4 million change in estimate from the second quarter provision due to a change in the previously forecasted annual effective tax rate.

Price	2.74	EPS	-0
Shares	67	P/E	-8
MCap	183	P/FCF	6
Net Debt	-168	EBIT	-27
TEV	15	TEV/EBIT	-1
TTM 2019-11-02, in MM, except price, ratios

10-Q	2020-10-31	Filed 2020-12-09
10-Q	2020-08-01	Filed 2020-09-09
10-Q	2020-05-02	Filed 2020-06-09
10-K	2020-02-01	Filed 2020-03-17
10-Q	2019-11-02	Filed 2019-12-11
10-Q	2019-08-03	Filed 2019-09-10
10-Q	2019-05-04	Filed 2019-06-11
10-K	2019-02-02	Filed 2019-03-19
10-Q	2018-11-03	Filed 2018-12-12
10-Q	2018-08-04	Filed 2018-09-13
10-Q	2018-05-05	Filed 2018-06-13
10-K	2018-02-03	Filed 2018-04-04
10-Q	2017-10-28	Filed 2017-12-06
10-Q	2017-07-29	Filed 2017-09-06
10-Q	2017-04-29	Filed 2017-06-07
10-K	2017-01-28	Filed 2017-03-24
10-Q	2016-10-29	Filed 2016-12-07
10-Q	2016-07-30	Filed 2016-09-01
10-Q	2016-04-30	Filed 2016-06-08
10-K	2016-01-30	Filed 2016-03-30
10-Q	2015-10-31	Filed 2015-12-09
10-Q	2015-08-01	Filed 2015-09-03
10-Q	2015-05-02	Filed 2015-06-09
10-K	2015-01-31	Filed 2015-03-27
10-Q	2014-11-01	Filed 2014-12-10
10-Q	2014-08-02	Filed 2014-09-10
10-Q	2014-05-03	Filed 2014-06-11
10-K	2014-02-01	Filed 2014-04-01
10-Q	2013-08-03	Filed 2013-09-04
10-Q	2013-05-04	Filed 2013-06-06
10-K	2013-02-02	Filed 2013-04-02
10-Q	2012-10-27	Filed 2012-12-05
10-Q	2012-07-28	Filed 2012-08-30
10-Q	2012-04-28	Filed 2012-05-31
10-K	2012-01-28	Filed 2012-03-23
10-Q	2011-10-29	Filed 2011-12-06
10-Q	2011-07-30	Filed 2011-09-02
10-Q	2011-04-30	Filed 2011-06-03
10-K	2011-01-29	Filed 2011-03-22
10-Q	2010-10-30	Filed 2010-12-03
10-Q	2010-07-31	Filed 2010-09-10
10-Q	2010-05-01	Filed 2010-06-16

8-K	2021-02-01	Other Events, Exhibits
8-K	2021-01-13	Enter Agreement, Off-BS Arrangement, Regulation FD, Exhibits
8-K	2020-12-03	Earnings, Regulation FD, Exhibits
8-K	2020-09-29
8-K	2020-08-26
8-K	2020-08-04
8-K	2020-07-10
8-K	2020-06-10
8-K	2020-06-03
8-K	2020-05-04
8-K	2020-04-20
8-K	2020-04-01
8-K	2020-03-27
8-K	2020-03-17
8-K	2020-03-11
8-K	2020-01-22
8-K	2019-12-05
8-K	2019-09-23
8-K	2019-09-06
8-K	2019-09-03
8-K	2019-08-28
8-K	2019-06-12
8-K	2019-05-30
8-K	2019-05-24
8-K	2019-05-21
8-K	2019-03-19
8-K	2019-03-13
8-K	2019-03-04
8-K	2019-02-19
8-K	2019-01-22
8-K	2019-01-15
8-K	2018-11-29
8-K	2018-08-29
8-K	2018-06-13
8-K	2018-05-31
8-K	2018-04-03
8-K	2018-03-14
8-K	2018-01-09

EX-31.1	exhibit311q32020-ceoce.htm
EX-31.2	exhibit312q32020-cfoce.htm
EX-32.1	exhibit321q32020-secti.htm


		Page
Note 1	Description of Business and Basis of Presentation	10
Note 2	Revenue Recognition	12
Note 3	Earnings Per Share	14
Note 4	Fair Value Measurements	14
Note 5	Income Taxes	15
Note 6	Leases	16
Note 7	Debt	17
Note 8	Share-Based Compensation	18
Note 9	Commitments and Contingencies	21
Note 10	Investment in Equity Interests	21
Note 11	Stockholders' Equity	21

EXPR 10Q Quarterly Report

Express Earnings 2020-10-31