Company Quick10K Filing
Price2.74 EPS-0
Shares67 P/E-8
MCap183 P/FCF6
Net Debt-168 EBIT-27
TTM 2019-11-02, in MM, except price, ratios
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 2020-08-26 Earnings, Regulation FD, Exhibits
8-K 2020-08-04 Earnings, Exhibits
8-K 2020-07-10 Regulation FD, Exhibits
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

EXPR 10Q Quarterly Report

Part I - Financial Information
Item 1.Financial Statements.
Note 1 | Description of Business and Basis of Presentation
Note 2 | Revenue Recognition
Note 3 | Earnings per Share
Note 4 | Fair Value Measurements
Note 5 | Income Taxes
Note 6 | Leases
Note 7 | Debt
Note 8 | Share - Based Compensation
Note 9 | Commitments and Contingencies
Note 10 | Investment in Equity Interests
Note 11 | Stockholders' Equity
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 exhibit311q22020-ceoce.htm
EX-31.2 exhibit312q22020-cfoce.htm
EX-32.1 exhibit321q22020-secti.htm

Express Earnings 2020-08-01

Balance SheetIncome StatementCash Flow
Assets, Equity
Rev, G Profit, Net Income
Ops, Inv, Fin

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For the Quarterly Period Ended August 1, 2020
Commission File Number 001-34742
(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
(Address of principal executive offices) (Zip Code)
Telephone: (614474-4001
(Registrant’s telephone number, including area code)

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

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $.01 par valueEXPRThe New York Stock Exchange
Preferred Stock Purchase RightsEXPRThe 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 filerAccelerated filer
Non-accelerated filerSmaller 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 64,837,737 as of August 29, 2020.
EXPRESS, INC. | Q2 2020 Form 10-Q | 1

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EXPRESS, INC. | Q2 2020 Form 10-Q | 2

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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.

EXPRESS, INC. | Q2 2020 Form 10-Q | 3

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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;
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.
EXPRESS, INC. | Q2 2020 Form 10-Q | 4

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(Amounts in Thousands, Except Per Share Amounts) (Unaudited)
 August 1, 2020February 1, 2020
Cash and cash equivalents$192,894 $207,139 
Receivables, net18,806 10,824 
Income tax receivable88,724 3,000 
Inventories232,302 220,303 
Prepaid rent6,829 6,850 
Other26,337 22,573 
Total current assets565,892 470,689 
RIGHT OF USE ASSET, NET902,211 1,010,216 
Less: accumulated depreciation(773,972)(731,309)
Property and equipment, net215,617 248,330 
OTHER ASSETS3,724 6,531 
Total assets$1,687,444 $1,790,739 
Short-term lease liability$207,672 $226,174 
Accounts payable143,491 126,863 
Deferred revenue30,932 38,227 
Accrued expenses145,999 76,211 
Total current liabilities528,094 467,475 
Total liabilities1,538,568 1,384,437 
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 August 1, 2020 and February 1, 2020, respectively, and 64,830 shares and 63,922 shares outstanding at August 1, 2020 and February 1, 2020, respectively
936 936 
Additional paid-in capital217,828 215,207 
Retained earnings260,529 533,690 
Treasury stock – at average cost; 28,802 shares and 29,710 shares at August 1, 2020 and February 1, 2020, respectively
Total stockholders’ equity148,876 406,302 
Total liabilities and stockholders’ equity$1,687,444 $1,790,739 
See Notes to Unaudited Consolidated Financial Statements.
EXPRESS, INC. | Q2 2020 Form 10-Q | 5

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

Thirteen Weeks EndedTwenty-Six Weeks Ended
 August 1, 2020August 3, 2019August 1, 2020August 3, 2019
NET SALES$245,703 $472,715 $455,978 $923,986 
COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS289,760 346,217 546,242 674,985 
Gross (loss)/profit(44,057)126,498 (90,264)249,001 
Selling, general, and administrative expenses92,805 135,723 191,970 271,090 
Other operating (income)/expense, net(568)535 (661)(775)
Total operating expenses92,237 136,258 191,309 270,315 
OPERATING LOSS(136,294)(9,760)(281,573)(21,314)
INTEREST EXPENSE/(INCOME), NET1,023 (783)1,079 (1,495)
LOSS BEFORE INCOME TAXES(137,317)(8,977)(285,385)(19,819)
INCOME TAX (BENEFIT)/EXPENSE(29,547)726 (23,565)(182)
NET LOSS$(107,770)$(9,703)$(261,820)$(19,637)
COMPREHENSIVE LOSS$(107,770)$(9,703)$(261,820)$(19,637)
Basic64,645 67,253 64,338 67,049 
Diluted64,645 67,253 64,338 67,049 
See Notes to Unaudited Consolidated Financial Statements.
EXPRESS, INC. | Q2 2020 Form 10-Q | 6

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(Amounts in Thousands) (Unaudited) 

Common StockTreasury Stock
 Shares OutstandingPar ValueAdditional
Accumulated Other Comprehensive LossSharesAt Average CostTotal
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 stock802  (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, 202064,456 $936 $216,100 $371,981 $ 29,176 $(334,803)$254,214 
Net loss   (107,770)   (107,770)
Exercise of stock options and restricted stock386  (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 

Common StockTreasury Stock
 Shares OutstandingPar ValueAdditional
Accumulated Other Comprehensive LossSharesAt Average CostTotal
BALANCE, February 2, 201967,424 $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 stock1,024  (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, 201967,175 $936 $210,037 $689,713 $ 26,457 $(334,939)$565,747 
Net loss   (9,703)   (9,703)
Exercise of stock options and restricted stock93  (311)(867) (93)1,178  
Share-based compensation  2,424     2,424 
Repurchase of common stock(1)    1 (4)(4)
BALANCE, August 3, 201967,267 $936 $212,150 $679,143 $ 26,365 $(333,765)$558,464 
See Notes to Unaudited Consolidated Financial Statements.

EXPRESS, INC. | Q2 2020 Form 10-Q | 7

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(Amounts in Thousands) (Unaudited)
Twenty-Six Weeks Ended
 August 1, 2020August 3, 2019
Net loss$(261,820)$(19,637)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization37,323 43,243 
Loss on disposal of property and equipment1 860 
Impairment of property, equipment and lease assets21,483 2,281 
Equity method investment impairment3,233 500 
Share-based compensation4,962 4,796 
Deferred taxes63,621 164 
Landlord allowance amortization(208)(1,181)
Other non-cash adjustments(500)(500)
Changes in operating assets and liabilities:
Receivables, net(7,982)4,841 
Income tax receivable(85,724)(1,136)
Accounts payable, deferred revenue, and accrued expenses75,588 (22,655)
Other assets and liabilities(8,361)(8,809)
Net cash (used in) provided by operating activities
Capital expenditures(10,130)(12,145)
Net cash used in investing activities
Costs incurred in connection with debt arrangements (849)
Proceeds from financing arrangements167,548  
Payments on lease financing obligations (54)
Repayments of financing arrangements(712) 
Repurchase of common stock under share repurchase program (4,889)
Repurchase of common stock for tax withholding obligations(568)(1,502)
Net cash provided by (used in) financing activities
166,268 (7,294)
CASH AND CASH EQUIVALENTS, Beginning of period207,139 171,670 
CASH AND CASH EQUIVALENTS, End of period$192,894 $153,959 
See Notes to Unaudited Consolidated Financial Statements.
EXPRESS, INC. | Q2 2020 Form 10-Q | 8

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EXPRESS, INC. | Q2 2020 Form 10-Q | 9

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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 593 retail and factory outlet stores in the United States and Puerto Rico, as well as an online destination.

As of August 1, 2020, Express operated 378 primarily mall-based retail stores in the United States and Puerto Rico as well as 215 factory outlet stores. Additionally, as of August 1, 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 second quarter of 2020” and “the second quarter of 2019” represent the thirteen weeks ended August 1, 2020 and August 3, 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.
EXPRESS, INC. | Q2 2020 Form 10-Q | 10

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Impact of the COVID-19 Pandemic
In March 2020, the World Health Organization declared the outbreak of the 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. Express continued to be materially impacted by COVID-19 in the second quarter, as over 30% of Express stores were closed for more than half of the second quarter, and some stores in California and New York remained closed as of August 26, 2020. These continued closures and the potential that additional stores could be closed for a significant amount of time in the future could lead results and cash flows to be significantly different than the Company's forecasts.

The Company's website,, remained open, supported by third-party logistics providers, and Company employees working remotely.

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 August 1, 2020 and February 1, 2020 was $20.2 million and $10.4 million, respectively.

The following is information regarding the Company’s major product categories and sales channels:
Thirteen Weeks EndedTwenty-Six Weeks Ended
 August 1, 2020August 3, 2019August 1, 2020August 3, 2019
(in thousands)
Apparel$207,421 $408,305 $387,004 $797,195 
Accessories and other25,888 50,596 47,268 96,456 
Other revenue12,394 13,814 21,706 30,335 
Total net sales$245,703 $472,715 $455,978 $923,986 

EXPRESS, INC. | Q2 2020 Form 10-Q | 11

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Thirteen Weeks EndedTwenty-Six Weeks Ended
 August 1, 2020August 3, 2019August 1, 2020August 3, 2019
(in thousands)
Retail$164,745 $337,606 $324,282 $665,945 
Outlet68,564 121,295 109,990 227,706 
Other revenue12,394 13,814 21,706 30,335 
Total net sales$245,703 $472,715 $455,978 $923,986 
Other revenue consists primarily of revenue earned from our private label credit card agreement, shipping and handling revenue related to eCommerce activity, revenue from gift card breakage, sell-off revenue related to marked-out-of-stock inventory sales to third parties, and revenue from franchise agreements.

Revenue related to the Company’s international franchise operations was not material for any period presented and, therefore, are 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 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 EndedTwenty-Six Weeks Ended
 August 1, 2020August 3, 2019August 1, 2020August 3, 2019
(in thousands)
Beginning balance loyalty deferred revenue$9,585 $14,716 $14,063 $15,319 
Reduction in revenue/(revenue recognized)284 50 (4,194)(553)
Ending balance loyalty deferred revenue$9,869 $14,766 $9,869 $14,766 
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 $7.8 million and $9.1 million as of August 1, 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.
EXPRESS, INC. | Q2 2020 Form 10-Q | 12

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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 $20.9 million and $24.1 million, as of August 1, 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 in net sales in the unaudited Consolidated Statements of Income and Comprehensive Income.
Thirteen Weeks EndedTwenty-Six Weeks Ended
 August 1, 2020August 3, 2019August 1, 2020August 3, 2019
(in thousands)
Beginning gift card liability$21,728 $21,576 $24,142 $25,133 
Issuances4,353 7,956