falsedesktopEXPR2020-10-31000148351020000106{"tbl_sim": "https://q10k.com/tbl-sim", "search": "https://q10k.com/search"}{"q10k_tbl_0": "Large accelerated filer\t☐\tAccelerated filer\t☒\nNon-accelerated filer\t☐\tSmaller reporting company\t☐\n\t\tEmerging growth company\t☐\n", "q10k_tbl_1": "FORWARD-LOOKING STATEMENTS\t\t\t3\nPART I\t\tFINANCIAL INFORMATION\t5\n\tItem 1.\tFinancial Statements (Unaudited)\t5\n\t\tConsolidated Balance Sheets\t5\n\t\tConsolidated Statements of Income and Comprehensive Income\t6\n\t\tConsolidated Statements of Changes in Stockholders' Equity\t7\n\t\tConsolidated Statements of Cash Flows\t8\n\t\tNotes to Unaudited Consolidated Financial Statements\t9\n\tItem 2.\tManagement's Discussion and Analysis of Financial Condition and Results of Operations\t23\n\tItem 3.\tQuantitative and Qualitative Disclosures About Market Risk\t38\n\tItem 4.\tControls and Procedures\t38\nPART II\t\tOTHER INFORMATION\t39\n\tItem 1.\tLegal Proceedings\t39\n\tItem 1A.\tRisk Factors\t39\n\tItem 2.\tUnregistered Sales of Equity Securities and Use of Proceeds\t41\n\tItem 3.\tDefaults Upon Senior Securities\t41\n\tItem 4.\tMine Safety Disclosures\t41\n\tItem 5.\tOther Information\t41\n\tItem 6.\tExhibits\t42\nSIGNATURES\t\t\t43\n", "q10k_tbl_2": "\tOctober 31 2020\tFebruary 1 2020\nASSETS\t\t\nCurrent Assets:\t\t\nCash and cash equivalents\t107347\t207139\nReceivables net\t12657\t10824\nIncome tax receivable\t112014\t3000\nInventories\t350643\t220303\nPrepaid rent\t6683\t6850\nOther\t24397\t22573\nTotal current assets\t613741\t470689\nRight of Use Asset Net\t855116\t1010216\nProperty and Equipment\t990300\t979639\nLess: accumulated depreciation\t(791036)\t(731309)\nProperty and equipment net\t199264\t248330\nDeferred Tax Assets\t0\t54973\nOther Assets\t3950\t6531\nTOTAL ASSETS\t1672071\t1790739\nLIABILITIES AND STOCKHOLDERS' EQUITY\t\t\nCurrent Liabilities:\t\t\nShort-term lease liability\t208375\t226174\nAccounts payable\t239624\t126863\nDeferred revenue\t30005\t38227\nAccrued expenses\t158597\t76211\nTotal current liabilities\t636601\t467475\nLong-Term Lease Liability\t776838\t897304\nLong-Term Debt\t165000\t0\nOther Long-Term Liabilities\t32812\t19658\nTotal Liabilities\t1611251\t1384437\nCommitments and Contingencies (Note 9)\t\t\nStockholders' Equity:\t\t\nPreferred stock - $0.01 par value; 10000 shares authorized; no shares issued or outstanding\t0\t0\nCommon stock - $0.01 par value; 500000 shares authorized; 93632 shares and 93632 shares issued at October 31 2020 and February 1 2020 respectively and 64905 shares and 63922 shares outstanding at October 31 2020 and February 1 2020 respectively\t936\t936\nAdditional paid-in capital\t220047\t215207\nRetained earnings\t169038\t533690\nTreasury stock - at average cost; 28727 shares and 29710 shares at October 31 2020 and February 1 2020 respectively\t(329201)\t(343531)\nTotal stockholders' equity\t60820\t406302\nTOTAL LIABILITIES AND STOCKHOLDERS' EQUITY\t1672071\t1790739\n", "q10k_tbl_3": "\tThirteen Weeks Ended\t\tThirty-Nine Weeks Ended\t\n\tOctober 31 2020\tNovember 2 2019\tOctober 31 2020\tNovember 2 2019\nNet Sales\t322061\t488483\t778039\t1412469\nCost of Goods Sold Buying and Occupancy Costs\t308115\t350810\t854357\t1025795\nGROSS PROFIT/(LOSS)\t13946\t137673\t(76318)\t386674\nOperating Expenses:\t\t\t\t\nSelling general and administrative expenses\t124863\t144301\t316833\t415391\nOther operating (income)/expense net\t(1)\t47\t(662)\t(728)\nTOTAL OPERATING EXPENSES\t124862\t144348\t316171\t414663\nOPERATING LOSS\t(110916)\t(6675)\t(392489)\t(27989)\nInterest Expense/(Income) Net\t936\t(690)\t2015\t(2185)\nOther Expense Net\t0\t0\t2733\t0\nLOSS BEFORE INCOME TAXES\t(111852)\t(5985)\t(397237)\t(25804)\nIncome Tax Benefit\t(21503)\t(2880)\t(45068)\t(3062)\nNET LOSS\t(90349)\t(3105)\t(352169)\t(22742)\nCOMPREHENSIVE LOSS\t(90349)\t(3105)\t(352169)\t(22742)\nEARNINGS PER SHARE:\t\t\t\t\nBasic\t(1.39)\t(0.05)\t(5.46)\t(0.34)\nDiluted\t(1.39)\t(0.05)\t(5.46)\t(0.34)\nWEIGHTED AVERAGE SHARES OUTSTANDING:\t\t\t\t\nBasic\t64868\t66438\t64515\t66845\nDiluted\t64868\t66438\t64515\t66845\n", "q10k_tbl_4": "\tCommon Stock\t\t\t\t\tTreasury Stock\t\t\n\tShares Outstanding\tPar Value\tAdditional Paid-in Capital\tRetained Earnings\tAccumulated Other Comprehensive Loss\tShares\tAt Average Cost\tTotal\nBALANCE February 1 2020\t63922\t936\t215207\t533690\t0\t29710\t(343531)\t406302\nNet loss\t0\t0\t0\t(154050)\t0\t0\t0\t(154050)\nExercise of stock options and restricted stock\t802\t0\t(1609)\t(7659)\t0\t(802)\t9268\t0\nShare-based compensation\t0\t0\t2502\t0\t0\t0\t0\t2502\nRepurchase of common stock\t(268)\t0\t0\t0\t0\t268\t(540)\t(540)\nBALANCE May 2 2020\t64456\t936\t216100\t371981\t0\t29176\t(334803)\t254214\nNet loss\t0\t0\t0\t(107770)\t0\t0\t0\t(107770)\nExercise of stock options and restricted stock\t386\t0\t(732)\t(3682)\t0\t(386)\t4414\t0\nShare-based compensation\t0\t0\t2460\t0\t0\t0\t0\t2460\nRepurchase of common stock\t(12)\t0\t0\t0\t0\t12\t(28)\t(28)\nBALANCE August 1 2020\t64830\t936\t217828\t260529\t0\t28802\t(330417)\t148876\nNet loss\t0\t0\t0\t(90349)\t0\t0\t0\t(90349)\nExercise of stock options and restricted stock\t109\t0\t(105)\t(1142)\t0\t(109)\t1247\t0\nShare-based compensation\t0\t0\t2324\t0\t0\t0\t0\t2324\nRepurchase of common stock\t(34)\t0\t0\t0\t0\t34\t(31)\t(31)\nBALANCE October 31 2020\t64905\t936\t220047\t169038\t0\t28727\t(329201)\t60820\n", "q10k_tbl_5": "\tCommon Stock\t\t\t\t\tTreasury Stock\t\t\n\tShares Outstanding\tPar Value\tAdditional Paid-in Capital\tRetained Earnings\tAccumulated Other Comprehensive Loss\tShares\tAt Average Cost\tTotal\nBALANCE February 2 2019\t67424\t936\t211981\t713864\t0\t26208\t(341603)\t585178\nAdoption of ASC Topic 842\t0\t0\t0\t(5482)\t0\t0\t0\t(5482)\nNet loss\t0\t0\t0\t(9934)\t0\t0\t0\t(9934)\nExercise of stock options and restricted stock\t1024\t0\t(4316)\t(8735)\t0\t(1024)\t13051\t0\nShare-based compensation\t0\t0\t2372\t0\t0\t0\t0\t2372\nRepurchase of common stock\t(1273)\t0\t0\t0\t0\t1273\t(6387)\t(6387)\nBALANCE May 4 2019\t67175\t936\t210037\t689713\t0\t26457\t(334939)\t565747\nNet loss\t0\t0\t0\t(9703)\t0\t0\t0\t(9703)\nExercise of stock options and restricted stock\t93\t0\t(311)\t(867)\t0\t(93)\t1178\t0\nShare-based compensation\t0\t0\t2424\t0\t0\t0\t0\t2424\nRepurchase of common stock\t(1)\t0\t0\t0\t0\t1\t(4)\t(4)\nBALANCE August 3 2019\t67267\t936\t212150\t679143\t0\t26365\t(333765)\t558464\nNet loss\t0\t0\t0\t(3105)\t0\t0\t0\t(3105)\nExercise of stock options and restricted stock\t55\t0\t(169)\t(499)\t0\t(55)\t668\t0\nShare-based compensation\t0\t0\t2408\t0\t0\t0\t0\t2408\nRepurchase of common stock\t(2821)\t0\t0\t0\t0\t2821\t(8765)\t(8765)\nBALANCE November 2 2019\t64501\t936\t214389\t675539\t0\t29131\t(341862)\t549002\n", "q10k_tbl_6": "\tThirty-Nine Weeks Ended\t\n\tOctober 31 2020\tNovember 2 2019\nCASH FLOWS FROM OPERATING ACTIVITIES:\t\t\nNet loss\t(352169)\t(22742)\nAdjustments to reconcile net loss to net cash (used in) provided by operating activities:\t\t\nDepreciation and amortization\t55699\t64121\nLoss on disposal of property and equipment\t1\t1098\nImpairment of property equipment and lease assets\t29853\t2282\nEquity method investment impairment\t3233\t500\nShare-based compensation\t7286\t7204\nDeferred taxes\t65358\t212\nLandlord allowance amortization\t(312)\t(1782)\nOther non-cash adjustments\t(500)\t(500)\nChanges in operating assets and liabilities:\t\t\nReceivables net\t(1833)\t5169\nIncome tax receivable\t(109014)\t(3950)\nInventories\t(130340)\t(78165)\nAccounts payable deferred revenue and accrued expenses\t183129\t71891\nOther assets and liabilities\t(1993)\t(12504)\nNET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES\t(251602)\t32834\nCASH FLOWS FROM INVESTING ACTIVITIES:\t\t\nCapital expenditures\t(13550)\t(20503)\nNET CASH USED IN INVESTING ACTIVITIES\t(13550)\t(20503)\nCASH FLOWS FROM FINANCING ACTIVITIES:\t\t\nCosts incurred in connection with debt arrangements\t(382)\t(849)\nProceeds from financing arrangements\t167634\t0\nPayments on lease financing obligations\t0\t(81)\nRepayments of financing arrangements\t(1293)\t0\nRepurchase of common stock under share repurchase program\t0\t(13603)\nRepurchase of common stock for tax withholding obligations\t(599)\t(1553)\nNET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES\t165360\t(16086)\nNET DECREASE IN CASH AND CASH EQUIVALENTS\t(99792)\t(3755)\nCASH AND CASH EQUIVALENTS BEGINNING OF PERIOD\t207139\t171670\nCASH AND CASH EQUIVALENTS END OF PERIOD\t107347\t167915\n", "q10k_tbl_7": "\t\tPage\nNote 1\tDescription of Business and Basis of Presentation\t10\nNote 2\tRevenue Recognition\t12\nNote 3\tEarnings Per Share\t14\nNote 4\tFair Value Measurements\t14\nNote 5\tIncome Taxes\t15\nNote 6\tLeases\t16\nNote 7\tDebt\t17\nNote 8\tShare-Based Compensation\t18\nNote 9\tCommitments and Contingencies\t21\nNote 10\tInvestment in Equity Interests\t21\nNote 11\tStockholders' Equity\t21\n", "q10k_tbl_8": "\tThirteen Weeks Ended\t\tThirty-Nine Weeks Ended\t\n\tOctober 31 2020\tNovember 2 2019\tOctober 31 2020\tNovember 2 2019\n\t(in thousands)\t\t\t\nApparel\t277818\t422468\t664822\t1219628\nAccessories and other\t34586\t48355\t81854\t144846\nOther revenue\t9657\t17660\t31363\t47995\nTotal net sales\t322061\t488483\t778039\t1412469\n", "q10k_tbl_9": "\tThirteen Weeks Ended\t\tThirty-Nine Weeks Ended\t\n\tOctober 31 2020\tNovember 2 2019\tOctober 31 2020\tNovember 2 2019\n\t(in thousands)\t\t\t\nRetail\t222093\t356758\t546375\t1022703\nOutlet\t90311\t114065\t200301\t341771\nOther revenue\t9657\t17660\t31363\t47995\nTotal net sales\t322061\t488483\t778039\t1412469\n", "q10k_tbl_10": "\tThirteen Weeks Ended\t\tThirty-Nine Weeks Ended\t\n\tOctober 31 2020\tNovember 2 2019\tOctober 31 2020\tNovember 2 2019\n\t(in thousands)\t\t\t\nBeginning balance loyalty deferred revenue\t9869\t14766\t14063\t15319\nRevenue recognized\t(41)\t(1313)\t(4235)\t(1866)\nEnding balance loyalty deferred revenue\t9828\t13453\t9828\t13453\n", "q10k_tbl_11": "\tThirteen Weeks Ended\t\tThirty-Nine Weeks Ended\t\n\tOctober 31 2020\tNovember 2 2019\tOctober 31 2020\tNovember 2 2019\n\t(in thousands)\t\t\t\nBeginning gift card liability\t20865\t19966\t24142\t25133\nIssuances\t4642\t7157\t13035\t22826\nRedemptions\t(4988)\t(7699)\t(15134)\t(26617)\nGift card breakage\t(444)\t(623)\t(1968)\t(2541)\nEnding gift card liability\t20075\t18801\t20075\t18801\n", "q10k_tbl_12": "\tThirteen Weeks Ended\t\tThirty-Nine Weeks Ended\t\n\tOctober 31 2020\tNovember 2 2019\tOctober 31 2020\tNovember 2 2019\n\t(in thousands)\t\t\t\nBeginning balance refundable payment liability\t12711\t15589\t14150\t17028\nRecognized in revenue\t(719)\t(719)\t(2158)\t(2158)\nEnding balance refundable payment liability\t11992\t14870\t11992\t14870\n", "q10k_tbl_13": "\tThirteen Weeks Ended\t\tThirty-Nine Weeks Ended\t\n\tOctober 31 2020\tNovember 2 2019\tOctober 31 2020\tNovember 2 2019\n\t(in thousands)\t\t\t\nWeighted-average shares - basic\t64868\t66438\t64515\t66845\nDilutive effect of stock options and restricted stock units\t0\t0\t0\t0\nWeighted-average shares - diluted\t64868\t66438\t64515\t66845\n", "q10k_tbl_14": "\tOctober 31 2020\t\t\n\tLevel 1\tLevel 2\tLevel 3\n\t(in thousands)\t\t\nMoney market funds\t82027\t0\t0\n\tFebruary 1 2020\t\t\n\tLevel 1\tLevel 2\tLevel 3\n\t(in thousands)\t\t\nMoney market funds\t188182\t0\t0\n", "q10k_tbl_15": "\tThirty-Nine Weeks Ended\t\n\tOctober 31 2020\tNovember 2 2019\n\t(in thousands)\t\nCash paid for amounts included in the measurement of lease liabilities:\t\t\nOperating cash flows for operating leases\t128563\t214609\nRight-of-use assets obtained in exchange for operating lease liabilities\t36201\t11491\n", "q10k_tbl_16": "\tThirteen Weeks Ended\t\tThirty-Nine Weeks Ended\t\n\tOctober 31 2020\tNovember 2 2019\tOctober 31 2020\tNovember 2 2019\n\t(in thousands)\t\t\t\nRestricted stock units\t2022\t2088\t6349\t6417\nStock options\t302\t304\t937\t468\nPerformance-based restricted stock units\t0\t16\t0\t319\nTotal share-based compensation\t2324\t2408\t7286\t7204\n", "q10k_tbl_17": "\tNumber of Shares\tGrant Date Weighted Average Fair Value Per Share\n\t(in thousands except per share amounts)\t\nUnvested - February 1 2020\t4260\t4.78\nGranted\t5122\t1.74\nVested\t(1334)\t5.32\nForfeited\t(678)\t3.64\nUnvested - October 31 2020\t7370\t2.67\n", "q10k_tbl_18": "\tNumber of Shares\tGrant Date Weighted Average Exercise Price Per Share\tWeighted-Average Remaining Contractual Life (in years)\tAggregate Intrinsic Value\n\t(in thousands except per share amounts and years)\t\t\t\nOutstanding - February 1 2020\t3650\t7.67\t\t\nGranted\t0\t0\t\t\nExercised\t0\t0\t\t\nForfeited or expired\t(307)\t18.21\t\t\nOutstanding - October 31 2020\t3343\t6.71\t7.2\t0\nExpected to vest at October 31 2020\t2028\t2.70\t8.7\t0\nExercisable at October 31 2020\t1270\t13.25\t4.8\t0\n", "q10k_tbl_19": "\tPage\nOverview\t23\nCOVID-19 Pandemic\t23\nFinancial Details\t25\nBusiness Outlook\t25\nHow We Assess the Performance of Our Business\t27\nResults of Operations\t30\nLiquidity and Capital Resources\t36\nContractual Obligations\t38\nCritical Accounting Policies\t38\n", "q10k_tbl_20": "■Net sales decreased 34% to $322.1 million\n■Comparable sales decreased 30%\n■Comparable retail sales (includes both retail stores and eCommerce sales) decreased 33%\n■Comparable outlet sales decreased 20%\n■Gross margin percentage decreased 2390 basis points to 4.3%\n■Operating loss increased $104.2 million to a loss of $110.9 million\n■Net loss increased $87.2 million to a loss of $90.3 million\n■Diluted loss per share increased $1.34 to a loss of $1.39\n", "q10k_tbl_21": "Financial Measures\tDescription\tDiscussion\nComparable Sales\tComparable sales is a measure of the amount of sales generated in a period relative to the amount of sales generated in the comparable prior year period. Comparable sales for the third quarter of 2020 was calculated using the 13-week period ended October 31 2020 as compared to the 13-week period ended November 2 2019. Comparable retail sales includes: -Sales from retail stores that were open 12 months or more as of the end of the reporting period -eCommerce shipped sales Comparable outlet sales includes: -Sales from outlet stores that were open 12 months or more as of the end of the reporting period including conversions Comparable sales excludes: -Sales from stores where the square footage has changed by more than 20% due to remodel or relocation activity -Sales from stores in a phased remodel where a portion of the store is under construction and therefore not productive selling space -Sales from stores where the store cannot open due to weather damage or other catastrophes including pandemics\tOur business and our comparable sales are subject at certain times to calendar shifts which may occur during key selling periods close to holidays such as Easter Thanksgiving and Christmas and regional fluctuations for events such as sales tax holidays. We believe comparable sales provides a useful measure for investors by removing the impact of new stores and closed stores. Management considers comparable sales a useful measure in evaluating continuing store performance.\neCommerce Demand\teCommerce demand is defined as gross orders for Express and/or third party merchandise that originate through our eCommerce platform including the website app and buy online pick-up in store.\tWe believe eCommerce demand is a useful measure for investors and management as it provides visibility for orders placed but not yet shipped.\nTransactions\tTransactions are defined as the number of units sold as compared to the dollar amount of sales.\tWe believe this metric is useful as it removes the impact of promotions and provides a better indicator of the acceptance of our product.\n", "q10k_tbl_22": "\tThirteen Weeks Ended\t\n\tOctober 31 2020\tNovember 2 2019\nNet sales (in thousands)\t322061\t488483\nComparable retail sales\t(33)%\t(5)%\nComparable outlet sales\t(20)%\t(5)%\nTotal comparable sales percentage change\t(30)%\t(5)%\nGross square footage at end of period (in thousands)\t5031\t5319\nNumber of:\t\t\nStores open at beginning of period\t593\t626\nNew retail stores\t1\t0\nNew outlet stores\t0\t6\nRetail stores converted to outlets\t0\t(3)\nClosed stores\t(2)\t(3)\nStores open at end of period\t592\t626\n", "q10k_tbl_23": "\tThirteen Weeks Ended\t\n\tOctober 31 2020\tNovember 2 2019\n\t(in thousands except percentages)\t\nCost of goods sold buying and occupancy costs\t308115\t350810\nGross profit\t13946\t137673\nGross margin percentage\t4.3%\t28.2%\n", "q10k_tbl_24": "\tThirteen Weeks Ended\t\n\tOctober 31 2020\tNovember 2 2019\n\t(in thousands except percentages)\t\nSelling general and administrative expenses\t124863\t144301\nSelling general and administrative expenses as a percentage of net sales\t38.8%\t29.5%\n", "q10k_tbl_25": "\tThirteen Weeks Ended\t\n\tOctober 31 2020\tNovember 2 2019\n\t(in thousands)\t\nIncome tax benefit\t(21503)\t(2880)\n", "q10k_tbl_26": "\tThirty-Nine Weeks Ended\t\n\tOctober 31 2020\tNovember 2 2019\nNet sales (in thousands)\t778039\t1412469\nComparable retail sales\t(30)%\t(7)%\nComparable outlet sales\t(17)%\t(3)%\nTotal comparable sales percentage change\t(27)%\t(6)%\nGross square footage at end of period (in thousands)\t5031\t5319\nNumber of:\t\t\nStores open at beginning of period\t595\t631\nNew retail stores\t1\t0\nNew outlet stores\t1\t31\nRetail stores converted to outlets\t0\t(27)\nClosed stores\t(5)\t(9)\nStores open at end of period\t592\t626\n", "q10k_tbl_27": "\tThirty-Nine Weeks Ended\t\n\tOctober 31 2020\tNovember 2 2019\n\t(in thousands except percentages)\t\nCost of goods sold buying and occupancy costs\t854357\t1025795\nGross (loss)/profit\t(76318)\t386674\nGross margin percentage\t(9.8)%\t27.4%\n", "q10k_tbl_28": "\tThirty-Nine Weeks Ended\t\n\tOctober 31 2020\tNovember 2 2019\n\t(in thousands except percentages)\t\nSelling general and administrative expenses\t316833\t415391\nSelling general and administrative expenses as a percentage of net sales\t40.7%\t29.4%\n", "q10k_tbl_29": "\tThirty-Nine Weeks Ended\t\n\tOctober 31 2020\tNovember 2 2019\n\t(in thousands)\t\nIncome tax benefit\t(45068)\t(3062)\n", "q10k_tbl_30": "\tThirteen Weeks Ended\t\n\tOctober 31 2020\tNovember 2 2019\t\t\t\t\t\t\n\t(in thousands except per share amounts)\t\nOperating loss\t(110916)\t(6675)\t\t\t\t\t\t\nAdjusted operating loss (Non-GAAP)\t(102546)\t(4959)\t\t\t\t\t\t\nNet loss\t(90349)\t(3105)\t\t\t\t\t\t\nAdjusted net loss (Non-GAAP)\t(76192)\t(1790)\t\t\t\t\t\t\nDiluted earnings per share\t(1.39)\t(0.05)\t\t\t\t\t\t\nAdjusted diluted earnings per share (Non-GAAP)\t(1.17)\t(0.03)\t\t\t\t\t\t\n", "q10k_tbl_31": "\tThirty-Nine Weeks Ended\t\n\tOctober 31 2020\tNovember 2 2019\t\t\t\t\t\t\n\t(in thousands except per share amounts)\t\nOperating loss\t(392489)\t(27989)\t\t\t\t\t\t\nAdjusted operating loss (Non-GAAP)\t(362636)\t(23991)\t\t\t\t\t\t\nNet loss\t(352169)\t(22742)\t\t\t\t\t\t\nAdjusted net loss (Non-GAAP)\t(271251)\t(18916)\t\t\t\t\t\t\nDiluted earnings per share\t(5.46)\t(0.34)\t\t\t\t\t\t\nAdjusted diluted earnings per share (Non-GAAP)\t(4.20)\t(0.28)\t\t\t\t\t\t\n", "q10k_tbl_32": "\tThirteen Weeks Ended October 31 2020\t\t\t\t\n(in thousands except per share amounts)\tOperating Loss\tIncome Tax Impact\tNet Loss\tDiluted Earnings per Share\tWeighted Average Diluted Shares Outstanding\nReported GAAP Measure\t(110916)\t\t(90349)\t(1.39)\t64868\nImpairment of property equipment and lease assets\t8370\t(2215)\t6155\t0.09\t\nValuation allowance on deferred taxes (a)\t0\t15998\t15998\t0.25\t\nTax impact of the CARES Act (b)\t0\t(7996)\t(7996)\t(0.12)\t\nAdjusted Non-GAAP Measure\t(102546)\t\t(76192)\t(1.17)\t\n", "q10k_tbl_33": "\tThirteen Weeks Ended November 2 2019\t\t\t\t\n(in thousands except per share amounts)\tOperating Loss\tIncome Tax Impact\tNet Loss\tDiluted Earnings per Share\tWeighted Average Diluted Shares Outstanding\nReported GAAP Measure\t(6675)\t\t(3105)\t(0.05)\t66438\nImpact of executive departures\t1716\t(401)\t1315\t0.02\t\nAdjusted Non-GAAP Measure\t(4959)\t\t(1790)\t(0.03)\t\n", "q10k_tbl_34": "\tThirty-Nine Weeks Ended October 31 2020\t\t\t\t\n(in thousands except per share amounts)\tOperating Loss\tIncome Tax Impact\tNet Loss\tDiluted Earnings per Share\tWeighted Average Diluted Shares Outstanding\nReported GAAP Measure\t(392489)\t\t(352169)\t(5.46)\t64515\nImpairment of property equipment and lease assets\t29853\t(7901)\t21952\t0.34\t\nEquity method investment impairment (a)\t0\t(642)\t2091\t0.03\t\nValuation allowance on deferred taxes (b)\t0\t93317\t93317\t1.45\t\nTax impact of the CARES Act (c)\t0\t(36553)\t(36553)\t(0.57)\t\nTax impact of executive departures (d)\t0\t111\t111\t0\t\nAdjusted Non-GAAP Measure\t(362636)\t\t(271251)\t(4.20)\t\n", "q10k_tbl_35": "\tThirty-Nine Weeks Ended November 2 2019\t\t\t\t\t\n(in thousands except per share amounts)\tOperating Loss\tIncome Tax Impact\t\tNet Loss\tDiluted Earnings per Share\tWeighted Average Diluted Shares Outstanding\nReported GAAP Measure\t(27989)\t\t\t(22742)\t(0.34)\t66845\nImpairment of property equipment and lease assets\t2282\t(593)\t\t1689\t0.03\t\nImpact of CEO departure\t0\t822\t(a)\t822\t0.01\t\nImpact of executive departures\t1716\t(401)\t\t1315\t0.02\t\nAdjusted Non-GAAP Measure\t(23991)\t\t\t(18916)\t(0.28)\t\n", "q10k_tbl_36": "\tThirty-Nine Weeks Ended\t\n\tOctober 31 2020\tNovember 2 2019\n\t(in thousands)\t\n(Used in) provided by operating activities\t(251602)\t32834\nUsed in investing activities\t(13550)\t(20503)\nProvided by (used in) financing activities\t165360\t(16086)\nDecrease in cash and cash equivalents\t(99792)\t(3755)\nCash and cash equivalents at end of period\t107347\t167915\n", "q10k_tbl_37": "Month\tTotal Number of Shares Purchased(1)\tAverage Price Paid per Share\tTotal Number of Shares Purchased as Part of Publicly Announced Plans or Programs\tApproximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs(2)\n\t(in thousands except per share amounts)\t\t\t\nAugust 2 2020 - August 29 2020\t4\t1.24\t0\t34215\nAugust 30 2020 - October 3 2020\t27\t0.95\t0\t34215\nOctober 4 2020 - October 31 2020\t3\t0.75\t0\t34215\nTotal\t34\t\t0\t\n", "q10k_tbl_38": "Exhibit Number\tExhibit Description\n31.1*\tCertification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.\n31.2*\tCertification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.\n32.1*\tCertification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.\n101.INS*\tInline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).\n101.SCH*\tInline XBRL Taxonomy Extension Schema Document.\n101.CAL*\tInline XBRL Taxonomy Extension Calculation Linkbase Document.\n101.DEF*\tInline XBRL Taxonomy Extension Definition Linkbase Document.\n101.LAB*\tInline XBRL Taxonomy Extension Label Linkbase Document.\n101.PRE*\tInline XBRL Taxonomy Extension Presentation Linkbase Document.\n104*\tCover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).\n* Filed herewith.\t\n"}{"bs": "q10k_tbl_2", "is": "q10k_tbl_3", "cf": "q10k_tbl_6"}None
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended October 31, 2020
OR
☐
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.
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.
•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.
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.
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.
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
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
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
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.
■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
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.