Express Earnings 2020-05-02

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

expr-20200502

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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 May 2, 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 64,459,170 as of May 30, 2020.

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EXPRESS, INC.

INDEX TO FORM 10-Q

FORWARD-LOOKING STATEMENTS

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements (U naudited)

Consolidated Balance Sheets

Consolidated Statements of Income and Comprehensive Income

Consolidated Statements of Changes in Stockholders' Equity

Consolidated Statements of Cash Flows

Notes to Unaudited Consolidated Financial Statements

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

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

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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 e-commerce;

•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;

•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 on Form 10-Q 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)


	May 2, 2020		February 1, 2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	236,185	$	207,139
Receivables, net	12,897		10,824
Inventories	268,787		220,303
Prepaid rent	330		6,850
Other	35,881		25,573
Total current assets	554,080		470,689



RIGHT OF USE ASSET, NET	963,142		1,010,216

PROPERTY AND EQUIPMENT	985,091		979,639
Less: accumulated depreciation	(754,414)		(731,309)
Property and equipment, net	230,677		248,330


DEFERRED TAX ASSETS	—		54,973
OTHER ASSETS	51,285		6,531
Total assets	$	1,799,184	$	1,790,739

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term lease liability	$	225,383	$	226,174
Accounts payable	123,429		126,863
Deferred revenue	31,331		38,227

Accrued expenses	91,797		76,211
Total current liabilities	471,940		467,475

LONG-TERM LEASE LIABILITY	879,983		897,304
LONG-TERM DEBT	165,000		—
DEFERRED LEASE CREDITS	1,731		1,835
OTHER LONG-TERM LIABILITIES	26,316		17,823
Total liabilities	1,544,970		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 May 2, 2020 and February 1, 2020, respectively, and 64,456 shares and 63,922 shares outstanding at May 2, 2020 and February 1, 2020, respectively	936		936
Additional paid-in capital	216,100		215,207

Retained earnings	371,981		533,690
Treasury stock – at average cost; 29,176 shares and 29,710 shares at May 2, 2020 and February 1, 2020, respectively	(334,803)		(343,531)
Total stockholders’ equity	254,214		406,302
Total liabilities and stockholders’ equity	$	1,799,184	$	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
	May 2, 2020		May 4, 2019
NET SALES	$	210,275	$	451,271
COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS	256,482		328,768
Gross (loss)/profit	(46,207)		122,503
OPERATING EXPENSES:
Selling, general, and administrative expenses	99,165		135,367

Other operating income, net	(93)		(1,310)
Total operating expenses	99,072		134,057

OPERATING LOSS	(145,279)		(11,554)

INTEREST EXPENSE/(INCOME), NET	56		(712)
OTHER EXPENSE, NET	2,733		—
LOSS BEFORE INCOME TAXES	(148,068)		(10,842)
INCOME TAX EXPENSE/(BENEFIT)	5,982		(908)
NET LOSS	$	(154,050)	$	(9,934)





COMPREHENSIVE LOSS	$	(154,050)	$	(9,934)

EARNINGS PER SHARE:
Basic	$	(2.41)	$	(0.15)
Diluted	$	(2.41)	$	(0.15)

WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic	64,030		66,845
Diluted	64,030		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


	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

See Notes to Unaudited Consolidated Financial Statements.

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EXPRESS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands) (Unaudited)


	Thirteen Weeks Ended
	May 2, 2020		May 4, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(154,050)	$	(9,934)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	19,332		22,216
Loss on disposal of property and equipment	—		350
Impairment of property, equipment and lease assets	14,678		—
Equity method investment impairment	2,733		—


Share-based compensation	2,502		2,372

Deferred taxes	64,424		(14)
Landlord allowance amortization	(104)		(813)


Changes in operating assets and liabilities:
Receivables, net	(2,073)		3,453
Inventories	(48,485)		(17,875)
Accounts payable, deferred revenue, and accrued expenses	2,117		(10,819)
Other assets and liabilities	(32,312)		(5,881)
Net cash used in operating activities	(131,238)		(16,945)

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(4,176)		(4,078)



Net cash used in investing activities	(4,176)		(4,078)

CASH FLOWS FROM FINANCING ACTIVITIES:


Proceeds from financing arrangements	165,000		—
Payments on lease financing obligations	—		(27)



Repurchase of common stock under share repurchase program	—		(4,889)
Repurchase of common stock for tax withholding obligations	(540)		(1,498)
Net cash provided by (used in) financing activities	164,460		(6,414)



NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	29,046		(27,437)
CASH AND CASH EQUIVALENTS, Beginning of period	207,139		171,670
CASH AND CASH EQUIVALENTS, End of period	$	236,185	$	144,233

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 leading fashion brand for women and men. Since 1980, Express has provided the latest apparel and accessories to help customers build a wardrobe for every occasion, offering fashion and quality at an attractive value. The company operates 594 retail and factory outlet stores in the United States and Puerto Rico, as well as an online destination.

As of May 2, 2020, Express operated 380 primarily mall-based retail stores in the United States and Puerto Rico as well as 214 factory outlet stores. Additionally, as of May 2, 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 first quarter of 2020” and “the first quarter of 2019” represent the thirteen weeks ended May 2, 2020 and May 4, 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 therefore do not include all of the information or footnotes required by GAAP 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, e-commerce 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 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 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 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.

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

We have considered the impact of COVID-19 on our unaudited Consolidated Financial Statements, and expect it to have future impacts, the extent of which is uncertain and largely subject to whether the severity worsens or 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, our ability to procure inventory, distribution facility closures, shifts in demand between sales channels, and market volatility in our supply chain. Due to the impacts of COVID-19, we performed a recoverability test for our property plant and equipment and lease right of use assets. Consequently, this may subject us to future risk of long-lived asset and lease right of use asset impairments, increased reserves for uncollectible accounts, and adjustments for inventory.

NOTE 2 | REVENUE RECOGNITION

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


	Thirteen Weeks Ended
	May 2, 2020		May 4, 2019
	(in thousands)
Apparel	$	179,583	$	388,855
Accessories and other	21,380		45,895
Other revenue	9,312		16,521
Total net sales	$	210,275	$	451,271


	Thirteen Weeks Ended
	May 2, 2020		May 4, 2019
	(in thousands)
Retail	$	159,537	$	328,339
Outlet	41,426		106,411
Other revenue	9,312		16,521
Total net sales	$	210,275	$	451,271

Other revenue consists primarily of revenue earned from our private label credit card agreement, shipping and handling revenue related to e-commerce 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 were not material for any period presented and, therefore, are not reported separately from domestic revenue.

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Revenue Recognition Policies

Merchandise Sales

The Company recognizes sales for in-store purchases at the point-of-sale. Revenue related to e-commerce 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
	May 2, 2020		May 4, 2019
	(in thousands)
Beginning balance loyalty deferred revenue	$	14,063	$	15,319
Revenue recognized	(4,478)		(603)
Ending balance loyalty deferred revenue	$	9,585	$	14,716

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 $7.5 million and $9.1 million as of May 2, 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 e-commerce 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 $21.7 million and $24.1 million, as of May 2, 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.

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	Thirteen Weeks Ended
	May 2, 2020		May 4, 2019
	(in thousands)
Beginning gift card liability	$	24,142	$	25,133
Issuances	4,040		7,713
Redemptions	(5,418)		(10,119)
Gift card breakage	(1,036)		(1,151)
Ending gift card liability	$	21,728	$	21,576

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 e-commerce 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 as net sales in the unaudited Consolidated Statements of Income and Comprehensive Income. The Company also receives reimbursement funds from the Bank for 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 as net sales in the unaudited Consolidated Statements of Income and Comprehensive Income.

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 May 2, 2020, the deferred revenue balance of $13.4 million will be recognized over the remaining term of the amended Card Agreement within the other revenue component of net sales.


	Thirteen Weeks Ended
	May 2, 2020		May 4, 2019
	(in thousands)
Beginning balance refundable payment liability	$	14,150	$	17,028

Recognized in revenue	(719)		(719)
Ending balance refundable payment liability	$	13,431	$	16,309

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
	May 2, 2020	May 4, 2019
	(in thousands)
Weighted-average shares - basic	64,030	66,845
Dilutive effect of stock options and restricted stock units	—	—
Weighted-average shares - diluted	64,030	66,845

Equity awards representing 9.6 million shares of common stock were excluded from the computation of diluted earnings per share for the thirteen weeks ended May 2, 2020, as the inclusion of these awards would have been

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anti-dilutive. Equity awards representing 5.9 million shares of common stock were excluded from the computation of diluted earnings per share for the thirteen weeks ended May 4, 2019, as the inclusion of these awards would have been anti-dilutive.

Additionally, for the thirteen weeks ended May 2, 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 May 2, 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 May 2, 2020 and February 1, 2020, aggregated by the level in the fair value hierarchy within which those measurements fall.


	May 2, 2020
	Level 1		Level 2		Level 3
	(in thousands)
Money market funds	$	231,476	$	—	$	—



	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 May 2, 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 that trigger, 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

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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, including temporary store closures and the related decline in sales beginning in March 2020, 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 weeks ended May 2, 2020, the Company recognized impairment charges of approximately $14.7 million related to store-level property and equipment and right of use assets. During the thirteen weeks ended May 4, 2019, the Company did not recognize any impairment charges. 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.

The Company’s effective tax rate was (4.0)% and 8.4% for the thirteen weeks ended May 2, 2020 and May 4, 2019, respectively. The effective tax rate for the thirteen weeks ended May 2, 2020 reflects the impact of establishing a valuation allowance against the Company’s net deferred tax assets, which includes $54.3 million of discrete tax expense from a valuation allowance on previously recognized deferred tax assets and $6.8 million valuation allowance on 2020 U.S. state taxes and other tax credits. The effective tax rate for the thirteen weeks ended May 4, 2019 reflects a tax benefit from a pre-tax loss offset by $1.4 million of discrete tax expense related to a tax shortfall for share-based compensation.

Due to the impact of the COVID-19 pandemic that arose during Q1, the Company no longer believes they are able to objectively forecast taxable income in future years, which provides significant negative evidence when assessing whether the Company will more likely than not realize the full amount of the U.S. net deferred tax assets. As such, the Company recorded a valuation allowance against the full amount of the U.S. net deferred tax assets that are not forecasted to be utilized with the 2020 net operating loss carryback. We will continue to evaluate the Company’s ability to realize the deferred tax assets on a quarterly basis.

On March 27, 2020, the Coronavirus Aid Relief and Economic Security (“CARES”) Act was enacted into law. The CARES Act provided several provisions that impacted 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 for the thirteen weeks ended May 2, 2020 includes the $61.1 million valuation allowance noted above offset by a $19.5 million tax benefit related to the CARES Act, which includes the benefit for the portion of the estimated 2019 and 2020 U.S. Federal net operating losses that are able to be carried back to offset taxable income in the five-year carryback period.

Included in other current assets is a $9.7 million income tax receivable due to the 2019 carryback of net operating losses allowed under the CARES Act. Included in other assets is a $48.2 million income tax receivable due to the expected net operating loss carryback allowed under the CARES Act based on current quarter losses.

NOTE 6 | LEASES

The Company leases all of its store locations and its corporate headquarters, which also includes its distribution center, under operating leases. The store leases typically have initial terms of 5 to 10 years. The current lease term for the corporate headquarters expires in 2026, with one optional five-year extension period. The Company also leases certain equipment and other assets under operating leases, typically with initial terms of 3 to 5 years. The lease term includes the initial contractual term as well as any options to extend the lease when it is reasonably certain that the Company will exercise that option. Leases with an initial term of 12 months or less (short-term

EXPRESS, INC. | Q1 2020 Form 10-Q | 15

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leases) are not recorded on the balance sheet. The Company does not currently have any material short-term leases. The Company is generally obligated for the cost of property taxes, insurance and other landlord costs, including common area maintenance charges, relating to its leases. If these charges are fixed, they are combined with lease payments in determining the lease liability; however, if such charges are not fixed, they are considered variable lease costs and are expensed as incurred. The variable payments are not included in the measurement of the lease liability or asset. The Company’s finance leases are immaterial.

Certain lease agreements include rental payments based on a percentage of retail sales over contractual levels and others include rental payments adjusted periodically for inflation. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company’s lease agreements do not provide an implicit rate, so the Company uses an estimated incremental borrowing rate, which is derived from third-party information available at the lease commencement date, in determining the present value of lease payments. The rate used is for a secured borrowing of a similar term as the lease.

As a result of the impact of the COVID-19 pandemic, the Company did not make its store rent payments for April 2020. The Company has continued to recognize expense and has established an accrual for the payments that were not made. The accrued rent is within accrued expenses on the unaudited Consolidated Balance Sheets. Accrued minimum rent as of May 2, 2020 and February 1, 2020, was $30.3 million and $3.2 million, respectively.

Supplemental cash flow information related to leases is as follows:


	Thirteen Weeks Ended
	May 2, 2020		May 4, 2019
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	41,467	$	70,832
Right-of-use assets obtained in exchange for operating lease liabilities	$	15,243	$	3,717

NOTE 7 | DEBT

A summary of the Company’s financing activities are as follows:

Revolving Credit Facility

On May 24, 2019, Express Holding, LLC, a wholly-owned subsidiary of the Company (“Express Holding”), and its subsidiaries entered into a First Amendment to the Second Amended and Restated $250.0 million Asset-Based Loan Credit Agreement (“Revolving Credit Facility”). The expiration date of the Revolving Credit Facility is May 24, 2024.

On March 17, 2020, the Company provided notice to the lenders under the Revolving Credit Facility of a request to borrow $165.0 million. The Company borrowed under the Revolving Credit Facility in order to strengthen its liquidity position and preserve financial flexibility in response to the COVID-19 pandemic and the related temporary store closures. As of May 2, 2020, the Company had $165.0 million in borrowings outstanding and approximately $67.8 million remained available for borrowing under the Revolving Credit Facility after $17.2 million of letters of credit outstanding and subject to certain borrowing base limitations as further discussed below.

Under the Revolving Credit Facility, revolving loans may be borrowed, repaid, and reborrowed until May 24, 2024, at which time all amounts borrowed must be repaid. Borrowings under the Revolving Credit Facility bear interest at a rate equal to either the rate published by ICE Benchmark Administration Limited (with a floor of 0%) (the “Eurodollar Rate”) plus an applicable margin rate or the highest of (1) Wells Fargo Bank, National Association’s prime lending rate (with a floor of 0%), (2) 0.50% per annum above the federal funds rate (with a floor of 0%) or (3) 1% above the Eurodollar Rate (the “Base Rate”), in each case plus an applicable margin rate. The applicable margin rate is determined based on excess availability as determined by reference to the borrowing base. The applicable margin rate for Eurodollar Rate-based advances is 1.25% or 1.50% and the applicable margin rate for Base Rate-based advances is 0.25% or 0.50%, in each case, based on the borrowing base. Under certain circumstances, a default

EXPRESS, INC. | Q1 2020 Form 10-Q | 16

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interest rate will apply on any overdue amount payable under the Revolving Credit Facility during the existence of an event of default at a per annum rate equal to 2.0% above the applicable interest rate for any overdue principal and 2.0% above the rate applicable for Base Rate-based advances for any other overdue interest. As of May 2, 2020 the interest rate on the outstanding borrowing was approximately 2.4%.

The Revolving Credit Facility requires Express Holding and its subsidiaries to maintain a fixed charge coverage ratio of at least 1.0:1.0 if excess availability plus eligible cash collateral is less than 10.0% of the borrowing base for 15 consecutive days. Since our excess availability was above 10% as of May 2, 2020, the fixed charge coverage ratio covenant was not applicable. In addition, the Revolving Credit Facility contains customary covenants and restrictions on Express Holding’s and its subsidiaries’ activities, including, but not limited to, limitations on the incurrence of additional indebtedness, liens, negative pledges, guarantees, investments, loans, asset sales, mergers, acquisitions, prepayment of other debt, distributions, dividends, the repurchase of capital stock, transactions with affiliates, the ability to change the nature of its business or fiscal year, and permitted business activities. All obligations under the Revolving Credit Facility are guaranteed by Express Holding and its domestic subsidiaries (that are not borrowers) and secured by a lien on, among other assets, substantially all working capital assets including cash, accounts receivable, and inventory of Express Holding and its domestic subsidiaries.

Letters of Credit

The Company may enter into stand-by letters of credit (“stand-by LCs”) on an as-needed basis to secure payment obligations for third party logistic services, merchandise purchases, and other general and administrative expenses. As of May 2, 2020 and February 1, 2020, outstanding stand-by LCs totaled $17.2 million and $12.7 million, respectively.

NOTE 8 | SHARE-BASED COMPENSATION

The Company records the fair value of share-based payments to employees in the unaudited Consolidated Statements of Income and Comprehensive Income as compensation expense, net of forfeitures, over the requisite service period. The Company issues shares of common stock from treasury stock, at average cost, upon exercise of stock options and vesting of restricted stock units, including those with performance conditions.

Share-Based Compensation Plans

In 2010, the Board approved, and the Company implemented, the Express, Inc. 2010 Incentive Compensation Plan (as amended, the "2010 Plan"). The 2010 Plan authorized the Compensation Committee (the "Committee") of the Board and its designees to offer eligible employees and directors cash and stock-based incentives as deemed appropriate in order to attract, retain, and reward such individuals.

On April 30, 2018, upon the recommendation of the Committee, the Board unanimously approved and adopted, subject to stockholder approval, the Express, Inc. 2018 Incentive Compensation Plan (the “2018 Plan”) to replace the 2010 Plan. On June 13, 2018, stockholders of the Company approved the 2018 Plan and all grants made subsequent to that approval will be made under the 2018 Plan. The primary change made by the 2018 Plan was to increase the number of shares of common stock available for equity-based awards by 2.4 million shares. In addition to increasing the number of shares, the Company also made several enhancements to the 2010 Plan to reflect best practices in corporate governance. The 2018 Plan incorporates these concepts and also includes several other enhancements which are practices the Company already follows but were not explicitly stated in the 2010 Plan. None of these changes will have a significant impact on the accounting for awards made under the 2018 Plan.

In the third quarter of 2019, in connection with updates made by the Company to its policy regarding the clawback of incentive compensation awarded to associates, the Board approved an amendment to the 2018 Plan, solely for the purpose of updating the language regarding the recoupment of awards granted under the 2018 Plan.

As of March 17, 2020, upon the recommendation of the Committee, the Board unanimously approved and adopted, subject to stockholder approval, a plan amendment, which would increase the number of shares of Common Stock available under the 2018 Plan by 2.5 million shares.

EXPRESS, INC. | Q1 2020 Form 10-Q | 17

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The following summarizes share-based compensation expense:


	Thirteen Weeks Ended
	May 2, 2020		May 4, 2019
	(in thousands)
Restricted stock units	$	2,184	$	2,210
Stock options	318		38
Performance-based restricted stock units	—		124
Total share-based compensation	$	2,502	$	2,372

The stock compensation related income tax benefit recognized by the Company during the thirteen weeks ended May 2, 2020 and May 4, 2019 was $0.5 million and $1.5 million, respectively.

Restricted Stock Units

During the thirteen weeks ended May 2, 2020, the Company granted restricted stock units (“RSUs”) under the 2018 Plan. The fair value of RSUs is determined based on the Company’s closing stock price on the day prior to the grant date in accordance with the 2018 Plan. The RSUs granted in 2020 vest ratably over three years and the expense related to these RSUs will be recognized using the straight-line attribution method over this vesting period.

The Company’s activity with respect to RSUs, including awards with performance conditions granted prior to 2018, for the thirteen weeks ended May 2, 2020 was as follows:

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	2020-05-02	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	2020-07-10	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

EX-10.1	exhibit101rsuawardagre.htm
EX-10.2	exhibit102cash-basedaw.htm
EX-31.1	exhibit311q12020-ceoce.htm
EX-31.2	exhibit312q12020-cfoce.htm
EX-32.1	exhibit321q12020-secti.htm


		Page
Note 1	Description of Business and Basis of Presentation	10
Note 2	Revenue Recognition	11
Note 3	Earnings Per Share	13
Note 4	Fair Value Measurements	14
Note 5	Income Taxes	15
Note 6	Leases	15
Note 7	Debt	16
Note 8	Share-Based Compensation	17
Note 9	Commitments and Contingencies	19
Note 10	Investment in Equity Interests	20
Note 11	Stockholders' Equity	20

EXPR 10Q Quarterly Report

Express Earnings 2020-05-02