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EXPR - Express, Inc. Reports an Increase in Second Quarter Net Sales and Net Income

-- Achieves twelfth consecutive quarter of increased comparable sales
-- Second quarter diluted EPS increases to $0.18, at high-end of guidance
-- Quarter end inventory aligned with sales growth
-- Revises guidance for full year 2012
PR NewswirePress Release: Express, Inc. – 1 hour 21 minutes ago

COLUMBUS, Ohio, Aug. 22, 2012 /PRNewswire/ -- Express, Inc. (EXPR), a specialty retail apparel chain operating more than 600 stores, today announced its second quarter 2012 financial results for the thirteen and twenty-six week periods ended July 28, 2012, which compares to the same period ended July 30, 2011.

Michael Weiss, Express, Inc.'s Chairman, President, and Chief Executive Officer commented: "Our second quarter results included an increase in net sales, positive comparable sales, and disciplined expense management, which combined, offset increased promotional activity in the latter part of the quarter and drove earnings per diluted share to the high end of our guidance. We continued to focus on our growth pillars during the quarter, opening new stores and maintaining double digit growth in e-commerce. We were also pleased with the progress against our international growth pillar. To that end, we entered into our third international franchise agreement, this one in Mexico. We also firmed up the timing of our U.S. flagship locations in Times Square in New York and Union Square in San Francisco. We expect these flagship locations, scheduled to open by the fall of 2013, to serve as international gateways for our brand. We ended the quarter with a strong balance sheet that included $130.2 million in cash, even after investing $50 million to repurchase 2.7 million shares of our common stock. Additionally, inventory was aligned with sales growth. As we begin the second half of the year, we believe it is prudent to set our guidance more conservatively and in line with the trend we experienced in the second quarter. We remain confident in our strategies and expect the disciplined execution against our growth pillars to result in another year of growth for Express."

Second Quarter Operating Results:

Net sales increased 2% to $454.9 million from $446.0 million in the second quarter of 2011;
Comparable sales increased 1%, following a 6% increase in comparable sales in the second quarter of 2011;
Gross margin was 32.2% of net sales compared to 33.6% in the second quarter of 2011;
Selling, general, and administrative (SG&A) expenses totaled $115.3 million, or 25.3% of net sales, compared to $117.7 million, or 26.4% of net sales, in the second quarter of 2011;
Operating income was $31.2 million, or 6.9% of net sales, compared to $31.7 million, or 7.1% of net sales, in the second quarter of 2011;
Interest expense totaled $4.8 million compared to $10.5 million in the second quarter of 2011, which included a $3.7 million loss on extinguishment of debt associated with the repurchases of $24.2 million of Senior Notes and the amendment of the $200 million Revolving Credit Facility;
Income tax expense was $10.4 million, at an effective tax rate of approximately 39.6%, compared to $8.6 million, at an effective tax rate of approximately 40.6%, in the second quarter of 2011; and
Net income was $15.8 million, or $0.18 per diluted share. This compares to net income of $12.6 million, or $0.14 per diluted share, in the second quarter of 2011, which included a $2.2 million, or $0.03 per diluted share, after tax loss on extinguishment of debt associated with the repurchases of $24.2 million of Senior Notes and the amendment of the $200 million Revolving Credit Facility. Net income in the second quarter of 2011 adjusted for non-core operating costs noted above was $14.9 million, or $0.17 per diluted share (see Schedule 4 for discussion of non-GAAP measures).

Twenty-Six Week Operating Results:

Net sales increased 4% to $950.8 million from $913.4 million in the prior year period;
Comparable sales increased 2%, following a 7% increase in comparable sales in the prior year period;
Gross margin was 35.3% of net sales compared to 35.9% in the prior year period;
SG&A expenses totaled $229.5 million, or 24.1% of net sales, compared to $227.2 million, or 24.9% of net sales, in the prior year period;
Operating income increased 4.5% to $105.8 million, or 11.1% of net sales, compared to $101.2 million, or 11.1% of net sales, in the prior year period;
Interest expense totaled $9.6 million compared to $21.5 million in the prior year period, which included a $7.2 million loss on extinguishment of debt associated with the repurchases of $49.2 million of Senior Notes and the amendment of the $200 million Revolving Credit Facility;
Income tax expense was $38.3 million, at an effective tax rate of approximately 39.8%, compared to $32.0 million, at an effective tax rate of approximately 40.2%, in the prior year period; and
Net income was $57.9 million, or $0.65 per diluted share. This compares to net income of $47.6 million, or $0.54 per diluted share, in the prior year period, which included the following non-core operating costs after tax: (i) $0.3 million, or $0.01 per diluted share, of costs related to the secondary offering completed in April 2011; and (ii) $4.3 million, or $0.04 per diluted share, loss on extinguishment associated with the repurchases of $49.2 million of Senior Notes and the amendment of the $200 million Revolving Credit Facility. Net income in the prior year period adjusted for non-core operating costs noted above was $52.3 million, or $0.59 per diluted share (see Schedule 4 for discussion of non-GAAP measures).

Second Quarter Balance Sheet Highlights:

Cash and cash equivalents decreased $14.4 million and totaled $130.2 million compared to $144.6 million at the end of the second quarter of 2011, primarily driven by $50 million of cash used to repurchase 2.7 million shares of the Company's common stock in the second quarter of 2012;
Inventories were $210.4 million, an increase of 1.4%, compared to $207.4 million at the end of the second quarter of 2011. Inventory per square foot decreased slightly compared to 2011; and
Debt declined by $119.7 million to $198.7 million compared to $318.4 million at the end of the second quarter of 2011 driven by the $119.7 million prepayment of the $125 million Opco Term Loan outstanding balance in 2011.

Real Estate:

During the second quarter of 2012, the Company opened 8 new stores, including 1 in Canada, and closed 3 stores. At quarter end, the Company operated 611 stores and had approximately 5.3 million gross square feet in operation.

2012 Guidance:

Third and Fourth Quarter:

The Company currently expects third quarter 2012 comparable sales to be flat to up low single digits compared to an increase of 5% in the third quarter of 2011. The effective tax rate is expected to be approximately 41% for the third quarter of 2012. Net income is expected in the range of $23.0 million to $28.0 million, or $0.27 to $0.32 per diluted share on 86.4 million weighted average shares outstanding. This compares to net income of $32.7 million, or $0.37 per diluted share, in the third quarter of 2011. The Company expects to open 8 new stores in the third quarter, including 7 stores in the United States and 1 store in Canada, and close 1 store to end the quarter with 618 stores and approximately 5.3 million gross square feet in operation.

Based on third quarter 2012 and full year 2012 guidance, this implies fourth quarter 2012 net income guidance in the range of $67.0 million to $71.0 million, or $0.77 to $0.82 per diluted share on 86.6 million weighted average shares outstanding. This compares to adjusted net income of $62.1 million, or $0.70 per diluted share, in the fourth quarter of 2011.

Full Year:

The Company is revising its 2012 guidance and currently expects full year comparable sales to increase low single digits compared to an increase of 6% in 2011. The effective tax rate is expected to be between 39.9% and 40.1% for the full year 2012. Earnings for the fifty-three week period in 2012 are expected in the range of $1.69 to $1.79 per diluted share on 87.6 million weighted average shares outstanding. This compares to adjusted earnings of $1.66 per diluted share in 2011 (see Schedule 4 for a discussion of non-GAAP measures). The Company notes that 2012 is a fifty-three week period compared to a fifty-two week period in 2011 and expects the fifty-third week impact to be in the range of $0.04 to $0.05 per diluted share. The Company now plans to open 28 new stores in 2012, including 23 in the United States and 5 in Canada, and close 12 stores in the United States, to end the year with 625 locations and approximately 5.4 million gross square feet in operation. Consistent with previous years, this guidance excludes any non-core operating items that may occur, such as debt extinguishment costs.

Conference Call Information:

A conference call to discuss second quarter results is scheduled for August 22, 2012, at 9:00 a.m. Eastern Daylight Time (EDT). Investors and analysts interested in participating in the call are invited to dial [phone] approximately ten minutes prior to the start of the call. The conference call will also be webcast live at: http://www.express.com/investor and remain available for 90 days. A telephone replay of this call will be available at 12:00 p.m. EDT on August 22, 2012 until 11:59 p.m. EDT on August 29, 2012 and can be accessed by dialing [phone] and entering replay pin number 398130.

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