2015
Annual Report
EXPRESS
EXPRESS
DEAR FELLOW STOCKHOLDER:
2015 was a transformative year for Express. Shortly after I assumed my new role as President and CEO at the beginning
of 2015, I reaffirmed our commitment to driving Express forward through our growth initiatives, including improving store
productivity, growing our e-commerce business, opening new outlet stores and optimizing our retail store footprint, and
growing our international business. At the same time, I laid out new priorities to provide additional direction and clarity
of purpose throughout the year. These priorities consisted of increasing profitability, elevating the customer experience,
sharpening our brand position, upgrading systems and processes, and supporting our people. Throughout 2015, we made
progress against each of these growth initiatives and priorities and, by year’s end, had established a solid foundation that we
believe will lead to profitable growth over the long-term.
I’m extremely pleased with what the Express team accomplished in 2015. By focusing on a balanced approach to growth, we
grew our top line, improved our margins, and prudently managed our expenses. Specifically, our net sales grew by 9% and our
comparable sales grew by 6% year over year. Our balanced approach to growth also resulted in operating income growth of
52% compared to 2014, and a 250 basis point improvement in our operating margin, which increased to 8.8% of our net sales
for 2015. As a result, our diluted earnings per share (“EPS”) rose 70% year over year to $1.38, and our adjusted diluted EPS
grew 79% year over year to $1.45.(1) Our strong cash flow allowed us to continue investing in our business and to enhance our
capital structure for the benefit of our stockholders. To this end, we used $215 million to redeem all of our outstanding Senior
Notes, and we repurchased $69 million of our common stock.
Growth Initiatives
I am fond of saying that it all starts with the product, and the collections we delivered in our retail stores and online in 2015
represented a significant improvement over those of the prior year. We relied less on key items and instead introduced more
fashion pieces, while flowing new items throughout the collections more frequently. Newness was further enhanced as we
introduced additional merchandise categories, including One Eleven (soft, casual knit tops) and the Edition capsule collection
(an elevated collection of going out pieces) for women, launched a test of our women’s swimwear, and introduced our new
men’s soft shirts, and Supersoft, Performance and Flex Stretch in the women’s and men’s denim categories. We now address
a broader spectrum of our customers’ wardrobe needs, and intend to continue down this path. We also focused on enhancing
our brand, introduced new marketing campaigns, optimized our customer engagement across all of our touch points, and
employed more stringent inventory disciplines. Together, these initiatives led to growth in stores and online.
Improve Store Productivity. Comparable sales (excluding e-commerce sales) increased 4% in 2015. As mentioned above,
the improvement was driven by our strong product assortment, which incorporated more fashion items, new categories and
collections, and newness of product more often. Our disciplined approach to inventory management and reduced use of all
store promotions also contributed to our improved store performance, while improving product margins at the same time.
E-Commerce Growth. Our e-commerce business grew by 11% in 2015. We were very pleased with these results in light of a
decision not to replicate the large number of online only promotions that were utilized to drive 2014 sales.
E-commerce product consists of all of our retail store product supplemented with expanded sizes and colors for select items,
along with online only exclusives. Enhancements to our traditional e-commerce site and our mobile platform were regularly
introduced as we made the online shopping experience more enjoyable and simplified the checkout experience. We also
began to utilize more sophisticated data analytics tools, which will enable us to better reflect consumer preferences across our
inventory choices and to move forward with more personalized marketing.
Real Estate. Our real estate activities fall into two categories. First, we continued to advance towards our ultimate goal of 140
to 150 Express Factory Outlet stores with the opening of 40 outlet stores during the year, to conclude 2015 with 81 outlet
stores. Inventory is comprised exclusively of product derived from prior year retail best sellers. We believe that the exceptional
value offered in our outlet stores coupled with a steady flow of the newest fashion into our retail stores provides sought after
variety for our customers.
(1) Adjusted diluted EPS is a non-GAAP financial measure. See page 28 of this Annual Report on Form 10-K for important information
regarding the use of non-GAAP financial measures.
Second, we continued to execute against the plan we announced in 2014 to close 50 retail stores through 2017, primarily at
lease expiration. In 2015, we closed 27 retail stores and converted two retail stores to outlet stores.
International. We recently announced a reassessment of international priorities. Over the next couple of years, we will focus
exclusively on the Americas, geographies we believe have the greatest near term potential, and will exit the Middle East and
South African markets in 2016. At the end of 2015, our international business included 33 franchise locations, 15 of which are
in the Middle East and South Africa, and 18 of which are in Latin America.
2015 Priorities
As noted earlier, as 2015 began I unveiled five priorities to be focused on throughout the year.
Increasing Profitability. As our financial results attest, we made significant progress in this area. As noted previously, strong
product was central to our improved results along with our balanced approach to managing the business from a top-line,
margin, and expense management standpoint.
Another critical factor was our restrained use of promotions. We significantly pared back our reliance on all-store promotional
offerings and successfully transitioned marketing content to emphasize storytelling and great fashion.
Inventory discipline was a third and equally critical driver of higher profitability. Judicious purchasing as seasons began enabled
us to chase into our best performing items. We launched a comprehensive review of our production practices and began to
realize benefits as processes were streamlined, speed to market accelerated, and cost savings were identified. These three
factors, coupled with increased full priced selling, generated 200 basis points of merchandise margin gains in 2015.
We successfully leveraged our buying and occupancy expenses to generate 130 basis points of improvement. When
combined with our merchandise margin gains, our gross margin climbed 330 basis points.
Our operating margin in 2014 was 6.3%. Work performed in 2015 drove 250 basis of operating margin gains, lifting our
operating margin to 8.8%. This brought us materially closer to achieving our objective of returning to a 10% operating margin
within the next few years, and I am confident this goal will be achieved.
Elevate the Customer Experience. Our store based associates are shifting from a service model to a selling and service model.
They are striving to provide an exceptional customer experience with hospitality across all touch points, and higher customer
experience scores in 2015 compared to 2014 attest to their success.
Sharpen our Brand Position. We sharpened our brand position by more clearly articulating brand attributes internally to create
a unified vision throughout the organization. This was incorporated into 360-degree marketing campaigns designed to retain
existing customers and attract new ones into the brand. Throughout the year, we worked with high profile models and athletes
such as Karlie Kloss and Stephen Curry, which contributed to the growing “buzz” surrounding Express, as did a powerful
media initiative that drove a significant uptick in media coverage.
Systems and Process Upgrades. The upgrading of our systems and processes is a multi-year initiative and important progress
was made during 2015. Much of the work in 2015 centered on our upcoming transition from legacy systems to new Order
Management, Retail Management, and Enterprise Planning systems. These new systems have the potential to fundamentally
enhance our operational and financial performance, and will enable our transformation into an omni-channel retailer.
Work was also underway with respect to the 2016 relocation of our customer engagement and e-commerce fulfillment
centers to new state of the art facilities. The moves are substantially complete and we will now be able to better support
around the clock customer inquiries and respond to shipping volume fluctuations during peak seasons, while also speeding up
package transit times.
Supporting our People. Further supporting our people was at the heart of our priorities for 2015. The executive leadership
team is committed to ensuring that Express remains a place where our employees feel challenged, supported and
appreciated, and where they can perform fulfilling work and advance their careers. As such, we launched a number of
engagement and learning related programs last year, with additional roll outs planned for 2016.
Closing Thoughts
I have the privilege of working with an exceptional team at Express, without whom the accomplishments of last year would
not have been possible. I want to thank them once again for all that they accomplished. The degree of change introduced last
year across the organization was notable. Operational changes enabled us to work smarter and more efficiently. Changes to
our financial architecture enabled us to deliver significant financial gains throughout each fiscal quarter of the year, and built a
foundation which we believe will lead to profitable growth in the years ahead.
Express today is quite different than the Express of years past. I believe that our fashion and our brand are more relevant and
appealing to our customers, that we are more efficient and adaptable as an organization, more technologically capable, and
more financially disciplined. Further changes will follow, as I believe that change is essential to our ability to continuously work
smarter, more efficiently, and more profitably.
There is one further change I want to acknowledge today. After more than 30 years of service to Express, Michael Weiss
is retiring from our Board at our upcoming annual meeting of stockholders and will assume the honorary title of Chairman
Emeritus. His vision and leadership have been instrumental to the growth of the brand, and his contributions will endure. I
personally want to thank Michael for his years of passion and dedication to the business, for all that he has done to support my
professional development, and for the wisdom and encouragement he regularly provided to the entire Express team over the
years. I wish him the very best and look forward to staying in touch as he embarks upon the next chapter in his life.
I want to close by assuring our stockholders that while pleased with last year’s results, I am not satisfied and know there
is more to be done. Express is an extraordinary brand, with untapped potential for further growth. My belief that great
opportunities lie ahead is shared across the organization, and the commitment of the Express team to achieving our
potential is absolute. Since assuming the CEO role, I have had the pleasure of meeting with many of you and discussing
our transformation. I have found your observations and questions to be insightful and very much appreciate your words of
encouragement. I look forward to meeting with more of you this year, and thank each of you for your ongoing support.
Sincerely Yours,
David Kornberg
President and CEO
May 5, 2016
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 30, 2016
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
(Address of principal executive offices)
43230
(Zip Code)
Registrant's telephone number, including area code: (614) 474-4001
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, $0.01 Par Value
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
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 and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to
submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company) Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
Aggregate market value of the registrant's common stock held by non-affiliates of the registrant as of August 1, 2015: $1,559,186,628.
The number of outstanding shares of the registrant's common stock was 78,506,086 as of March 18, 2016.
DOCUMENT INCORPORATED BY REFERENCE:
Portions of the registrant's definitive proxy statement for its Annual Meeting of Stockholders, to be held on June 8, 2016, are incorporated by reference into
Part III of this Annual Report on Form 10-K.
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Part I
Table Of Contents
BUSINESS.
ITEM 1.
ITEM 1A. RISK FACTORS.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
ITEM 2.
ITEM 3.
ITEM 4. MINE SAFETY DISCLOSURES.
PROPERTIES.
LEGAL PROCEEDINGS.
Part II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
SELECTED FINANCIAL DATA.
ITEM 6.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
ITEM 8.
ITEM 9.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
ITEM 9A. CONTROLS AND PROCEDURES.
ITEM 9B. OTHER INFORMATION.
Part III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Part IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
SIGNATURES
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements that are subject to risks and uncertainties. All
statements other than statements of historical fact included in this Annual 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,” “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, or initiatives, strategies, 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, but not limited to those under the
heading "Risk Factors" in Part I, Item 1A in this Annual Report on Form 10-K. Those factors should not be construed as
exhaustive and should be read in conjunction with the other cautionary statements included in this Annual Report on Form 10-
K. We caution you not to place undue reliance on these forward-looking statements. We do not undertake any obligation to
make any revisions to these forward-looking statements to reflect events or circumstances after the date of this Annual Report
on Form 10-K or to reflect the occurrence of unanticipated events, except as required by law, including the securities laws of
the United States and rules and regulations of the Securities and Exchange Commission ("SEC").
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ITEM 1. BUSINESS.
PART I
In this section, "Express", "we", "us", "the Company", and "our" refer to Express, Inc. and its consolidated subsidiaries as a
combined entity. Our 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. All references herein to "2015", "2014", and "2013" refer to the 52-week periods ended
January 30, 2016, January 31, 2015, and February 1, 2014, respectively.
General
Express is a specialty apparel and accessories retailer offering both women's and men's merchandise. We have over 35 years of
experience offering a distinct combination of style and quality at an attractive value, targeting women and men between 20 and
30 years old. We offer our customers an assortment of fashionable apparel and accessories to address fashion needs across
multiple aspects of their lifestyles, including work, casual, jeanswear, and going-out occasions.
As of January 30, 2016, we operated 653 stores across the United States, in Canada, and in Puerto Rico, including 81 factory
outlet stores. Our stores are located primarily in high-traffic shopping malls, lifestyle centers, outlet centers, and street
locations, and average approximately 8,650 gross square feet. We also sell our products through our e-commerce website,
www.express.com, and our mobile app, and have franchise agreements with franchisees who operate Express locations in Latin
America, the Middle East, and South Africa. Our 2015 merchandise sales were comprised of approximately 63% women's
merchandise and approximately 37% men's merchandise.
We report one segment, which includes the operation of our brick-and-mortar retail and outlet stores, e-commerce operations,
and franchise operations. Additional information about our reportable segment can be found in Note 2 of our Consolidated
Financial Statements.
Competitive Strengths
We believe that our primary competitive strengths are as follows:
Established Lifestyle Brand. With over 35 years of heritage, the Express brand represents a distinctive point of view that is
confident, sexy, and vibrant. We believe that our customers view Express as a fashion authority and look to us to provide them
with the latest fashions that meet their multifaceted lifestyles and allow them to express their individual styles. The Express
brand differentiates itself by offering (1) a balanced assortment of core styles and the latest fashions; (2) products that address
fashion needs across multiple wearing occasions, including work, casual, jeanswear, and going-out; and (3) quality products at
an attractive value.
Data Driven Processes. Our data driven processes allow us to test approximately three-quarters of our merchandise in select
stores and online before placing orders for our broader store base. In addition, we assess sales data and new product
development on a weekly basis in order to make in-season inventory adjustments where possible, which allows us to respond to
the latest trends. We believe that we have an efficient, diversified, and flexible supply chain, including a network of buying
agents and third-party manufacturers located throughout the world, that allows us to quickly identify and respond to trends and
bring a tested assortment of high quality products at competitive prices to our stores.
Strong and Tenured Team. Our leadership team has extensive experience in the specialty retail apparel business, including in
the areas of fashion design and merchandising, manufacturing, marketing, customer experience, e-commerce, store operations,
technology, planning and allocation, and real estate, as well as other diverse business experiences that we believe are valuable
to us as we continue to execute our growth strategy. Experience and tenure with Express extends deep into our organization,
including district and store managers.
Our Products
The majority of our apparel designs are created by our in-house design team, and we believe we have developed a portfolio of
apparel products that have significant brand value, including the Portofino shirt, Editor pant, and 1MX shirt. We focus on
providing our customers with attractively-priced merchandise that is well-constructed and made from quality materials that are
designed to last for several seasons, and believe our customers value our consistent fits and detailing.
We plan our product assortments and display them in our stores and online in a coordinated manner to encourage our customers
to purchase multi-item outfits as opposed to individual items. We believe this allows us to better meet our customers' shopping
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objectives while differentiating our product line from competitors. On average, our customers purchase two to three items per
transaction. We monitor cross-selling trends in order to optimize our in-store and online product assortment and collection
recommendations.
Sourcing
Our Sourcing Methods
We utilize a broad base of manufacturers located throughout the world that we believe produce goods at the level of quality that
our customers desire and can supply products to us on a timely basis at competitive prices. We do not own or operate any
manufacturing facilities and, as a result, contract with third-party vendors for the production of all of our merchandise. We
purchase both apparel and accessories through buying agents and directly from vendors. In exchange for a commission, our
buying agents identify suitable vendors and coordinate our purchasing requirements with vendors by placing orders for
merchandise on our behalf, ensuring the timely delivery of goods to us, obtaining samples of merchandise produced in
factories, inspecting finished merchandise, and carrying out vendor compliance monitoring and administrative communications
on our behalf.
We purchase the majority of our merchandise outside of the United States through arrangements with approximately 75
vendors utilizing approximately 306 manufacturing facilities located in approximately 19 countries throughout the world,
primarily in Asia and South and Central America. The top five countries, based on total cost of merchandise purchased, from
which we sourced our merchandise in 2015 were China, Vietnam, Indonesia, the Philippines, and Sri Lanka. Our top 10
manufacturing facilities, based on cost, supplied approximately 30% of our merchandise in 2015. We purchase our merchandise
using purchase orders and, therefore, are not subject to long-term production contracts with any of our vendors, manufacturers,
or buying agents.
Quality Assurance and Compliance Monitoring
Each supplier, factory, and subcontractor that manufactures our merchandise is required to adhere to our Code of Vendor
Conduct and certain other purchasing terms and conditions, including those related to product quality. This is designed to
ensure that each of our suppliers' operations are conducted in a legal, ethical, and responsible manner. Our Code of Vendor
Conduct requires that each of our suppliers provides minimum wages and benefits, limits working hours, complies with all
laws, including environmental laws, and provides a safe and healthy work environment. It also forbids the use of child labor or
forced labor and prohibits unauthorized subcontracting. We monitor compliance through third parties who conduct regular
factory audits on our behalf as well as through our buying agents.
Distribution
We centrally distribute most of our products from distribution centers in Columbus and Groveport, Ohio that are owned and
operated by third parties. Virtually all of the merchandise sold in our stores or on our website is received, processed,
warehoused, and distributed through the Columbus distribution facility. Merchandise is typically shipped to our stores and to
the Groveport distribution facility via third-party delivery services multiple times per week, providing them with a steady flow
of new inventory.
The third-party distribution facility in Groveport is used to fulfill all orders placed through our website. Merchandise at this
facility is received from our Columbus distribution facility, warehoused, and then sent directly to customers via third-party
delivery services upon order. The agreement we have with the third party who operates the e-commerce distribution facility and
fulfills our e-commerce orders will terminate on May 31, 2016. We have selected a new service provider to provide e-
commerce fulfillment services to us that we believe will be able to meet our increasing volume demands and the advanced
capabilities needed to meet our customers' expectations for speed of delivery and other related services. This new third-party
distribution facility for e-commerce is located in Richwood, Kentucky. We believe that we will be able to successfully
transition e-commerce fulfillment to the new service provider prior to May 31, 2016 without any significant disruption in
service.
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Store Locations
As of January 30, 2016, we operated a total of 653 stores in 47 states across the United States, as well as in Puerto Rico, and
Canada.
The following store list shows the number of stores we operated in the United States and Puerto Rico as of January 30, 2016:
Location
Alabama
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Location
Louisiana
Count
6
11 Maine
4 Maryland
79 Massachusetts
10 Michigan
11 Minnesota
2 Mississippi
51 Missouri
Nebraska
17
Nevada
2
New Hampshire
1
New Jersey
32
New Mexico
12
New York
8
North Carolina
5
North Dakota
6
Count
Location
Ohio
9
Oklahoma
2
Oregon
12
Pennsylvania
18
Puerto Rico
22
Rhode Island
14
South Carolina
3
South Dakota
12
Tennessee
4
Texas
9
Utah
4
Vermont
22
Virginia
3
46 Washington
16 West Virginia
1 Wisconsin
Total
Count
20
5
4
27
4
3
9
1
10
52
6
1
16
10
2
12
636
The following store list shows the number of stores we operated in Canada as of January 30, 2016:
Location
Alberta
British Columbia
Ontario
Total
Count
4
2
11
17
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The following store list shows the number of stores operated by our franchisees by country as of January 30, 2016:
Location
Middle East
Kingdom of Saudi Arabia
United Arab Emirates
Kuwait
Lebanon
Latin America
Mexico
Colombia
Costa Rica
El Salvador
Guatemala
Panama
Africa
South Africa
Total
Count
5 *
3 *
1 *
1 *
11
2
2
1
1
1
5 *
33
* Subsequent to year-end, we announced the termination of the franchise agreements covering these countries which we expect
to result in the closure of these stores in 2016.
Omni-Channel Customer Experience
We are committed to creating an omni-channel customer experience that offers a seamless shopping experience whether the
customer is shopping in a store or online through a desktop, tablet, or mobile device. We believe that the lines between our
store and e-commerce channels are disappearing as customers increasingly interact with us both in-store and online and often
through their mobile devices while in our stores. As a result, we are focused on leveraging the best of both channels to create an
exceptional omni-channel experience.
We design our stores to create a distinctive and engaging shopping environment and project our image of Express as a fashion
authority for our target demographic. Our stores feature a vibrant and youthful look, bright signage, and popular music. Our
stores are constructed and finished to allow us to efficiently shift merchandise displays throughout the year as seasons dictate.
To further enhance our customers' experience, we seek to attract enthusiastic store associates who are committed to offering a
high level of customer service. We believe our managers and associates deliver a superior shopping experience as a result of the
training we provide, the culture of accountability we foster, the incentives we offer, and the decision-making authority we grant
to store managers. On average, our store managers have been with Express for over five years.
Our e-commerce capabilities focus on creating an engaging and easy shopping experience that supports a vibrant, young
fashion consumer, whether on a mobile device, tablet, or at a desktop. We have made significant enhancements to our online
customer experience making shopping easier for customers, including features such as in-store product availability and
enhancements to the mobile app companion shopping experiences we introduced in 2015.
We plan to make additional investments in our omni-channel capabilities in 2016, including further enhancements to our
mobile app, more personalization of customer offers, and completion of a new order management system which will allow us
to utilize our inventory more efficiently. We expect these investments to improve the customer experience, increase conversion
rates, and improve overall sales and margin performance.
Competition
The apparel retail market is highly competitive. We compete with other brick-and-mortar and e-commerce retailers that engage
in the retail sale of women's and men's apparel, accessories, and similar merchandise. We compete on the basis of a
combination of factors, including, among others, style, breadth, quality, and price of merchandise offered, in-store and on-line
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experience, level of customer service, and brand image. See "Competitive Strengths" for a description of how we believe we
differentiate ourselves from our competitors. Our future success will depend in substantial part on our ability to anticipate and
respond quickly to fashion trends, offer our customers the products they want, where and when they want them, maintain the
strength of the Express brand in the United States, increase awareness of the Express brand, and acquire new customers.
Technology
We use information technology to improve the customer experience, both in-store and on-line, and differentiate ourselves from
competitors. Our information technology systems provide a full range of business process support and information to our store,
e-commerce, merchandising, financial, and real estate teams. We utilize a combination of customized and industry standard
software systems to provide various functions related to point-of-sale, inventory management, design, planning and allocation,
and financial reporting. During 2015, we continued to invest in new systems to provide additional capabilities to support our
growth initiatives. In 2016, we anticipate continued capital expenditures for systems upgrades related to a new order
management system, a new retail management system, and a new enterprise planning system, all of which are expected to
launch in 2016. There are risks associated with the implementation of new systems. Refer to Item 1A Risk Factors for
additional information.
Intellectual Property
The Express trademark and certain variations thereon, such as Express World Brand, are registered or are subject to pending
trademark applications with the United States Patent and Trademark Office and/or with the registries of many foreign countries.
In addition, we own domain names for many of our trademarks, including express.com. We believe our material trademarks
have significant value, and we vigorously protect them against infringement.
Regulation and Legislation
We are subject to labor and employment laws and regulations, including minimum wage requirements, intellectual property
laws, consumer protection laws and regulations, including those governing advertising and promotions, privacy, and product
safety, and laws and regulations with respect to the operation of our stores and business generally, including the Foreign
Corrupt Practices Act and as a result of being a public company. In addition, we are subject to United States customs laws and
similar laws of other countries associated with the import and export of merchandise.
Employees
We currently employ approximately 18,000 employees. Approximately 900 employees are based at our home office locations
in either Columbus or New York City, approximately 70 are field-based regional managers, approximately 1,700 are in-store
managers or co-managers, and approximately 15,400 are in-store sales associates. Approximately 19% and 81% of our
Associates are full-time and part-time, respectively. None of our employees are represented by a union, and we have had no
labor-related work stoppages. We believe our relations with our employees are good.
Seasonality
Our business is seasonal. We define our seasons as Spring (first and second quarters) and Fall (third and fourth quarters).
Historically, we have realized a higher portion of our net sales and net income in the Fall season due primarily to the impact of
the holiday season. In 2015, approximately 56% of our net sales were generated in the Fall season, while approximately 44%
were generated in the Spring season. Cash needs are typically higher in the third quarter due to inventory-related working
capital requirements for early Fall and holiday selling periods. Our business is also 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.
Corporate History
We opened our first store in 1980, in Chicago, Illinois as a division of Limited Brands, Inc. (now known as L Brands, Inc.), and
launched our men’s apparel line in 1987, which was rebranded under the name Structure in 1989. In 2001, we began to
consolidate our separate women’s and men’s stores into combined dual-gender stores under the Express brand. In 2007, Golden
Gate Capital acquired 75% of the equity interests in our business from an affiliate of Limited Brands, Inc. and we began to
operate as a standalone company. In May 2010, the Company converted to a Delaware corporation, held an initial public
offering, and listed its shares on the New York Stock Exchange. Subsequent to our initial public offering, Golden Gate Capital
and Limited Brands, Inc. sold their remaining interests in the Company and are no longer affiliated with Express.
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Available Information
We make available, free of charge, on our website, www.express.com, copies of our Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to these reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act of 1934"), as soon as
reasonably practicable after filing such material electronically with, or otherwise furnishing it to, the SEC. The SEC maintains
a website that contains electronic filings at www.sec.gov. In addition, the public may read and copy any materials we file with
the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at 1-800-732-0330. The reference to our
website address does not constitute incorporation by reference of the information contained on the website, and such
information is not part of this Annual Report on Form 10-K.
ITEM 1A. RISK FACTORS.
Our business faces a number of risks. The risks described below are the items of most concern to us, however these are not all
of the risks we face. Additional risks and uncertainties not presently known to us, that apply to similar businesses more
generally, or that we currently consider immaterial may also impair our business operations.
RISK FACTORS
Our business is sensitive to consumer spending and general economic conditions. Recessionary, slow growth, or other
difficult economic conditions could adversely affect our financial performance.
Consumer purchases of discretionary retail items, including our merchandise, generally decline during recessionary periods and
other periods where disposable income is adversely affected. Our business is impacted by factors that affect domestic and
worldwide economic conditions, particularly those that affect our target demographic, including unemployment levels, levels of
consumer debt, availability of consumer credit, levels of student debt, healthcare costs, reductions in net worth, residential real
estate and mortgage markets, taxation, fuel and energy prices, interest rates, consumer confidence, value of the United States
dollar versus foreign currencies, and other macroeconomic factors. A deterioration in economic conditions may reduce the level
of consumer spending and inhibit consumers' use of credit, which may adversely affect our revenues and profits. In
recessionary periods, we may have to increase the number of promotional sales or otherwise dispose of inventory for which we
have previously paid to manufacture, which could adversely affect our profitability. Our financial performance may be
particularly susceptible to economic and other conditions in regions or states where we have a significant number of stores.
In addition, difficult economic conditions may exacerbate some of the other risks described in this Item 1.A. Risk Factors,
including those risks associated with increased competition, decreases in mall traffic, brand reputation, our ability to develop
and maintain a reliable omni-channel customer experience, our ability to execute our growth initiatives, the interruption of the
production and flow of merchandise, and leasing substantial amounts of space. The risks could be exacerbated individually or
collectively.
Our business is highly dependent upon our ability to identify and respond to new and changing fashion trends, customer
preferences, and other related factors. Our inability to identify and respond to these new trends may lead to inventory
markdowns and write-offs, which could adversely affect us and our brand image.
Our focus on fashion-conscious young women and men means that we have a target market of customers whose preferences
cannot be predicted with certainty and are subject to frequent change. Our success depends in large part upon our ability to
effectively identify and respond to changing fashion trends and consumer demands and to translate market trends into desired
product offerings. Our failure to identify and react appropriately to new and changing fashion trends or tastes, or to accurately
forecast demand for certain product offerings could lead to, among other things, excess or insufficient amounts of inventory,
markdowns, and write-offs, which could materially adversely affect our business. Because our success depends significantly on
our brand image, damage to our brand image as a result of our failure to identify and respond to changing fashion trends could
have a material negative impact on us.
We often place orders for the manufacture and purchase of merchandise well ahead of the season in which that merchandise
will be sold. Therefore, we are vulnerable to changes in consumer preference and demand between the time we design and
order our merchandise and the season in which this merchandise will be sold. There can be no assurance that our new product
offerings will have the same level of acceptance as our product offerings in the past or that we will be able to adequately and
timely respond to the preferences of our customers. The failure of any of our product offerings to appeal to our customers could
have a material adverse effect on our business, results of operations, and financial condition.
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Our sales, profitability, and cash levels fluctuate on a seasonal basis and are affected by a variety of factors, including
consumer demand, our product offerings relative to customer demand, the mix of merchandise we offer, promotions, and
inventory levels.
Our sales and results of operations are affected on a seasonal basis by a variety of factors, including consumer demand, our
product offerings relative to customer demand, changes in our merchandise mix, the timing, number, and types of promotions
we offer, actions of our competitors or mall anchor tenants, the ratio of online sales to store sales, the effectiveness of our
inventory management, holiday and seasonal periods, changes in general economic conditions and consumer spending patterns,
customer traffic, and weather conditions. As a result, our results of operations fluctuate on a quarterly basis and relative to
corresponding periods in prior years, and any of these factors could adversely affect our business and could cause our financial
results to decline. For example, our third and fourth quarter net sales are impacted by early Fall shopping trends and the holiday
season. Any significant decrease in net sales during the early Fall selling period or the holiday season would have a material
adverse effect on us. In addition, in order to prepare for these seasons, we must order and keep in stock significantly more
merchandise than we carry during other parts of the year. This inventory build-up may require us to expend cash faster than we
generate it by our operations during this period. Any unanticipated decrease in demand for our products during these peak
shopping seasons could require us to sell excess inventory at a substantial markdown, which could have a material adverse
effect on our business, results of operations, financial condition, and our brand image with customers.
We face significant competition from other retailers that could adversely affect our ability to generate higher net sales and
margins as well as our ability to obtain favorable store locations.
We face substantial competition in the specialty retail apparel and accessories industry and expect to face increased competition
as retail brands increasingly expand their reach across the world, including into the United States. Some of our competitors
have greater financial, marketing, and other resources available. Many of our competitors sell their products in stores that are
located in the same shopping malls or lifestyle centers as our stores and many also sell their products online either exclusively
or in addition to brick-and-mortar stores. Our competitors may sell substantially similar products at reduced prices, increasing
the competitive pricing pressure for those products. In addition to competing for sales, we compete for favorable site locations
and lease terms in shopping malls and lifestyle centers, and our competitors may be able to secure more favorable locations
than us as a result of their relationships with, or appeal to, landlords or their willingness and ability to pay more for leased
space. We also compete with other retailers for personnel. The competition for retail talent is increasing, and we may not be
able to secure the talent we need to operate our stores without increasing wages. We cannot assure you that we will be able to
compete successfully against existing or future competitors, and our inability to do so could have a material adverse effect on
us.
Our ability to attract customers to our stores that are located in malls or other shopping centers depends heavily on the
success of these malls and shopping centers, and continued decreases in customer traffic in these malls or shopping centers
could cause our net sales and our profitability to be less than expected.
A significant number of our stores are located in malls and other shopping centers and many of these malls and shopping
centers have been experiencing declines in customer traffic. Our sales at these stores are dependent, to a significant degree,
upon the volume of traffic in those shopping centers and the surrounding area, however our costs associated with these stores
are essentially fixed. In times of declining traffic and sales, our ability to leverage these costs and our profitability are
negatively impacted. Our stores benefit from the ability of a shopping center's other tenants to generate consumer traffic in the
vicinity of our stores and the continuing popularity of the shopping center as a shopping destination. Our sales volume and
traffic has been and may continue to be adversely affected by, among other things, a decrease in popularity of malls or other
shopping centers in which our stores are located, the closing of anchor stores important to our business, a decline in popularity
of other stores in the malls or shopping centers in which our stores are located, or a deterioration in the financial condition of
shopping center operators or developers which could, for example, limit their ability to finance tenant improvements for us and
other retailers. A reduction in consumer traffic as a result of these or any other factors could have a material adverse effect on
us.
Our business depends in part on a strong brand image. If we are unable to maintain and enhance our brand, or our brand
reputation is damaged for any reason, we may fail to attract customers and suffer a significant decline in sales.
Our ability to maintain our reputation is critical to our brand image. Our reputation could be jeopardized if we fail to maintain
high standards for merchandise quality and integrity, fail to maintain high ethical, social, and environmental standards for all of
our operations and activities, or we fail to appropriately respond to concerns associated with any of the foregoing or any other
concerns from our customers. Failure to comply with local laws and regulations, to maintain an effective system of internal
controls, or to provide accurate and timely financial statement information could also hurt our reputation. We also rely on
franchisees to help us maintain our brand image and any failure to do so could have a negative impact on us. Damage to our
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reputation or loss of consumer confidence for any of these reasons may reduce demand for our products and have a material
adverse effect on our business, financial condition, and results of operations, as well as require additional resources to rebuild
our reputation.
If we are unable to successfully adapt to consumer shopping preferences and develop and maintain a relevant and reliable
omni-channel experience for our customers, our financial performance and brand image could be adversely affected.
Our business continues to evolve from a largely brick-and-mortar retail business to an omni-channel retail business. While
historically we interacted with our customers largely through our in-store experience, increasingly we interact with our
customers across a variety of different channels, including in-store, online at www.express.com, through mobile technologies,
including the Express mobile app, and social media. Our customers are increasingly using tablets and mobile phones to make
purchases online and to help them in making purchasing decisions when in our stores. Our customers also engage with us
online by providing feedback and public commentary about all aspects of our business. Omni-channel retailing is rapidly
evolving and our success depends on our ability to anticipate and implement innovations in customer experience and logistics
in order to appeal to customers who increasingly rely on multiple channels to meet their shopping needs. If for any reason we
are unable to implement our omni-channel initiatives, provide a convenient and consistent experience for our customers across
all channels, or provide our customers the products they want, when and where they want them, then our financial performance
and brand image could be adversely affected.
We rely significantly on information systems and any failure, inadequacy, interruption, or security failure of those systems
could harm our ability to effectively operate our business, cause a decrease in our net sales, increase our expenses, and
harm our reputation.
Our ability to effectively manage and maintain our inventory, ship products to our stores and our customers on a timely basis,
communicate with our customers, conduct customer transactions, and otherwise operate our business depends significantly on
our information systems. The failure of our information systems to operate effectively, problems with transitioning to upgraded
or replacement systems, or a breach in security of these systems could adversely impact our merchandise distribution,
transaction processing, financial accounting and reporting, the efficiency of our operations, and our ability to properly forecast
earnings and cash requirements. We could be required to make significant additional expenditures to remediate any such
failure, problem, or breach, and may be subject to legal claims as a result of such failure. To effectively carry out our growth
initiatives, we will need to continue to improve and expand our operational and financial systems, transaction processing,
internal controls, and business processes. For example, we are currently in the process of implementing a new retail
management system, a new order management system, and a new enterprise planning system, all of which are scheduled to
launch in 2016. In doing so, we could encounter implementation issues and incur substantial additional expenses. Such events
may have a material adverse effect on us.
We sell merchandise through our website, www.express.com. Our online sales may be adversely affected by interruptions in
our ability to conduct sales through our website, due to failure of computer systems, failure of third-party technology and
service providers on which we rely, telecommunications failures, security breaches, denial of service attacks, sabotage, or
similar disruptions. Furthermore, functionality on our website may be limited or interrupted to the extent technology we use
becomes the subject of a patent or other intellectual property dispute and we are unable to secure a license to use such
technology or develop alternative functionality.
Any person who circumvents our security measures could destroy, steal, or expose Company, customer, or employee
information and create systems and operational disruptions for us. In addition, employee error, malfeasance, or other errors in
the storage, use, or transmission of any such information could result in a disclosure of confidential information to third parties
outside of our network. Any of these events could result in litigation and legal liability, harm to our reputation, loss of
confidence in our ability to protect sensitive information, a distraction to our business, and the need to divert resources to
remedy the issues, any of which could have a material adverse effect on our business.
We may be exposed to risks and costs associated with the loss of customer information that would cause us to incur
unexpected expenses and loss of revenues.
We collect customer data, including encrypted credit card information, in our stores and online. For our sales channels to
function successfully, we and third parties involved in processing customer transactions for us must be able to transmit
confidential information, including credit card information, securely over public networks. We cannot guarantee that any of our
security measures or the security measures of third parties with whom we work will effectively prevent others from obtaining
unauthorized access to our customers’ information. If such a breach were to occur, customers could lose confidence in our
ability to secure their information and choose not to purchase from us. Any unauthorized access to customer information could
expose us to data loss or manipulation, litigation and legal liability, and could seriously disrupt operations, negatively impact
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our marketing capabilities, cause us to incur significant expenses to notify customers of the breach and for other remediation
activities, and harm our reputation and brand, any of which could adversely affect our financial condition and results of
operations.
In addition, state, federal, and foreign governments are increasingly enacting laws and regulations to protect consumers against
identity theft and consumer privacy. These laws and regulations will likely increase the costs of doing business, and if we fail to
implement appropriate security measures or detect and provide prompt notice of unauthorized access as required by some of
these laws and regulations, we could be subject to potential claims for damages and other remedies, which could adversely
affect our business and results of operations.
We do not own or operate any manufacturing facilities and therefore depend upon third parties for the manufacture of all
of our merchandise. The inability of a manufacturer to ship goods on-time to our specifications or to operate in compliance
with our Vendor Code of Conduct or applicable laws could negatively impact our business.
We do not own or operate any manufacturing facilities. As a result, we are dependent upon our timely receipt of quality
merchandise from third-party vendors. A manufacturer's inability to ship orders to us in a timely manner or meet our quality
standards could cause inventory shortages or high levels of out-of-season inventory and negatively affect consumer confidence
in the quality and value of our brand and our competitive position, all of which could have a material adverse effect on our
financial condition and results of operations.
If any of our manufacturers fails to comply with applicable laws or our Vendor Code of Conduct, or engage in any socially
unacceptable business practices such as poor working conditions, child labor, disregard for environmental standards, or
otherwise, our brand reputation could be negatively impacted and our results of operations could in turn be materially adversely
affected.
The raw materials used to manufacture our products and our transportation and labor costs are subject to availability
constraints and price volatility, which could result in increased costs.
The raw materials used to manufacture our merchandise are subject to availability constraints and price volatility caused by
high demand for cotton, high demand for petroleum-based synthetic and other fabrics, weather conditions, supply conditions,
government regulations, economic climate, and other unpredictable factors. In addition, our transportation and labor costs are
subject to price volatility caused by the price of oil, supply of labor, governmental regulations, economic climate, and other
unpredictable factors.
Increases in the demand for, or the price of, raw materials used to manufacture our merchandise and increases in transportation
and labor costs could each have a material adverse effect on our cost of sales or our ability to meet our customers' needs. We
may not be able to pass all or a material portion of such increased costs on to our customers, which could negatively impact our
profitability.
The interruption of the flow of merchandise from international manufacturers could disrupt our supply chain.
We purchase the majority of our merchandise outside of the United States through arrangements with approximately 75
vendors, utilizing approximately 306 manufacturing facilities located throughout the world, primarily in Asia and Central and
South America. Political, social, or economic instability in Asia, Central, or South America, or in other regions where our
products are made, could cause disruptions in trade, including exports. Other events that could also cause disruptions to our
supply chain include:
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•
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•
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the imposition of additional trade law provisions or regulations;
the imposition of additional duties, tariffs, and other charges on imports and exports;
quotas imposed by bilateral textile agreements;
foreign currency fluctuations;
natural disasters and theft;
restrictions on the transfer of funds;
the financial instability or bankruptcy of manufacturers; and
significant labor disputes, such as dock strikes.
We cannot predict whether the countries in which our merchandise is manufactured, or may be manufactured in the future, will
be subject to new or additional trade restrictions imposed by the United States or other foreign governments, including the
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likelihood, type, or effect of any such restrictions. Trade restrictions, including new or increased tariffs or quotas, embargoes,
safeguards, and customs restrictions against apparel items, as well as labor strikes and work stoppages or boycotts, could
increase the cost or reduce or delay the supply of apparel available to us and adversely affect our business, financial condition,
or results of operations.
If we encounter difficulties associated with distribution facilities or if they were to shut down for any reason, we could face
shortages of inventory in our stores, delayed shipments to our online customers, and harm to our reputation. Any of these
issues, as well as loss of the use of our corporate offices due to natural disasters or otherwise could have a material adverse
effect on our business operations.
Our distribution facilities are operated by third parties. Our Columbus facility operates as our central distribution facility and
supports our entire North American business. All of our merchandise is shipped to the central distribution facility from our
vendors and is then packaged and shipped to our stores or the e-commerce distribution facility in Groveport, Ohio for further
distribution to our online customers. The success of our stores and the satisfaction of our online customers depend on their
timely receipt of merchandise. The efficient flow of our merchandise requires that the third parties who operate the distribution
facilities have adequate capacity to support our current level of operations and any anticipated increased levels that may follow
from the growth of our business or during peak seasons.
If we encounter difficulties with the distribution facilities or in our relationships with the third parties who operate the facilities,
or if either facility were to shut down for any reason, including as a result of fire or other natural disaster or work stoppage, we
could face shortages of inventory, resulting in “out of stock” conditions in our stores, incur significantly higher costs and longer
lead times associated with distributing our products to both our stores and online customers, and experience dissatisfaction
from our customers. Any of these issues could have a material adverse effect on our business and harm our reputation.
The agreement we have with the third party who operates the e-commerce distribution facility is scheduled to terminate May
31, 2016. We are currently in the process of transitioning the e-commerce fulfillment services to another third-party service
provider and are developing a new order management system that will be required in order to transition the services. If we are
unable to transition these services before May 31, 2016 or otherwise suffer any significant disruption in service as a result of
the transition, we may be unable to accept or fulfill customer orders placed online, which could cause a material adverse effect
on our business due to loss of sales, customer dissatisfaction, and harm to our reputation, among other things.
In addition to our distribution facilities, our corporate offices are also vulnerable to damage from natural disasters, fire, and
other unexpected events which could cause us to experience significant disruption in our business, resulting in lost sales and
productivity, and causing us to incur significant expense to repair, any of which could have a material adverse effect on our
business.
We rely upon independent third-party transportation providers for substantially all of our product shipments and are subject
to increased shipping costs as well as the potential inability of our third-party transportation providers to deliver on a timely
basis.
We currently rely upon independent third-party transportation providers for substantially all of our product shipments,
including shipments to and from all of our stores and to our customers. Our utilization of these delivery services for shipments
is subject to risks, including increases in fuel prices, which would increase our shipping costs, and employee strikes and
inclement weather, which may impact a shipping company's ability to provide delivery services that adequately meet our
shipping needs. If we change the shipping companies we use, we could face logistical difficulties that could adversely affect
deliveries, and we would incur costs and expend resources in connection with such change. Moreover, we may not be able to
obtain terms as favorable as those received from our current independent third-party transportation providers which, in turn,
would increase our costs.
We depend on key executive management and may not be able to retain or replace these individuals or recruit additional
personnel, which could harm our business.
We depend on the leadership and experience of our key executive management. The loss of the services of any of our key
executives could have a material adverse effect on our business and prospects, as we may not be able to find suitable
individuals to replace them on a timely basis or without incurring increased costs, or at all. We believe that our future success
will depend greatly on our continued ability to attract and retain highly skilled and qualified personnel. There is a high level of
competition for experienced, successful personnel in the retail industry. Our inability to meet our talent requirements in the
future could impair our growth and harm our business.
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The success of our growth strategy, including improving the productivity of our existing stores, opening new outlet stores,
and growing our e-commerce business, is dependent on a number of factors and our inability to execute our growth strategy
or accomplish our other business objectives could negatively impact the value of our business.
Our growth strategy is partially dependent on our ability to improve the productivity of our existing stores, open new outlet
stores, and grow our e-commerce business. We are simultaneously pursuing other business objectives, including increasing
profitability, supporting and developing our Associates, providing an exceptional brand and customer experience, and
upgrading and enhancing our systems and processes. This will place increased demands on our financial, operational,
managerial, and administrative resources, which could distract our focus and cause business performance to decline. For
example, as we look for ways to expand our product offerings to improve store productivity and grow our e-commerce
business, we could lose focus on our existing product offerings, which could cause a decrease in sales. Many of our objectives,
including upgrading our systems, elevating our customer experience, and sharpening our brand position, require significant
financial investments that may not provide a return in the near term or at all.
With respect to our desire to open new outlet stores, we are reliant upon our ability to obtain desirable store locations,
negotiating acceptable leases, opening stores on budget and in a timely manner, supplying merchandise that is differentiated
from our retail store merchandise, the continued popularity of outlet centers, and successfully hiring and training store
managers and sales associates. We historically have received landlord allowances related to store build outs which offset certain
capital expenditures we must make to open a new store. If landlord allowances cease to be available to us in the future or are
decreased, opening new stores would require more capital outlay, which could adversely affect our ability to open new stores.
Furthermore, to the extent we open new outlet stores in markets where we have existing stores, our existing stores in those
markets may experience reduced net sales.
Executing our growth initiatives and achieving our objectives is dependent upon our ability to successfully execute against such
initiatives and objectives. There can be no guarantee that these initiatives or objectives will result in improved operating results
or an increase in the value of the business.
We have, and will continue to have, significant lease obligations. We are subject to risks associated with leasing substantial
amounts of space, including future increases in occupancy costs and the need to generate significant cash flow to meet our
lease obligations.
We have, and will continue to have, significant lease obligations. We lease all of our store locations, our corporate offices, and
our central distribution facility. We typically occupy our stores under operating leases with terms of ten years, with options to
renew for additional multi-year periods thereafter. In the future, we may not be able to negotiate favorable lease terms. Our
inability to do so may cause our occupancy costs to be higher in future years or may force us to close stores in desirable
locations.
Some of our leases have early cancellation clauses, which permit the lease to be terminated by us or the landlord if certain sales
levels are not met in specific periods or if the center does not meet specified occupancy standards. In addition to future
minimum lease payments, some of our store leases provide for additional rental payments based on a percentage of net sales, or
“percentage rent,” if sales at the respective stores exceed specified levels, as well as the payment of common area maintenance
charges, real property insurance, and real estate taxes. Many of our lease agreements have defined escalating rent provisions
over the initial term and any extensions. As we expand our store base, our lease expense and our cash outlays for rent under the
lease terms will increase.
We depend on cash flow from operations to pay our lease expenses. If our business does not generate sufficient cash flow from
operating activities to fund these expenses, due to continued decreases in mall traffic or other factors, we may not be able to
service our lease expenses, which could materially harm our business. Furthermore, the significant cash flow required to satisfy
our obligations under the leases increases our vulnerability to adverse changes in general economic, industry, and competitive
conditions, and could limit our ability to fund working capital, incur indebtedness, and make capital expenditures or other
investments in our business.
If an existing or future store is not profitable, and we decide to close it, we may nonetheless be committed to perform our
obligations under the applicable lease including, among other things, paying the base rent for the balance of the lease term.
Moreover, even if a lease has an early cancellation clause, we may not satisfy the contractual requirements for early
cancellation under that lease. As of January 30, 2016, our minimum annual rental obligations under long-term lease
arrangements for 2016 and 2017 were $227.8 million and $197.8 million, respectively. Our inability to enter into new leases or
renew existing leases on terms acceptable to us or be released from our obligations under leases for stores that we close could
materially adversely affect us.
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We rely on third parties to provide us with certain key services for our business. If any of these third parties fails to perform
their obligations to us or declines to provide services to us in the future, we may suffer a disruption to our business.
Furthermore, we may be unable to provide these services or implement substitute arrangements on a timely basis on terms
favorable to us.
We rely on many different third parties to provide us with key services. For example, we rely on a third party to operate our
central distribution facility in Columbus, Ohio and to provide certain inbound and outbound transportation and delivery
services, distribution services, customs, and brokerage services. We also rely on another third party to provide us with logistics
and other services related to our e-commerce operations. In connection with our sourcing activities, we rely on approximately
75 buying agents and vendors to help us source products from approximately 306 manufacturing facilities, and in connection
with our marketing activities, we rely on third parties to administer our customer database, our loyalty program, and our gift
cards. We also rely on third-party technology providers to provide us with various technology services and we rely on a third
party to administer certain aspects of our payroll. If any of these third parties fails to perform their obligations to us or declines
to provide services to us in the future, we may suffer a disruption to our business or increased costs. Furthermore, we may be
unable to provide these services or implement substitute arrangements on a timely and cost-effective basis on terms favorable
to us.
There are claims made against us from time to time that can result in litigation or regulatory proceedings which could
distract management from our business activities and result in significant liability.
We face the risk of litigation and other claims against us. Litigation and other claims arise in the ordinary course of our
business and include commercial disputes, employment related claims, including wage and hour claims, intellectual property
disputes, such as trademark, copyright, and patent infringement disputes, consumer protection and privacy matters, product-
related allegations, and premises liability claims. See Note 13 to our Consolidated Financial Statements included in "Item 8.
Financial Statements and Supplementary Data" in Part II of this Annual Report on Form 10-K.
Any claims could result in litigation against us and could also result in regulatory proceedings being brought against us by
various federal and state agencies that regulate our business, including the United States Equal Employment Opportunity
Commission, the Federal Trade Commission, or the Consumer Product Safety Commission. Often these cases raise complex
factual and legal issues, which are subject to risks and uncertainties and could require significant management time. Litigation
and other claims and regulatory proceedings against us could result in unexpected expenses, legal liability, and injunctions
against us or restrictions placed upon us, which could disrupt our operations, preclude us from selling products, or otherwise
have a material adverse effect on our operations, financial results, and our reputation.
Changes in laws, including employment laws and laws related to our merchandise, could make conducting our business
more expensive or otherwise change the way we do business.
We are subject to numerous laws and regulations, including labor and employment, product safety, customs, consumer
protection, privacy, zoning laws and ordinances, intellectual property laws, and other laws that regulate retailers generally or
govern the import and export of goods, advertising and promotions, the sale of merchandise, product content, and the operation
of stores and warehouse facilities. If these regulations were to change or were violated by our management, employees,
vendors, or buying agents, the costs of certain goods could increase, or we could experience delays in shipments of our goods,
be subject to fines or penalties, or suffer reputational harm, which could reduce demand for our merchandise and hurt our
business and results of operations.
In addition to increased regulatory compliance requirements, changes in laws could make ordinary conduct of our business
more expensive or require us to change the way we do business. For example, changes in federal and state minimum wage laws
could continue to raise the wage requirements for certain of our employees. Other laws related to employee benefits and
treatment of employees, including laws related to limitations on employee hours, work scheduling, supervisory status, leaves of
absence, mandated health benefits, or overtime pay, could also negatively impact us, such as by increasing compensation and
benefits costs.
Moreover, changes in product safety or other consumer protection laws, environmental laws, and other regulations, could lead
to increased compliance costs. It is often difficult for us to plan and prepare for potential changes to applicable laws and future
compliance costs related to such changes could be material to us.
We may be unable to protect our trademarks or other intellectual property rights, may be precluded from using trademarks
in certain countries, and may face claims from third parties for intellectual property infringement, any of which could harm
our business.
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We rely on certain trademark registrations and common law trademark rights to protect the distinctiveness of our brand.
However, there can be no assurance that the actions we have taken to establish and protect our trademarks will be adequate to
prevent imitation of our trademarks by others or to prevent others from claiming that sales of our products infringe, dilute, or
otherwise violate third-party trademarks or other proprietary rights that could block sales of our products.
The laws of certain foreign countries may not protect the use of unregistered trademarks to the same extent as do the laws of
the United States. As a result, international protection of our brand may be limited, and our right to use our trademarks outside
the United States could be impaired. Other persons or entities may have rights to trademarks that contain portions of our marks
or may have registered similar or competing marks for apparel and/or accessories in foreign countries. There may also be other
prior registrations of trademarks identical or similar to our trademarks in other foreign countries. Accordingly, it may be
possible for others to prevent the sale or manufacture of our branded goods or the operation of Express stores in certain foreign
countries. Our inability to register our trademarks or purchase or license the right to use the relevant trademarks in these
jurisdictions could limit our ability to penetrate new markets in jurisdictions outside the United States.
Litigation may be necessary to protect and enforce our trademarks and other intellectual property rights, or to defend against
claims by third parties alleging that we infringe, dilute, or otherwise violate third-party trademarks or other intellectual property
rights. Any litigation or claims brought by or against us, whether with or without merit, and whether successful or not, could
result in substantial costs and diversion of our resources, which could have a material adverse effect on our business, financial
condition, results of operations, or cash flows. Any intellectual property litigation or claims against us could result in the loss or
compromise of our intellectual property rights, could subject us to significant liabilities, require us to seek licenses on
unfavorable terms, if available at all, prevent us from manufacturing or selling certain products, limit our ability to market or
sell to our customers using certain methods or technologies, and/or require us to redesign or re-label our products or rename our
brand, any of which could have a material adverse effect on our business, financial condition, results of operations, or cash
flows.
The terms of our Revolving Credit Facility may restrict our current and future operations, which could adversely affect our
ability to respond to changes in our business and to manage our operations.
We are party to an Asset Based Loan Credit Agreement ("Revolving Credit Facility") that allows us to borrow up to $250
million, subject to certain terms and conditions contained in the agreement. The terms of the Revolving Credit Facility contain,
and any agreements governing any future indebtedness may contain, financial restrictions on us and our ability to, among other
things:
•
place liens on our assets;
• make investments other than permitted investments;
•
•
incur additional indebtedness;
prepay certain indebtedness;
• merge, consolidate or dissolve;
•
•
•
•
sell assets;
engage in transactions with affiliates;
change the nature of our business;
change our fiscal year or organizational documents; and
• make other restricted payments, including share repurchases and dividends.
In addition, the Revolving Credit Facility requires us to maintain a fixed charge coverage ratio of 1.00 to 1.00, if excess
availability plus eligible cash collateral is less than 10% of the borrowing base for 15 consecutive days.
A failure by us to comply with the covenants or to maintain the required financial ratios contained in the Revolving Credit
Facility could result in an event of default under such indebtedness, which could adversely affect our ability to respond to
changes in our business and manage our operations. Upon the occurrence of an event of default, the lenders under our
Revolving Credit Facility could elect to declare all amounts outstanding to be due and payable and exercise other remedies as
set forth in the agreement and there can be no assurance that our assets would be sufficient to repay any indebtedness in full,
which could have a material adverse effect on our ability to continue to operate as a going concern. See Note 8 to our
Consolidated Financial Statements for further information relating to our indebtedness.
Our ability to pay dividends and repurchase shares is subject to restrictions in our Revolving Credit Facility, results of
operations, and capital requirements.
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Any determination to pay dividends or repurchase additional shares in the future will be at the discretion of our Board of
Directors and will depend upon our results of operations, our financial condition, contractual restrictions, restrictions imposed
by applicable law, and other factors our Board of Directors deems relevant. Our ability to pay dividends on or repurchase our
common stock is limited by the terms of the Revolving Credit Facility and may be further restricted by the terms of any future
debt or preferred securities. Additionally, because we are a holding company, our ability to pay dividends on our common stock
is limited by restrictions on the ability of our subsidiaries to pay dividends or make distributions to us, including restrictions
under the terms of the Revolving Credit Facility.
Our results may be adversely affected by fluctuations in energy costs.
Energy costs have fluctuated dramatically in the past. These fluctuations may result in an increase in our transportation costs
for distribution, utility costs for our retail stores, and costs to purchase product from our manufacturers. A rise in energy costs
could adversely affect consumer spending and demand for our products and increase our operating costs, both of which could
have a material adverse effect on our financial condition, results of operations, or cash flows.
Changes in tax requirements, results of tax audits, and other factors may cause fluctuations in our effective tax rate and
operating results.
We are subject to income tax in local, national, and international jurisdictions. Our tax returns and other tax matters are also
subject to examination by the Internal Revenue Service and other tax authorities and governmental bodies. These examinations
may challenge certain of our tax positions, such as the timing and amount of deductions and allocations of taxable income to
various jurisdictions. The results of any tax audits could adversely affect our financial results. Furthermore, our effective tax
rate in a given period may be materially impacted by changes in the mix and level of earnings by taxing jurisdiction and
deductibility of stock based compensation.
Our products are also subject to import and excise duties and/or sales or value-added taxes in many jurisdictions. Fluctuations
in tax rates and duties could have a material adverse effect on our financial condition, results of operations, or cash flows.
We may recognize impairment on long-lived assets.
Our long-lived assets, primarily stores and intangible assets, are subject to periodic testing for impairment. Store assets are
reviewed using factors including, but not limited to, our future operating plans and projected future cash flows. Failure to
achieve our future operating plans or generate sufficient levels of cash flow at our stores could result in impairment charges on
long-lived assets, which could have a material adverse effect on our financial condition or results of operations.
Anti-takeover provisions in our charter documents and Delaware law may discourage or delay acquisition attempts for us
that our stockholders might consider favorable.
Our certificate of incorporation and bylaws also contain provisions that may make the acquisition of the Company or a change
in our management or Board of Directors more difficult without the approval of our Board of Directors. These provisions do
the following:
•
•
•
•
establish a classified Board of Directors so that not all members of our Board of Directors are elected at one time;
authorize the issuance of undesignated preferred stock, the terms of which may be established, and the shares of which
may be issued without stockholder approval, and which may include super voting, special approval, dividend, or other
rights or preferences superior to the rights of the holders of common stock;
prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our
stockholders; and
establish advance notice requirements for nominations for elections to our Board of Directors or for proposing matters
that can be acted upon by stockholders at stockholder meetings.
Our certificate of incorporation also contains a provision that provides us with protections similar to Section 203 of the
Delaware General Corporation Law, that will prevent us from engaging in a business combination with a person who acquires
at least 15% of our common stock for a period of 3 years from the date such person acquired such common stock, unless Board
or stockholder approval is obtained prior to the acquisition. These anti-takeover provisions and other provisions under
Delaware law could discourage, delay, or prevent a transaction involving a change in control of our company, even if doing so
would benefit our stockholders. These provisions could also discourage proxy contests and make it more difficult for
stockholders to elect directors of their choosing and to cause us to take other corporate actions desired by stockholders.
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If we fail to establish and maintain adequate internal controls over financial reporting, we may not be able to report our
financial results in a timely and reliable manner, which could harm our business and impact the value of our securities.
We depend on our ability to produce accurate and timely financial statements in order to run our business. If we fail to do so,
our business could be negatively affected and our independent registered public accounting firm may be unable to attest to the
fair presentation of our Consolidated Financial Statements in accordance with U.S. generally accepted accounting principles
(“GAAP”) and the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-
Oxley Act. Effective internal controls are necessary for us to provide reliable financial reports and to effectively prevent fraud.
If we cannot provide reliable financial reports and effectively prevent fraud, our reputation and operating results could be
harmed. Even effective internal controls have inherent limitations including the possibility of human error, the circumvention
or overriding of controls, or fraud. Therefore, even effective internal controls can provide only reasonable assurance with
respect to the preparation and fair presentation of financial statements. In addition, projections of any evaluation of
effectiveness of internal control over financial reporting in future periods are subject to the risk that the control may become
inadequate because of changes in conditions or a deterioration in the degree of compliance with the policies or procedures.
If we fail to maintain adequate internal controls, including any failure to implement new or improved controls, or if we
experience difficulties in their implementation, we could fail to meet our reporting obligations, and there could be a material
adverse effect on our business and financial results. In the event that our current control practices deteriorate, we may be unable
to accurately report our financial results or prevent fraud, and investor confidence and the market price of our stock may be
adversely affected.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
Home Office, Distribution Center, and Design Studio
The lease for our executive office space in Columbus, Ohio is scheduled to terminate September 30, 2017, but we have an
option to extend the lease through April 2021. The lease for our design offices in New York City expires in July 2026.
The lease for our distribution facility is scheduled to terminate in April 2021, but may be terminated by either party upon 36
months prior notice provided that the lease term may not end between the months of October and February.
Stores
All of our 653 stores are leased from third parties. See "Item 1. Business - Store Locations" for further information on the
location of our stores.
We may from time to time lease new facilities or vacate existing facilities as our operations require, including in connection
with opening new stores.
ITEM 3. LEGAL PROCEEDINGS.
Information relating to legal proceedings is set forth in Note 13 to our Consolidated Financial Statements included in "Item 8.
Financial Statements and Supplementary Data" in Part II of this Annual Report on Form 10-K and is incorporated herein by
reference.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock trades on the NYSE under the symbol "EXPR". As of March 18, 2016, there were approximately 18 holders
of record of our common stock. The number of holders of record is based upon the actual number of holders registered at such
date and does not include holders of shares in “street names,” or persons, partnerships, associates, corporations, or other entities
identified in security position listings maintained by depositories.
The table below sets forth the high and low sales prices per share of our common stock reported on the NYSE for 2015 and
2014.
Fourth quarter
Third quarter
Second quarter
First quarter
Dividends
2015
2014
High
Low
High
Low
$
$
$
$
19.91
20.72
19.17
17.75
$
$
$
$
15.61
16.23
16.22
12.66
$
$
$
$
15.33
17.50
17.50
18.99
$
$
$
$
11.90
13.52
11.80
11.80
We did not pay any dividends in 2015 or 2014. Our ability to pay dividends is restricted by the terms of our Revolving Credit
Facility. Any future determination to pay dividends will be made at the discretion of our Board of Directors and will depend on
our results of operations, restrictions contained in our Revolving Credit Facility or future financing arrangements, and other
factors as deemed relevant. For more information about the restrictions in our Revolving Credit Facility, see Note 8 to our
Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data".
Share Repurchases
The following table provides information regarding the purchase of shares of our common stock made by or on behalf of us or
any "affiliated purchaser" as defined in Rule 10b-18(a)(3) under the Exchange Act of 1934, during each month of the quarterly
period ended January 30, 2016:
Month
November 1, 2015 - November 28, 2015
November 29, 2015 - January 2, 2016
January 3, 2016 - January 30, 2016
Total
Total Number of
Shares
Purchased (1)
Average Price
Paid per Share
Total Number of
Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
Approximate
Dollar Value of
Shares that May
Yet be Purchased
under the Plans
or Programs (2)
(in thousands, except per share amounts)
$
$
$
980
151
1,577
2,708
18.41
17.20
16.44
978
151
1,577
2,706
$0
$97,405
$71,490
(1) Includes shares of restricted stock purchased in connection with employee tax withholding obligations under the Express,
Inc. 2010 Incentive Compensation Plan (as amended, the "2010 Plan").
(2) On May 28, 2014, the Board authorized us to repurchase up to $100 million of our common stock during the 18-month
period following the authorization using available cash, including cash on hand or cash available for borrowing under our
Revolving Credit Facility (the "2014 Repurchase Program). On November 28, 2015, the 2014 Repurchase Program expired.
On December 9, 2015, the Board authorized us to repurchase up to $100 million of our common stock (the "2015
Repurchase Program"). Share repurchases under the 2015 Repurchase Program will be funded using our available cash,
including cash on hand or cash available under our Revolving Credit Facility, and are expected to be executed during the
12-month period following the authorization. Under the program, we may repurchase shares in the open market, including
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Table of Contents
through Rule 10b5-1 plans, in privately negotiated transactions, through block purchases, or otherwise in compliance with
applicable laws, including Rule 10b-18 of the Exchange Act of 1934. The timing and actual number of shares repurchased
under the program will depend on a variety of factors including price, corporate and regulatory requirements, and other
business and market conditions. The 2015 Repurchase Program may be suspended, modified or discontinued at any time
and we have no obligation to repurchase any amount of our common stock under the program. In addition, subsequent to
January 30, 2016, we repurchased an additional 2.5 million shares for an aggregate amount equal to $41.5 million,
excluding commissions. As of March 30, 2016, we have $30.0 million available under the 2015 Repurchase Program for
additional share repurchases.
Performance Graph
The following graph compares the changes in the cumulative total return to stockholders of our common stock with that of the
S&P 500 Index and the Dow Jones U.S. Apparel Retailers Index for the same period. The comparison of the cumulative total
returns for each investment assumes that $100 was invested in our common stock and the respective indexes on January 29,
2011, and includes reinvestment of all dividends. The plotted points are based on the closing price on the last trading day of
each fiscal year.
COMPARISON OF THE
CUMULATIVE TOTAL RETURN
among Express, Inc., S&P 500 Index,
and Dow Jones U.S. Apparel Retailers Index
Express, Inc.
S&P 500 Index
Dow Jones U.S. Apparel Retailers Index
1/29/11
1/28/12
2/2/13
2/1/14
1/31/15
1/30/16
$
$
$
100.00 $
127.30 $
107.68 $
100.81 $
76.14 $
100.00 $
103.13 $
118.56 $
139.66 $
156.31 $
100.00 $
117.51 $
145.03 $
162.60 $
193.97 $
98.72
152.02
188.44
The Performance Graph in this Item 5 shall not be deemed "soliciting material" or "filed" with the SEC or subject to Regulation
14A or 14C under the Exchange Act of 1934 or to the liabilities of Section 18 of the Exchange Act of 1934 and will not be
deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act of
1934, except to the extent we specifically incorporate it by reference into such a filing.
20
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ITEM 6. SELECTED FINANCIAL DATA.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The following tables set forth our key financial measures and our selected historical consolidated financial and operating data
as of the dates and for the periods indicated. The selected historical consolidated financial and operating data as of January 30,
2016 and January 31, 2015 and for the years ended January 30, 2016, January 31, 2015, and February 1, 2014 are derived from
our audited Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. The selected historical
consolidated financial data as of February 1, 2014, February 2, 2013, and January 28, 2012, and the selected operating data for
the periods ended February 2, 2013 and January 28, 2012 are derived from our audited Consolidated Financial Statements,
which are not included herein.
The following selected historical consolidated data presented should be read in conjunction with the sections entitled “Risk
Factors,” “Management's Discussion and Analysis of Financial Condition and Results of Operations,” and our Consolidated
Financial Statements and the related Notes and other financial data included elsewhere in this Annual Report on Form 10-K.
Statement of Operations Data:
Net sales
Cost of goods sold, buying and occupancy costs
Gross profit
Selling, general, and administrative expenses
Operating income
Net income
Dividends declared per share
Earnings per share:
Basic
Diluted
Weighted Average Diluted Shares Outstanding
Other Financial and Operating Data:
Comparable sales (1)
Comparable sales (excluding e-commerce sales) (1)
Net sales per gross square foot (2)
Total gross square feet (in thousands) (average)
Number of stores (at year end)
Capital expenditures
Balance Sheet Data (at period end):
Cash and cash equivalents
Working capital (excluding cash and cash
equivalents )(3)
Total assets
Total debt
$
$
$
$
$
$
$
$
$
$
$
$
Fiscal Year Ended
2015
2014
2013
2012*
2011
(dollars in thousands, excluding net sales per gross square foot and per share data)
2,350,129
1,554,852
795,277
587,747
207,238
116,513
$
$
$
$
$
$
2,165,481
1,504,527
660,954
524,041
136,597
68,325
$
$
$
$
$
$
2,219,125
$ 2,157,227
1,501,418
$ 1,414,588
717,707
504,277
214,259
116,539
$
$
$
$
742,639
491,599
251,563
139,267
$
$
$
$
$
$
— $
— $
— $
— $
1.39
1.38
$
$
0.81
0.81
$
$
1.38
1.37
$
$
1.60
1.60
$
$
84,591
84,554
85,068
87,206
2,080,459
1,325,998
754,461
483,823
270,946
140,697
—
1.59
1.58
88,896
6%
4%
(5)%
(7)%
3 %
(1)%
— %
(3)%
6%
3%
343
$
320
$
338
$
349
$
5,573
653
115,343
186,903
$
$
5,529
641
115,088
346,159
$
$
5,439
632
105,368
311,884
$
$
5,307
625
99,674
256,297
$
$
19,113
20,618
(27,630)
(53,211)
1,178,644
1,278,150
1,182,670
1,019,199
—
199,527
199,170
198,843
355
5,196
609
77,176
152,362
(31,536)
866,320
198,539
281,147
Total stockholders' equity
$
617,953
$
556,339
$
474,569
$
371,162
$
* 2012 represents a 53-week year.
(1) Comparable sales have been calculated based upon stores that were open at least twelve full months as of the end of the reporting period. For 2013, comparable sales were
calculated based on the 52-week period ended February 1, 2014 compared to the 52-week period ended February 2, 2013. For 2012, comparable sales were calculated based
upon the 53-week period ended February 2, 2013 compared to the 53-week period ended February 4, 2012.
(2) Net sales per gross square foot is calculated by dividing net sales for the applicable period by the average gross square footage during such period. For the purpose of
calculating net sales per gross square foot, e-commerce sales and other revenues are excluded from net sales.
(3) Working capital is defined as current assets, less cash and cash equivalents, less current liabilities.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The following discussion and analysis summarizes the significant factors affecting the consolidated operating results, financial
condition, liquidity, and cash flows of the Company as of and for the periods presented below. The following discussion and
analysis should be read in conjunction with our Consolidated Financial Statements and the related Notes included elsewhere in
this Annual Report on Form 10-K. This discussion contains forward-looking statements that are based on the beliefs of our
management, as well as assumptions made by, and information currently available to, our management. Actual results could
differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including
those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in the section entitled “Risk Factors.”
All references herein to "2015," "2014," and "2013" refer to the 52-week periods ended January 30, 2016, January 31, 2015,
and February 1, 2014, respectively.
Overview
Express is a specialty apparel and accessories retailer offering both women's and men's merchandise. We have over 35 years of
experience offering a distinct combination of style and quality at an attractive value, targeting women and men between 20 and
30 years old. We offer our customers an assortment of fashionable apparel and accessories to address fashion needs across
multiple wearing occasions, including work, casual, jeanswear, and going-out occasions.
2015 Highlights vs. 2014
• Net sales increased 9% to $2.4 billion
• Comparable sales increased 6%
• Comparable sales (excluding e-commerce sales) increased 4%
• E-commerce sales increased 11% to $392.7 million
• Net sales per average gross square foot increased by $23 to $343
• Operating income increased 52% to $207.2 million
• Net income increased by 71% to $116.5 million
• Earnings per diluted share increased 70% to $1.38
The following charts show the three year trend of key performance metrics:
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Update On Our Key Initiatives
Store Performance
In 2015, comparable sales (excluding e-commerce sales)
increased 4% and net sales per average gross square foot
increased 7% to $343. The improvement was primarily
driven by the following:
•
Strong product assortment, which incorporated
more fashion items, new categories and collections,
and offered customers newness more often;
• Disciplined inventory management, including new
disciplines around product testing, purchasing, and
speed to market, which allowed us to bring better
product to our customers faster, and in more
appropriate quantities; and
• Reduced promotions which led to increased sales at
full ticket prices.
Real Estate Activity
As of January 30, 2016, we operated 653 stores, including 81
factory outlet stores.
2015 Store openings and closures:
• Opened 40 new factory outlet stores in the U.S., two
of which were converted from existing retail
locations;
• Opened one new U.S. retail store; and
• Closed 29 U.S. retail stores, two of which were
converted to outlet locations. The remaining 27
stores were permanently closed pursuant to our
previously announced plan to close approximately
50 retail stores over a 36 month time period,
primarily at lease expiration.
E-commerce
In 2015, our e-commerce sales increased 11% compared to
2014. The increase was primarily driven by:
•
•
Improved product assortment, including new
product categories;
Improved customer experience, including same day
delivery and featured brands;
• Website improvements allowing us to better
showcase our full priced product online; and
Improved mobile web and app capabilities allowing
more effective and personalized engagement with
our customers.
•
E-commerce sales represented 17% of our total net sales in
2015.
Expectations for 2016:
• Open 21 factory outlet stores, two of which will be
converted from existing retail locations; and
• Close 19 U.S. retail stores, two of which will be
converted to outlet locations.
•
•
•
Other Initiatives
2015 Objectives. In 2015, we made significant
progress against each of the objectives we set forth
at the beginning of the year, including increasing
profitability, further developing our people,
sharpening our brand positioning, elevating the
customer experience, and continuing to upgrade our
systems and processes.
International. At the end of 2015, we made the
strategic decision to shift our international focus to
growth within the Americas. As a result we have
terminated our franchise agreements covering the
Middle East and South Africa and all stores in these
areas are expected to be closed in 2016.
Systems and Processes. In 2015, we continued to
invest in new systems that will allow us to enhance
our omni-channel capabilities and enable future
growth. In 2016, we expect to launch several of
these new systems, including a new retail
management system, a new enterprise planning
system, and a new order management system.
Together, we believe these systems will lead to
improved efficiencies in our business once fully
implemented.
Outlook
We are focused on generating long-term growth for our stockholders by increasing profitability through a combination of net
sales growth, merchandise margin expansion, and expense leverage. Specific growth initiatives to accomplish this objective
include:
•
•
•
increasing the productivity of our existing stores;
opening new outlet stores; and
growing our e-commerce business.
In addition to increased profitability, we are also focused on other objectives to support long-term growth including:
•
supporting and developing our employees (or our "Associates");
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•
•
providing an exceptional brand and customer experience; and
upgrading and enhancing our systems and processes to enable growth.
We believe that successful execution against these objectives will position Express for future growth.
How We Assess the Performance of Our Business
In assessing the performance of our business, we consider a variety of performance and financial measures. These key
measures include net sales, comparable sales, cost of goods sold, buying and occupancy costs, gross profit/gross margin, and
selling, general, and administrative expenses. The following table describes and discusses these measures.
Financial Measures Description
Discussion
Net Sales
Revenue from the sale of merchandise, less returns and
discounts, as well as shipping and handling revenue
related to e-commerce, revenue from rental of our LED
sign in Times Square, gift card breakage, and revenue
earned from our franchise agreements.
Comparable Sales
Comparable 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 includes:
•
Sales from stores that were open 12 months or
more as of the end of the reporting period,
including conversions
• E-commerce sales
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
Includes the following:
• Direct cost of purchased merchandise
•
•
• Merchandising, design, planning and
Inventory shrink and other adjustments
Inbound and outbound freight
allocation, and manufacturing/production
costs
• Occupancy costs related to store operations
(such as rent and common area maintenance,
utilities, and depreciation on assets)
• Logistics costs associated with our e-
commerce business
Cost of goods sold,
buying and occupancy
costs
Our business is seasonal, and we have
historically realized a higher portion of our
net sales in the third and fourth quarters due
primarily to the impact of the holiday
season. Generally, approximately 45% of
our annual net sales occur in the Spring
season (first and second quarters) and 55%
occur in the Fall season (third and fourth
quarters).
Our 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.
Our cost of goods sold typically increases in
higher volume quarters because the direct
cost of purchased merchandise is tied to
sales.
The primary drivers of the costs of
individual goods are raw materials, labor in
the countries where our merchandise is
sourced, and logistics costs associated with
transporting our merchandise.
Buying and occupancy costs related to stores
are largely fixed and do not necessarily
increase as volume increases.
Changes in the mix of our products may also
impact our overall cost of goods sold,
buying and occupancy costs.
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Table of Contents
Financial Measures Description
Discussion
Gross Profit/Gross
Margin
Net sales minus cost of goods sold, buying and
occupancy costs. Gross margin measures gross profit as
a percentage of net sales.
Gross profit/gross margin is impacted by the
price at which we are able to sell our
merchandise and the cost of our product.
We review our inventory levels on an on-
going basis in order to identify slow-moving
merchandise and generally use markdowns
to clear such merchandise. The timing and
level of markdowns are driven primarily by
seasonality and customer acceptance of our
merchandise and have a direct effect on our
gross margin.
Any marked down merchandise that is not
sold is marked-out-of-stock. We use third-
party vendors to dispose of this marked-out-
of-stock merchandise.
With the exception of store payroll, certain
marketing expenses, and incentive
compensation, these expenses generally do
not vary proportionally with net sales. As a
result, selling, general, and administrative
expenses as a percentage of net sales are
usually higher in lower volume quarters and
lower in higher volume quarters.
Selling, General, and
Administrative
Expenses
Includes operating costs not included in cost of goods
sold, buying and occupancy costs such as:
•
Payroll and other expenses related to
operations at our corporate offices
Store expenses other than occupancy costs
•
• Marketing expenses, including production,
mailing, print, and digital advertising costs,
among other things
Fiscal Year Comparisons
Net Sales
Net sales (in thousands)
Comparable sales
Comparable sales (excluding e-commerce sales)
Gross square footage at end of period (in thousands)
Number of:
Stores open at beginning of period
New retail stores
New outlet stores
Retail stores converted to outlets
Closed stores
Stores open at end of period
2015
Year Ended
2014
2013
$
2,350,129
$ 2,165,481
$ 2,219,125
6%
4%
(5)%
(7)%
3 %
(1)%
5,640
5,619
5,498
641
1
40
(2)
(27)
653
632
9
41
(22)
(19)
641
625
16
—
—
(9)
632
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Net sales increased by approximately $184.6 million, or 9%, between 2015 and 2014. Comparable sales increased 6% in 2015
compared to 2014. The increase in comparable sales resulted primarily from an increase in average dollar sales per transaction.
We attribute the increase in average dollar sales per transaction to our strong product assortment and reduced promotional
activity in 2015. Non-comparable sales increased $69.9 million, driven primarily by new outlet store openings, partially offset
by closed retail stores.
Net sales decreased by approximately $53.6 million, or 2%, between 2014 and 2013. Comparable sales decreased 5% in 2014
compared to 2013. The decrease in comparable sales resulted from decreased transactions and average dollar sales in our retail
stores offset by growth in e-commerce sales. We attribute the decrease in average dollar sales to a highly promotional retail
landscape, as a result of continued decreased traffic. Non-comparable sales increased $51.8 million, primarily due to the
opening of 41 new outlet stores.
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Gross Profit
The following table shows cost of goods sold, buying and occupancy costs, gross profit in dollars, and gross margin for the
stated periods:
Cost of goods sold, buying and occupancy costs
Gross profit
Gross margin
2015
Year Ended
2014
2013
(in thousands, except percentages)
$
$
1,554,852
795,277
$
$
1,504,527
660,954
$
$
1,501,418
717,707
33.8%
30.5%
32.3%
The 330 basis point increase in gross margin, or gross profit as a percentage of net sales, in 2015 compared to 2014 was
comprised of a 200 basis point increase in merchandise margin and a 130 basis point decrease in buying and occupancy costs as
a percentage of net sales. The increase in merchandise margin was driven by a better product assortment, a reduction in
promotional activities, and more disciplined inventory management which led to fewer markdowns. The decrease in buying and
occupancy costs as a percentage of sales was primarily the result of the leveraging effect of the increase in sales and the fact
that we recognized a $1.8 million impairment charge related to store fixed assets in 2015 versus a $10.5 million impairment
charge in 2014. Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable. The reviews are conducted at the store level, the lowest identifiable level of cash
flow. Factors used to assess stores for impairment include, but are not limited to, plans for future operations, brand initiatives,
recent operating results, and projected future cash flows. Significant changes in any of these factors could lead to future
impairments.
The 180 basis point decrease in gross margin, or gross profit as a percentage of net sales, in 2014 compared to 2013 was
comprised of a 180 basis point increase in buying and occupancy costs as merchandise margin remained flat. The increase in
buying and occupancy costs was primarily the result of increased depreciation expense, increased rent and related charges, and
an increase in base payroll expense primarily due to additional headcount at our home office to support our outlet expansion.
Depreciation expense was impacted by the opening of our two flagship stores in New York City and San Francisco as well as
impairment charges of $10.5 million related to leasehold improvements at certain under-performing stores.
Selling, General, and Administrative Expenses
The following table shows selling, general, and administrative expenses in dollars and as a percentage of net sales for the stated
periods:
2015
Year Ended
2014
(in thousands)
2013
Selling, general, and administrative expenses
$
587,747
$
524,041
$
504,277
Selling, general, and administrative expenses, as a percentage of net sales
25.0%
24.2%
22.7%
The $63.7 million increase in selling, general, and administrative expenses in 2015 compared to 2014 was the result of
additional payroll related expenses of approximately $42.5 million. The additional payroll expenses were primarily related to
incentive compensation and store payroll resulting from improved performance and store payroll associated with new outlet
stores, partially offset by payroll savings from retail store closures. In addition, there was an increase of $10.9 million in
information technology expenses primarily related to the previously mentioned upgrades to our systems and processes and an
increase of $5.3 million in marketing expenses primarily related to increased digital and television marketing.
The $19.8 million increase in selling, general, and administrative expenses in 2014 compared to 2013 was primarily the result
of increased marketing expenses in 2014 associated with the LED sign at our flagship store in New York City, increased
spending on digital marketing to continue to increase our visibility with our customers and potential customers, and expenses
related to our brand ambassadors.
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Interest Expense, Net
The following table shows interest expense in dollars for the stated periods:
Interest expense, net
2015
Year Ended
2014
(in thousands)
2013
$
15,882
$
23,896
$
19,522
The $8.0 million decrease in interest expense is primarily attributable to the reduction in interest expense following the
redemption of our 8 3/4% Senior Notes due 2018 (the "Senior Notes") in the first quarter of 2015, partially offset by a $9.7
million loss on extinguishment of debt in connection with the redemption.
The increase in interest expense, net in 2014 compared to 2013 resulted from the accounting rules related to our flagship stores
in New York City and San Francisco that require a portion of the rent payments to be allocated to interest expense. Refer to
Note 5 of the Consolidated Financial Statements for additional information.
Income Tax Expense
The following table shows income tax expense in dollars for the stated periods:
Income tax expense
2015
Year Ended
2014
(in thousands)
2013
$
74,171
$
43,231
$
76,627
The effective tax rate was 38.9% in 2015 compared to 38.8% in 2014. We anticipate our effective tax rate will be approximately
39% in 2016.
The effective tax rate for 2014 was 38.8% compared to 39.7% for 2013. The reduction in the tax rate for 2014 was primarily
related to the release of uncertain tax positions following the conclusion of an IRS examination.
Refer to Note 7 of the Consolidated Financial Statements for additional information regarding the tax rate.
Adjusted Net Income
The following table presents Adjusted Net Income and Adjusted Earnings Per Diluted Share for the stated periods which eliminate
the non-core operating costs incurred in connection with the redemption of our Senior Notes in the first quarter of 2015:
Adjusted Net Income
Adjusted Earnings Per Diluted Share
2015
Year Ended
2014
2013
(in thousands, except per share amounts)
$
$
122,429
1.45
$
$
68,325 * $
116,539 *
0.81 * $
1.37 *
* No adjustments were made to net income or earnings per diluted share for 2014 and 2013.
We supplement the reporting of our financial information determined under GAAP with certain non-GAAP financial measures:
adjusted net income and adjusted earnings per diluted share. We believe that these non-GAAP measures provide meaningful
information to assist stockholders in understanding our financial results and assessing our prospects for future performance.
Management believes adjusted net income and adjusted earnings per diluted share are important indicators of our operations
because they exclude items that may not be indicative of, or are unrelated to, our core operating results, and provide a better
baseline for analyzing trends in our underlying business. In addition, adjusted earnings per diluted share is used as a performance
measure in our executive compensation program for purposes of determining the number of equity awards that are ultimately
earned. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures
with other companies' non-GAAP financial measures having the same or similar names. These adjusted financial measures should
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not be considered in isolation or as a substitute for reported net income and reported earnings per diluted share. These non-GAAP
financial measures reflect an additional way of viewing our operations that, when viewed with our GAAP results and the below
reconciliations to the corresponding GAAP financial measures, provide a more complete understanding of our business. We strongly
encourage investors and stockholders to review our Consolidated Financial Statements in their entirety and not to rely on any
single financial measure.
The table below reconciles the non-GAAP financial measures, adjusted net income and adjusted earnings per diluted share, with
the most directly comparable GAAP financial measures, net income and earnings per diluted share. No adjustments were made
to net income or earnings per diluted share for 2014 and 2013, and therefore no tabular reconciliation has been included for those
periods.
(in thousands, except per share amounts)
Net Income
2015
Earnings per Diluted
Share
Reported GAAP Measure
Interest Expense (a) *
Adjusted Non-GAAP Measure
$
$
116,513
5,916 *
122,429
$
$
1.38
0.07
1.45
Weighted Average
Diluted Shares
Outstanding
84,591
(a)
Includes the redemption premium paid, the write-off of unamortized debt issuance costs, and the write-off of
the unamortized debt discount related to the redemption of all $200.9 million of our Senior Notes.
* Items were tax affected at our statutory rate of approximately 39% for 2015.
Liquidity and Capital Resources
A summary of cash provided by or used in operating, investing, and financing activities are shown in the following table:
Provided by operating activities
Used in investing activities
Used in financing activities
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents at end of period
2015
229,603
(115,378)
(271,997)
(159,256)
186,903
$
$
$
$
Year Ended
2014
(in thousands)
$
156,570
(116,098)
(4,938)
34,275
346,159
$
2013
195,075
(105,462)
(33,331)
55,587
311,884
Our business relies on cash flows from operations as our primary source of liquidity, with the majority of that cash flow being
generated in the fourth quarter of the year. Our primary operating cash needs are for merchandise inventories, payroll, store
rent, and marketing. Net cash provided by operating activities was $229.6 million in 2015 compared to $156.6 million in 2014.
The increase in cash flows in 2015 was primarily driven by the improved profitability of the business. Our liquidity position
also benefits from the fact that we generally collect cash from sales to customers the same day or, in the case of credit or debit
card transactions, within three to five days of the related sale, and have up to 75 days to pay certain merchandise vendors and
45 days to pay the majority of our non-merchandise vendors.
In addition to cash flow from operations, we have access to additional liquidity, if needed, through borrowings under our
Revolving Credit Facility. As of January 30, 2016, we had $240.6 million available for borrowing under our Revolving Credit
Facility. Refer to Note 8 of our Consolidated Financial Statements for additional information on our Revolving Credit Facility.
We also use cash for capital expenditures and financing transactions. Capital expenditures consist primarily of new and
remodeled store construction and fixtures and information technology projects. We had capital expenditures of approximately
$115.3 million in 2015, $115.1 million in 2014, and $105.4 million in 2013. The increase in 2014 and 2015 was primarily
driven by investment in systems that will support our continued evolution into an omni-channel brand. These new systems are
expected to become operational in 2016.
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In addition to the cash uses noted previously, in 2015, we redeemed all $200.9 million of our Senior Notes for an aggregate
amount equal to $205.3 million, including the applicable redemption premium. We also repurchased $68.6 million of our
common stock, including commissions, in 2015 and $35.1 million of our common stock, including commissions, in 2013.
Forward-Looking Liquidity Discussion
In 2016, we plan to open approximately 21 factory outlet stores, two of which will be converted from existing retail locations.
We expect capital expenditures for 2016 to be approximately $110.0 million to $115.0 million, primarily driven by remodels of
existing stores, new factory outlet store openings, and continued investments in multiple information technology initiatives,
including our new order management, retail management, and enterprise planning systems. These capital expenditures do not
include the impact of landlord allowances, which are expected to be approximately $5.0 million to $8.0 million for 2016.
On December 9, 2015, our Board of Directors approved a new share repurchase program for up to $100 million of our
outstanding common stock. As of January 30, 2016, $71.5 million remained available for additional share repurchases under
the 2015 Repurchase Program. Subsequent to January 30, 2016, we repurchased an additional 2.5 million shares of our
common stock under our 2015 Repurchase Program for an aggregate amount equal to $41.5 million, including commissions.
As of March 30, 2016, we have $30.0 million available under the 2015 Repurchase Program for additional share repurchases.
Additional share repurchases under the 2015 Repurchase Program are expected to be funded using our available cash, including
cash on hand or cash available under our Revolving Credit Facility, and are expected to be executed over the 12-month period
following authorization.
We believe that cash generated from operations and the availability of borrowings under our Revolving Credit Facility will be
sufficient to meet working capital requirements and anticipated capital expenditures for at least the next 12 months.
Contractual Obligations
We enter into long-term contractual obligations and commitments in the normal course of business, primarily debt obligations
and non-cancelable operating leases. As of January 30, 2016, our contractual cash obligations over the next several years are set
forth in the following table.
Contractual Obligations:
Other Long-Term Obligations(1)
Operating Leases(2)
Purchase Obligations(3)
Total
Payments Due by Period
Total
<1 Year
1-3 Years 3-5 Years Thereafter
(in thousands)
33,040
1,496,667
294,042
11,900
227,799
294,042
19,860
381,346
—
1,280
324,467
—
$ 1,823,749 $ 533,741 $ 401,206 $ 325,747 $
—
563,055
—
563,055
(1) Other long-term obligations consist of employment related agreements and obligations under other long-term agreements.
(2) We enter into operating leases in the normal course of business. Most lease arrangements provide us with the option to
renew the leases at defined terms. The future operating lease obligations would change if we were to exercise these
options, or if we were to enter into additional new operating leases. These amounts also include all contractual lease
commitments related to our flagship locations, which we are considered the owner of for accounting purposes. Common
area maintenance, real estate tax, and other customary charges included in our operating lease agreements are not included
above. Estimated annual expense for such charges is approximately $120 million.
(3) Purchase obligations are made up of merchandise purchase orders and unreserved fabric commitments.
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Critical Accounting Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions
that affect the reported amounts of our assets, liabilities, revenues, and expenses, as well as the related disclosure of contingent
assets and liabilities at the date of the financial statements. Management evaluates its accounting policies, estimates, and
judgments on an on-going basis. Management bases its estimates and judgments on historical experience and various other
factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under
different assumptions and conditions.
Management evaluated the development and selection of its critical accounting policies and estimates and believes that the
following policies involve a higher degree of judgment or complexity and are most significant to reporting our results of
operations and financial position and are, therefore, discussed as critical. The following critical accounting policies reflect the
significant estimates and judgments used in the preparation of our Consolidated Financial Statements. More information on all
of our significant accounting policies can be found in Note 2 to our Consolidated Financial Statements.
Description of Policy
Judgments and Uncertainties
Our accounting methodology for
calculating gift card breakage contains
uncertainties because it requires
management to make assumptions that
future gift card redemptions will follow
the pattern of previous redemptions. Our
estimates for these items are based
primarily on historical transaction
experience.
Effect if Actual Results Differ from
Assumptions
We have no reason to believe that there
will be a material change in the future
estimates or assumptions we use to
measure gift card breakage. However, if
actual results are not consistent with our
estimates or assumptions, we may be
exposed to losses or gains that could be
material.
A 100 basis point change in our gift card
breakage rate as of January 30, 2016
would not have had a material impact on
pre-tax income.
Gift Card Breakage
We sell gift cards in our retail stores and
through our e-commerce website and
third parties. These cards do not expire
or lose value over periods of inactivity.
We account for gift cards by recognizing
a liability at the time a gift card is sold.
We recognize income from gift cards
when they are redeemed by the
customer. In addition, income on
unredeemed gift cards is recognized
proportionally using a time-based
attribution method from issuance of the
gift card to the time it can be determined
that the likelihood of the gift card being
redeemed is remote. The gift card
breakage rate is based on historical
redemption patterns.
We have not made any material changes
in the accounting methodology used to
determine gift card breakage over the
past three years.
Returns Reserve
We recognize retail sales at the time the
customer takes possession of the
merchandise. We reserve for sales
returns through estimates based on
historical experience and various other
assumptions that management believes
to be reasonable.
We have not made any material changes
in the accounting methodology used to
determine our returns reserve over the
past three years.
Our accounting methodology for
estimating our returns reserve contains
uncertainties because it requires
management to make assumptions that
merchandise returns in the future will
follow the pattern of returns in prior
periods. Our estimates for these items
are based primarily on historical
transaction experience.
We have no reason to believe that there
will be a material change in the future
estimates or assumptions we use to
measure our returns reserve. However, if
actual results are not consistent with our
estimates or assumptions, we may be
exposed to losses or gains that could be
material.
A 100 basis point change in the rate of
returns as of January 30, 2016 would not
have had a material impact on pre-tax
income.
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Description of Policy
Inventories - Lower of Cost or Market
Inventories are principally valued at the
lower of cost or market on a weighted-
average cost basis. We record a lower of
cost or market reserve for our
inventories if the cost of specific
inventory items on hand exceeds the
amount we expect to realize from the
ultimate sale or disposal of the
inventory.
We have not made any material changes
in the accounting methodology used to
determine the lower of cost or market
reserve over the past three years.
Intangible Assets
Intangible assets with indefinite lives,
primarily tradenames, are reviewed for
impairment annually in the fourth
quarter and may be reviewed more
frequently if indicators of impairment
are present. The impairment review is
performed by assessing qualitative
factors to determine whether it is more
likely than not that the fair value of the
asset is less than its carrying amount.
Leasehold Improvements
Leasehold improvements are reviewed
for impairment if indicators of
impairment are present. The impairment
review is performed at the store level by
comparing the carrying value of the
asset to the undiscounted cash flows
derived from the asset group. If the
undiscounted cash flows of the asset are
less than the carrying value of the
respective asset group, then the carrying
value is compared to the estimated fair
value as determined using the
discounted store cash flows, and a loss is
recognized for the difference.
We have not made any material changes
in the triggering events used to evaluate
our leasehold improvements for
impairment over the past three years.
Judgments and Uncertainties
Effect if Actual Results Differ from
Assumptions
Our accounting methodology for
determining the lower of cost or market
reserve contains uncertainties because it
requires management to make
assumptions and estimates that are based
on factors such as merchandise
seasonality, historical trends, and
estimated inventory levels, including
sell-through of remaining units.
We have no reason to believe that there
will be a material change in the future
estimates or assumptions we use to
measure the lower of cost or market
reserve. However, if actual results are
not consistent with our estimates or
assumptions, we may be exposed to
losses or gains that could be material.
A 10% increase or decrease in the lower
of cost or market adjustment would not
have had a material impact on the
inventory balance or pre-tax income as
of and for the year ended January 30,
2016.
Our consideration of indefinite lived
intangible assets for impairment requires
judgments surrounding future operating
performance, economic conditions, and
business plans, among other factors.
There are inherent uncertainties related
to our qualitative assessment and, if
actual results are not consistent with our
estimates or assumptions, we may be
exposed to impairment losses that could
be material.
Our analysis of leasehold improvements
for impairment requires judgment
surrounding identification of appropriate
triggering events. This judgment can be
affected by factors such as expectations
for future store performance, real estate
demand, and economic conditions that
can be difficult to predict.
We have no reason to believe that there
will be a material change in the future
estimates or assumptions we use in this
evaluation. However, if we become
aware of additional triggering events or
if triggering events that we are not
currently using are added, there is
potential that additional stores could be
required to be tested for impairment and
could be impaired.
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Description of Policy
Judgments and Uncertainties
Effect if Actual Results Differ from
Assumptions
We have no reason to believe that there
will be a material change in our accrual
or the assumptions we use to establish
the accrual for claims and contingencies.
However, if actual results are not
consistent with our estimates or
expectations of the eventual outcomes of
cases, we may be exposed to gains or
losses that could be material and our
cash flow could be materially impacted.
Our liability for claims and
contingencies contains uncertainties
because the eventual outcome will result
from future events. Additionally, the
determination of current accruals
requires estimates and judgments related
to future changes in facts and
circumstances, differing interpretations
of the law, assessments of the amount of
damages, and the effectiveness of
strategies and other factors beyond our
control.
Claims and Contingencies
We are subject to various claims and
contingencies related to legal,
regulatory, and other matters arising out
of the normal course of business. Our
determination of the treatment of claims
and contingencies in our Consolidated
Financial Statements is based on
management's view of the expected
outcome of the applicable claim or
contingency. Management may also use
outside legal advice on matters related to
litigation to assist in the estimating
process.
We accrue a liability if the likelihood of
an adverse outcome is probable and the
amount is reasonably estimable. We re-
evaluate these assessments on a
quarterly basis or as new material
information becomes available to
determine whether a liability should be
established or if any existing liability
should be adjusted.
We have not made any material changes
in the accounting methodology used to
establish our liability for claims and
contingencies over the past three years.
Income Taxes
We account for income taxes using the
asset and liability method. Under this
method, the amount of taxes currently
payable or refundable is accrued.
Deferred Taxes
Deferred tax assets and liabilities are
recognized for the estimated future tax
consequences of temporary differences
that currently exist between the tax basis
and the financial reporting basis of our
assets and liabilities. Deferred tax assets
and liabilities are measured using the
enacted tax rates in effect in the years
when those temporary differences are
expected to reverse. The effect on
deferred taxes from a change in tax rate
is recognized in earnings in the period
that includes the enactment date of the
change.
Our accounting methodology for
calculating our tax liabilities contains
uncertainties because our judgments may
change as a result of evaluation of new
information not previously available.
Our deferred tax asset and liability
balances contain uncertainty because
changes in tax laws and rates may differ
from estimates and judgments made by
management.
We have no reason to believe that there
will be a material change in our tax
related balances. However, due to the
complexity of some of these
uncertainties, the ultimate resolution
may result in a payment that is
materially different from the current
estimate of our tax liabilities.
We have no reason to believe that our
results of operations will differ
materially from our current expectations.
However, if future tax rates are changed
or if actual results are not consistent with
our estimates, we may need to adjust the
carrying value of our deferred tax
balances. An increase or decrease in the
valuation allowance would result in a
respective increase or decrease in our
effective tax rate in the period the
increase occurs.
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Description of Policy
Judgments and Uncertainties
Uncertain Tax Positions
Uncertain tax positions arise from the
fact that we may be subject to periodic
audits by the Internal Revenue Service
and other taxing authorities.
Internal Revenue Service audits may
challenge certain of our tax positions,
such as the timing and amount of
deductions and allocation of taxable
income to various jurisdictions.
Effect if Actual Results Differ from
Assumptions
To the extent that we prevail in matters
for which unrecognized tax benefit
liabilities have been established or are
required to pay amounts in excess of
recorded unrecognized tax benefit
liabilities, our effective tax rate in a
given financial statement period could
be materially affected. An unfavorable
tax settlement would require use of our
cash and result in an increase in our
effective tax rate in the period of
resolution. A favorable tax settlement
would be recognized as a reduction in
our effective tax rate in the period of
resolution.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Our Revolving Credit Facility bears interest at variable rates. See Note 8 to our Consolidated Financial Statements for further
information on the calculation of the rates. We did not borrow any amounts under our Revolving Credit Facility during 2015.
Changes in interest rates are not expected to have a material impact on our future earnings or cash flows given our limited
exposure to such changes.
Foreign Currency Exchange Risk
All of our merchandise purchases are denominated in U.S. dollars, therefore we are not exposed to foreign currency exchange
risk on these purchases. However, we currently operate 17 stores in Canada, with the functional currency of our Canadian
operations being the Canadian dollar. Our Canadian operations have intercompany accounts with our U.S. subsidiaries that
eliminate upon consolidation, but the transactions resulting in such accounts do expose us to foreign currency exchange risk.
Currently, we do not utilize hedging instruments to mitigate foreign currency exchange risks. As of January 30, 2016, a
hypothetical 10% change in the Canadian foreign exchange rate would not have had a material impact on the results of
operations.
Impact of Inflation
Inflationary factors such as increases in the cost of our products and overhead may adversely affect our operating results.
Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a
high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross profit and
selling, general, and administrative expenses as a percentage of net sales if the selling prices of our products do not rise with
these increased costs.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Express, Inc.
In our opinion, the consolidated financial statements listed in the index appearing under item 15(a)(1) present fairly, in all
material respects, the financial position of Express, Inc. and its subsidiaries at January 30, 2016 and January 31, 2015, and the
results of their operations and their cash flows for each of the three years in the period ended January 30, 2016 in conformity
with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of January 30, 2016, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is
to express opinions on these financial statements and on the Company's internal control over financial reporting based on our
audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether effective internal control over financial reporting was maintained in
all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Columbus, Ohio
March 30, 2016
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EXPRESS, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except Per Share Amounts)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Receivables, net
Inventories
Prepaid minimum rent
Other
Total current assets
PROPERTY AND EQUIPMENT
Less: accumulated depreciation
Property and equipment, net
TRADENAME/DOMAIN NAMES/TRADEMARKS
DEFERRED TAX ASSETS
OTHER ASSETS
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable
Deferred revenue
Accrued expenses
Total current liabilities
LONG-TERM DEBT
DEFERRED LEASE CREDITS
OTHER LONG-TERM LIABILITIES
Total liabilities
COMMITMENTS AND CONTINGENCIES (Note 13)
STOCKHOLDERS’ EQUITY:
Common stock – $0.01 par value; 500,000 shares authorized; 91,127 shares and 90,400 shares
issued at January 30, 2016 and January 31, 2015, respectively, and 80,914 shares and 84,298
shares outstanding at January 30, 2016 and January 31, 2015, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Treasury stock – at average cost; 10,213 shares and 6,102 shares at January 30, 2016 and January
31, 2015, respectively
Total stockholders’ equity
Total liabilities and stockholders’ equity
See notes to consolidated financial statements.
36
January 30, 2016
January 31, 2015
$
186,903
$
22,130
255,350
30,694
18,342
513,419
948,608
(504,211)
444,397
197,597
21,227
2,004
346,159
23,272
241,063
29,465
14,277
654,236
840,340
(432,733)
407,607
197,562
12,371
6,374
1,178,644
$
1,278,150
$
$
149,884
$
30,895
126,624
307,403
—
139,236
114,052
560,691
911
169,515
(4,665)
633,298
(181,106)
617,953
153,745
28,575
105,139
287,459
199,527
128,450
106,375
721,811
904
149,789
(3,057)
516,785
(108,082)
556,339
1,278,150
$
1,178,644
$
Table of Contents
EXPRESS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Amounts in Thousands, Except Per Share Amounts)
NET SALES
COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS
Gross profit
OPERATING EXPENSES:
Selling, general, and administrative expenses
Other operating expense (income), net
Total operating expenses
2015
2014
2013
$
2,350,129
$
2,165,481
$
2,219,125
1,554,852
1,504,527
795,277
660,954
1,501,418
717,707
587,747
292
588,039
524,041
316
524,357
504,277
(829)
503,448
OPERATING INCOME
207,238
136,597
214,259
INTEREST EXPENSE, NET
OTHER EXPENSE, NET
INCOME BEFORE INCOME TAXES
INCOME TAX EXPENSE
NET INCOME
OTHER COMPREHENSIVE LOSS:
Foreign currency translation loss
COMPREHENSIVE INCOME
EARNINGS PER SHARE:
Basic
Diluted
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic
Diluted
See notes to consolidated financial statements.
$
$
$
$
15,882
672
190,684
74,171
23,896
1,145
111,556
43,231
19,522
1,571
193,166
76,627
116,513
$
68,325
$
116,539
(1,608)
(2,329)
(708)
114,905
$
65,996
$
115,831
1.39
1.38
$
$
0.81
0.81
$
$
1.38
1.37
83,980
84,591
84,144
84,554
84,466
85,068
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EXPRESS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Amounts in Thousands)
Common Stock
Treasury Stock
Shares
Outstanding
Par
Value
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
At
Average
Cost
Shares
Total
85,224 $
893 $
105,012 $ 331,921 $
(20)
4,098 $ (66,644) $ 371,162
—
—
—
—
—
(708)
(728)
—
—
—
—
(2,329)
(3,057)
—
—
—
—
(1,608)
(4,665)
—
—
—
—
—
—
—
—
116,539
4,701
21,174
(370)
1,795
(37,929)
(37,929)
—
—
(708)
5,893 $ (104,573) $ 474,569
—
—
—
209
—
—
—
—
(3,509)
—
68,325
—
19,283
(3,509)
(2,329)
6,102 $ (108,082) $ 556,339
—
—
—
—
—
—
116,513
1,276
18,457
4,111
(73,024)
(73,024)
—
—
(1,608)
10,213 $ (181,106) $ 617,953
BALANCE, February 2, 2013
Net income
Issuance of common stock
Share-based compensation
Tax benefit from share-based compensation
Repurchase of common stock
Foreign currency translation
—
537
—
—
(1,795)
—
—
6
—
—
—
—
— 116,539
4,695
21,174
(370)
—
—
—
—
—
—
—
BALANCE, February 1, 2014
83,966 $
899 $
130,511 $ 448,460 $
Net income
Issuance of common stock
Share-based compensation
Repurchase of common stock
Foreign currency translation
—
541
—
(209)
—
—
5
—
—
—
—
(5)
19,283
—
—
68,325
—
—
—
—
BALANCE, January 31, 2015
84,298 $
904 $
149,789 $ 516,785 $
Net income
Issuance of common stock
Share-based compensation
Repurchase of common stock
Foreign currency translation
—
727
—
(4,111)
—
—
7
—
—
—
— 116,513
1,269
18,457
—
—
—
—
—
—
BALANCE, January 30, 2016
80,914 $
911 $
169,515 $ 633,298 $
See notes to consolidated financial statements.
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Table of Contents
EXPRESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Loss on disposal of property and equipment
Impairment charge
Excess tax benefit from share-based compensation
Share-based compensation
Non-cash loss on extinguishment of debt
Deferred taxes
Landlord allowance amortization
Payment of original issue discount
Changes in operating assets and liabilities:
Receivables, net
Inventories
Accounts payable, deferred revenue, and accrued expenses
Other assets and liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures
Purchase of intangible assets
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt
Costs incurred in connection with debt arrangements
Payments on lease financing obligations
Excess tax benefit from share-based compensation
Proceeds from exercise of stock options
Repurchase of common stock under share repurchase plan (see Note 9)
Repurchase of shares for tax withholding obligations
Net cash used in financing activities
2015
2014
2013
$
116,513
$
68,325
$
116,539
74,904
1,561
2,657
(347)
18,438
5,314
(10,700)
(12,730)
(2,812)
1,097
(14,625)
17,705
32,628
229,603
76,437
1,530
10,527
(49)
19,326
—
6,291
(11,369)
—
(5,724)
(28,989)
(886)
21,151
156,570
69,810
670
26
(210)
21,174
—
(807)
(9,342)
—
(6,508)
2,133
(29,870)
31,460
195,075
(115,343)
(115,088)
(105,368)
(35)
(1,010)
(94)
(115,378)
(116,098)
(105,462)
(198,038)
(1,006)
(1,552)
347
1,276
(68,574)
(4,450)
(271,997)
—
—
(1,478)
49
—
—
(3,509)
(4,938)
—
—
(313)
210
4,701
(35,088)
(2,841)
(33,331)
EFFECT OF EXCHANGE RATE ON CASH
(1,484)
(1,259)
(695)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, Beginning of period
CASH AND CASH EQUIVALENTS, End of period
(159,256)
346,159
34,275
311,884
$
186,903
$
346,159
$
55,587
256,297
311,884
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest
Cash paid to taxing authorities
See notes to consolidated financial statements.
$
$
8,787
71,686
$
$
17,574
43,171
$
$
17,574
75,591
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Notes to Consolidated Financial Statements
1. Description of Business and Basis of Presentation
Business Description
Express, Inc., together with its subsidiaries ("Express" or the "Company"), is a specialty apparel and accessories retailer of
women's and men's merchandise, targeting the 20 to 30 year old customer. Express merchandise is sold through retail and
factory outlet stores and the Company's e-commerce website, www.express.com, as well as its mobile app. As of January 30,
2016, Express operated 572 primarily mall-based retail stores in the United States, Canada, and Puerto Rico as well as 81
factory outlet stores. Additionally, the Company earned revenue from 33 franchise stores in the Middle East, Latin America,
and South Africa. These franchise stores are operated by franchisees pursuant to franchise agreements. Under the franchise
agreements, the franchisees operate stand-alone Express stores and Express shops within department 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 "2015," "2014," and "2013" represent the 52-week periods ended January 30,
2016, January 31, 2015, and February 1, 2014, respectively.
Basis of Presentation
Express, Inc., a holding company, owns all of the outstanding equity interests in Express Topco LLC, a holding company,
which owns all of the outstanding equity interests in Express Holding, LLC ("Express Holding"). Express Holding owns all of
the outstanding equity interests in Express, LLC and Express Finance Corp. ("Express Finance"). Express, LLC, together with
its subsidiaries, including Express Fashion Operations, LLC, conducts the operations of the Company. Express, LLC was a
division of L Brands, Inc. until it was acquired by an affiliate of Golden Gate Private Equity, Inc. in 2007. Express Finance was
formed on January 28, 2010, solely for the purpose of serving as co-issuer of the 8 3/4% Senior Notes ("Senior Notes") issued
on March 5, 2010 and described in Note 8.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All
intercompany transactions and balances have been eliminated in consolidation.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")
No. 2014-09. ASU 2014-09 supersedes the revenue recognition requirements in "Revenue Recognition (Topic 605)," and
requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. In
August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers (Topic 606)," which defers the
effective date of ASU 2014-09 to annual and interim reporting periods beginning after December 15, 2017 with early
application permitted for annual and interim reporting periods beginning after December 15, 2016. The Company is currently
evaluating the impact of adopting this standard on its consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17, "Balance Sheet Classification of Deferred Taxes." ASU 2015-17
requires entities to classify all deferred tax assets and liabilities as non-current on a classified balance sheet. The new standard
is effective for annual and interim reporting periods beginning after December 15, 2016 and may be applied either
prospectively or retrospectively. The Company has elected to adopt the standard early, beginning in the fourth quarter of 2015
and will apply the standard prospectively. Prior periods have not been retrospectively adjusted.
In February 2016, the FASB issued ASU No. 2016-02, "Leases" (Topic 842). ASU 2016-02 requires entities to recognize lease
assets and lease liabilities on the balance sheet and to disclose key information about leasing arrangements. Under ASU
2016-02, a lessee should recognize a liability to make lease payments and a right-of-use asset representing its right to use the
underlying asset for the lease term on its balance sheet. The new standard is effective for annual and interim periods beginning
after December 15, 2018, including interim periods within those fiscal years. ASU 2016-02 mandates a modified retrospective
transition method with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2016-02 on
its consolidated financial statements.
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Correction of Error
The 52-week period ended January 30, 2016 includes the correction of an error with regard to the calculation of a deferred tax
liability. As a result of the error, in previously filed Consolidated Financial Statements current deferred tax liabilities were
overstated and current accrued liabilities were understated. The error had no impact on stockholders’ equity, the Consolidated
Statements of Income, or net cash provided by operating activities on the Consolidated Statements of Cash Flows for prior
periods. The Company does not believe these corrections were material to any current or prior interim or annual periods that
were affected. The correction of the error in the 52-week period ended January 30, 2016 resulted in an increase to deferred tax
assets of $7.7 million, an increase in accrued expenses of $0.5 million, an increase in other long-term liabilities of $7.5 million,
and incremental income tax expense of $0.3 million. The increase in other long-term liabilities is due to an uncertain tax
position, including the effect of interest. The correction also resulted in corresponding changes in certain lines within the
operating activities section of the Consolidated Statements of Cash Flows.
2. Summary of Significant Accounting Policies
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of
America ("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 revenues and expenses 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.
Cash and Cash Equivalents
Cash and cash equivalents include investments in money market funds, payments due from banks for third-party credit and
debit card transactions for up to 5 days of sales, cash on hand, and deposits with financial institutions. As of January 30, 2016
and January 31, 2015, amounts due from banks for credit and debit card transactions totaled approximately $13.4 million and
$11.9 million, respectively.
Outstanding checks not yet presented for payment amounted to $17.0 million and $14.6 million as of January 30, 2016 and
January 31, 2015, respectively, and are included in accounts payable on the Consolidated Balance Sheets.
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.
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Table of Contents
Financial Assets
The following table presents the Company's financial assets measured at fair value on a recurring basis as of January 30, 2016
and January 31, 2015, aggregated by the level in the fair value hierarchy within which those measurements fall.
Money market funds
Money market funds
Non-Financial Assets
January 30, 2016
Level 2
Level 1
Level 3
(in thousands)
$
152,069 $
— $
—
January 31, 2015
Level 2
Level 1
Level 3
(in thousands)
$
166,602 $
— $
—
The Company's non-financial assets, which include fixtures, equipment, improvements, and intangible assets, are not required
to be measured at fair value on a recurring basis. However, the Company tests for impairment, if certain triggering events occur
indicating the carrying value of these assets may not be recoverable or annually in the case of indefinite lived intangibles. See
additional discussion under the heading "Property and Equipment, Net" in this note below.
The carrying amounts reflected on the Consolidated Balance Sheets for cash, cash equivalents, receivables, prepaid expenses,
and payables as of January 30, 2016 and January 31, 2015 approximated their fair values.
Receivables, Net
Receivables, net consist primarily of construction allowances, receivables from our franchisees and third-party resellers of our
gift cards, and other miscellaneous receivables. Outstanding receivables are continuously reviewed for collectability. The
Company's allowance for doubtful accounts was not significant as of January 30, 2016 or January 31, 2015.
Inventories
Inventories are principally valued at the lower of cost or market on a weighted-average cost basis. The Company writes down
inventory, the impact of which is reflected in cost of goods sold, buying and occupancy costs in the 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 market adjustment to inventory
as of January 30, 2016 and January 31, 2015 was $9.9 million and $11.4 million, respectively.
The Company also records an inventory shrinkage reserve calculated as a percentage of cost of goods sold for estimated
merchandise inventory losses for the period between the last physical inventory count and the balance sheet date. This estimate
is based on management's analysis of historical results.
Advertising
Advertising production costs are expensed at the time the promotion first appears in media, stores, or on the website. Total
advertising expense totaled $110.5 million, $104.6 million, and $85.9 million in 2015, 2014, and 2013, respectively.
Advertising costs are included in selling, general, and administrative expenses in the Consolidated Statements of Income and
Comprehensive Income.
Private Label Credit Card
The Company has an agreement with a third party to provide customers with private label credit cards (the “Card Agreement”).
Each private label credit card bears the logo of the Express brand and can only be used at the Company's retail store locations
and website. A third-party financing company 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 reimbursement funds from the third-party
42
Table of Contents
financing company for expenses the Company incurs based on usage of the private label credit cards. These reimbursement
funds are used by the Company to fund marketing programs associated with the private label credit card and are recognized
when the amounts are fixed or determinable and collectability is reasonably assured, which is generally at the time the private
label credit cards are used or specified transactions occur. The funds received related to these private label credit cards are
classified in selling, general, and administrative expenses in the Consolidated Statements of Income and Comprehensive
Income.
Loyalty Program
The Company maintains a customer loyalty program in which customers earn points toward rewards for qualifying purchases
and other marketing programs. Upon reaching specified point values, customers are issued a reward, which they may redeem
for purchases at the Company's U.S. stores or on its website. Generally, rewards earned must be redeemed within 60 days from
the date of issuance. The Company accrues for the anticipated costs related to redemptions of the certificates as points are
earned. To calculate this expense, the Company estimates margin rates and makes assumptions related to card holder
redemption rates, which are both based on historical experience. This expense is included within cost of goods sold, buying and
occupancy costs in the Consolidated Statements of Income and Comprehensive Income. The loyalty liability is included in
accrued expenses on the Consolidated Balance Sheets.
Property and Equipment, Net
Property and equipment are stated at cost. Depreciation of property and equipment is computed on a straight-line basis, using
the following useful lives:
Category
Software, including software developed for internal use
Store related assets and other property and equipment
Furniture, fixtures and equipment
Leasehold improvements
Building improvements
Depreciable Life
3 - 7 years
3 - 10 years
5 - 7 years
Shorter of lease term or useful life
of the asset, typically no longer than
15 years
6 - 30 years
When a decision is made to dispose of property and equipment prior to the end of its previously estimated useful life,
depreciation estimates are revised to reflect the use of the asset over the shortened estimated useful life. The cost of assets sold
or retired and the related accumulated depreciation are removed from the accounts with any resulting gain or loss included in
other operating expense (income), net, in the Consolidated Statements of Income and Comprehensive Income. Maintenance
and repairs are charged to expense as incurred. Major renewals and betterments that extend useful lives are capitalized.
Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable. The reviews are conducted at the store level, the lowest identifiable level of cash
flow. The impairment test requires the Company to estimate the fair value of the assets and compare this to their carrying value.
If the fair value of the assets are 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. Factors used in the
evaluation include, but are not limited to, management's plans for future operations, recent operating results, and projected cash
flows. In 2015, as a result of decreased performance in certain stores, the Company recognized impairment charges of $1.8
million related to four stores. In 2014, the Company recognized impairment charges of $10.5 million related to 14 stores. The
impairment charges related to store leasehold improvements in 2013 were minimal. Impairment charges are recorded in cost of
goods sold, buying, and occupancy costs in the Consolidated Statements of Income and Comprehensive Income.
Intangible Assets
The Company has intangible assets, which consist primarily of the Express and related tradenames and its Internet domain
names. Intangible assets with indefinite lives are reviewed for impairment annually in the fourth quarter and may be reviewed
more frequently if indicators of impairment are present. The impairment review is performed by assessing qualitative factors to
determine whether it is more likely than not that the fair value of the asset is less than its carrying amount. The consideration of
indefinite lived intangible assets for impairment requires judgments surrounding future operating performance, economic
conditions, and business plans, among other factors.
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The Company did not incur any impairment charges on indefinite lived intangible assets in 2015, 2014, or 2013.
Intangible assets with finite lives are amortized on a basis reflecting when the economic benefits of the assets are consumed or
otherwise used up over their respective estimated useful lives. Intangible assets with finite lives are reviewed for impairment
when events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. If the estimated
undiscounted future cash flows related to the asset are less than the carrying value, the Company recognizes a loss equal to the
difference between the carrying value and the estimated fair value, usually determined by the estimated discounted future cash
flows of the asset. In 2015, the Company recognized an impairment charge of $0.9 million related to a licensing agreement
associated with the exit of certain franchise locations. Impairment charges are recorded in selling, general, and administrative
expenses in the Consolidated Statements of Income and Comprehensive Income.
Leases and Leasehold Improvements
The Company has leases that contain pre-determined fixed escalations of minimum rentals and/or rent abatements subsequent
to taking possession of the leased property. The rent expense is recognized on a straight-line basis commencing upon
possession date. The Company records the difference between the recognized rent expense and amounts payable under the
leases as deferred lease credits. The Company also has leases that contain contingent rent provisions, such as overage rent. For
these leases, the Company records a contingent rent liability in accrued expenses on the Consolidated Balance Sheets and the
corresponding rent expense in cost of goods sold, buying and occupancy costs in the Consolidated Statements of Income and
Comprehensive Income when specified financial levels have been achieved or when management determines that achieving the
specified financial levels during the year is probable.
The Company receives allowances for leasehold improvements from landlords related to its stores. These allowances are
generally comprised of cash amounts received from landlords as part of negotiated lease terms. The Company records a
receivable and a landlord allowance upon execution of the corresponding lease. The landlord allowance is recorded as a
deferred lease credit on the Consolidated Balance Sheets. The landlord allowance is amortized on a straight-line basis as a
reduction of rent expense over the term of the lease, including the pre-opening build-out period. The receivable is reduced as
allowance amounts are received from landlords.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under this method, the amount of taxes currently
payable or refundable are accrued, and deferred tax assets and liabilities are recognized for the estimated future tax
consequences of temporary differences that currently exist between the tax basis and financial reporting basis of the Company's
assets and liabilities. Valuation allowances are established against deferred tax assets when it is more likely than not that the
realization of those deferred tax assets will not occur.
Deferred tax assets and liabilities are measured using the enacted tax rates in effect in the years when those temporary
differences are expected to reverse. The effect on deferred taxes from a change in tax rate is recognized through continuing
operations in the period that includes the enactment date of the change. Changes in tax laws and rates could affect recorded
deferred tax assets and liabilities in the future.
A tax benefit from an uncertain tax position may be recognized when it is more-likely-than-not that the position will be
sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits.
Income tax positions must meet a more-likely-than-not recognition threshold to be recognized.
The Company recognizes tax liabilities for uncertain tax positions and adjusts these liabilities when the Company's judgment
changes as a result of the evaluation of new information not previously available. Due to the complexity of some of these
uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of the tax
liabilities. These differences will be reflected as increases or decreases to income tax expense and the effective tax rate in the
period in which the new information becomes available.
Interest and penalties related to unrecognized tax benefits are recognized within income tax expense in the Consolidated
Statements of Income and Comprehensive Income. Accrued interest and penalties are included within other long-term liabilities
on the Consolidated Balance Sheets.
The income tax liability was $21.2 million and $16.4 million as of January 30, 2016 and January 31, 2015, respectively, and is
included in accrued expenses on the Consolidated Balance Sheets.
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The Company may be subject to periodic audits by the Internal Revenue Service ("IRS") and other taxing authorities. These
audits may challenge certain of the Company's tax positions, such as the timing and amount of deductions and allocation of
taxable income to various jurisdictions.
Accrued Bonus
The Company pays bonuses to eligible associates based on performance targets being met. The accrued bonus liability was
$20.4 million and $0.7 million as of January 30, 2016 and January 31, 2015, respectively and is included in accrued expenses
on the Consolidated Balance Sheets.
Self Insurance
The Company is generally self-insured in the United States for medical, workers' compensation, and general liability benefits
up to certain stop-loss limits. Such costs are accrued based on known claims and estimates of incurred but not reported
(“IBNR”) claims. IBNR claims are estimated using historical claim information and actuarial estimates. The accrued liability
for self insurance is included in accrued expenses on the Consolidated Balance Sheets.
Foreign Currency Translation
The Canadian dollar is the functional currency for the Company's Canadian business. Assets and liabilities denominated in
foreign currencies were translated into U.S. dollars (the reporting currency) at the exchange rate prevailing at the applicable
balance sheet date. Revenues and expenses denominated in foreign currencies were translated into U.S. dollars at the monthly
average exchange rate for the period. Gains or losses resulting from foreign currency transactions are included in other expense
(income), net whereas related translation adjustments are reported as an element of other comprehensive income, both of which
are included in the Consolidated Statements of Income and Comprehensive Income. The Company may, in certain situations,
designate certain foreign currency denominated, long-term intercompany financing transactions as being of a long-term
investment nature and therefore record gains and losses on the transactions arising from changes in exchange rates as
translation adjustments.
Revenue Recognition
The Company recognizes sales at the time the customer takes possession of the merchandise which, for e-commerce revenues,
requires an estimate of shipments that have not yet been received by the customer. The estimate of these shipments is based on
shipping terms and historical delivery times. Amounts related to shipping and handling revenues billed to customers in an e-
commerce sale transaction are recorded in net sales, and the related shipping and handling costs are recorded in cost of goods
sold, buying and occupancy costs in the Consolidated Statements of Income and Comprehensive Income. The Company's
shipping and handling revenues were $13.3 million, $11.3 million, and $14.5 million in 2015, 2014, and 2013, respectively.
Associate discounts are classified as a reduction of net sales. Net sales exclude sales tax collected from customers and remitted
to governmental authorities.
The Company also sells merchandise to multiple franchisees pursuant to different franchise agreements. Revenues may consist
of sales of product and/or royalties. Revenues from products sold to franchisees are recorded at the time title transfers to the
franchisees. Royalty revenue is based upon a percentage of the franchisee’s net sales to third parties and is earned when such
sales to third parties occur.
The Company 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. Merchandise exchanges
of the same product and price, typically due to size or color preferences, are not considered merchandise returns. The sales
returns reserve was $9.9 million and $9.7 million as of January 30, 2016 and January 31, 2015, respectively, and is included in
accrued expenses on the Consolidated Balance Sheets.
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 $28.3 million and $26.0 million, as of January 30, 2016 and January 31, 2015,
respectively, and is included in deferred revenue on the 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, which 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 the
unredeemed gift cards to relevant jurisdictions, referred to as "gift card breakage". The gift card breakage rate is based on
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historical redemption patterns and totaled $3.1 million, $2.7 million, and $3.0 million in 2015, 2014, and 2013, respectively.
Gift card breakage is included in net sales in the Consolidated Statements of Income and Comprehensive Income.
Cost of Goods Sold, Buying and Occupancy Costs
Cost of goods sold, buying and occupancy costs, include merchandise costs, freight, inventory shrinkage, and other gross
margin related expenses. Buying and occupancy expenses primarily include payroll, benefit costs, and other operating expenses
for the buying departments (merchandising, design, manufacturing, and planning and allocation), distribution, fulfillment, rent,
common area maintenance, real estate taxes, utilities, maintenance, and depreciation for stores.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses include all operating costs not included in cost of goods sold, buying and
occupancy costs, with the exception of proceeds received from insurance claims and gain/loss on disposal of assets, which are
included in other operating expense, net. These costs include payroll and other expenses related to operations at our corporate
home office, store expenses other than occupancy, and marketing expenses, which include production, mailing, and print
advertising costs.
Other Operating Expense (Income), Net
Other operating income, net primarily consists of gains/losses on disposal of assets and excess proceeds from the settlement of
insurance claims.
Other Expense, Net
Other expense, net primarily consists of foreign currency transaction gains/losses.
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 President and Chief Executive Officer and its 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.
The following is information regarding the Company's major product and sales channels:
Apparel
Accessories and other
Other revenue
Total net sales
Stores
E-commerce
Other revenue
Total net sales
2015
2014
2013
(in thousands)
2,062,235
$
1,883,641
$
1,922,868
242,408
45,486
240,052
41,788
254,426
41,831
2,350,129
$
2,165,481
$
2,219,125
2015
2014
2013
(in thousands)
1,911,923
$
1,769,478
$
1,836,704
392,720
45,486
354,215
41,788
340,590
41,831
2,350,129
$
2,165,481
$
2,219,125
$
$
$
$
Other revenue consists primarily of sell-off revenue related to mark-out-of-stock inventory sales to third parties, shipping and
handling revenue related to e-commerce activity, and revenue from franchise agreements.
Revenues and long-lived assets relating to the Company's international operations for 2015, 2014, and 2013, and as of
January 30, 2016 and January 31, 2015, respectively, were not material and, therefore, not reported separately from domestic
revenues and long-lived assets.
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3. Property and Equipment, Net
Property and equipment, net, consisted of:
Building improvements
Furniture, fixtures and equipment, software
Leasehold improvements
Construction in process
Other
Total
Less: accumulated depreciation
Property and equipment, net
January 30, 2016
January 31, 2015
$
$
(in thousands)
86,487
378,041
412,457
70,796
827
948,608
(504,211)
444,397
$
$
86,487
341,272
371,462
40,291
828
840,340
(432,733)
407,607
Depreciation expense totaled $74.4 million, $73.5 million, and $66.7 million in 2015, 2014, and 2013, respectively, excluding
impairment charges discussed in Note 2.
4. Leased Facilities and Commitments
Annual store rent consists of a fixed minimum amount and/or contingent rent based on a percentage of sales exceeding a
stipulated amount.
Rent expense is summarized as follows:
Store rent:
Fixed minimum
Contingent
Total store rent
Home office, distribution center, other
Total rent expense
2015
2014
2013
(in thousands)
$
$
213,228
6,945
220,173
5,413
225,586
$
$
209,323
6,398
215,721
5,609
221,330
$
$
201,477
5,942
207,419
5,400
212,819
As of January 30, 2016, the Company was committed to noncancelable leases with remaining terms from 1 to 15 years. A
substantial portion of these commitments consist of store leases, generally with an initial term of 10 years. Store lease terms
typically require additional payments covering real estate taxes, common area maintenance costs, and certain other landlord
charges, which are excluded from the following table.
Minimum rent commitments under noncancelable operating leases are as follows (in thousands):
2016
2017
2018
2019
2020
Thereafter
Total
$
$
227,799
197,826
183,520
167,318
157,149
563,055
1,496,667
5. Lease Financing Obligations
In certain lease arrangements, the Company is involved in the construction of the building. To the extent the Company is
involved in the construction of structural improvements or takes construction risk prior to commencement of a lease, it is
deemed the owner of the project for accounting purposes. Therefore, the Company records an asset in property and equipment
on the Consolidated Balance Sheets, including any capitalized interest costs, and related liabilities in accrued interest and lease
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financing obligations in other long-term liabilities on the Consolidated Balance Sheets, for the replacement cost of the
Company's portion of the pre-existing building plus the amount of construction costs incurred by the landlord as of the balance
sheet date. Once construction is complete, the Company considers the requirements for sale-leaseback treatment, including the
transfer of all risks of ownership back to the landlord, and whether the Company has any continuing involvement in the leased
property. If the arrangement does not qualify for sale-leaseback treatment, the building assets subject to these obligations
remain on the Company's Consolidated Balance Sheets at their historical cost, and such assets are depreciated over their
remaining useful lives. The replacement cost of the pre-existing building, as well as the costs of construction paid by the
landlord, are recorded as lease financing obligations, and a portion of the lease payments are applied as payments of principal
and interest. The interest rate selected for lease financing obligations is evaluated at lease inception based on the Company's
incremental borrowing rate. At the end of the initial lease term, should the Company decide not to renew the lease, the
Company would reverse equal amounts of the remaining net book value of the assets and the corresponding lease financing
obligations.
The initial lease terms related to these lease arrangements are expected to expire in 2023 and 2030. The net book value of
landlord funded construction, replacement cost of pre-existing property, and capitalized interest in property and equipment on
the Consolidated Balance Sheets was $67.4 million and $71.0 million, as of January 30, 2016 and January 31, 2015,
respectively. There was also $69.6 million and $70.9 million of lease financing obligations as of January 30, 2016 and
January 31, 2015, respectively, in other long-term liabilities on the Consolidated Balance Sheets. Transactions involving the
initial recording of these assets and liabilities were classified as non-cash items for purposes of the Consolidated Statements of
Cash Flows.
Rent expense relating to the land is recognized on a straight-line basis over the lease term. The Company does not report rent
expense for the portion of the rent payment determined to be related to the buildings which are owned for accounting purposes.
Rather, this portion of rent payment under the lease is recognized as interest expense and a reduction of the lease financing
obligations.
6. Intangible Assets
The following table provides the significant components of intangible assets:
Tradename/domain names/trademarks
Licensing arrangements
Tradename/domain names/trademarks
Licensing arrangements
Cost
197,597
425
198,022
Cost
197,562
1,425
198,987
$
$
$
$
January 30, 2016
Accumulated
Amortization
(in thousands)
Ending Net Balance
— $
172
172
$
197,597
253
197,850
January 31, 2015
Accumulated
Amortization
(in thousands)
Ending Net Balance
— $
156
156
$
197,562
1,269
198,831
$
$
$
$
The Company's tradename, Internet domain names, and trademarks have indefinite lives. Licensing arrangements are amortized
over a period of ten years and are included in other assets on the Consolidated Balance Sheets. Amortization expense totaled
$0.1 million, $0.8 million, and $1.3 million during 2015, 2014, and 2013, respectively. In 2015, the Company recognized an
impairment charge of $0.9 million related to a licensing agreement associated with the exit of certain franchise locations.
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Future amortization expense is expected to approximate the following (in thousands):
2016
2017
2018
2019
2020
Thereafter
Total
$
$
49
49
49
49
49
8
253
7. Income Taxes
The provision for income taxes consists of the following:
Current:
U.S. federal
U.S. state and local
Foreign
Total
Deferred:
U.S. federal
U.S. state and local
Foreign
Total
Provision for income taxes
2015
2014
2013
(in thousands)
$
$
72,222
12,425
224
84,871
(8,715)
(1,983)
(2)
(10,700)
74,171
$
$
29,884
6,491
565
36,940
6,884
(558)
(35)
6,291
43,231
$
$
64,071
12,815
548
77,434
757
(1,541)
(23)
(807)
76,627
The following table provides a reconciliation between the statutory federal income tax rate and the effective tax rate:
Federal income tax rate
State income taxes, net of federal income tax effect
Other items, net
Effective tax rate
2015
2014
2013
35.0%
3.6%
0.3%
38.9%
35.0 %
4.1 %
(0.3)%
38.8 %
35.0%
3.8%
0.9%
39.7%
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The following table provides the effect of temporary differences that created deferred income taxes as of January 30, 2016 and
January 31, 2015. Deferred tax assets and liabilities represent the future effects on income taxes resulting from temporary
differences and carry-forwards at the end of the respective periods.
Deferred tax assets:
Accrued expenses and deferred compensation
Rent
Lease financing obligations
Inventory
Other
Tax credits/carryforwards
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Inventory
Prepaid expenses
Intangible assets
Property and equipment
Total deferred tax liabilities
Net deferred tax asset
January 30, 2016
January 31, 2015
(in thousands)
$
$
40,540
28,551
28,492
1,778
1,774
214
(2,081)
99,268
—
4,177
17,996
55,868
78,041
21,227
$
$
30,667
25,605
29,072
—
2,104
—
(1,668)
85,780
5,915
3,762
13,844
51,732
75,253
10,527
The net increase in the total valuation allowance attributable to foreign operations for the years ended January 30, 2016, and
January 31, 2015 was $0.4 million and $0.3 million, respectively. The foreign capital loss carryforward as of January 30, 2016
and January 31, 2015 was $0.3 million and $0.4 million, respectively. The Company has established a full valuation allowance
related to the foreign capital loss carryforward. The foreign capital loss carryforward period is indefinite.
No other valuation allowances have been provided for deferred tax assets because management believes that it is more likely
than not that the full amount of the net deferred tax assets will be realized in the future.
Prior to the early adoption of ASU 2015-17 on a prospective basis, net deferred tax assets were classified within the
Consolidated Balance Sheets and were included in other current assets for current deferred tax assets and separately identified
as deferred taxes for non-current deferred tax assets. Net deferred tax liabilities were classified within the Consolidated Balance
Sheets and were included in accrued expenses for current deferred tax liabilities and other long-term liabilities for non-current
deferred tax liabilities. All net deferred tax assets and liabilities are now classified as non-current within the Consolidated
Balance Sheets. Refer to Note 1 of the Consolidated Financial Statements for additional information on the adoption of ASU
2015-17. The following table summarizes net deferred tax assets:
Current deferred tax liability
Non-current deferred tax asset
Net deferred tax assets
January 30, 2016
January 31, 2015
$
$
(in thousands)
— $
21,227
21,227
$
(1,844)
12,371
10,527
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Uncertain Tax Positions
The Company evaluates tax positions using a more likely than not recognition criterion.
A reconciliation of the beginning to ending unrecognized tax benefits is as follows:
January 30, 2016
January 31, 2015
(in thousands)
February 1, 2014
Unrecognized tax benefits, beginning of year
Gross addition for tax positions of the current year
Gross addition for tax positions of the prior year
Settlements
Reduction for tax positions of prior years
Lapse of statute of limitations
Unrecognized tax benefits, end of year
$
$
1,651
$
4,091
$
767
7,174
(57)
(29)
—
9,506
$
346
129
(2,137)
(628)
(150)
1,651
2,313
1,469
309
—
—
—
$
4,091
The amount of the above unrecognized tax benefits as of January 30, 2016, January 31, 2015, and February 1, 2014 that would
impact the Company's effective tax rate, if recognized, is $9.5 million, $1.7 million, and $4.1 million, respectively.
During the second quarter of 2014, the Internal Revenue Service (IRS) completed its examination of the Company’s 2012,
2011, and 2010 income tax returns. The Company released gross uncertain tax positions of $2.1 million and the related accrued
interest of $0.1 million as a result of the conclusion of this examination.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax
expense. The total amount of net interest in tax expense related to interest and penalties included in the consolidated statements
of comprehensive income was $0.7 million for 2015 and immaterial for 2014 and 2013. As of January 30, 2016 and January 31,
2015, the Company had accrued interest of $0.8 million and $0.1 million, respectively.
The Company is subject to examination by the IRS for years subsequent to 2012. The Company is also generally subject to
examination by various U.S. state and local and non-U.S. tax jurisdictions for the years subsequent to 2011. There are ongoing
U.S. state and local audits covering tax years 2012 through 2014. The Company does not expect the results from any income
tax audit to have a material impact on the Company’s financial statements.
The Company believes that over the next twelve months, it is reasonably possible that up to $7.4 million of unrecognized tax
benefits could be resolved as the result of the expiration of the statute of limitations. Final settlement of these issues may result
in payments that are more or less than this amount, but the Company does not anticipate the resolution of these matters will
result in a material change to its consolidated financial position or results of operations.
The Company’s Canadian subsidiary has an accumulated deficit, thus we have not provided for income taxes in the United
States on undistributed earnings.
8. Debt
Borrowings outstanding consisted of the following:
8 3/4% Senior Notes
Debt discount on Senior Notes
Total long-term debt
January 30, 2016
January 31, 2015
$
$
(in thousands)
— $
—
— $
200,850
(1,323)
199,527
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Revolving Credit Facility
On July 29, 2011, Express Holding, a wholly-owned subsidiary, and its subsidiaries entered into an Amended and Restated
$200.0 million secured Asset-Based Credit Facility ("Revolving Credit Facility"). On May 20, 2015, the parties further
amended and restated the Revolving Credit Facility. The amendment increased the borrowing capacity under the facility from
$200 million to $250 million and extended the expiration date of the facility to May 20, 2020. As of January 30, 2016, there
were no borrowings outstanding and approximately $240.6 million available under the Revolving Credit Facility.
Under the Revolving Credit Facility, revolving loans may be borrowed, repaid, and reborrowed until May 20, 2020, at which
time all amounts borrowed must be repaid. The Revolving Credit Facility allows for a swingline sublimit of up to $30.0 million
and for the issuance of letters of credit in the face amount of up to $45.0 million. Borrowings under the Revolving Credit
Facility bear interest at a rate equal to either the rate appearing on Reuters Screen LIBOR01 page (the “Eurodollar Rate”) plus
an applicable margin rate or the highest of (1) the prime lending rate, (2) 0.50% per annum above the federal funds rate, and
(3) 1% above the Eurodollar 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 for Eurodollar Rate-based
advances is between 1.50% and 2.00% based on the borrowing base. The unused line fee payable under the Revolving Credit
Facility is incurred at 0.250% per annum of the average daily unused revolving commitment during each quarter, payable
quarterly in arrears on the first day of each May, August, November, and February. In the event that (1) an event of default has
occurred and is continuing or (2) excess availability plus eligible cash collateral is less than 12.5% of the borrowing base for 5
consecutive days, such unused line fees are payable on the first day of each month.
Interest payments under the Revolving Credit Facility are due quarterly on the first day of each May, August, November, and
February for base rate-based advances, provided, however, in the event that (1) an event of default has occurred and is
continuing or (2) excess availability plus eligible cash collateral is less than 12.5% of the borrowing base for 5 consecutive
days, interest payments are due on the first day of each month. Interest payments under the Revolving Credit Facility are due
on the last day of the interest period for Eurodollar Rate-based advances for interest periods of 1, 2, and 3 months, and
additionally every 3 months after the first day of the interest period for Eurodollar Rate-based advances for interest periods of
greater than 3 months.
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% of the borrowing base for 15 consecutive days. 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.
Senior Notes
On March 5, 2010, Express, LLC and Express Finance, wholly-owned subsidiaries of the Company, co-issued, in a private
placement, $250.0 million of 8 3/4% Senior Notes due in 2018 at an offering price of 98.6% of the face value.
On March 1, 2015, the outstanding notes in the amount of $200.9 million were redeemed in full at 102.19% of the principal
amount, with total payments equal to $205.3 million, plus accrued and unpaid interest to, but not including, the redemption
date.
Loss on Extinguishment
In connection with the redemption of the Senior Notes in the first quarter of 2015, the Company recognized a $9.7 million loss
on extinguishment of debt, which was recorded as interest expense in the Consolidated Statements of Income and
Comprehensive Income. The redemption premium represented approximately $4.4 million of this loss on extinguishment. The
remaining loss on extinguishment was attributable to the unamortized debt issuance costs and unamortized debt discount write-
offs totaling $5.3 million. The unamortized debt issuance costs and unamortized debt discount write-offs are presented as a
non-cash adjustment to reconcile net income to net cash provided by operating activities within the Consolidated Statements of
Cash Flows.
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Letters of Credit
The Company may enter into various trade letters of credit ("trade LCs") in favor of certain vendors to secure merchandise.
These trade LCs are issued for a defined period of time, for specific shipments, and generally expire three weeks after
the merchandise shipment date. As of January 30, 2016 and January 31, 2015, there were no outstanding trade LCs.
Additionally, the Company enters into stand-by letters of credit ("stand-by LCs") on an as-needed basis to secure payment
obligations for merchandise purchases and other general and administrative expenses. As of January 30, 2016 and January 31,
2015, outstanding stand-by LCs totaled $2.8 million and $2.5 million, respectively.
9. Stockholders' Equity
Share Repurchase Programs
On December 9, 2015, the Company's Board of Directors (the "Board") approved a new share repurchase program which
authorizes the Company to repurchase up to $100.0 million of the Company's common stock during the 12 month period
following the approval using available cash, including cash on hand or cash available for borrowing under the Company's
Revolving Credit Facility (the "2015 Repurchase Program"). In 2015, the Company repurchased 1.7 million shares of its
common stock under the 2015 Repurchase Program for an aggregate amount equal to $28.6 million, including commissions. In
addition, subsequent to January 30, 2016, the Company repurchased an additional 2.5 million shares of its common stock under
the 2015 Repurchase Program for an aggregate amount equal to $41.5 million, including commissions.
On May 28, 2014, the Board authorized the repurchase of up to $100.0 million of common stock (the "2014 Repurchase
Program"). The 2014 Repurchase Program expired on November 28, 2015, 18 months after its adoption. In total, the Company
repurchased 2.1 million shares of its common stock under the 2014 Repurchase Program for an aggregate amount equal to
$40.0 million, including commissions. All repurchases under the 2014 Repurchase Program were completed during 2015.
On May 24, 2012, the Board authorized the Company to repurchase up to $100.0 million of the Company's common stock from
time to time in open market or privately negotiated transactions (the "2012 Repurchase Program"). The 2012 Repurchase
Program was completed during the third quarter of 2013 following total repurchases of 5.6 million shares of the Company's
common stock for approximately $100.0 million. During 2013, the Company repurchased 1.6 million shares of its common
stock for a total of $35.1 million, including commissions.
Stockholder Rights Plan
On June 12, 2014, the Board adopted a Stockholder Rights Plan (the “Rights Plan”). Under the Rights Plan, one right was
distributed for each share of common stock outstanding at the close of business on June 23, 2014 and one right was to be issued
for each new share of common stock issued thereafter. If any person or group acquired 10% or more of the Company’s
outstanding common stock without the approval of the Board, there would be a triggering event entitling a registered holder to
purchase from the Company one one-hundredth of a share of Participating Preferred Stock, par value $0.01 per share, for
$70.00, subject to adjustment. Existing 10% or greater stockholders were grandfathered to the extent of their June 12, 2014
ownership levels.
The Rights Plan was originally set to expire one year after it was adopted on June 12, 2015, but was amended on June 10, 2015
in order to extend the expiration date to June 10, 2016. On March 29, 2016, the Board further amended the Rights Plan to
accelerate the expiration date to March 29, 2016, effectively terminating the Rights Plan as of that date.
10. Share-Based Compensation
The Company records the fair value of share-based payments to employees in the Consolidated Statements of Income and
Comprehensive Income as compensation expense, net of forfeitures, over the requisite service period.
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 authorizes 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. Effective April 3, 2012, the Board amended the 2010 Plan to, among other things, reduce
the number of shares available for issuance under the 2010 Plan. As of January 30, 2016, 15.2 million shares were authorized to
be granted under the 2010 Plan and 7.2 million remained available for future issuance.
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The following summarizes share-based compensation expense:
Stock options
Restricted stock units and restricted stock
Total share-based compensation
2015
2014
2013
(in thousands)
$
$
3,399
15,039
18,438
$
$
7,556
11,770
19,326
$
$
8,883
12,291
21,174
The stock compensation related income tax benefit recognized by the Company in 2015, 2014, and 2013 was $4.7 million, $3.9
million, and $3.5 million, respectively.
Stock Options
During 2015, the Company granted stock options under the 2010 Plan. The fair value of the stock options is determined using
the Black-Scholes-Merton option-pricing model as described later in this note. Stock options granted in 2015 under the 2010
Plan vest 25% per year over four years or upon reaching retirement eligibility, defined as providing 10 years of service and
being at least 55 years old. These options have a ten year contractual life. The expense for stock options is recognized using the
straight-line attribution method.
The Company's activity with respect to stock options during 2015 was as follows:
Number of
Shares
Grant Date
Weighted Average
Exercise Price
Weighted-Average
Remaining
Contractual Life
(in years)
Aggregate Intrinsic
Value
(in thousands, except per share amounts and years)
Outstanding, January 31, 2015
Granted
Exercised
Forfeited or expired
Outstanding, January 30, 2016
Expected to vest at January 30, 2016
Exercisable at January 30, 2016
$
3,470
$
249
(74) $
(199) $
3,446
764
2,663
$
$
$
18.45
16.37
17.16
18.86
18.31
17.19
18.64
The following provides additional information regarding the Company's stock options:
5.9
8.0
5.3
$
$
$
893
488
392
2015
2014
2013
(in thousands, except per share amounts)
Weighted average grant date fair value of options granted
Total intrinsic value of options exercised
$
$
7.79
176
$
$
8.49
$
— $
9.50
1,001
As of January 30, 2016, there was approximately $3.0 million of total unrecognized compensation expense related to stock
options, which is expected to be recognized over a weighted-average period of approximately 1.4 years.
The Company uses the Black-Scholes-Merton option-pricing model to value stock options granted to employees and directors.
The Company's determination of the fair value of stock options is affected by the Company's stock price as well as a number of
subjective and complex assumptions. These assumptions include the risk-free interest rate, the Company's expected stock price
volatility over the term of the awards, expected term of the award, and dividend yield.
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Table of Contents
The fair value of stock options was estimated at the grant date using the Black-Scholes-Merton option pricing model with the
following weighted-average assumptions:
Risk-free interest rate (1)
Price Volatility (2)
Expected term (years) (3)
Dividend yield (4)
2015
2014
2013
1.60%
47.81%
6.25
—
1.86%
53.73%
6.25
—
1.14%
55.93%
6.20
—
(1) Represents the yield on U.S. Treasury securities with a term consistent with the expected term of the stock options.
(2) For the first two years following the initial public offering of the Company's common stock, this was based on the
historical volatility of selected comparable companies over a period consistent with the expected term of the stock
options because the Company had a limited history of being publicly traded. Comparable companies were selected
primarily based on industry, stage of life cycle, and size. Beginning in May 2012, the Company began using its own
volatility as an additional input in the determination of expected volatility.
(3) Calculated utilizing the “simplified” methodology prescribed by SAB No. 107 due to the lack of historical exercise data
necessary to provide a reasonable basis upon which to estimate the term.
(4) The Company does not currently plan on paying regular dividends.
Restricted Stock Units and Restricted Stock
During 2015, the Company granted restricted stock units ("RSUs") under the 2010 Plan, including 0.4 million RSUs with
performance conditions. The fair value of the RSUs is determined based on the Company's closing stock price on the day prior
to the grant date in accordance with the 2010 Plan. The expense for RSUs without performance conditions is recognized using
the straight-line attribution method. The expense for RSUs with performance conditions is recognized using the graded vesting
method based on the expected achievement of the performance conditions. The RSUs with performance conditions are also
subject to time-based vesting. All of the RSUs granted during 2015 that are earned based on the achievement of performance
criteria will vest on April 15, 2018. RSUs without performance conditions vest ratably over four years.
The Company's activity with respect to RSUs and restricted stock, including awards with performance conditions, for 2015 was
as follows:
Unvested, January 31, 2015
Granted (1)
Performance Shares Adjustment (2)
Vested
Forfeited
Unvested, January 30, 2016
Number of
Shares
Grant Date
Weighted Average
Fair Value
(in thousands, except per share amounts)
1,435
1,292
$
$
366
$
(623) $
(258) $
$
2,212
17.75
16.39
15.88
18.07
16.94
16.66
(1) Approximately 0.5 million RSUs with three-year performance conditions are included in this amount which represents
125% of the number of shares granted. This is based on current estimates against predefined financial performance
targets.
(2) Represents a change in the number of 2014 RSUs with performance conditions expected to vest. The change was due to
an updated estimate of the Company's achievement against predefined financial targets. This amount represents
approximately 77% of the number of RSUs with performance conditions granted in 2014.
The total fair value/intrinsic value of RSUs and restricted stock that vested was $11.2 million, $13.4 million, and $8.5 million,
during 2015, 2014, and 2013, respectively. As of January 30, 2016, there was approximately $20.4 million of total
unrecognized compensation expense related to unvested RSUs and restricted stock, which is expected to be recognized over a
weighted-average period of approximately 1.8 years.
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11. 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:
Weighted-average shares - basic
Dilutive effect of stock options, restricted stock units, and
restricted stock
Weighted-average shares - diluted
2015
2014
2013
83,980
611
84,591
(in thousands)
84,144
410
84,554
84,466
602
85,068
Equity awards representing 2.4 million, 4.2 million, and 2.0 million shares of common stock were excluded from the
computation of diluted earnings per share for 2015, 2014, and 2013, respectively, as the inclusion of these awards would have
been anti-dilutive.
Additionally, for 2015, 0.4 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 January 30, 2016.
12. Retirement Benefits
The employees of the Company, if eligible, participate in a qualified defined contribution retirement plan (the “Qualified Plan”)
and a non-qualified supplemental retirement plan (the “Non-Qualified Plan”) sponsored by the Company.
Participation in the Company's Qualified Plan is available to employees who meet certain age and service requirements. The
Qualified Plan permits employees to elect contributions up to the lesser of 15% of their compensation or the maximum limits
allowable under the Internal Revenue Code ("IRC"). The Company matches employee contributions according to a pre-
determined formula. Prior to 2014, the Company contributed additional discretionary amounts based on a percentage of the
employees' eligible annual compensation and years of service. This discretionary contribution was discontinued effective for
the 2014 plan year. Employee contributions and Company matching contributions vest immediately. Additional discretionary
Company contributions and the related investment earnings are subject to vesting based on years of service.
Total expense recognized related to the Qualified Plan employer match was $3.8 million, $3.1 million, and $3.1 million in
2015, 2014, and 2013, respectively. In addition, the Company recognized expense of $4.8 million related to discretionary
contributions to the Qualified Plan in 2013.
Participation in the Non-Qualified Plan is made available to employees who meet certain age, service, job level, and
compensation requirements. The Non-Qualified Plan is an unfunded plan which provides benefits beyond the IRC limits for
qualified defined contribution plans. The plan permits employees to elect contributions up to a maximum percentage of eligible
compensation. The Company matches employee contributions according to a pre-determined formula. The Non-Qualified Plan
also previously credited additional amounts based on a percentage of the employees' eligible compensation and years of
service, but this portion of the plan was discontinued effective for the 2014 plan year. In addition, the Non-Qualified Plan
permits employees to defer additional compensation up to a maximum amount. The Company does not match the contributions
for additional deferred compensation. Employees' accounts are credited with interest using a rate determined annually by the
Retirement Plan Committee based on a methodology consistent with historical practices. Employee contributions and the
related interest vest immediately. Company contributions and the related interest are subject to vesting based on years of
service. Employees may elect an in-service distribution for the additional deferred compensation component only. Employees
are not permitted to take a withdrawal from any other portion of the Non-Qualified Plan while actively employed with the
Company. The remaining vested portion of employees' accounts in the Non-Qualified Plan will be distributed upon termination
of employment in either a lump sum or in equal annual installments over a specified period of up to 10 years. Total expense
recognized related to the Non-Qualified Plan was $2.2 million, $1.5 million, and $2.6 million in 2015, 2014, and 2013,
respectively.
The Company elected to account for this cash balance plan based on the participant account balances, excluding actuarial
considerations, as permitted by the applicable authoritative guidance.
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The annual activity for the Company's Non-Qualified Plan, was as follows:
Balance, beginning of period
Contributions:
Employee
Company
Interest
Distributions
Forfeitures
Balance, end of period
January 30, 2016
January 31, 2015
$
$
(in thousands)
27,256
$
1,633
746
1,436
(3,179)
(10)
27,882
$
25,753
1,273
836
1,387
(1,904)
(89)
27,256
These amounts are included in other long-term liabilities on the Consolidated Balance Sheets.
13. Commitments and Contingencies
From time to time the Company is subject to various claims and contingencies arising out of the normal course of business.
Management believes that the ultimate liability arising from such claims and contingencies, if any, is not likely to have a
material adverse effect on the Company's results of operations, financial condition, or cash flows.
14. Quarterly Financial Data (Unaudited)
Summarized unaudited quarterly financial results for 2015 and 2014 follows:
2015 Quarter
Net sales
Gross profit
Net income
Earnings per basic share
Earnings per diluted share
2014 Quarter
Net sales
Gross profit
Net income
Earnings per basic share
Earnings per diluted share
15. Subsequent Event
First
Second
Third
Fourth
502,378
166,444
13,062
0.15
0.15
First
460,652
137,373
5,083
0.06
0.06
$
$
$
$
$
$
$
$
$
$
(in thousands, except per share amounts)
535,582
177,190
21,028
0.25
0.25
$
$
$
$
$
546,616
191,089
26,307
0.31
0.31
Second
Third
(in thousands, except per share amounts)
481,420
136,025
6,867
0.08
0.08
$
$
$
$
$
497,608
157,558
14,585
0.17
0.17
$
$
$
$
$
$
$
$
$
$
765,553
260,554
56,116
0.68
0.67
Fourth
725,801
229,998
41,790
0.50
0.49
$
$
$
$
$
$
$
$
$
$
In February 2016, the Company amended its lease with the landlord of the Times Square Flagship store. The amendment
provides the landlord with the option to cancel the lease upon sufficient notice through December 31, 2016. If the landlord
exercises this option, the Company will be required to make a cash payment of $15 million to the landlord. In conjunction with
amending the lease, the Company will incur charges of approximately $11 million in the first quarter of 2016, reflecting the
recognition of the fair value of the option provided to the landlord and amortization of the resultant debt discount.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
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ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) promulgated under the
Exchange Act of 1934) that are designed to provide reasonable assurance that information required to be disclosed in our
Exchange Act of 1934 reports is recorded, processed, summarized, and reported within the time periods specified in the SEC's
rules and forms and that such information is accumulated and communicated to our management, including our principal
executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no
matter how well designed and operated, can provide only reasonable, and not absolute, assurance of achieving the desired
control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in
evaluating the cost benefit relationship of possible controls and procedures.
Under the supervision and with the participation of our management, including our principal executive officer and principal
financial officer, we conducted an evaluation prior to filing this report of our disclosure controls and procedures. Based on this
evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and
procedures were effective at the reasonable assurance level as of January 30, 2016.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term
is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act of 1934. Our internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the
Company's financial statements for external reporting purposes in accordance with generally accepted accounting principles.
We conducted an evaluation of the effectiveness of our internal control over financial reporting based on Internal Control -
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because
of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company's internal control over financial reporting as of January 30, 2016. In
making this assessment, we used the criteria set forth by COSO. Based on our assessment, management concluded that, as of
January 30, 2016, the Company's internal control over financial reporting was effective.
PricewaterhouseCoopers, LLP, an independent registered public accounting firm that audited the financial statements included
in this Report on Form 10-K, has also audited the effectiveness of the Company's internal control over financial reporting as of
January 30, 2016, as stated in their report which is included in “ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA” of this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act of 1934) that occurred during the fourth quarter of 2015 that materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required by this item is incorporated herein by reference to the sections entitled "Election of Directors",
"Executive Officers", "Corporate Governance" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy
Statement for our 2016 Annual Meeting of Stockholders.
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ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated herein by reference to the sections entitled "Executive Compensation",
"Corporate Governance - Director Compensation", "Corporate Governance - Compensation Committee Interlocks and Insider
Participation" and "Executive Compensation - Compensation and Governance Committee Report" in the Proxy Statement for
our 2016 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
The information required by this item is incorporated herein by reference to the section entitled "Stock Ownership Information"
in the Proxy Statement for our 2016 Annual Meeting of Stockholders.
The following table summarizes share and exercise price information about our equity compensation plan as of January 30,
2016.
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
Weighted-average exercise
price of outstanding options,
warrants and rights
Number of securities
remaining available for
future issuance under equity
compensation plan
(excluding securities
reflected in column (a))
Category
(a)
(b)
(c)
Equity compensation plans approved by
security holders
Equity compensation plans not approved by
security holders
Total
5,642,246
—
5,642,246
17.63
—
17.63
7,203,407
—
7,203,407
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by this item is incorporated herein by reference to the sections entitled "Related Person Transactions"
and "Corporate Governance - Director Independence" in the Proxy Statement for our 2016 Annual Meeting of Stockholders.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by this item is incorporated herein by reference to the section entitled "Audit Committee - Principal
Accountant Fees and Services" in the Proxy Statement for our 2016 Annual Meeting of Stockholders.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a)
(1) Consolidated Financial Statements
PART IV
The following consolidated financial statements of Express, Inc. and its subsidiaries are filed as part of this report
under Item 8. Financial Statements and Supplementary Data:
Report of Independent Registered Public Accounting Firm - PricewaterhouseCoopers LLP
Consolidated Balance Sheets as of January 30, 2016 and January 31, 2015
Consolidated Statements of Income and Comprehensive Income for the years ended January 30, 2016,
January 31, 2015, and February 1, 2014
Consolidated Statements of Changes in Stockholders' Equity for the years ended January 30, 2016,
January 31, 2015, and February 1, 2014
Consolidated Statements of Cash Flows for the years ended January 30, 2016, January 31, 2015, and
February 1, 2014
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Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
Schedules have been omitted because they are not required or are not applicable or because the information required
to be set forth therein either is not material or is included in the financial statements or notes thereto.
(3) List of Exhibits
The following exhibits are either included in this report or incorporated by reference as indicated in the following:
Exhibit
No.
EXHIBIT INDEX
Description
3.1 Certificate of Incorporation of Express, Inc. (incorporated by reference to Exhibit 4.1 to Express, Inc.'s
registration statement on Form S-8 (File No. 333-168097), filed with the SEC on July 14, 2010 (the
“Express S-8”)).
3.2 Certificate of Amendment of Certificate of Incorporation of Express, Inc. (incorporated by reference to
Exhibit 3.1 to the Current Report on Form 8-K, filed with the SEC on June 11, 2013).
3.2 Bylaws of Express, Inc. (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K,
filed with the SEC on June 11, 2013).
4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Express S-1, filed
with the SEC on April 30, 2010.)
4.2 Stockholder Protection Rights Agreement (incorporated by reference to Exhibit 4.1 to the Current Report
on Form 8-K, filed with the SEC on June 13, 2014).
4.3 Amendment No. 1, dated as of June 10, 2015, to the Stockholder Protection Rights Agreement
(incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, filed with the SEC on June
11, 2015).
4.4 Amendment No. 2, dated as of March 29, 2016, to the Stockholder Protection Rights Agreement
(incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, filed with the SEC on
March 29, 2016).
10.1+ Second Amended and Restated Employment Agreement by and between the Company and David
Kornberg (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the
Company with the SEC on July 21, 2014).
10.2+ Form of Amended and Restated Employment Agreement (incorporated by reference to Exhibit 10.4 to the
Quarterly Report on Form 10-Q, filed with the SEC on June 6, 2013).
10.3+ Form of Amended and Restated Severance Agreement (incorporated by reference to Exhibit 10.5 to the
Quarterly Report on Form 10-Q, filed with the SEC on June 6, 2013).
10.4+ Amended and Restated Express, Inc. 2010 Incentive Compensation Plan (incorporated by reference to
Appendix B to Express Inc.'s definitive proxy statement on Schedule 14A, filed with the SEC
on April 30, 2012).
10.5+ Amendment No. 1 to Express, Inc. 2010 Incentive Compensation Plan (incorporated by reference to
Exhibit 10.1 to the Quarterly Report on Form 10-Q, filed with the SEC on June 3, 2011).
10.6+ Form of Incentive Stock Option Agreement (incorporated by reference to Exhibit 10.11 to the Express
S-1, filed with the SEC on April 30, 2010).
10.7+ Form of Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.17 to the Express
S-1, filed with the SEC on April 30, 2010).
10.8+ Form of Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.19 to the Express S-1,
filed with the SEC on April 30, 2010).
10.9+ Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.13 to the Express S-1, filed
with the SEC on April 30, 2010).
10.10+ Form of Stock Option Grant Agreement (incorporated by reference to Exhibit 10.2 to the Quarterly
Report on Form 10-Q, filed with the SEC on June 6, 2013).
10.11+ Form of Performance Share Unit Agreement (incorporated by reference to Exhibit 10.3 to the Quarterly
Report on Form 10-Q, filed with the SEC on June 6, 2013).
10.12+ Form of Non-Qualified Stock Option Grant (incorporated by reference to Exhibit 10.1 to the Form 8-K
filed by the Company on April 4, 2014).
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10.13+ Form of Restricted Stock Unit Agreement for Restricted Stock Units (incorporated by reference to Exhibit
10.2 to the Form 8-K field by the Company on April 4, 2014).
10.14+ Form of Restricted Stock Unit Agreement for Performance Stock Units (incorporated by reference to
Exhibit 10.3 to the Form 8-K field by the Company on April 4, 2014).
10.15 Form of Indemnification Agreement (incorporated by reference to Exhibit 10.22 to the Express S-1, filed
with the SEC on April 30, 2010).
10.16 Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Current Report on
Form 8-K, filed with the SEC on January 5, 2011).
10.17 Form of Letter Agreement by and among Limited Brands, Inc., Express, Inc., Express Topco LLC,
Express Holding, LLC, Express, LLC, Express Finance Corp. and Express GC, LLC (incorporated by
reference to Exhibit 10.23 to the Express S-1, filed with the SEC on April 30, 2010).
10.18 Form of Letter Agreement by and among Golden Gate Private Equity, Inc., Express, Inc., Express Topco
LLC, Express Holding, LLC, Express, LLC, Express Finance Corp. and Express GC, LLC (incorporated
by reference to Exhibit 10.24 to the Express S-1, filed with the SEC on April 30, 2010).
10.19+ Letter Agreement, dated as of April 28, 2010, between Michael F. Devine, III and Express Parent LLC
(incorporated by reference to Exhibit 10.26 to the Express S-1, filed with the SEC on April 30, 2010).
10.20+ Letter Agreement, dated as of July 23, 2010, between Mylle H. Mangum and Express, Inc. (incorporated
by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed with the SEC on August 3, 2010).
10.21 Second Amended and Restated $250,000,000 Asset-Based Loan Credit Agreement, dated as of May 20,
2015 among Express Holding, LLC, as Parent, Express, LLC, as Borrower, the Initial Lenders, Initial
Issuing Bank and Swing Line Bank, Wells Fargo Bank, National Association, as Administrative Agent
and Collateral Agent, U.S. Bank National Association, as Syndication Agent, and Wells Fargo Bank,
National Association, as Sole Lead Arranger and Sole Bookrunner (incorporated by reference to Exhibit
10.1 to the Current Report on Form 8-K, filed with the SEC on May 27, 2015).
10.22+ Form of Severance Agreement (incorporated by reference to Exhibit 10.1 to the Current Report on Form
8-K, filed with the SEC on July 7, 2015).
10.23+ Form of Indemnification Agreement (incorporated by reference to Exhibit 10.2 to the Current Report
Form 8-K, filed with the SEC on July 7, 2015).
21.1* List of subsidiaries of registrant.
23.1* Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm.
31.1* Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2* Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1* Certification of Principal Financial Officer and Principal Executive Officer pursuant to 18 U.S.C Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*
XBRL Instance Document.
101.SCH* XBRL Taxonomy Extension Schema Document.
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB* XBRL Taxonomy Extension Label Linkbase Document.
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document.
+ Indicates a management contract or compensatory plan or arrangement.
* Filed herewith.
(b)
Exhibits
The exhibits to this report are listed in section (a)(3) of Item 15 above.
(c)
Financial Statement Schedules
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 30, 2016
EXPRESS, INC.
By:
/s/ Periclis Pericleous
Periclis Pericleous
Senior Vice President, Chief Financial Officer and
Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: March 30, 2016
By:
/s/ David G. Kornberg
David G. Kornberg
President, Chief Executive Officer and Director
(Principal Executive Officer)
Date: March 30, 2016
By:
/s/ Periclis Pericleous
Periclis Pericleous
Senior Vice President, Chief Financial Officer and
Treasurer (Principal Financial Officer and Principal
Accounting Officer)
Date: March 30, 2016
By:
/s/ Michael A. Weiss
Michael A. Weiss
Director
Date: March 30, 2016
By:
/s/ Michael G. Archbold
Date: March 30, 2016
Michael G. Archbold
Director
By:
/s/ Michael F. Devine
Michael F. Devine, III
Director
Date: March 30, 2016
By:
/s/ Theo Killion
Theo Killion
Director
Date: March 30, 2016
By:
/s/ Mylle H. Mangum
Mylle H. Mangum
Director
62
Executive Officers of Express, Inc.
David Kornberg
John J. (“Jack”) Rafferty
President and Chief Executive Officer
Executive Vice President, Planning and Allocation
Matthew Moellering
Jeanne St. Pierre
Executive Vice President and Chief Operating Officer
Executive Vice President, Stores
Colin Campbell
Douglas Tilson
Executive Vice President, Sourcing and Production
Executive Vice President, Real Estate
Jim Hilt
Executive Vice President, Chief Marketing Officer
and eCommerce
Erica McIntyre
Executive Vice President, Merchandising
Periclis (“Perry”) Pericleous
Senior Vice President, Chief Financial Officer and Treasurer
Board of Directors
Michael Weiss
Chairman of the Board
Theo Killion
Retired Chief Executive Officer, Zale Corporation
Mylle Mangum
(1,2,3)
David Kornberg
Chief Executive Officer, IBT Enterprises
President and Chief Executive Officer, Express, Inc.
Michael Archbold
(1)
Peter Swinburn
Chief Executive Officer, GNC Holdings Inc.
Retired Chief Executive Officer and President,
Molson Coors Brewing Company
(2)
(2)
Michael Devine, III
(1)
Retired Executive Vice President and
Chief Financial Officer, Coach
1 = Member of the Audit Committee
2 = Member of the Compensation and Governance Committee
3 = Lead Independent Director
Company Information
Headquarters
Express, Inc.
1 Express Drive
Columbus, Ohio 43230
(614) 474-7000
Stock Exchange Listing
New York Stock Exchange
(Trading Symbol “EXPR”)
Annual Meeting of Stockholders
8:30 a.m., June 8, 2016
1 Express Drive
Columbus, Ohio 43230
Independent Registered Public Accounting Firm
PricewaterhouseCoopers, LLP
Columbus, Ohio
Information Requests
Stock Transfer Agent
Through our website:
www.express.com/investor
Upon written request to: Express, Inc.
Computershare Trust Company N.A.
250 Royall Street
Canton, MA 02021
Investor Relations
1 Express Drive
Columbus, Ohio 43230
(800) 962-4284
www.computershare.com
By calling:
(888) 423-2421
NYSE Certification Statement
Our Chief Executive Officer and Chief Financial
Officer have filed the certifications required by
Section 302 of the Sarbanes-Oxley Act of 2002
with the Securities and Exchange Commission as
exhibits to our Form 10-K for the fiscal year ended
January 31, 2015. In addition, our Chief Executive
Officer filed a separate annual certification to the
New York Stock Exchange following our annual
meeting of stockholders on June 10, 2015.
Forward-Looking Statements
This Annual Report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform
Act of 1995. Forward looking statements include any statement that does not directly relate to any historical or current
fact and are based on current expectations and assumptions, which may not prove to be accurate. Forward-looking
statements are not guarantees and are subject to risks, uncertainties, changes in circumstances that are difficult to
predict, and significant contingencies, many of which are beyond the Company’s control. Many factors could cause actual
results to differ materially and adversely from these forward-looking statements, including those set forth in Item 1A of
this Annual Report. The company undertakes no obligation to publicly update or revise any forward-looking statements as
a result of new information, future event or otherwise, except as required by law.
EXPRESS