2016
Annual Report
EXPRESS
EXPRESS
DEAR FELLOW STOCKHOLDER:
The broader retail environment continues to adapt to the rapidly accelerating shift towards e-commerce. We are not
immune to this industry dynamic. Store traffic continues to be a headwind at our mall-based locations due to the changing
shopping preferences of the consumer. Our business was impacted by this in 2016, as well as by other company-specific
issues. In early 2016, we made the decision to expand choice counts, broaden our customer projection, and reduce
customer touchpoints with the objective of driving further sales and earnings growth following our strong performance in
2015. Unfortunately, these actions did not lead to the results we had planned. Our stores lacked the appropriate product
clarity and our customers became less engaged with our brand.
In the end, our net sales declined by 7% and our comparable sales declined by 9% year over year. The decline in sales,
coupled with an increase in our promotional activity negatively impacted our margin performance. Our 2016 operating
margin contracted to 4.7% from 8.8% in 2015. As a result, our diluted earnings per share (“EPS”) declined to $0.73, and
our adjusted diluted EPS declined 44% year over year to $0.81. Despite the sales and earnings decline, our business
continued to generate solid operating cash flow of $187 million, which allowed us to reinvest back into our business and
return $52 million in value to our stockholders through share repurchases. We ended the year with cash of $207 million,
up from $187 million in 2015 and continue to operate with no outstanding debt.
While the year proved challenging, it did include several key accomplishments that position us to not only improve our
performance going forward but also to capitalize on the changing consumer shopping preferences.
A few of the key accomplishments included:
• E-commerce sales grew for the ninth consecutive year, with sales up 5% to last year, surpassing $400 million for
the year;
• We replaced 25-year-old legacy IT systems with new order management, retail management, and enterprise
planning systems that were all successfully implemented during 2016. We have now successfully upgraded
95% of our systems giving us the platform to implement additional omni-channel initiatives and maximize
inventory productivity;
• We further optimized our store base, with 19 outlet store openings, 16 retail store closures, and the conversion of
four retail stores to outlets;
• We also began relaunching Express NEXT, our customer loyalty program. We began the initial phase in Q3 2016
and expect to complete the full program refresh during 2017;
• We announced significant cost savings initiatives totaling $44 to $54 million, of which $9 million was realized in
2016; and
• We generated solid operating and free cash flow in 2016, which led to an increase in our cash balance to
$207 million at year end with no outstanding debt.
We have addressed each of the company-specific issues that negatively impacted our 2016 performance and have
confidence that these actions, combined with our 2017 initiatives will translate into stronger performance and increased
stockholder value.
2017 Strategic Objectives and Initiatives
We are focused on generating long-term value for our stockholders through the following strategic objectives:
• Improving Profitability Through a Balanced Approach to Growth: We believe that we can improve profitability
over time through a combination of net sales growth and operating margin expansion. The key areas to accomplish
this include: improving existing store productivity, optimizing our retail store footprint and expanding our outlet
store base, growing our e-commerce business, and achieving significant cost savings;
• Increasing Brand Awareness and Elevating Our Customer Experience: We are focused on improving the
effectiveness of our marketing spend to increase brand awareness and familiarity, customer traffic in-stores
and online, and purchase intent. In addition, we continue to invest in our stores, e-commerce platform,
mobile app, and loyalty program and continue to implement additional omni-channel capabilities to elevate our
customer experience;
• Transforming and Leveraging Information Technology Systems: In 2016, we completed several new systems
implementations and have now modernized 95% of our portfolio of information technology systems and expect to
realize initial benefits from these systems in 2017; and
• Investing in the Growth and Development of our People: We are committed to ensuring that we continue to
attract and retain the talent necessary to achieve our strategic objectives.
Key initiatives to drive performance in 2017 include:
• Improving the fashion clarity in our stores through reduced choice counts;
• Launching a new brand campaign;
• Introducing compelling new products and improving upon existing key categories;
• Relaunching our customer loyalty program;
• Capitalizing on our new IT systems, including implementing additional omni-channel initiatives; and
• Managing our overall cost structure and optimizing our store footprint.
Closing Thoughts
We have an outstanding and dedicated team here at Express and I am confident that through working together we will
return Express to profitable growth. I remain confident in our strategy and firmly believe it is aligned with the rapidly
changing retail environment. Express remains a relevant brand and is known for delivering consistently strong and
differentiated fashion, along with a compelling customer experience and value proposition. We are also financially sound,
with more than $200 million in cash, no debt, and healthy cash flow.
I want to assure stockholders that we are focused on executing on our initiatives in a challenging environment and that we
are committed to delivering stronger results and increased stockholder value going forward.
I look forward to meeting with many of you in 2017 and updating you on our progress.
Sincerely,
David Kornberg
President and CEO
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 28, 2017
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 July 29, 2016: $1,157,233,837.
The number of outstanding shares of the registrant's common stock was 78,421,592 as of February 28, 2017.
DOCUMENT INCORPORATED BY REFERENCE:
Portions of the registrant's definitive proxy statement for its Annual Meeting of Stockholders, to be held on June 7, 2017, 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.
ITEM 16.
SIGNATURES
10-K SUMMARY.
2
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,” "continue to," 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, objectives, strategies, and initiatives for future operations or growth; the expected outcome of such plans,
objectives, strategies. and initiatives; or 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").
3
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 "2016", "2015", and "2014" refer to the 52-week periods ended
January 28, 2017, January 30, 2016, and January 31, 2015, 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 28, 2017, we operated 656 stores across the United States, in Canada, and in Puerto Rico, including 104 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. Our 2016 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 included elsewhere in this Annual Report of Form 10-K.
Competition and Competitive Strengths
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
customer experience, and brand image.
We believe we differentiate ourselves from our competitors 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 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, supply chain, 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 future success will depend in substantial part on our ability to maintain these strengths as well as anticipate and respond
quickly to fashion trends and consumer shopping behaviors, offer our customers the products they want, where and when they
want them at an attractive value proposition, maintain the strength and increase the awareness of the Express brand in the
United States, and acquire new customers.
4
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
objectives while differentiating our product offerings 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.
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 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
mobile devices while in stores. As a result, we are focused on leveraging the best of both channels to create an exceptional
omni-channel shopping 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.
Similar to our stores, 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, with a particular focus on mobile. We
recognize the growing preference for online shopping and continue to make enhancements to the online customer experience
through improved search, site navigation, and checkout capabilities, and targeted customer messaging, making shopping easier
for customers.
In 2016, we made significant investments in our technology systems and transitioned our e-commerce fulfillment and call
center operations to new third parties, all with the goal of enhancing overall customer experience and giving us the ability to
roll-out additional omni-channel capabilities to increase sales and profitability in 2017.
Marketing
We use a variety of marketing vehicles designed to acquire new customers, engage with existing customers, increase customer
traffic in-store and online, and build brand loyalty. These include direct mail, e-mail communications, promotional offers,
social media, print, television, digital advertising, celebrity brand ambassador campaigns, arrangements with social influencers
and bloggers, in-store visuals, earned media mentions and features through public relations activities.
We use a proprietary customer database, together with data analytics, to customize our communications and make targeted
offers to customers in an effort to increase customer traffic in-store and online and to increase conversion. In addition, we offer
a customer loyalty program, Express NEXT, which allows customers to earn rewards for purchases and offers other incentives
to engage with the Express brand. We also offer a private-label credit card through an agreement with World Financial Network
National Bank (“WFNNB”) under which WFNNB owns the credit card accounts and Alliance Data Systems Corporation
provides services to our private-label credit card customers. All of our proprietary credit cards carry the Express logo. We
believe that our loyalty and credit card programs encourage frequent store and website visits, promote multiple-item purchases,
and cultivate customer loyalty to the Express brand.
Technology
We rely on information technology to operate our business. Our information technology provides 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,
5
inventory management, design, planning and allocation, and financial reporting. In 2016, we launched multiple systems
upgrades, including a new order management system, a new retail management system, and a new enterprise planning system
to further enhance our omni-channel capabilities. With the completion of these systems upgrades, we have modernized
approximately 95% of our systems. We believe these new systems will allow us to increase speed-to-market, conduct planning
and allocation with more precision, and ultimately give us the ability to maximize inventory productivity and reduce
markdowns over time.
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 109
vendors utilizing approximately 348 manufacturing facilities located in approximately 24 countries throughout the world,
primarily in Asia and South and Central America. The top five countries from which we sourced our merchandise in 2016 were
China, Vietnam, Indonesia, the Philippines, and Sri Lanka, based on total cost of merchandise purchased. The top 10
manufacturing facilities, based on cost, supplied approximately 25% of our merchandise in 2016. We purchase merchandise
using purchase orders, and therefore are not subject to long-term production contracts with any 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 utilize two facilities for the distribution of our product, which are owned and operated by third parties. Virtually all of the
merchandise sold in our stores and on our website is first received and processed at a central distribution facility in Columbus,
Ohio. From there, merchandise allocated to be sold in stores is shipped to our stores and merchandise to be sold online direct-
to-consumer is shipped to a distribution facility in Richwood, Kentucky (the "Richwood Facility"). Merchandise is typically
shipped to such stores and to the Richwood Facility via third-party delivery services multiple times per week, providing them
with a steady flow of inventory. The third party who operates the Richwood Facility is responsible for fulfilling all orders
placed through our website and shipping merchandise directly to customers via third-party delivery services.
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Stores
As of January 28, 2017, we operated a total of 656 stores in 47 states across the United States, as well as in Puerto Rico, and
Canada.
The following list shows the number of stores we operated in the United States and Puerto Rico as of January 28, 2017:
Location
Alabama
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Location
Louisiana
Count
5
10 Maine
4 Maryland
81 Massachusetts
10 Michigan
11 Minnesota
2 Mississippi
53 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
8
Oklahoma
3
Oregon
13
Pennsylvania
19
Puerto Rico
22
Rhode Island
14
South Carolina
2
South Dakota
12
Tennessee
4
Texas
9
Utah
4
Vermont
22
Virginia
3
44 Washington
16 West Virginia
1 Wisconsin
Total
Count
19
5
5
28
4
3
9
1
9
55
6
1
15
10
2
12
639
The following list shows the number of stores we operated in Canada as of January 28, 2017:
Location
Alberta
British Columbia
Ontario
Total
Count
4
2
11
17
The following list shows the number of stores operated by our franchisees by country as of January 28, 2017:
Location
Mexico
Costa Rica
Panama
El Salvador
Guatemala
Total
Intellectual Property
Count
12
2
2
1
1
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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.
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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 17,000 employees. Approximately 1,000 employees are based at our home office locations
in either Columbus or New York City, approximately 70 are field-based regional and district managers, approximately 1,700
are in-store managers or co-managers, and approximately 14,200 are in-store sales associates. Approximately 20% and 80% 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 2016, approximately 54% of our net sales were generated in the Fall season, while approximately 46%
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.
Corporate History
We opened our first store in 1980, in Chicago, Illinois as a division of The Limited, 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.
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.
8
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
External 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 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 and disposable income, 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 or periods of slow growth, we may have to increase the number of promotional sales or
otherwise dispose of inventory, including fabric, for which we have previously paid to manufacture or committed to, 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 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,
whether due to the growing preference for online shopping or otherwise, 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 we expect will 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 invest in improvements
and 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.
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. 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. We expect the retail environment for apparel to remain highly competitive and promotional as a
result of pricing which may result in lower product margins. 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
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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 or maintain our product margins, and our inability to do so could
have a material adverse effect on us.
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 fail 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
demand for cotton, petroleum-based synthetic textiles, 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 energy, 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 109
vendors, utilizing approximately 348 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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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
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.
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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 Richwood Facility 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 and labor 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 labor and capacity constraints, 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.
Natural disasters, fire, and other events beyond our control may cause business disruption and result in unexpected adverse
operating results.
Our corporate offices and other facilities on which we rely are vulnerable to damage from natural disasters, fire, acts of
terrorism, 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, employee strikes, labor and
capacity constraints, 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 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 with 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, and customs services. We also rely on another third party to provide us with logistics and other
services related to our e-commerce operations and another third party to provide telephone and online support to our customers.
In connection with our sourcing activities, we rely on approximately 109 buying agents and vendors to help us source products
from approximately 348 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, increased costs, harm to our brand, and loss of customers. 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.
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Strategic Risk Factors
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, including fabric, 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 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.
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.
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 and meet the expectations of our customers is critical to our brand image. Our reputation
could be jeopardized if we fail to maintain high standards for merchandise quality and customer experience, 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 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.
Consumer behavior is rapidly changing, and 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, the traditional mall retail landscape is
changing and 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
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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. Consumer shopping patterns are rapidly changing 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 at a compelling value proposition, then our financial performance and brand image could be adversely
affected.
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.
The success of our strategic objectives to (1) improve profitability through a balanced approach to growth, including
increasing the productivity of our existing stores, optimizing our retail store footprint and opening new outlet stores,
growing our e-commerce business, and cost savings initiatives; (2) increase brand awareness and elevate our customer
experience; (3) transform and leverage our information technology systems; and (4) invest in the growth and development
of our associates, is dependent on a number of factors. Our inability to achieve our strategic objectives could negatively
impact the value of our business.
Our growth strategy is dependent on our ability to improve the productivity of our existing stores, optimize the retail store
footprint, open new outlet stores, grow our e-commerce business, reduce expenses, increase brand awareness and elevate our
customer experience, leverage our information technology systems, and invest in the growth and development of our
associates. Our ability to achieve our strategic objectives is dependent on a number of factors. For example, our ability to
improve the productivity of our existing stores depends on levels of mall traffic which we expect will remain challenging,
competition, our ability to offer desirable merchandise at a compelling value proposition, manage store expenses, and provide
an exceptional brand and customer experience.
Our ability to optimize our retail store footprint is limited by the terms of our existing leases. With respect to our desire to open
new outlet stores, we are reliant upon our ability to obtain desirable store locations, negotiate acceptable leases, open stores on
budget and in a timely manner, 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.
Given the pace of change in retail, growing our e-commerce business, increasing brand awareness, and providing an
exceptional customer experience, leveraging our systems, and investing in our associates may require significant financial
investments that may not provide a return in the near term or at all. Furthermore, our efforts to reduce expenses may have an
adverse impact on our ability to achieve our strategic objectives by limiting the funding necessary to achieve such objectives or
may impact product quality as we seek to reduce costs in our supply chain.
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.
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Information Technology Risk Factors
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. Delays or issues during such implementations 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
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.
Financial Risk Factors
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 initial 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
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terms for the most desired store locations. 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, energy costs, 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, the highly competitive and promotional
retail environment, 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 28, 2017, our minimum annual rental obligations under long-term lease
arrangements for 2017 and 2018 were $233.9 million and $200.8 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.
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:
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place liens on our assets;
• make investments other than permitted investments;
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incur additional indebtedness;
prepay certain indebtedness;
• merge, consolidate or dissolve;
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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 included elsewhere in this Annual Report on Form 10-K for further information relating to
our indebtedness.
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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.
Regulatory and Legal Risk Factors
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 elsewhere in
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.
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
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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.
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.
Recent changes within the United States government have introduced increased uncertainty with respect to tax policies, tariffs,
and government regulations affecting trade between the United States and other countries. We source the majority of our
merchandise from manufacturers located outside of the United States, primarily in Asia and South and Central America. Major
changes in tax policy or trade relations, such as the disallowance of tax deductions for imported merchandise or the imposition
of unilateral tariffs on imported products, or other changes in tax law could have a material adverse effect on our business,
results of operations and liquidity.
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 included elsewhere in this Annual Report on Form 10-K 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 execution, 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.
17
Stock Ownership Risk Factors
Our ability to pay dividends and repurchase shares is subject to restrictions in our Revolving Credit Facility, results of
operations, and capital requirements.
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.
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 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.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
Home Office, Distribution Center, and Design Studio
The lease for our corporate headquarters in Columbus, Ohio is scheduled to terminate in April 2021. The lease for our design
offices in New York City expires in July 2026.
The lease for our distribution facility in Columbus, Ohio 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 656 stores are leased from third parties. See "Item 1. Business - Store Locations" for further information on the
locations 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.
18
ITEM 3. LEGAL PROCEEDINGS.
Information relating to legal proceedings is set forth in Note 13 to our Consolidated Financial Statements included elsewhere in
this Annual Report on Form 10-K and is incorporated herein by reference.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
19
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 February 28, 2017, there were approximately 12
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 name,” 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 2016 and
2015.
Fourth quarter
Third quarter
Second quarter
First quarter
Dividends
2016
2015
High
Low
High
Low
$
$
$
$
14.39
16.38
18.26
21.57
$
$
$
$
10.03
11.28
13.25
15.53
$
$
$
$
19.91
20.72
19.17
17.75
$
$
$
$
15.61
16.23
16.22
12.66
We did not pay any dividends in 2016 or 2015. 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 elsewhere in this Annual Report on 10-K.
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 28, 2017:
Month
October 30, 2016 - November 26, 2016
November 27, 2016 - December 31, 2016
January 1, 2017 - January 28, 2017
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)
$
$
$
1
1
7
9
13.83
11.67
10.76
—
—
—
—
$20,000
$0
$0
(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 December 9, 2015, the Board of Directors authorized us to repurchase up to $100 million of our outstanding common
stock (the "2015 Repurchase Program"). We repurchased 4.9 million shares for an aggregate amount of $80.0 million,
excluding commissions, under the 2015 Repurchase Program. The 2015 Repurchase Program expired on December 9, 2016.
As of January 28, 2017, we do not have any plans, nor are we authorized to, repurchase additional shares of our outstanding
common stock.
20
Performance Graph
The following graph compares the changes in the cumulative total return to holders 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 28, 2012, 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
1/28/12
2/3/13
2/1/14
1/31/15
1/30/16
1/28/17
$
$
$
100.00 $
84.59 $
79.20 $
59.81 $
77.55 $
100.00 $
114.95 $
135.42 $
151.56 $
147.40 $
100.00 $
123.42 $
138.38 $
165.08 $
160.36 $
46.36
174.32
153.12
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.
21
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 28,
2017 and January 30, 2016 and for the years ended January 28, 2017, January 30, 2016, and January 31, 2015 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 January 31, 2015, February 1, 2014, and February 2, 2013, and the selected operating data for
the periods ended February 1, 2014 and February 2, 2013 are derived from our audited Consolidated Financial Statements,
which are not included elsewhere in this Annual Report on Form 10-K.
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):
$
$
$
$
$
$
$
$
$
$
Fiscal Year Ended
2016
2015
2014
2013
2012*
(dollars in thousands, excluding net sales per gross square foot and per share data)
2,192,547
1,529,343
663,204
559,541
103,601
57,417
$
$
$
$
$
$
2,350,129
1,554,852
795,277
587,747
207,238
116,513
$
$
$
$
$
$
2,165,481
$ 2,219,125
$ 2,157,227
1,504,527
$ 1,501,418
$ 1,414,588
660,954
524,041
136,597
68,325
$
$
$
$
717,707
504,277
214,259
116,539
$
$
$
$
742,639
491,599
251,563
139,267
— $
— $
— $
— $
—
0.73
0.73
$
$
1.39
1.38
$
$
0.81
0.81
$
$
1.38
1.37
$
$
79,049
84,591
84,554
85,068
1.60
1.60
87,206
(9)%
(12)%
6%
4%
(5)%
(7)%
3 %
(1)%
— %
(3)%
310
$
343
$
320
$
338
$
5,604
656
98,712
5,573
653
115,343
186,903
$
$
5,529
641
115,088
346,159
$
$
5,439
632
105,368
311,884
$
$
$
$
349
5,307
625
99,674
256,297
Cash and cash equivalents
$
207,373
Working capital (excluding cash and cash
equivalents )(3)
Total assets
Total debt
24,363
19,113
20,618
(27,630)
(53,211)
1,185,189
1,178,644
1,278,150
1,182,670
1,019,199
—
—
199,527
199,170
198,843
Total stockholders' equity
$
635,687
$
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 certain other revenues are excluded from net sales.
(3) Working capital is defined as current assets, less cash and cash equivalents, less current liabilities.
22
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 "2016," "2015," and "2014" refer to the 52-week periods ended January 28, 2017, January 30, 2016,
and January 31, 2015, 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.
2016 vs. 2015
• Net sales decreased 7% to $2.2 billion
• Comparable sales decreased 9%
• Comparable sales (excluding e-commerce sales) decreased 12%
• E-commerce sales increased 5% to $413.4 million
• Net sales per average gross square foot decreased by $33 to $310
• Operating income decreased 50% to $103.6 million
• Net income decreased 51% to $57.4 million
• Diluted earnings per share decreased 47% to $0.73
The following charts show the three year trend of key performance metrics:
23
Update On Our Key Initiatives
Store Performance
Real Estate Activity
In 2016, comparable sales (excluding e-commerce sales)
decreased 12% and net sales per average gross square foot
decreased 10% to $310. The decrease was primarily driven
by the following:
• Decreased traffic at our stores due in part to
challenging mall traffic trends and a strategic shift
in our marketing spend that resulted in a reduction
of direct mail and other marketing communications
to certain customer segments;
Increased promotional activity; and
•
• A lack of fashion clarity in our product assortment,
which offered too many choices.
As of January 28, 2017, we operated 656 stores, including
104 factory outlet stores.
2016 Store openings and closures:
• Opened 23 new factory outlet stores in the U.S.,
four of which were converted from existing retail
locations; and
• Closed 20 U.S. retail stores, four of which were
converted to outlet locations. The remaining 16
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.
Expectations for 2017:
• Open 39 factory outlet stores, 20 of which will be
converted from existing retail locations; and
• Close 30 U.S. retail stores, 20 of which will be
converted to outlet locations.
E-commerce
In 2016, our e-commerce sales increased 5% compared to
2015. In the first half of the year, we experienced decreased
sales due primarily to the transition of our e-commerce
fulfillment operations to a new third party.
•
This was more than offset, however, by increased sales in the
second half of the year. The increase was primarily driven
by:
• A strong and clear marketing and merchandising
message and engagement aimed at our target
demographic; and
• The launch of several key initiatives, including
improved site navigation, continued optimization
across search and category pages, and mobile
enhancements.
E-commerce sales represented 19% of our total net sales in
2016.
Other Initiatives
Systems and Processes. In 2016, we launched several
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 as we begin to fully leverage their capabilities.
• Customer Experience and Brand. In 2016, we
transitioned our e-commerce fulfillment and call center
operations to new third parties, all with the goal of
enhancing overall customer experience and giving us the
ability to roll-out additional omni-channel capabilities to
increase sales and profitability.
• Cost Savings Initiatives. In 2016, we announced that we
believe we have cost savings opportunities of $44 to $54
million we expect to realize through 2019. We realized
$9 million of these savings in 2016 and believe we are
on track to realize the remaining through 2019.
•
•
Investing in Associates. We believe that being able to
attract and retain talent is critical to our success. In
2016, we rolled out our updated corporate values:
collaborative, authentic, and resilient.
International. As of January 28, 2017, we were earning
revenue from 18 franchise locations in Latin America. In
2016, we made the strategic decision to shift our
international focus to growth within the Americas. As a
result, we terminated our franchise agreements covering
the Middle East and South Africa and closed 15
franchise stores in those areas.
Outlook
We recognize that consumer behavior patterns are rapidly shifting, with reductions in mall traffic and more purchases being
made online, and that the retail environment continues to be highly competitive. We are focused on navigating this environment
and generating long-term value for our stockholders by improving profitability over time through the following strategic
objectives:
24
Improving Profitability Through A Balanced Approach To Growth. We believe that we can improve profitability over time
through a combination of net sales growth and operating margin expansion. We are focused on accomplishing this through (1)
increasing the productivity of our existing stores, (2) optimizing our retail store footprint and opening new outlet stores, (3)
growing our e-commerce business, and (4) significant cost savings initiatives across our business.
Increasing Brand Awareness And Elevating Our Customer Experience. We are focused on improving the effectiveness of our
marketing spend to increase brand awareness and familiarity, customer traffic in-store and online, and purchase intent. In 2017,
we will continue to focus on improving our customer experience and improving conversion rates through a relaunch of the
Express NEXT loyalty program and the launch of ship-from-store and buy online, pick-up in store capabilities.
Transforming And Leveraging Information Technology Systems. In 2016, we completed several new systems implementations
and have now modernized 95% of our portfolio of information technology systems and expect to realize initial benefits from
these systems in 2017. By leveraging these new systems, we expect to be able to increase speed to market, conduct planning
and allocation with more precision, and introduce new omni-channel capabilities, all of which we believe will allow us to
maximize inventory productivity, reduce markdowns, and improve customer experience over time.
Investing In The Growth And Development Of Our People. We are committed to ensuring that we continue to attract and retain
the talent necessary to achieve our strategic objectives. In 2017, we will remain focused on cultivating a strong corporate
culture, based on corporate values, and providing professional development opportunities, to ensure that Express continues to
be a great place to build a career.
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
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.
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 during the year 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
25
Financial Measures Description
Discussion
Cost of goods sold,
buying and occupancy
costs
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
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.
Gross Profit/Gross
Margin
Gross profit is 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, selling, general, and
administrative 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
26
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
2016
Year Ended
2015
2014
$ 2,192,547
$
2,350,129
$ 2,165,481
(9)%
(12)%
5,662
6%
4%
(5)%
(7)%
5,640
5,619
653
—
23
(4)
(16)
656
641
1
40
(2)
(27)
653
632
9
41
(22)
(19)
641
Net sales decreased by approximately $157.6 million, or 7%, between 2016 and 2015. Comparable sales decreased 9% in 2016
compared to 2015. The decrease in comparable sales resulted primarily from a decrease in transactions and in-store average
dollar sales per transaction. We attribute these decreases to decreased traffic at our stores due in part to decreases in overall mall
traffic, increased markdowns due to the promotional retail landscape, and a lack of fashion clarity in our product assortment,
which offered too many choices and was overly targeted at the younger customers in our demographic in the first half of the
year. This was partially offset by an increase in e-commerce sales which resulted from more targeted marketing as well as
improvements to our website functionality and the online shopping experience. Non-comparable sales increased $37.5 million,
driven primarily by new outlet store openings, and were partially offset by closed retail stores.
27
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.
Gross Profit
The following table shows cost of goods sold, buying and occupancy costs, gross profit in dollars, and gross margin percentage
for the stated periods:
Cost of goods sold, buying and occupancy costs
Gross profit
Gross margin percentage
2016
Year Ended
2015
2014
(in thousands, except percentages)
$
$
1,529,343
663,204
$
$
1,554,852
795,277
$
$
1,504,527
660,954
30.2%
33.8%
30.5%
The 360 basis point decrease in gross margin percentage, or gross profit as a percentage of net sales, in 2016 compared to 2015
was comprised of a 210 basis point decrease in merchandise margin and a 150 basis point increase in buying and occupancy
costs as a percentage of net sales. The decrease in merchandise margin was driven by increased promotions, including increased
markdowns on clearance items in the first half of the year. The increase in buying and occupancy costs as a percentage of sales
was primarily the result of the deleveraging effect of the decrease in sales, increased rent expense, and a $5.1 million
impairment charge related to leasehold improvements at certain underperforming stores in 2016 versus a $1.8 million
impairment charge in 2015. 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. These increases were partially offset by a decrease in incentive compensation.
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
28
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.
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:
2016
Year Ended
2015
(in thousands)
2014
Selling, general, and administrative expenses
$
559,541
$
587,747
$
524,041
Selling, general, and administrative expenses, as a percentage of net sales
25.5%
25.0%
24.2%
The $28.2 million decrease in selling, general, and administrative expenses in 2016 compared to 2015 was primarily the result
of decreased payroll related expenses of approximately $34.0 million. The reduction in payroll expenses was primarily related
to decreases in incentive compensation and performance-based stock compensation resulting from decreased business
performance. The decreases were partially offset by $7.8 million in additional depreciation primarily related to new information
technology systems and e-commerce technology.
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.
Interest Expense, Net
The following table shows interest expense in dollars for the stated periods:
Interest expense, net
2016
Year Ended
2015
(in thousands)
2014
$
13,468
$
15,882
$
23,896
The $2.4 million decrease in interest expense in 2016 compared to 2015 is primarily related to a loss on extinguishment of debt
in connection with the redemption of our 8 3/4% Senior Notes due 2018 (the "Senior Notes") in the first quarter of 2015,
partially offset by the amortization of the debt discount related to the lease financing obligation associated with the amendment
to our Times Square store lease agreement in the first quarter of 2016.
The $8.0 million decrease in interest expense in 2015 compared to 2014 is primarily attributable to the reduction in interest
expense following the redemption of our Senior Notes in the first quarter of 2015, partially offset by a $9.7 million loss on
extinguishment of debt in connection with such redemption.
Income Tax Expense
The following table shows income tax expense in dollars for the stated periods:
Income tax expense
29
2016
Year Ended
2015
(in thousands)
2014
$
33,200
$
74,171
$
43,231
The effective tax rate was 36.6% in 2016 compared to 38.9% in 2015. The effective tax rate for 2016 includes a net tax benefit
of approximately $2.9 million attributable to certain discrete items that occurred during the third quarter of 2016. We anticipate
our effective tax rate will be approximately 39% in 2017 excluding the impact of share-based compensation or other discrete
items which might occur.
The effective tax rate for 2015 was 38.9% compared to 38.8% for 2014.
Refer to Note 7 of the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for additional
information regarding the tax rate.
Adjusted Net Income
The following table presents adjusted net income and adjusted diluted earnings per share, each a non-GAAP financial measure,
for the stated periods which eliminate certain non-core operating costs:
Net Income
Adjusted Net Income (Non-GAAP)
Diluted Earnings Per Share
Adjusted Diluted Earnings Per Share (Non-GAAP)
2016
Year Ended
2015
2014
(in thousands, except per share amounts)
$
$
$
$
57,417
64,343
0.73
0.81
$
$
$
$
116,513
122,429
1.38
1.45
$
$
$
$
68,325
68,325 *
0.81
0.81 *
* No adjustments were made to net income or diluted earnings per share for 2014.
We supplement the reporting of our financial information determined under GAAP with certain non-GAAP financial measures:
adjusted net income and adjusted diluted earnings per share. We believe that these non-GAAP measures provide additional useful
information to assist stockholders in understanding our financial results and assessing our prospects for future performance.
Management believes adjusted net income and adjusted diluted earnings per share are important indicators of our business
performance because they exclude items that may not be indicative of, or are unrelated to, our underlying operating results, and
provide a better baseline for analyzing trends in our business. In addition, adjusted diluted earnings per 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 by executives. 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 not be considered in isolation or as a substitute for reported net income and reported diluted earnings per 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 financial statements and publicly-filed reports 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 diluted earnings per share, with
the most directly comparable GAAP financial measures, net income and diluted earnings per share. No adjustments were made
to net income or diluted earnings per share for 2014, and therefore no tabular reconciliation has been included for 2014.
(in thousands, except per share amounts)
Net Income
2016
Diluted Earnings per
Share
Reported GAAP Measure
Interest Expense (a)
Income Tax Benefit (b)
Adjusted Non-GAAP Measure
$
$
57,417
$
11,354
(4,428)
64,343
$
0.73
0.14
(0.06)
0.81
Weighted Average
Diluted Shares
Outstanding
79,049
(a)
Represents non-core items related to the amendment of the Times Square Flagship store lease discussed in
Note 5 of our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
30
(b)
Items were tax affected at our statutory rate of approximately 39% for 2016.
(in thousands, except per share amounts)
Net Income
2015
Diluted Earnings per
Share
Reported GAAP Measure
Interest Expense (a)
Income Tax Benefit (b)
Adjusted Non-GAAP Measure
$
$
116,513
$
9,657
(3,741)
122,429
$
1.38
0.11
(0.04)
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.
(b)
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
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at end of period
2016
$
186,708
(108,866)
(58,271)
20,470
207,373
$
$
$
Year Ended
2015
(in thousands)
229,603
(115,378)
(271,997)
(159,256)
186,903
$
$
2014
156,570
(116,098)
(4,938)
34,275
346,159
Our business relies on cash flows from operations as our primary source of liquidity, with the majority of those cash flows
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 $186.7 million in 2016 compared to $229.6 million in
2015. The decrease in operating cash flows in 2016 was primarily the result of the decreased performance of the business and
the resulting decline in net income as well as the payments in the first quarter of 2016 of bonuses accrued in 2015. This was
partially offset by a decrease in our inventory balance compared to the prior year due in part to better inventory management
and declining sales.
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 28, 2017, we had $221.8 million available for borrowing under our Revolving Credit
Facility. Refer to Note 8 of our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for
additional information on our Revolving Credit Facility.
We also use cash for investing activities. Our capital expenditures consist primarily of new and remodeled store construction
and fixtures and information technology projects. We had capital expenditures of approximately $98.7 million in 2016, $115.3
million in 2015, and $115.1 million in 2014. The decrease in 2016 was primarily driven by reduced capital expenditures due to
fewer store openings in 2016, as well as a reduction in information technology capital expenditures due to the completion of
system upgrades in 2016. In the second quarter of 2016, we also made a $10.1 million investment in Homage, LLC, a
Columbus-based private apparel company, that is in the early stages of development.
In addition, we use cash for financing transactions. We repurchased $51.5 million of our common stock, including
commissions, in 2016 and $68.6 million of our common stock, including commissions, in 2015, under share repurchase
programs. In 2015, we also redeemed all $200.9 million of our Senior Notes for an aggregate amount equal to $205.3 million,
including the applicable redemption premium.
31
Our liquidity position 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.
Forward-Looking Liquidity Discussion
In 2017, we plan to open approximately 39 factory outlet stores, 20 of which will be converted from existing retail locations.
We expect capital expenditures for 2017 to be approximately $62 to $67 million, primarily driven by continued investment in
information technology, remodels of existing high-performing stores, and new factory outlet store openings. These capital
expenditures do not include the impact of landlord allowances, which are expected to be approximately $9 million for 2017.
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. As of January 28, 2017, our
contractual future cash obligations are set forth in the following table.
Contractual Obligations:
Operating Leases(1)
Purchase Obligations(2)
Other Long-Term Obligations(3)
Total
Payments Due by Period
Total
<1 Year
1-3 Years 3-5 Years Thereafter
(in thousands)
1,457,191
360,164
31,736
233,942
360,164
12,795
385,768
—
18,250
329,250
—
691
$ 1,849,091 $ 606,901 $ 404,018 $ 329,941 $
508,231
—
—
508,231
(1) 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 $126 million.
(2) Purchase obligations are made up of merchandise purchase orders and unreserved fabric commitments.
(3) Other long-term obligations consist of employment related agreements and obligations under other long-term agreements.
32
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 included elsewhere in this
Annual Report on Form 10-K. More information on all of our significant accounting policies can be found in Note 2 to our
Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
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 28, 2017
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 28, 2017 would not
have had a material impact on pre-tax
income.
33
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 28,
2017.
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 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.
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.
34
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 known and unknown 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 included elsewhere
in this Annual Report on Form 10-K 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, rates, or future
taxable income 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.
35
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.
Recently Issued Accounting Pronouncements
Recently issued accounting pronouncements and their estimated effect on the Company’s consolidated financial statements are
described in Note 1 of our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
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 included
elsewhere in this Annual Report on Form 10-K for further information on the calculation of the rates. We did not borrow any
amounts under our Revolving Credit Facility during 2016. 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 28, 2017, a
hypothetical 10% change in the Canadian foreign exchange rate would not have had a material impact on our results of
operations.
Impact of Inflation
Inflationary factors such as increases in the cost of our products and operations 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.
36
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 28, 2017 and January 30, 2016, and the
results of their operations and their cash flows for each of the three years in the period ended January 28, 2017 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 28, 2017, 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
integrated 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 24, 2017
37
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
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; 92,063 shares and 91,127 shares
issued at January 28, 2017 and January 30, 2016, respectively, and 78,422 shares and 80,914
shares outstanding at January 28, 2017 and January 30, 2016, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Treasury stock – at average cost; 13,641 shares and 10,213 shares at January 28, 2017 and January
30, 2016, respectively
Total stockholders’ equity
Total liabilities and stockholders’ equity
See notes to consolidated financial statements.
38
January 28, 2017
January 30, 2016
$
207,373
$
15,787
241,424
31,626
17,923
514,133
1,029,176
(577,890)
451,286
197,618
7,926
14,226
186,903
22,130
255,350
30,694
18,342
513,419
948,608
(504,211)
444,397
197,597
21,227
2,004
1,185,189
$
1,178,644
$
$
172,668
$
29,428
80,301
282,397
146,328
120,777
549,502
921
185,097
(3,803)
690,715
(237,243)
635,687
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
1,178,644
$
1,185,189
$
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, net
Total operating expenses
2016
2015
2014
$
2,192,547
$
2,350,129
$
2,165,481
1,529,343
1,554,852
663,204
795,277
1,504,527
660,954
559,541
62
559,603
587,747
292
588,039
524,041
316
524,357
OPERATING INCOME
103,601
207,238
136,597
INTEREST EXPENSE, NET
OTHER (INCOME) EXPENSE, NET
INCOME BEFORE INCOME TAXES
INCOME TAX EXPENSE
NET INCOME
OTHER COMPREHENSIVE INCOME:
Foreign currency translation gain (loss)
COMPREHENSIVE INCOME
EARNINGS PER SHARE:
Basic
Diluted
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic
Diluted
See notes to consolidated financial statements.
$
$
$
$
13,468
(484)
90,617
33,200
15,882
672
190,684
74,171
57,417
$
116,513
$
23,896
1,145
111,556
43,231
68,325
862
(1,608)
58,279
$
114,905
$
(2,329)
65,996
0.73
0.73
$
$
1.39
1.38
$
$
0.81
0.81
78,669
79,049
83,980
84,591
84,144
84,554
39
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
83,966 $
899 $
130,511 $ 448,460 $
(728)
5,893 $ (104,573) $ 474,569
BALANCE, February 1, 2014
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 $
Net income
Issuance of common stock
Share-based compensation
Repurchase of common stock
Foreign currency translation
—
936
—
(3,428)
—
—
10
—
—
—
—
57,417
2,724
12,858
—
—
—
—
—
—
—
—
—
—
(2,329)
(3,057)
—
—
—
—
(1,608)
(4,665)
—
—
—
—
862
—
—
—
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
—
—
—
—
—
—
57,417
2,734
12,858
3,428
(56,137)
(56,137)
—
—
862
BALANCE, January 28, 2017
78,422 $
921 $
185,097 $ 690,715 $
(3,803)
13,641 $ (237,243) $ 635,687
See notes to consolidated financial statements.
40
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
Amortization of lease financing obligation discount
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
Investment in equity interests
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
Repayments of financing arrangements
Excess tax benefit from share-based compensation
Proceeds from exercise of stock options
Repurchase of common stock under share repurchase programs (see Note 9)
Repurchase of common stock for tax withholding obligations
Net cash used in financing activities
EFFECT OF EXCHANGE RATE ON CASH
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, Beginning of period
CASH AND CASH EQUIVALENTS, End of period
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest
Cash paid to taxing authorities
See notes to consolidated financial statements.
41
2016
2015
2014
$
57,417
$
116,513
$
68,325
82,144
942
5,108
11,354
—
12,858
—
20,065
(11,280)
—
6,371
14,144
(15,857)
3,442
186,708
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
(98,712)
(115,343)
(115,088)
(21)
(10,133)
(35)
—
(1,010)
—
(108,866)
(115,378)
(116,098)
—
—
(1,595)
(3,274)
—
2,735
(51,538)
(4,599)
(58,271)
(198,038)
(1,006)
(1,552)
—
347
1,276
(68,574)
(4,450)
(271,997)
899
(1,484)
20,470
186,903
(159,256)
346,159
207,373
$
186,903
$
—
—
(1,478)
—
49
—
—
(3,509)
(4,938)
(1,259)
34,275
311,884
346,159
— $
40,413
$
8,787
71,686
$
$
17,574
43,171
$
$
$
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 28,
2017, Express operated 552 primarily mall-based retail stores in the United States, Canada, and Puerto Rico as well as 104
factory outlet stores. Additionally, the Company earned revenue from 18 franchise stores in Latin America. These franchise
stores are operated by franchisees pursuant to franchise agreements. Under the franchise agreements, the franchisees operate
stand-alone Express stores that sell Express-branded apparel and accessories purchased directly from the Company. During
2016, the Company closed 15 franchise stores in the Middle East and South Africa based on a strategic decision to exit its
franchise agreements in these locations.
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 "2016," "2015," and "2014" represent the 52-week periods ended January 28,
2017, January 30, 2016, and January 31, 2015, 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. 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.
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,
"Revenue from Contracts with Customers (Topic 606)." 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, 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 continues to evaluate the impact that adopting
this standard will have on its consolidated financial statements, but currently expects that the adoption will primarily impact the
accounting for points earned under the Company's loyalty program and the timing of revenue recognition for e-commerce sales.
Neither of these changes is expected to have a material effect on the Company's financial position.
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. ASU 2016-02 mandates a modified retrospective transition method with early adoption permitted.
The Company continues to evaluate the impact that adopting ASU 2016-02 will have on its consolidated financial statements,
but the most significant impact will be to increase assets and liabilities on the consolidated balance sheet by the present value of
the Company's leasing obligations, which are primarily related to store leases.
In March 2016, the FASB issued ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting." ASU 2016-09 simplifies several of the elements of accounting for share-based
payments, including recognizing all excess tax benefits and tax deficiencies in the income statement immediately, allowing an
entity to elect to either estimate the total number of awards that will vest or recognize forfeitures when they occur, modifying
42
the tax withholding threshold to qualify for equity classification up to the employees' maximum statutory tax withholding, and
clarifying the classification for excess tax benefits on the statement of cash flows. The Company elected to early adopt the new
standard in the first quarter of 2016 on a prospective basis. The impact of adoption did not have a material impact on the
Company’s financial position, results of operations, or cash flows. The Company will continue to estimate forfeitures expected
to occur in determining the amount of compensation cost to be recognized in each period.
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 revenue and expense during the
reporting period, as well as the related disclosure of contingent assets and liabilities as of the date of the Consolidated Financial
Statements. Actual results may differ from those estimates. The Company revises its estimates and assumptions as new
information becomes available.
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 five days of sales, cash on hand, and deposits with financial institutions. As of January 28,
2017 and January 30, 2016, amounts due from banks for credit and debit card transactions totaled approximately $10.2 million
and $13.4 million, respectively.
Outstanding checks not yet presented for payment amounted to $49.8 million and $17.0 million as of January 28, 2017 and
January 30, 2016, 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.
Financial Assets
The following table presents the Company's financial assets measured at fair value on a recurring basis as of January 28, 2017
and January 30, 2016, aggregated by the level in the fair value hierarchy within which those measurements fall.
Money market funds
Money market funds
January 28, 2017
Level 1
Level 2
Level 3
(in thousands)
$
177,551 $
— $
—
January 30, 2016
Level 1
Level 2
Level 3
(in thousands)
$
152,069 $
— $
—
43
Non-Financial Assets
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 28, 2017 and January 30, 2016 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 28, 2017 or January 30, 2016.
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 28, 2017 and January 30, 2016 was $12.4 million and $9.9 million, respectively.
The Company also records an inventory shrink reserve for estimated merchandise inventory losses 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 $113.2 million, $110.5 million, and $104.6 million in 2016, 2015, and 2014, 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
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 activities. 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.
44
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 2016, as a result of decreased performance in certain stores, the Company recognized impairment charges of $5.1
million related to 11 stores. In 2015, the Company recognized impairment charges of $1.8 million related to 4 stores. In 2014,
the Company recognized impairment charges of $10.5 million related to 14 stores. 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 quantitative and/or
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.
The Company did not incur any impairment charges on indefinite lived intangible assets in 2016, 2015, or 2014.
Investment in Equity Interests
In the second quarter of 2016, the Company made a $10.1 million investment in Homage, LLC, a privately held retail company
based in Columbus, Ohio. The non-controlling investment in the entity is being accounted for under the equity method. The
investment is included in other assets on the Consolidated Balance Sheets.
Leases and Landlord Allowances
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.
45
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 $3.4 million and $21.2 million as of January 28, 2017 and January 30, 2016, respectively, and is
included in accrued expenses on the Consolidated Balance Sheets.
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
nominal and $20.4 million as of January 28, 2017 and January 30, 2016, 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
46
(income) expense, 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.
Revenue Recognition
The Company recognizes sales at the time the customer takes possession of the merchandise which, for e-commerce
transactions, 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 $9.9 million, $13.3 million, and $11.3 million in 2016, 2015, and 2014,
respectively. Associate discounts on merchandise purchases 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 merchandise and/or royalties. Revenues from merchandise 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 $10.0 million and $9.9 million as of January 28, 2017 and January 30, 2016, 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 $27.5 million and $28.3 million, as of January 28, 2017 and January 30, 2016,
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
historical redemption patterns and totaled $3.6 million, $3.1 million, and $2.7 million in 2016, 2015, and 2014, 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, e-commerce
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.
Other Operating Expense, Net
Other operating income, net primarily consists of gains/losses on disposal of assets and excess proceeds from the settlement of
insurance claims.
Other (Income) Expense, Net
Other (income) expense, net primarily consists of foreign currency transaction gains/losses.
47
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
2016
2015
2014
(in thousands)
1,915,146
$
2,062,235
$
1,883,641
236,024
41,377
242,408
45,486
240,052
41,788
2,192,547
$
2,350,129
$
2,165,481
2016
2015
2014
(in thousands)
1,737,722
$
1,911,923
$
1,769,478
413,448
41,377
392,720
45,486
354,215
41,788
2,192,547
$
2,350,129
$
2,165,481
$
$
$
$
E-commerce sales processed through the stores are included in E-commerce revenue. Merchandise returns are reflected in the
accounting records of the channel where they are physically returned. 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 2016, 2015, and 2014, and as of
January 28, 2017 and January 30, 2016, respectively, were not material and, therefore, not reported separately from domestic
revenues and long-lived assets.
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 28, 2017
January 30, 2016
(in thousands)
86,487
487,381
440,403
14,094
811
1,029,176
(577,890)
451,286
$
$
86,487
378,041
412,457
70,796
827
948,608
(504,211)
444,397
$
$
Depreciation expense totaled $81.5 million, $74.4 million, and $73.5 million in 2016, 2015, and 2014, respectively, excluding
impairment charges discussed in Note 2.
48
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
2016
2015
2014
(in thousands)
214,696
4,927
219,623
5,945
225,568
$
$
213,228
6,945
220,173
5,413
225,586
$
$
$
$
209,323
6,398
215,721
5,609
221,330
As of January 28, 2017, 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 non-cancelable operating leases are as follows (in thousands):
2017
2018
2019
2020
2021
Thereafter
Total
$
$
233,943
200,800
184,968
173,416
155,834
508,230
1,457,191
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
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 $63.8 million and $67.4 million, as of January 28, 2017 and January 30, 2016,
respectively. There was also $68.2 million and $69.6 million of lease financing obligations as of January 28, 2017 and
January 30, 2016, respectively, in other long-term liabilities on the Consolidated Balance Sheets.
49
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.
In February 2016, the Company amended its lease arrangement with the landlord of the Times Square Flagship store. The
Company had previously determined it was the owner of the store for accounting purposes based on an assessment of the lease
arrangement at inception as described above. The amendment provided the landlord with the option to cancel the lease upon
sufficient notice through December 31, 2016. The amendment expired unexercised on December 31, 2016. In conjunction with
amending the lease, the Company recognized an $11.4 million put option liability and a related offset as a discount on the lease
financing obligation. The discount was amortized over the shortest period under which the landlord was able to exercise this
option (60 days). This resulted in the full amortization of the $11.4 million discount during the first quarter of 2016. The
amortization of the discount was recorded as interest expense. As of January 28, 2017, the fair value of the put option was $9.0
million of which $8.3 million is included within other long-term liabilities on the Consolidated Balance Sheets. This amount
will be amortized through interest expense over the remaining lease term.
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
197,618
425
198,043
Cost
197,597
425
198,022
$
$
$
$
January 28, 2017
Accumulated
Amortization
(in thousands)
Ending Net Balance
— $
221
221
$
197,618
204
197,822
January 30, 2016
Accumulated
Amortization
(in thousands)
Ending Net Balance
— $
172
172
$
197,597
253
197,850
$
$
$
$
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.
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
2016
2015
2014
(in thousands)
7,600
4,721
814
13,135
19,333
866
(134)
20,065
33,200
$
$
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
$
$
50
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
Share-based compensation
(Benefit)/Expense for uncertain tax positions
Other items, net
Effective tax rate
2016
2015
2014
35.0 %
4.4 %
4.0 %
(7.0)%
0.2 %
36.6 %
35.0 %
3.6 %
0.2 %
0.5 %
(0.4)%
38.9 %
35.0 %
4.1 %
0.8 %
(1.4)%
0.3 %
38.8 %
The decrease in the tax rate in 2016 compared to 2015 is primarily attributable to the release of uncertain tax positions
discussed further below, partially offset by the impact on the tax rate of share-based compensation due to the expiration of
certain unexercised stock options previously held by the former Chairman of the Company's Board of Directors (the "Board").
The following table provides the effect of temporary differences that created deferred income taxes as of January 28, 2017 and
January 30, 2016. 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:
Prepaid expenses
Intangible assets
Property and equipment
Total deferred tax liabilities
Net deferred tax asset
January 28, 2017
January 30, 2016
(in thousands)
$
$
28,340
31,170
31,522
3,005
3,535
562
(3,243)
94,891
5,189
22,417
66,124
93,730
1,161
$
$
40,540
28,551
28,492
1,778
2,573
214
(2,081)
100,067
4,976
17,996
55,868
78,840
21,227
The net increase in the total valuation allowance attributable to foreign operations for the years ended January 28, 2017, and
January 30, 2016 was $1.0 million and $0.4 million, respectively. The foreign capital loss carryforward as of January 28, 2017
and January 30, 2016 was $0.3 million and $0.3 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. A valuation allowance
of $0.2 million was established related to state and local tax credits generated in the current year which have a one year
carryforward period.
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.
The following table summarizes the presentation of the Company’s net deferred tax assets in the Consolidated Balance Sheets:
51
Deferred tax assets
Other long-term liabilities
Net deferred tax assets
Uncertain Tax Positions
January 28, 2017
January 30, 2016
$
$
(in thousands)
7,926
(6,765)
1,161
$
$
21,227
—
21,227
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:
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
$
$
January 28, 2017
January 30, 2016
January 31, 2015
(in thousands)
9,506
$
1,651
$
296
527
—
(23)
(7,202)
3,104
767
7,174
(57)
(29)
—
$
9,506
$
4,091
346
129
(2,137)
(628)
(150)
1,651
The amount of the above unrecognized tax benefits as of January 28, 2017, January 30, 2016, and January 31, 2015 that would
impact the Company's effective tax rate, if recognized, is $3.1 million, $9.5 million, and $1.7 million, respectively.
During 2016, the Company released gross uncertain tax positions of $7.2 million and the related accrued interest of $0.9
million as a result of the expiration of associated statutes of limitation. During 2014, the Internal Revenue Service (IRS)
completed its examination of the Company’s 2012, 2011, and 2010 income tax returns and 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 Income and Comprehensive Income was $(0.3) million for 2016, $0.7 million for 2015, and immaterial for 2014.
As of January 28, 2017 and January 30, 2016, the Company had accrued interest of $0.5 million and $0.8 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 2012. There are ongoing
U.S. state and local audits covering tax years 2012 through 2015. 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 $0.8 million of unrecognized tax
benefits could be resolved as the result of the expiration of statutes of limitation. Final settlement of these issues may result in
payments that are more or less than this amount, but the Company does not anticipate that 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; accordingly, we have not provided for income taxes in the
United States on undistributed earnings.
52
8. Debt
A summary of the Company's financing activities are as follows:
Revolving Credit Facility
On May 20, 2015, Express Holding, a wholly-owned subsidiary, and its subsidiaries entered into an Amended and Restated
$250 million secured Asset-Based Credit Facility ("Revolving Credit Facility"). The expiration date of the facility is May 20,
2020. As of January 28, 2017, there were no borrowings outstanding and approximately $221.8 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 non-
cash adjustments to reconcile net income to net cash provided by operating activities within the Consolidated Statements of
Cash Flows.
53
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 28, 2017 and January 30, 2016, 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 28, 2017 and January 30,
2016, outstanding stand-by LCs totaled $3.2 million and $2.8 million, respectively.
9. Stockholders' Equity
Share Repurchase Programs
On December 9, 2015, the Board approved a share repurchase program which authorized the Company to repurchase up to
$100.0 million of the Company's common stock (the "2015 Repurchase Program"). The 2015 Repurchase Program expired on
December 9, 2016, 12 months after its adoption. In total, the Company repurchased 4.9 million shares of its common stock
under the 2015 Repurchase Program for an aggregate amount equal to $80.1 million, including commissions. During 2016, the
Company repurchased 3.2 million shares of its common stock for a total of $51.5 million including commissions. During 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.
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.
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 28, 2017, 15.2 million shares were authorized to
be granted under the 2010 Plan and 7.5 million remained available for future issuance.
54
The following summarizes share-based compensation expense:
Stock options
Restricted stock units and restricted stock
Total share-based compensation
2016
2015
2014
(in thousands)
$
$
2,464
10,394
12,858
$
$
3,399
15,039
18,438
$
$
7,556
11,770
19,326
The stock compensation related income tax benefit recognized by the Company in 2016, 2015, and 2014 was $6.2 million, $4.7
million, and $3.9 million, respectively.
Stock Options
During 2016, the Company granted stock options under the 2010 Plan. Stock options granted in 2016 under the 2010 Plan vest
25% per year over four years or upon retirement if the holder has provided 10 years of service and is at least 55 years old at
retirement. 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 2016 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 30, 2016
Granted
Exercised
Forfeited or expired
Outstanding, January 28, 2017
Expected to vest at January 28, 2017
Exercisable at January 28, 2017
$
3,446
239
$
(159) $
(1,197) $
2,329
522
1,787
$
$
$
18.31
20.74
17.23
19.18
18.18
18.30
18.14
The following provides additional information regarding the Company's stock options:
5.7
8.1
4.9
$
$
$
—
—
—
2016
2015
2014
(in thousands, except per share amounts)
Weighted average grant date fair value of options granted
Total intrinsic value of options exercised
$
$
9.32
547
$
$
7.79
176
$
$
8.49
—
As of January 28, 2017, there was approximately $2.4 million of total unrecognized compensation expense related to stock
options, which is expected to be recognized over a weighted-average period of approximately 1.6 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. The following are the weighted-average
assumptions used in the determination of the fair value of the Company's stock options:
55
Risk-free interest rate (1)
Price Volatility (2)
Expected term (years) (3)
Dividend yield (4)
2016
2015
2014
1.62%
43.23%
6.52
—
1.60%
47.81%
6.25
—
1.86%
53.73%
6.25
—
(1) Represents the yield on U.S. Treasury securities with a term consistent with the expected term of the stock options.
(2) Primarily based on the historical volatility of the Company's common stock over a period consistent with the expected
term of the stock options.
(3) Beginning in 2016, the Company calculated the expected term assumption using the midpoint scenario, which combines
historical exercise data with hypothetical exercise data for outstanding options. The Company believes this data currently
represents the best estimate of the expected term of new employee options.
(4) The Company does not currently plan on paying regular dividends.
Restricted Stock Units and Restricted Stock
During 2016, the Company granted restricted stock units ("RSUs") under the 2010 Plan, including 0.3 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. Any of the RSUs granted during 2016 that are earned based on the achievement of performance
criteria will vest on April 15, 2019. 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 2016 was
as follows:
Unvested, January 30, 2016
Granted (1)
Performance Shares Adjustment (2)
Vested
Forfeited
Unvested, January 28, 2017
Number of
Shares
Grant Date
Weighted Average
Fair Value
(in thousands, except per share amounts)
2,212
$
678
$
(146) $
(812) $
(249) $
$
1,683
16.66
20.14
16.28
17.24
17.79
17.64
(1) Approximately 0.3 million RSUs with three-year performance conditions were granted in the first quarter of 2016. None
of these RSUs are currently included as granted in the table above based on current estimates against predefined
performance targets. The number of performance-based RSUs that are ultimately earned may vary from 0% to 200% of
target depending on achievement relative to the predefined financial performance targets.
(2) Relates to a change in estimate of RSUs with performance conditions granted in 2015. Currently, 87% of the number of
shares granted in 2015 are expected to vest based on estimates against predefined financial performance targets.
The total fair value/intrinsic value of RSUs and restricted stock that vested was $14.0 million, $11.2 million, and $13.4 million,
during 2016, 2015, and 2014, respectively. As of January 28, 2017, there was approximately $17.7 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 1.7 years.
56
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
2016
2015
2014
78,669
380
79,049
(in thousands)
83,980
611
84,591
84,144
410
84,554
Equity awards representing 3.7 million, 2.4 million, and 4.2 million shares of common stock were excluded from the
computation of diluted earnings per share for 2016, 2015, and 2014, respectively, as the inclusion of these awards would have
been anti-dilutive.
Additionally, for 2016, 0.7 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 28, 2017.
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, $3.8 million, and $3.1 million in
2016, 2015, and 2014, respectively.
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 $2.4 million, $2.2 million, and $1.5 million in 2016, 2015, and 2014,
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.
57
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 28, 2017
January 30, 2016
(in thousands)
27,882
$
1,741
951
1,507
(2,339)
(36)
29,706
$
27,256
1,633
746
1,436
(3,179)
(10)
27,882
$
$
These amounts are included in other long-term liabilities on the Consolidated Balance Sheets.
Subsequent to year-end, the Company elected to discontinue the Non-Qualified Plan effective March 31, 2017. Outstanding
participant balances are expected to be distributed after a 12 month waiting period per IRS regulations regarding distributions
from supplemental nonqualified plans. Interest will continue to accrue on outstanding balances until such distributions are
made.
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 2016 and 2015 follows:
2016 Quarter
Net sales
Gross profit
Net income
Earnings per basic share
Earnings per diluted share
2015 Quarter
Net sales
Gross profit
Net income
Earnings per basic share
Earnings per diluted share
First
Second
Third
Fourth
502,909
167,748
12,882
0.16
0.16
First
502,378
166,444
13,062
0.15
0.15
$
$
$
$
$
$
$
$
$
$
(in thousands, except per share amounts)
504,767
150,919
10,144
0.13
0.13
$
$
$
$
$
506,090
151,717
11,617
0.15
0.15
Second
Third
(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
$
$
$
$
$
$
$
$
$
$
678,781
192,820
22,774
0.29
0.29
Fourth
765,553
260,554
56,116
0.68
0.67
$
$
$
$
$
$
$
$
$
$
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
58
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 28, 2017.
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 28, 2017. In
making this assessment, we used the criteria set forth by COSO. Based on our assessment, management concluded that, as of
January 28, 2017, the Company's internal control over financial reporting was effective.
PricewaterhouseCoopers, LLP, an independent registered public accounting firm that audited the consolidated financial
statements included elsewhere in this Annual Report on Form 10-K, has also audited the effectiveness of the Company's
internal control over financial reporting as of January 28, 2017, 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 2016 that materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
On March 21, 2017, the Company elected to discontinue the Non-Qualified Plan effective March 31, 2017. Outstanding
participant balances are expected to be distributed after a 12 month waiting period per IRS regulations regarding distributions
from supplemental nonqualified plans. Interest will continue to accrue on outstanding balances until such distributions are
made. Additional information regarding the Non-Qualified Plan can be found in Note 12 to the Consolidated Financial
Statements included elsewhere in this Annual Report on Form 10-K.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
PART III
59
The information required by this item is incorporated herein by reference to the sections entitled "Election of Class I Directors",
"Executive Officers", "Corporate Governance" and "Stock Ownership Information - Section 16(a) Beneficial Ownership
Reporting Compliance" in the Proxy Statement for our 2017 Annual Meeting of Stockholders.
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 2017 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 2017 Annual Meeting of Stockholders.
The following table summarizes share and exercise price information about our equity compensation plan as of January 28,
2017.
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
4,415,970
—
4,415,970
18.18
—
18.18
7,499,160
—
7,499,160
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 "Corporate Governance -
Related Person Transactions" and "Corporate Governance - Director Independence" in the Proxy Statement for our 2017
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 2017 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 28, 2017 and January 30, 2016
Consolidated Statements of Income and Comprehensive Income for the years ended January 28, 2017,
January 30, 2016, and January 31, 2015
60
Consolidated Statements of Changes in Stockholders' Equity for the years ended January 28, 2017,
January 30, 2016, and January 31, 2015
Consolidated Statements of Cash Flows for the years ended January 28, 2017, January 30, 2016, and
January 31, 2015
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.
3.1
3.2
3.2
4.1
10.1+
10.2+
10.3+
10.4+
10.6+
10.7+
10.8+
10.9+
10.10+
10.11+
10.12+
10.13+
10.14+
EXHIBIT INDEX
Description
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”)).
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).
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).
Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registration
Statement on Form S-1 (File No. 333-164906), filed with the SEC on April 30, 2010 (the "Express S-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 with the
SEC on July 21, 2014).
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).
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).
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).
Form of Incentive Stock Option Agreement (incorporated by reference to Exhibit 10.11 to the Express
S-1).
Form of Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.17 to the Express
S-1).
Form of Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.19 to the Express S-1).
Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.13 to the Express S-1).
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).
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).
Form of Non-Qualified Stock Option Grant (incorporated by reference to Exhibit 10.1 to the Form 8-K
filed with the SEC on April 4, 2014).
Form of Restricted Stock Unit Agreement for Restricted Stock Units (incorporated by reference to Exhibit
10.2 to the Form 8-K filed with the SEC on April 4, 2014).
Form of Restricted Stock Unit Agreement for Performance Stock Units (incorporated by reference to
Exhibit 10.3 to the Form 8-K filed with the SEC on April 4, 2014).
61
10.15
10.16
10.17
10.18
10.19+
10.20+
10.21
10.22+
10.23+
10.24+
10.25
10.26+
10.27+
10.28+
21.1*
23.1*
31.1*
31.2*
32.1*
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.22 to the Express S-1, filed
with the SEC on April 30, 2010).
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).
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).
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).
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).
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).
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).
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).
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.2 to the Current Report on
Form 8-K, filed with the SEC on July 7, 2015).
Form of Restricted Stock Unit Agreement for Performance Stock Units (incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K, filed with the SEC on April 1, 2016).
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Current Report on
Form 8-K, filed with the SEC on August 3, 2016).
Form of Restricted Stock Unit Agreement for Performance Stock Units (incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K, filed with the SEC on March 17, 2017).
Form of Second Amended and Restated Employment Agreement (incorporated by reference to Exhibit
10.2 to the Current Report on Form 8-K, filed with the SEC on March 17, 2017).
Form of Amended and Restated Severance Agreement (incorporated by reference to Exhibit 10.3 to the
Current Report on Form 8-K, filed with the SEC on March 17, 2017).
List of subsidiaries of registrant.
Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm.
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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
62
None.
ITEM 16. 10-K SUMMARY.
Not applicable.
63
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.
SIGNATURES
Date: March 24, 2017
EXPRESS, INC.
By:
/s/ Periclis Pericleous
Periclis Pericleous
Senior Vice President, Chief Financial Officer and
Treasurer
64
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned constitutes and appoints Periclis Pericleous as
attorney-in-fact and agent, with full power of substitution and re-substitution, for and in the name, place and stead of the undersigned,
in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits
thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-
in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact or substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
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 24, 2017
By:
/s/ David G. Kornberg
David G. Kornberg
President, Chief Executive Officer and Director
(Principal Executive Officer)
Date: March 24, 2017
By:
/s/ Periclis Pericleous
Periclis Pericleous
Senior Vice President, Chief Financial Officer and
Treasurer (Principal Financial Officer and Principal
Accounting Officer)
Date: March 24, 2017
By:
/s/ Michael G. Archbold
Michael G. Archbold
Director
Date: March 24, 2017
By:
/s/ Terry Davenport
Terry Davenport
Director
Date: March 24, 2017
By:
/s/ Michael F. Devine
Michael F. Devine
Director
Date: March 24, 2017
By:
/s/ Karen Leever
Karen Leever
Director
Date: March 24, 2017
By:
/s/ Mylle H. Mangum
Mylle H. Mangum
Director
Date: March 24, 2017
By:
/s/ Peter Swinburn
Peter Swinburn
Director
65
Executive Officers of Express, Inc.
David Kornberg
John J. (“Jack”) Rafferty
President and Chief Executive Officer
Executive Vice President, Planning and Allocation
Matthew Moellering
Douglas Tilson
Executive Vice President and Chief Operating Officer
Executive Vice President, Real Estate
Colin Campbell
Periclis (“Perry”) Pericleous
Executive Vice President, Sourcing and Production
Senior Vice President, Chief Financial Officer and Treasurer
Jim Hilt
Executive Vice President, Chief Marketing Officer
and eCommerce
Erica McIntyre
Executive Vice President, Merchandising
Board of Directors
Michael Archbold
Former Chief Executive Officer, GNC Holdings Inc.
Terry Davenport
Global Brand Advisor, Starbucks Coffee Company
(1)
(2)
David Kornberg
Chief Executive Officer, Express, Inc.
Karen Leever
(2)
Executive Vice President and General Manager,
Digital Media, Discovery Communications
Michael F. Devine
(1)
Mylle Mangum
(1,2,3)
Former Executive Vice President and
Chief Financial Officer, Coach
Chief Executive Officer, IBT Enterprises
Theo Killion
(2)
Peter Swinburn
(2)
Former Chief Executive Officer, Zale Corporation
Former Chief Executive Officer and President,
Molson Coors Brewing Company
1 = Member of the Audit Committee
2 = Member of the Compensation and Governance Committee
3 = Chairman of the Board
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 7, 2017
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
28, 2017. 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 8, 2016.
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