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2014 ANNUAL REPORT

Table of contents

  • Page 1
    2014 ANNUAL REPORT

  • Page 2
    ...to the brand is as strong today as it was when I first arrived at Express. Of greater importance is the fact that my belief in the brand has never ...us approximately $15 million in fiscal 2014 and going forward, are expected to save us approximately $18 million annually; and We increased the number of...

  • Page 3
    .... We began to do so shortly after Christmas 2014. We held our course during this year's first quarter by not repeating some of the... our brand and fashion storytelling messages. Third is sharpening our brand position. The Express brand is strong, but it can be even stronger. The brand work we are...

  • Page 4
    ..., commitment, and dedication to winning and I want to thank the entire Express team for all that they do. Our culture has always emphasized challenge -...that will serve us well for years to come. Over the past 35 years, Express has grown into a destination for men and women in their 20s and 30s who...

  • Page 5
    ...ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 31, 2015 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...

  • Page 6
    Table Of Contents Part I ...ITEM 1. BUSINESS...ITEM 1A. RISK FACTORS...ITEM 1B. UNRESOLVED STAFF COMMENTS...ITEM 2. PROPERTIES...ITEM 3. LEGAL PROCEEDINGS...ITEM 4. MINE SAFETY DISCLOSURES...Part II ...ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF...

  • Page 7
    ... 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...

  • Page 8
    ... L Brands. In May 2010, Express, Inc., the parent company of subsidiaries that operate our business, was converted into a Delaware corporation and completed an initial public offering ("IPO"), including listing its common stock on the New York Stock Exchange. In this Annual Report on Form 10-K, we...

  • Page 9
    ... stores' leases expire. We expect these store closures to result in annual incremental profit of approximately $5 to $8 million once all stores are ... percentage of our sales. In 2014, e-commerce represented 16% of our total sales. Expand Internationally. We believe Express has the potential to be a...

  • Page 10
    ..., Indonesia, Vietnam, Sri Lanka, and the Philippines. Our top 10 manufacturing facilities, based on cost, supplied approximately 28% of our merchandise in 2014. We purchase our merchandise using purchase orders and, therefore, are not subject to long-term production contracts with any of our vendors...

  • Page 11
    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 ...

  • Page 12
    ..., the incentives we offer, and the decision-making authority we grant to store managers. On average, our store managers have been with Express for over five years. Our e-commerce capabilities focus on creating an engaging and easy shopping experience that supports a vibrant, young fashion consumer...

  • Page 13
    ... employ social media, digital, and mobile tactics, and are focused on providing increased content to our customers to strengthen the connection between the Express brand and our target demographic. In December 2013, we began operation of a 9,000 square foot LED screen, which is affixed to our new...

  • Page 14
    ... Fall selling patterns as well as the impact of the holiday season. In 2014, approximately 56% of our net sales were generated in the Fall season, ...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 ...

  • Page 15
    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 or that we currently consider immaterial may also impair our ...

  • Page 16
    ...similar products at reduced prices, increasing the competitive pricing pressure for those products. Our sales and margins were adversely affected in 2014 by the promotional environment in the retail apparel sector. If promotional pressure remains intense, either through actions of our competitors or...

  • Page 17
    ...a variety of different channels, including in-store, online at www.express.com, mobile technologies, and social media. Our customers are increasingly ...impact our merchandise distribution, transaction processing, financial accounting and reporting, the efficiency of our operations, and our ability to...

  • Page 18
    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, ...

  • Page 19
    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 ...

  • Page 20
    If we encounter difficulties with the distribution facilities or in our relationships with the third parties who operate the facilities, or if either facility were to shut down for any reason, including as a result of fire or other natural disaster or work stoppage, we could face shortages of ...

  • Page 21
    We historically have received landlord allowances for 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 ...

  • Page 22
    .... In 2013, Express, LLC received notice of a potential claim alleging improper collection of zip codes in violation of Massachusetts law. See Note 13 to our Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data" in Part II of this Annual Report on Form 10...

  • Page 23
    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 ...

  • Page 24
    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...

  • Page 25
    ... documents and Delaware law may discourage or delay acquisition attempts for us that our stockholders might consider favorable. Effective June 12, 2014, we adopted a stockholder rights plan which could discourage potential acquisition proposals and could delay or prevent a change in control of the...

  • Page 26
    ... proceedings is set forth in Note 13 to our Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data" in Part II of this Annual Report on Form 10-K and is incorporated herein by reference. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. 22

  • Page 27
    ... 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 2014 and 2013. Market Price High Low 2014 Fourth quarter ...Third quarter ...Second quarter ...First quarter ... $15.33 $17.50 $17.50 $18.99 $11.90 $13.52...

  • Page 28
    ... regulatory requirements, and other business and market conditions. The 2014 Repurchase Program may be suspended, modified, or discontinued at...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 220 ...

  • Page 29
    ...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. Year Ended 2014 2013 2012* 2011 2010 (dollars in thousands, excluding net sales per gross square foot and per share data) Statement...

  • Page 30
    ... based upon stores that were open at least thirteen 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...

  • Page 31
    ... below and elsewhere in this Annual Report on Form 10-K, particularly in the section entitled "Risk Factors." All references herein to "2014," "2013," and "2012.... We believe that successful execution of these objectives will position Express for long-term growth. Update On Our Growth Pillars Improve ...

  • Page 32
    ... other nearby stores. Expand Our e-Commerce Platform In 2014, our e-commerce sales increased 4% over 2013, which...in the Middle East. In addition, the first Express locations also opened in South Africa, as shop-...full months as of the end of the reporting period. We include e-commerce in our comparable...

  • Page 33
    ... various line items in the Consolidated Statements of Income and Comprehensive Income as a percentage of net sales for the last three years. 2014 2013 2012 Net sales ...Cost of goods sold, buying and occupancy costs ...Gross profit ...Selling, general, and administrative expenses ...Other operating...

  • Page 34
    ...,954 $ 717,707 $ 742,639 30.5% 32.3% 34.4% The 180 basis point decrease in gross margin, or gross profit as a percentage of net sales, in 2014 compared to 2013 was comprised of a 180 basis point increase in buying and occupancy costs as merchandise margin remained flat. The increase in buying and...

  • Page 35
    ...) 2012 Selling, general, and administrative expenses ... $524,041 $504,277 $491,599 The $19.8 million increase in selling, general, and administrative expenses in 2014 compared to 2013 is primarily the result of increased marketing expenses in the current year associated with our LED sign at our...

  • Page 36
    ... long-term debt. Net cash provided by operating activities was $156.6 million in 2014 compared to $195.1 million in 2013, a decrease of $38.5 million. For...• Items included in net income provided $171.0 million of cash during 2014 compared to $197.9 million during 2013. The decrease in the current ...

  • Page 37
    ... factory outlet stores and a lesser increase in the straightline rent accrual following the opening of our flagship store in New York City in 2014. These are offset by changes in accounts payable related primarily to the timing of merchandise and real estate payments versus 2013. Net cash provided...

  • Page 38
    .... The 2014 Repurchase Program will be funded using available cash. No repurchases were made under the 2014 Repurchase Program in 2014. Refer ...exceeded 10% of the borrowing base. Senior Notes On March 5, 2010, Express, LLC and Express Finance Corp., as co-issuers, issued $250.0 million of 8 3/4% ...

  • Page 39
    ...included in our operating lease agreements are not included above. Estimated annual expense incurred for such charges is approximately $113 million. (5)... higher degree of judgment or complexity and are most significant to reporting its results of operations and financial position and are, therefore, ...

  • Page 40
    Description of Policy Returns Reserve Judgments and Uncertainties 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 ...

  • Page 41
    ... mix and/ or changes in shrinkage trends. 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...

  • Page 42
    Description of Policy Leasehold Improvements Judgments and Uncertainties Our analysis of leasehold improvements for impairment requires judgment surrounding identification of appropriate triggering events. This judgment can be affected by factors such as future store results, real estate demand, ...

  • Page 43
    ... 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...

  • Page 44
    ... Financial Statements for further information on the calculation of the rates. We did not borrow any amounts under our Revolving Credit Facility during 2014. Changes in interest rates are not expected to have a material impact on our future earnings or cash flows given our limited exposure to...

  • Page 45
    Impact of Inflation Inflationary factors such as increases in the cost of our products and overhead may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in ...

  • Page 46
    ... material respects, the financial position of Express, Inc. and its subsidiaries at January 31, 2015 and February 1, 2014, and the results of their operations ... Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of...

  • Page 47
    PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. EXPRESS, INC. CONSOLIDATED BALANCE SHEETS (Amounts in Thousands, Except Per Share Amounts) January 31, 2015 February 1, 2014 ASSETS CURRENT ASSETS: Cash and cash equivalents ...Receivables, net ...Inventories ...Prepaid minimum rent ......

  • Page 48
    EXPRESS, INC. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Amounts in Thousands, Except Per Share Amounts) 2014 2013 2012 NET SALES ...COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS ...Gross profit ...OPERATING EXPENSES: Selling, general, and administrative expenses ...Other ...

  • Page 49
    EXPRESS, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Amounts in Thousands) ... compensation ...Repurchase of common stock ...Foreign currency translation . . BALANCE, February 1, 2014 ...Net income ...Issuance of common stock ...Share-based compensation ...Tax benefit from share...

  • Page 50
    EXPRESS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Thousands) 2014 2013 2012 CASH FLOWS FROM OPERATING ACTIVITIES: Net income ...Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ...Loss ...

  • Page 51
    ... 2014, and the 53-week period ended February 2, 2013. Basis of Presentation Express, Inc., a holding company, owns all of the outstanding equity interests in Express ...the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period, as well as the ...

  • Page 52
    ...value on a recurring basis as of January 31, 2015 and February 1, 2014, aggregated by the level in the fair value hierarchy within which those measurements...the carrying value of these assets may not be recoverable or annually in the case of indefinite lived intangibles. See additional discussion ...

  • Page 53
    ... market adjustment to inventory as of January 31, 2015 and February 1, 2014 was $11.4 million and $11.5 million, respectively. The Company also...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 ...

  • Page 54
    ...for future operations, recent operating results, and projected cash flows. In 2014, as a result of decreased performance in certain stores, the Company ... Express and related tradenames and its Internet domain names. Intangible assets with indefinite lives are reviewed for impairment annually ...

  • Page 55
    ...the respective debt agreements. As of January 31, 2015 and February 1, 2014, debt issuance costs totaled $4.7 million and $6.2 million, respectively. The...differences that currently exist between the tax basis and financial reporting basis of the Company's assets and liabilities. Valuation allowances ...

  • Page 56
    ... and $19.2 million as of January 31, 2015 and February 1, 2014, respectively, and was included in accrued liabilities on the Consolidated Balance Sheets...accrued based on known claims and estimates of incurred but not reported ("IBNR") claims. IBNR claims are estimated using historical claim ...

  • Page 57
    ... million and $25.2 million, as of January 31, 2015 and February 1, 2014, respectively, and is included in deferred revenue on the Consolidated Balance Sheets. The.... Therefore, the Company reports results as a single segment, which includes the operation of its Express brick-and-mortar retail and...

  • Page 58
    ...2014, 2013, and 2012, and as of January 31, 2015 and February 1, 2014, respectively, were not material and, therefore, not reported...$64.6 million in 2014, 2013, and 2012, respectively, excluding impairment charges discussed in Note 2. 4. Leased Facilities and Commitments Annual store rent consists of...

  • Page 59
    Rent expense is summarized as follows: 2014 2013 (in thousands) 2012 Store rent: Fixed minimum ...Contingent ...Total store ...expected to expire in 2023 and 2030. As of January 31, 2015 and February 1, 2014 there was $71.0 million and $63.2 million, respectively, of landlord funded construction, the...

  • Page 60
    ... construction begins. Once the store opens, the Company will not report rent expense for the portion of the rent payment determined to ...906 $196,144 1,418 1,269 $198,831 $19,906 February 1, 2014 Accumulated Amortization (in thousands) Cost Ending Net Balance Tradenames ...Internet domain names...

  • Page 61
    ...3,346 615 (24) 3,937 $92,704 The following table provides a reconciliation between the statutory federal income tax rate and the effective tax rate: 2014 2013 2012 Federal income tax rate ...State income taxes, net of federal income tax effect ...Other items, net ...Effective tax rate ... 35.0% 35...

  • Page 62
    ... to the foreign capital loss carryforward. The foreign capital loss carryforward period is indefinite. The foreign tax credit carryforward as of February 1, 2014 was $0.2 million and was offset by a full valuation allowance. As of January 31, 2015, the Company fully utilized its foreign tax credit...

  • Page 63
    ... earnings. 8. Debt Borrowings outstanding consisted of the following: February 1, 2014 January 31, 2015 (in thousands) 8 3⁄ 4% Senior Notes ......(1,680) $199,170 Revolving Credit Facility On July 29, 2011, Express Holding, a wholly-owned subsidiary, and its subsidiaries entered into an Amended...

  • Page 64
    ... greater than 3 months. The Revolving Credit Facility requires Express Holding and its subsidiaries to maintain a fixed charge coverage...after the merchandise shipment date. As of January 31, 2015 and February 1, 2014, there were no outstanding trade LCs. Additionally, the Company enters into stand-by...

  • Page 65
    ... Existing 10% or greater stockholders are grandfathered to the extent of their June 12, 2014 ownership levels. The Rights Plan will expire one year after it was adopted, on ...In 2010, the Board approved, and the Company implemented, the Express, Inc. 2010 Incentive Compensation Plan (as amended, the "...

  • Page 66
    ... $15.84 $ - $20.10 $18.45 $18.35 $18.52 6.7 8.1 6.1 $97 $47 $49 The following provides additional information regarding the Company's stock options: 2014 2013 2012 (in thousands, except per share amounts) Weighted average grant date fair value of options granted ...Total intrinsic value of options...

  • Page 67
    ... to RSUs and restricted stock, including awards with performance conditions, for 2014 was as follows: Grant Date Number of Weighted Average Shares Fair Value... that vested was $13.4 million, $8.5 million, and $3.2 million, during 2014, 2013, and 2012, respectively. As of January 31, 2015, there was...

  • Page 68
    ... Company matches employee contributions according to a predetermined 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...

  • Page 69
    ...and $25.8 million for the period ended January 31, 2015 and February 1, 2014, total $27.3 million and $26.6 million, respectively, and are included in ...codes in connection with a retail purchase made at a Massachusetts Express store and thereafter used that information to send them unwanted marketing...

  • Page 70
    ... 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 15d15(f) under the Exchange Act of 1934) that occurred during the fourth quarter of 2014 that materially...

  • Page 71
    ITEM 9B. OTHER INFORMATION. None. 67

  • Page 72
    ...Compensation-Compensation and Governance Committee Report" in the Proxy Statement for our 2015 Annual Meeting of Stockholders. ITEM... Statement for its 2015 Annual Meeting of Stockholders. The following table summarizes share and exercise price information about Express' equity compensation plan as...

  • Page 73
    ... for the years ended January 31, 2015, February 1, 2014, and February 2, 2013 Notes to Consolidated Financial Statements ... 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, ...

  • Page 74
    ... Performance Stock Units (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K, filed with the SEC on April 4, 2014) 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...

  • Page 75
    ... on Form 8-K, filed with the SEC on August 3, 2010). Offer Letter, dated July 29, 2011, from Express, LLC to Dominic Paul Dascoli (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed with the SEC on September 23, 2011). Amended and Restated $200,000,000 Asset-Based...

  • Page 76
    ... 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 27, 2015 EXPRESS, INC. By: /S/ D. PAUL DASCOLI D. Paul Dascoli Senior Vice President, Chief Financial Officer and Treasurer...

  • Page 77
    ... Vice President, Chief Financial Officer and Treasurer John J. ("Jack") Rafferty Executive Vice President, Planning and Allocation Board of Directors of Express, Inc. Michael A. Weiss Chairman of the Board Michael G. Archbold Chief Executive Officer, GNC Holdings Inc. Sona Chawla President of...

  • Page 78
    ... website: Upon written request to: www.express.com/investor Express, Inc. Investor Relations 1 Express Drive Columbus, Ohio 43230 (888) 423...annual certification to the New York Stock Exchange following our annual meeting of stockholders on June 12, 2014. Forward-Looking Statements This Annual Report...