Express 2011 Annual Report Download - page 26

such third parties are able to both effectively operate the businesses and appropriately project our brand image in
their respective markets. Ineffective or inappropriate operation of our partners’ businesses or projection of our
brand image could create difficulties in the execution of our international expansion plan.
Our domestic growth and international expansion plans will place increased demands on our financial,
operational, managerial, and administrative resources. These increased demands may cause us to operate our
business less efficiently, which in turn could cause deterioration in the performance of our existing stores.
Furthermore, relating to our international expansion, our ability to conduct business in international markets may
be affected by legal, regulatory, political, and economic risks, including our unfamiliarity with local business and
legal environments in other areas of the world. Our international expansion strategy and success could also be
adversely impacted by the global economy, as well as by fluctuations in the value of the dollar against foreign
currencies.
Our business depends in part on a strong brand image, and if we are not able to maintain and enhance our
brand, particularly in new markets where we have limited brand recognition, we may be unable to attract
sufficient numbers of customers to our stores or sell sufficient quantities of our products.
Our ability to maintain our reputation is critical to our brand image. Our reputation could be jeopardized if we
fail to maintain high standards for merchandise quality and integrity. Any negative publicity about these types of
concerns may reduce demand for our merchandise. Failure to maintain high ethical, social, and environmental
standards for all of our operations and activities or adverse publicity regarding our responses to these concerns
could also jeopardize our reputation. 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. Damage to our reputation or loss of consumer confidence for any of these reasons could have a
material adverse effect on our business, financial condition, and results of operations, as well as require
additional resources to rebuild our reputation.
We are subject to risks associated with leasing substantial amounts of space, including future increases in
occupancy costs.
We lease all of our store locations, our corporate offices and our central distribution facility. We typically occupy
our stores under operating leases with terms of ten years, with options to renew for additional multi-year periods
thereafter. In the future, we may not be able to negotiate favorable lease terms. Our inability to do so may cause
our occupancy costs to be higher in future years or may force us to close stores in desirable locations.
Some of our leases have early cancellation clauses, which permit the lease to be terminated by us or the landlord
if certain sales levels are not met in specific periods or if the center does not meet specified occupancy standards.
In addition to future minimum lease payments, some of our store leases provide for additional rental payments
based on a percentage of net sales, or “percentage rent,” if sales at the respective stores exceed specified levels,
as well as the payment of common area maintenance charges, real property insurance and real estate taxes. Many
of our lease agreements have defined escalating rent provisions over the initial term and any extensions. As we
expand our store base, our lease expense and our cash outlays for rent under the lease terms will increase.
We depend on cash flow from operations to pay our lease expenses. If our business does not generate sufficient
cash flow from operating activities to fund these expenses, we may not be able to service our lease expenses,
which could materially harm 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. 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.
18