Express saw another tough quarter with net sales dropping 48 percent to $245.7 million and net losses coming in at $107.8 million, or $1.67 per diluted share.
Both sales and net losses missed expectations from Wall Street analysts, who anticipated that sales would reach $257.3 million, while losses would be $1.48 per diluted share. Express stock plummeted nearly 10 percent in the wake of the earnings release.
In a Nutshell: As of Aug. 26 Express has reopened 538 of its 593 stores that had been closed temporarily due to the COVID-19 pandemic, in accordance with the latest federal and state guidelines.
For the year, Express anticipates closing 35 stores permanently, which the company already anticipated shuttering prior to the pandemic. The closures are part of the company’s “Expressway Forward Strategy,” which includes plans to cut 100 stores by 2022. The strategy is aimed at increasing free cash flow over the long haul from $50 million in 2019 to between $90 million and $110 million by 2022. The company has identified cost savings of approximately $95 million to be realized in 2020, above the previous quarter’s estimates of $75 million.
Total inventory amounted to $232.3 million at the end of the second quarter, down 14 percent compared with $268.8 million at the end of the prior-year period. Express cut second-quarter inventory receipts by over $100 million at the onset of the pandemic, with the retailer outright canceling its June and July product lines, a move that was deemed “prudent in order to effectively manage liquidity,” according to the company. In the last quarter, CEO Tim Baxter admitted that the inventory cuts negatively impacted the company’s ability to reposition its assortment, which was planned to be a major part of the Expressway Forward Strategy.
The apparel retailer negotiated $20 million in rent abatements with landlords in the quarter.
Selling, general, and administrative (SG&A) costs totaled $92.8 million versus $135.7 million in last year’s quarter. The decrease was driven primarily by the COVID-19 mitigation actions taken by the company, a reduction in variable costs driven by the sales decline and the previously announced corporate restructuring.
Due to the uncertainty of the current environment, the company will not provide guidance for the third quarter or the year at this time, with the exception of capital expenditures, which are expected to be in the range of $20 million to $25 million for the full year 2020.
Express continued to aggressively pursue additional liquidity measures and now expects to realize $425 million of related liquidity benefits in 2020, an increase from the previously announced $385 million in the first quarter.
Cash and cash equivalents totaled $192.9 million, a jump from the $154.0 million Express had on hand at the end of the second quarter of 2019. Cash balances reflect the company’s $165 million drawn from its $250 million asset-based credit facility in the first quarter.
Net Sales: Consolidated net sales decreased 48 percent to $245.7 million from $472.7 million in the second quarter of 2019, with consolidated comparable sales down 24 percent.
Comparable retail sales, which includes both Express stores and e-commerce, decreased 28 percent in the quarter, while comparable sales at the company’s Factory outlet stores decreased 15 percent.
Net Earnings: Express saw second-quarter net losses of $107.8 million, or a loss of $1.67 per diluted share, widening from the $9.7 million in losses in the year-ago period. On an adjusted basis, net loss was $95.6 million or a loss of $1.48 dollars per diluted. The adjusted loss excludes the income tax benefit from the Coronavirus Aid Relief and Economic Security (CARES) Act of $9.1 million, as well as the negative non-cash impacts of a $16.2 million deferred tax asset valuation allowance and a $6.8 million pretax impairment charge.
Operating losses reached $136.3 million compared to a loss of $9.8 million in the year-ago quarter.
Gross profit loss amounted to $44 million in the quarter, a major dip from the $126.5 million in gross profit in the second quarter of 2019. Gross margin rate was negative 17.9 percent versus a positive 26.8 percent a year ago, driven by the sales impact of COVID-19, the liquidation of spring inventory that accumulated as a result of store closures, and the $6.8 million non-cash impairment charge.
CEO’s Take: “When we began the transformation of Express, we certainly did not anticipate a global pandemic, and none of us could have imagined the duration or magnitude of its impact on the retail apparel industry,” said Baxter in a statement. “And while we have taken decisive and appropriate action to protect the financial health of our company over this extended period of time, we have also continued to advance each of the four foundational pillars of our corporate strategy. I am encouraged by the momentum in our e-commerce business, the strong response to our August fashion deliveries, and the increase in customer engagement with our brand messages. While mall traffic continues to be challenging, I would expect our results to improve as we move through the back half of the year.”
