Open Letter to “Express, Inc” (EXPR) Board of Directors

January 26, 2023

Board of Directors

Express, Inc

c/o Greg Johnson, VP Investor Relations

1 Express Drive

Columbus, OH 43230

To the Board of Express,

Congratulations on completing the strategic partnership with WHP Global. The $260m transaction has removed the liquidity concerns plaguing the business since 2020. I expect to see Express finish the year in a net cash position due to this new partnership and your seasonal working capital benefit, quite the turnaround from a few months ago.

To this end, Express Management has stated their intention to quickly pursue an acquisition. The market hates this plan, recently cutting the Express stock price near its lowest level of all time. I assume the Board is not overtly impacted by stock price fluctuations, but the negative value attributed to this deal suggests the Board must regain investor confidence. We suggest the following actions:

1.       Abstain from Acquisitions until Exhausting Repurchase Authorization.

At ICR this month, CEO Tim Baxter reiterated guidance of mid-single digit operating margins in FY24. This implies approximately $100m of 2024 EBITDA, and no net debt, against a current market capitalization of $75m. This excludes the $52m tax refund we eagerly await, which was briefly the entire market value attributed to Express. Unless you identify acquisition opportunities valued under 1x EBITDA, we see no better capital allocation opportunity than repurchasing your own shares.

2.       Insider Purchases from Board and Management.

If Management and the Board believe their own FY24 guidance, we would expect them to acquire shares with exuberance. However, not a single “insider” has material ownership, sans Tim Baxter’s modest stock position granted to him by the Company.  Express’s Named Executive Officers were paid over $7m in bonuses in FY21, perhaps a good starting point for further aligning themselves with shareholders through stock purchase.

Additionally, a vote of confidence that Yehuda is aligned with common shareholders would be welcome. As part of the $260m investment, WHP purchased a material stake in Express (~7.4%). WHP could immediately double their EXPR ownership by purchasing shares in the open market for ~6m (2.3% of the recent transaction).

3.       Provide Transparency Around Real Estate Strategy.

The Express store footprint and lease expense has significantly improved since 2019; however, investors are concerned the new minimum royalty obligation could negatively influence store consolidation/expansion plans. Providing greater clarity around individual store economics and planned expansion/consolidation would be well received. We request specific targets for the number of Core Express, Edit, and UpWest locations by FY24, average lease durations, and aggregate cash rent payments. This disclosure should not adversely impact lease negotiations and will provide greater transparency into the risks the lease portfolio poses to future cash flows.

4.       Use Shares for Acquisitions After Addressing Market Discount.

Having recovered from a brush with insolvency, Express should use the above actions to bolster public sentiment. Peers like American Eagle, who executed successful turnarounds, trade at 10x EBITDA. Once a similar multiple is achieved, Express can use equity for growth acquisitions, maintaining your strong balance sheet and incentivizing acquired companies to align themselves with your success. This remains thoroughly unworkable with the stock trading at current levels. There is little benefit in being public when your greatest asset, your common shares, are so hated they can’t be effectively used to raise capital. If this discount is allowed to persist, we would encourage Express to sell the business and eliminate the hassles of a publicly owned company.

We hope to see these items addressed at the March Investor Day, and we look forward to future success at Express.

Sincerely,

David Bastian, CIO

Kingdom Capital Advisors, LLC