Share-Based Compensation

6 Months Ended

Aug. 01, 2020

Share-based Payment Arrangement [Abstract]

Share-Based Compensation

NOTE 8 | SHARE-BASED COMPENSATION

The Company records the fair value of share-based payments to employees in the unaudited Consolidated Statements of Income and Comprehensive Income within selling, general, and administrative expenses as compensation expense, net of forfeitures, over the requisite service period. The Company issues shares of common stock from treasury stock, at average cost, upon exercise of stock options and vesting of restricted stock units, including those with performance conditions.

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 authorized 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.

On April 30, 2018, upon the recommendation of the Committee, the Board unanimously approved and adopted, subject to stockholder approval, the Express, Inc. 2018 Incentive Compensation Plan (the “2018 Plan”) to replace the 2010 Plan. On June 13, 2018, stockholders of the Company approved the 2018 Plan and all grants made subsequent to that approval will be made under the 2018 Plan. The primary change made by the 2018 Plan was to increase the number of shares of common stock available for equity-based awards by 2.4 million shares. In addition to increasing the number of shares, the Company also made several enhancements to the 2010 Plan to reflect best practices in corporate governance. The 2018 Plan incorporates these concepts and also includes several other enhancements which were practices the Company already followed but were not explicitly stated in the 2010 Plan. None of these changes will have a significant impact on the accounting for awards made under the 2018 Plan.

In the third quarter of 2019, in connection with updates made by the Company to its policy regarding the clawback of incentive compensation awarded to associates, the Board approved an amendment to the 2018 Plan, solely for the purpose of updating the language regarding the recoupment of awards granted under the 2018 Plan.

On March 17, 2020, upon the recommendation of the Committee, the Board unanimously approved and adopted, subject to stockholder approval, a second amendment to the 2018 Plan, which increased the number of shares of common stock available under the 2018 Plan by 2.5 million shares. On June 10, 2020, stockholders of the Company approved this plan amendment.

The following summarizes share-based compensation expense:

	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	August 1, 2020		August 3, 2019		August 1, 2020		August 3, 2019
	(in thousands)
Restricted stock units	$	2,143	$	2,119	$	4,327	$	4,329
Stock options	317		126		635		164
Performance-based restricted stock units	—		179		—		303
Total share-based compensation	$	2,460	$	2,424	$	4,962	$	4,796

The stock compensation related income tax benefit recognized by the Company during the thirteen and twenty-six weeks ended August 1, 2020 was $0.2 million and $0.7 million, respectively. The stock compensation related income tax benefit recognized by the Company during the thirteen and twenty-six weeks ended August 3, 2019 was $0.1 million and $1.6 million, respectively.

Restricted Stock Units

During the twenty-six weeks ended August 1, 2020, the Company granted restricted stock units (“RSUs”) under the 2018 Plan. The fair value of RSUs is determined based on the Company’s closing stock price on the day prior to the grant date in accordance with the 2018 Plan. The RSUs granted in 2020 vest ratably over three years and the expense related to these RSUs will be recognized using the straight-line attribution method over this vesting period.

The Company’s activity with respect to RSUs, including awards with performance conditions granted prior to 2018, for the twenty-six weeks ended August 1, 2020 was as follows:

	Number of Shares	Grant Date Weighted Average Fair Value Per Share
	(in thousands, except per share amounts)
Unvested - February 1, 2020	4,260	$	4.78
Granted	5,086	$	1.74
Vested	(1,187)	$	5.59
Forfeited	(491)	$	4.05
Unvested - August 1, 2020	7,668	$	2.69

The total fair value of RSUs that vested during the twenty-six weeks ended August 1, 2020 and August 3, 2019 was $6.6 million and $11.5 million, respectively. As of August 1, 2020, there was approximately $15.8 million of total unrecognized compensation expense related to unvested RSUs, which is expected to be recognized over a weighted-average period of approximately 1.6 years.

Stock Options

The Company’s activity with respect to stock options during the twenty-six weeks ended August 1, 2020 was as follows:

	Number of Shares	Grant Date Weighted Average Exercise Price Per Share		Weighted-Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
	(in thousands, except per share amounts and years)
Outstanding - February 1, 2020	3,650	$	7.67
Granted	—	$	—
Exercised	—	$	—
Forfeited or expired	(263)	$	18.04
Outstanding - August 1, 2020	3,387	$	6.87	7.4	$	—
Expected to vest at August 1, 2020	2,009	$	2.70	8.9	$	—
Exercisable at August 1, 2020	1,313	$	13.45	4.9	$	—

As of August 1, 2020, there was approximately $1.8 million of total unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted average period of approximately 1.5 years.

Performance-based Restricted Stock Units

In the first quarter of 2018, the Company granted performance shares to a limited number of senior executive-level employees, which entitle these employees to receive a specified number of shares of the Company’s common stock upon vesting. The number of shares earned could range between 0% and 200% of the target amount depending upon performance achieved over a three-year vesting period. The performance conditions of the award include adjusted diluted earnings per share ("EPS") targets and total shareholder return ("TSR") of the Company’s common stock relative to a select group of peer companies. A Monte Carlo valuation model was used to determine the fair value of the awards. The TSR performance metric is a market condition. Therefore, fair value of the awards is fixed at the measurement date and is not revised based on actual performance. The number of shares that will ultimately vest will change based on estimates of the Company’s adjusted EPS performance in relation to the pre-established targets. As of August 1, 2020, it is estimated that none of the shares granted in 2018 will vest based on the performance against predefined financial targets to date.

Time-based Cash-Settled Awards

During the twenty-six weeks ended August 1, 2020, the Company granted time-based cash-settled awards to employees that vest ratably over three years. These awards are classified as liabilities, are valued based on the fair value of the award at the grant date and do not vary based on changes in the Company's stock price. The expense related to these awards will be recognized using the straight-line attribution method over this vesting period. As of August 1, 2020, $3.8 million of total unrecognized compensation cost is expected to be recognized on cash-settled awards over a weighted-average period of 1.8 years.

Performance-based Cash-Settled Awards

In 2019, the Company granted cash-settled awards to a limited number of senior executive-level employees. These awards are classified as liabilities, are valued based on the fair value of the award at the grant date and are remeasured at each reporting date until settlement with compensation expense being recognized in proportion to the completed requisite period up until date of settlement. The amount of cash earned could range between 0% and 200% of the target amount depending upon performance achieved over the three-year vesting period. The performance conditions of the award include EPS targets and TSR of the Company’s common stock relative to a select group of peer companies. A Monte Carlo valuation model was used to determine the fair value of the awards. As of August 1, 2020, it is estimated that none of the shares granted in 2019 will vest based on the performance against predefined financial targets to date.