Express cuts outlook again on inventory glut

Wed Aug 22, 2012 2:25pm EDT

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(Reuters) - Apparel retailer Express Inc (EXPR.N) cut its full-year earnings outlook for the second time in three months after it posted lower-than-expected quarterly sales on softening demand for its knit tops and an inventory glut in the women's category.

The company's stock fell as much as 11 percent to a 20-month low of $14.98 on Wednesday. It was the biggest percentage loser on the New York Stock Exchange.

Express has been looking to recraft its offerings after an earlier strategy of selling pricier knit sweaters did not reap the desired results.

In an attempt to tackle the lower demand, the company said it would introduce affordable knit tops, casual and dressy sweaters in the women's category towards the end of the third quarter.

"We think that will bode well for us as we head into the fourth quarter," Chief Operating Officer Matt Moellering said on a call with analysts.

However, markdowns to clear inventory would pressurize sales and margins in the third quarter. Inventory at the end of the second quarter stood at $210.4 million.

The company forecast third-quarter earnings of 27 cents to 32 cents per share, below analysts' estimates of 37 cents per share, according to Thomson Reuters I/B/E/S.

Express, which sells clothes and accessories to 20- to 30-year-old men and women, now sees full-year earnings of $1.69 to $1.79 per share, lower than its prior forecast of $1.79 to $1.89 per share.

Second-quarter net income rose to $15.8 million, or 18 cents per share, from $12.6 million, or 14 cents per share, a year earlier.

Net sales climbed 2 percent to $454.9 million.

Analysts on average had expected earnings of 17 cents per share on revenue of $467 million.

In the quarter, the company faced higher product costs, increased promotional activity and a lower recovery on end-of-season clearance merchandise, which weakened margins.

Gross margins at the company, known for its Editor pant and 1mX shirt, dipped to 32.2 percent from 33.6 percent.

(Reporting by Aditi Shrivastava and Juhi Arora in Bangalore; Editing by Maju Samuel)

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