UPDATE 1-Apparel chain Express warns on profit, shares fall

Tue Oct 2, 2012 9:28am EDT

* Estimates third-quarter earnings of $0.16-$0.20/share

* Shares down 16 pct premarket

Oct 2 (Reuters) - Apparel retailer Express Inc said its third-quarter earnings would miss its forecast as sales trends weakened in September, sending its shares down 16 percent in premarket trading.

The company, which sells clothes and accessories to 20- to 30-year-old men and women, said higher promotional activity to check inventory levels also contributed to the cut in estimates.

The retailer said in August that it would resort to markdowns to clear its inventory glut that was likely to pressure sales and margins in the third quarter.

"Express will be challenged in the third quarter and we lack visibility for improvement in the fourth quarter, which makes us cautious for the near term," analyst Richard Jaffe of Stifel Nicolaus wrote in a client note.

Inventory at the end of the second quarter stood at $210.4 million as sales of its pricier knit sweaters were weak.

The retailer had revised its sales strategy by introducing affordable knit tops, casual and dressy sweaters in the women's category.

Express said it remains confident of this strategy and said its new sweater styles helped improve traffic in the final week of September.

The company also said it would focus on maintaining control of inventory and expenses to improve its earnings.

Express expects to earn 16 cents to 20 cents per share for the quarter, down from the previous forecast of 27 cents to 32 cents.

Analysts on average were expecting the company to earn 29 cents per share, according to Thomson Reuters I/B/E/S.

Express cut its full-year profit forecast for the second time in three months in August.

The company said it expects third-quarter comparable sales to decline in the mid-single-digit range.

Express shares were down at $12.55 in premarket trade. They had closed at $15.01 on the New York Stock Exchange on Monday.

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