Apparel retailer Express off to slow start in first-quarter, shares down

Wed Mar 13, 2013 1:07pm EDT

(Reuters) - Apparel and accessories retailer Express Inc (EXPR.N) said it was off to a slow start in the current quarter as consumers hold back on spending, after revamped merchandise and promotions helped it post strong fourth-quarter results.

Shares of Express, which caters to 20- to 30-year-olds, fell as much as 13 percent on Wednesday, making the stock one of the top percentage losers on the New York Stock Exchange.

"Traffic is down noticeably compared to last year," Chief Executive Michael Weiss said on a call with analysts.

"Consumers appeared cautious due to the macroeconomic environment and uncertainty around budget cuts, and also the impact of higher payroll taxes."

Wal-Mart Stores Inc (WMT.N) also blamed higher taxes and gasoline prices, along with delayed tax refunds, for a slow start to February when it reported fourth-quarter results last month.

The U.S. Commerce Department reported on Wednesday that receipts at clothing stores gained 0.2 percent in February, half the growth rate in core sales, which strip out automobiles, gasoline and building materials.

Analysts also cited rising costs as a reason for Express's weaker-than-expected forecast.

"The (current quarter) outlook is disappointing, mainly because of incremental expenses that were under-estimated," Wedbush Securities analyst Betty Chen told Reuters.

Express said first-quarter outlook includes about $12 million in incremental buying and occupancy costs.

Chen, however, said the company's product was on trend and expects sales momentum to pick up as soon as the weather breaks.

A large number of Express's 620 stores are located in eastern United States, which has suffered an unusually icy winter this year.

Express, formerly a division of Limited Brands Inc LTD.N, sells formal and casual wear and accessories at its stores located mostly in shopping malls. In 2007, private equity firm Golden Gate acquired a major stake in Express, converting it into a stand-alone company, which then went public in 2010.

FLAT Q1 SALES

Express said it expects same-store sales to remain flat or decline slightly in the first quarter, compared with a 4 percent increase in the same quarter last year, as fewer customers visited its stores and spent less on average in February.

The company expects to earn 34 cents to 38 cents per share in the first quarter. Analysts on average expect a profit of 46 cents per share, according to Thomson Reuters I/B/E/S.

The retailer said it will spend more on store openings and its e-commerce business during the first quarter.

"We are exploring the possibility of partnering with new franchisees that will bring Express to additional markets, our 2013 plans call for us to sign two new deals this year," said Weiss.

Express was left with high inventories in the third quarter after a promotion offering discounts on second purchases failed to win over customers.

"We've clarified our promotional messaging by limiting our 'buy one, get one' offers and communicating a simpler message of either a specified percent off or precise price point," Weiss said on the call.

Revenue rose 8 percent to $728.7 million in the fourth quarter ended February 2. Comparable-store sales including e-commerce rose 1.5 percent.

Net income rose to $63.9 million, or 75 cents per share, from $60.4 million, or 68 cents per share, a year earlier.

Analysts on average had expected earnings of 74 cents per share on revenue of $722.38 million, according to Thomson Reuters I/B/E/S.

Gross margin in the quarter fell to 35.1 percent from 37.2 percent, a year earlier.

Express shares fell to a low of $16.34 before recouping some of the losses and were down 8.22 percent at $17.30 by early afternoon.

(Reporting by Aditi Shrivastava and Maria Ajit Thomas in Bangalore; Editing by Maju Samuel and Saumyadeb Chakrabarty)

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