UPDATE 2-Apparel retailer Express warns of weak holiday quarter

Wed Dec 4, 2013 12:05pm EST

* Cuts full-year earnings/share view to $1.46-$1.51 vs est $1.61

* Sees fourth-quarter earnings/share $0.66-$0.71 vs est $0.78

* Third quarter profit misses estimates, sales beat estimates

* Expects intensity of holiday season promotions to rise: CEO

* Shares fall as much as 24 pct (Adds comments from company call, analyst; updates share movement)

By Maria Ajit Thomas

Dec 4 (Reuters) - Apparel retailer Express Inc joined other U.S. retailers in forecasting a weaker-than-expected holiday quarter as muted Thanksgiving sales resulted in heavy discounting.

Express's shares fell as much as 24 percent in afternoon trading, making it the top loser on the New York Stock Exchange.

Retailers from Urban Outfitters Inc to Wal-Mart Stores Inc are bracing for what is expected to be the toughest holiday shopping season since 2008 as customers become more budget-conscious and value-focused.

"We don't see an end to the promotional environment ... that's the reality and we have to learn to deal with it," Chief Executive Michael Weiss said on a call after Express posted a third-quarter profit that missed analysts' estimates.

"We had been planning for a promotional holiday season but we now expect the intensity of those promotions to reach heightened levels," Weiss said in a statement on Wednesday.

Heavy discounting hurt U.S. retail sales during the Thanksgiving weekend as shoppers spent about 3 percent less than they did a year earlier, industry group National Retail Federation said on Sunday.

Express, whose trendy merchandise targets shoppers aged between 20 and 30, also cut its full year profit outlook as Thanksgiving week sales were weaker than expected.

The company is unlikely to deliver the gross margin gains it had expected in the current quarter due to the heavy discounting, Chief Financial Officer Paul Dascoli said.

PROMOTIONS OUTWEIGH TRENDS

While Express's trendy merchandise, such as crop tops and pencil skirts, has clicked with shoppers this year, the disappointing forecast suggests that tough times lie ahead.

"They're competing with everybody because they have a dressy component, a casual component, a wear-to-work component and it makes it a lot more challenging for them, even in an environment where they have the right fashion product," Suntrust Robinson Humphrey analyst Pamela Quintiliano said.

Last month Ann Inc, parent of the Ann Taylor and LOFT women's apparel chains, also forecast holiday sales that missed analysts' estimates. The company had been outperforming other retailers because of its more fashionable merchandise.

Express forecast a profit of 66-71 cents per share for the fourth quarter ending Feb. 1, 2014. Analysts on average are expecting a profit of 78 cents per share, according to Thomson Reuters I/B/E/S.

Express said net income rose 11 percent to $19.3 million, or 23 cents per share, in the third quarter ended Nov. 2.

Sales rose 7 percent to $503 million, while comparable sales rose 5 percent in the quarter.

Analysts' were expecting a profit of 25 cents per share, on revenue of $499.7 million.

Express shares were trading at $18.90 on Wednesday. They have risen 63.5 percent this year to their Tuesday close of $24.67. (Editing by Savio D'Souza)

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