Ann Inc's ANN.N holiday sales forecast fell short of analysts' estimates even after the women's apparel retailer reported better-than-expected quarterly results in what it called "a highly promotional retail environment".
The company, owner of Ann Taylor and Loft stores, said it expected sales of about $640 million in the fourth quarter, below the average analyst estimate of $646.2 million.
Ann said it would be less promotional at its Loft stores in the current quarter compared to last year. Loft contributed 62 percent of Ann's total sales in the third quarter.
Rivals such as Urban Outfitters Inc (URBN.O) and Abercrombie & Fitch Co (ANF.N) have warned that a tough holiday season will force them to offer more discounts.
Heavy discounting evident in the third quarter is continuing in the current quarter, pressuring gross margins, Stifel Research analyst Richard Jaffe said in a note.
Retailers ranging from department store operator Macy's Inc (M.N) to apparel chain Aeropostale Inc ARO.N are offering huge discounts to help shift inventory during what is expected to be the toughest holiday shopping season since 2008.
Both Ann Taylor and Loft were forced to offer more promotions in the fourth quarter last as insipid clothing lines failed to excite shoppers. The company has since turned things around with revamped offerings.
"This year, the products (at Loft) are much better positioned from a color or fashion perspective," Betty Chen, an analyst at Mizuho Securities, told Reuters.
Loft, which offers casual apparel that caters to younger women, was the company's strongest performer during the third quarter, reporting an 11 percent increase in sales.
The company's pricier Ann Taylor business, which caters to a slightly older clientele, reported a 2 percent rise in sales.
Overall, third-quarter same-stores sales rose 3.7 percent.
The company said it expected holiday quarter same-store sales growth in mid-single digit percentage range.
However, Ann said it expected its gross margin to fall to 49.5 percent in the quarter from 55.7 in the third quarter.
"The teen environment, and women's in particular, remains tough and excessively promotional," Jefferies & Co analyst Randal Konik said in a note.
Ann's net income rose 2 percent to $41.2 million, or 89 cents per share, in the third quarter ended November 2. Revenue rose 7 percent to $657.5 million.
Analysts on average had expected a profit of 86 cents per share on revenue of $654.2 million, according to Thomson Reuters I/B/E/S.
Ann's shares, which have risen 15 percent in the six months to Thursday's close, were down 1 percent at $35.91 in midday trading on the New York Stock Exchange.
(Additional reporting by Maria Ajit Thomas; Editing by Maju Samuel)