(Reuters) - Express Inc (EXPR.N) slashed its forecast for the current quarter, highlighting the perils of resorting to promotions that fail to clearly communicate value to the customer, ahead of the crucial holiday selling season.
Shares of Express, which caters to 20- to 30-year-old men and women, fell 22 percent to their lowest since the company was taken public in 2010 by private equity firm Golden Gate Capital.
The retailer was forced to discount to clear out inventory and return to affordable tops after a shift to expensive knitted sweaters earlier in the year proved unsuccessful.
However, Express’s strategy of offering a discount on a second purchase failed to attract customers as they were left unsure about the value proposition, Wedbush Securities analyst Betty Chen said.
The company, which operates over 600 retail stores, said a shift to more simpler discounts helped improve traffic at its stores in the final week of September.
“They did test a new pricing message by late September that got a slightly better reaction but that is not enough to salvage the quarter,” analyst Chen said.
The snafu at Express, acquired by Golden Gate from Limited Brands Inc LTD.N in 2007, should prove instructional to other retailers looking to offer discounts.
“The consumer is responding to hard price points as opposed to prices they have to calculate,” Neely Tamminga of Piper Jaffray wrote in a client note.
Wedbush’s Chen, who expects the upcoming holiday season to be marked by aggressive promotions, said Express’s rivals, including Bebe Stores Inc (BEBE.O) and Guess Inc (GES.N), are also likely to resort to heavy discounting to clear inventory.
Chen is rated five stars for the accuracy of her earnings estimates on Express, according to Thomson Reuters StarMine.
Fashion company Fifth & Pacific Cos Inc’s FNP.N cut its profit outlook on Monday due to difficulties in selling its Juicy Couture brand products at full price.
U.S. retail sales is expected to rise 4.1 percent during the holiday season, a smaller growth than in the past two years, according to National Retail Federation.
Political uncertainty, rising gasoline prices and unemployment have weighed on consumers, who are looking for bargains and cutting back on discretionary spending.
“In the current environment, we see those with weaker fashion underperforming relative to initial expectations, and believe Aeropostale Inc ARO.N and Abercrombie & Fitch Co (ANF.N) could also be at risk,” UBS Investment Research analyst Roxanne Meyer wrote in a note to clients.
Express, which cut its full-year profit forecast for the second time in three months in August, said it expects third-quarter comparable sales to decline in the mid-single-digit range.
Express expects to earn 16 cents to 20 cents per share for the third quarter, down from its previous forecast of 27 cents to 32 cents. Wall Street had expected the company to earn 29 cents per share, according to Thomson Reuters I/B/E/S.
Shares of Express, which had a market value of $1.3 billion as of Monday close, closed down 22 percent at $11.68 on the New York Stock Exchange. Shares of Bebe closed down nearly 2 percent.
Additional reporting by Siddharth Cavale in Bangalore; Editing by Don Sebastian and Sriraj Kalluvila