March 12, 2014 / 11:27 AM / 5 years ago

Apparel discounts hurt Express forecast; shares slump

(Reuters) - Apparel retailer Express Inc (EXPR.N) said it expected its profit to slide by more than half in the current quarter, blaming deep discounts and a decline in store traffic.

Shares of Express, formerly a division of L Brands Inc LTD.N, fell as much as 14.5 percent in early trading after the company’s fourth-quarter results missed analysts’ average estimate.

“Our first-quarter guidance reflects year-to-date traffic and comparable sales as well as our belief that a material uptick in traffic is not necessarily imminent,” Chief Executive Michael Weiss said in a statement.

Express, which has more than 600 stores in the United States, Canada and Puerto Rico, sells formal and casual wear and accessories to young men and women.

In the past two days, apparel retailers American Eagle Outfitters Inc (AEO.N) and Urban Outfitters Inc (URBN.O) have warned that results in the current quarter would be hurt by stiff competition and choppy sales trends at malls.

“In light of the slow start to the year, we’ve taken an appropriate yet cautious approach to our guidance,” Chief Financial Officer Paul Dascoli said on a post-earnings conference call.

Nomura Securities analyst Simeon Siegel said discounting is likely to continue across mall storefronts as retailers try to boost sales.

The weak mall traffic that hurt retailers was in part due to the unusually cold and snowy weather that kept shoppers away over the last three months.

According to ShopperTrak, the number of people walking into stores across the United States declined 14.6 percent between Thanksgiving and Christmas in 2013.

Columbus, Ohio-based Express forecast first-quarter earnings of 12 to 18 cents per share, less than half the 38 cents per share it earned a year earlier.

The forecast is also in sharp contrast to the average analyst estimate which called for profit to rise slightly to 41 cents per share, according to Thomson Reuters I/B/E/S.

The company said comparable sales would fall in the low double digits to the high single digits in the quarter. Comparable-store sales rose 1 percent in the fourth quarter ended February 1.

“A difficult retail environment will hold back results in the first half despite what we believe is on-trend merchandise,” Stifel Research analyst Richard Jaffe said.


Express said an “extremely promotional” holiday season and “disappointing mall traffic” led to its fourth-quarter results being below its own expectations.

The duration and the extent of discounts offered took a toll on gross margin, which fell to 32 percent in the quarter from 35 percent a year earlier.

“Our primary disappointment was that we sold so much more product at promotional prices than initially planned,” CEO Weiss said on the call.

However, Weiss said Express would not eliminate promotions that are important during key traffic days.

The company’s net income fell to $47.93 million, or 57 cents per share, from $63.94 million, or 75 cents per share, a year earlier.

Sales fell 2 percent to $715.9 million due to the deep discounting and weak traffic.

Analysts on average had expected a profit of 59 cents on revenue of $721.1 million.

Shares of Express, which went public in 2010, were down 11 percent at $16.17 in morning trading on the New York Stock Exchange. They touched a more than one-year low of $15.60.

Editing by Savio D'Souza and Maju Samuel

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