Retailer Express plunges as sales gaffe hurts results

(Reuters) - Specialty apparel retailer Express Inc EXPR.N reported lower-than-expected quarterly results and cut its full-year earnings outlook as it botched up its strategy to drive more sales of pricier knitted tops for women.

The company’s stock, which fell as much as 29 percent in morning trading, was among the top losers on the New York Stock Exchange.

Express, which sells clothes and accessories to 20- to 30-year-old men and women, has been shifting its knit-top offerings from plain low-margin clothes to more fashionable products, but in the first quarter the company moved too fast for some shoppers.

“We reduced our styles of opening price point knit tops, and in hindsight, we did not follow some of our own guiding principles when planning this department this spring,” CEO Michael Weiss said on a conference call with analysts.

“We did not take a balanced approach to this category.”

However, Piper Jaffray analyst Neely Tamminga, who kept her “overweight” rating on the stock, said the company’s move to sell higher priced tops would eventually prove to be successful.

“Longer-term, we believe Express’ deliberate shift away from basic knit tops and into opening price point fashion tops will enhance margins and make it more of a destination for its customer,” Tamminga said in a note.

Express also said it would delay opening a couple of its flagship stores as it decided to move to a more “desirable” location in New York. The delay will reduce the company’s 2012 earnings by 2 cents per share.

First-quarter net income rose to $42.1 million, or 47 cents per share, from $35.0 million, or 39 cents per share, a year ago.

Net sales increased 6 percent to $496.0 million.

Analysts on average had expected earnings of 49 cents per share, on revenue of $503.2 million, according to Thomson Reuters I/B/E/S.

Gross margin fell to 38.1 percent from 38.2 percent, hurt by higher product costs.

The company now expects to earn $1.79 to $1.89 per share in fiscal 2012, down from its previous outlook of $1.84 to $1.97 per share.

Shares of the company fell to a nine-month low of $16.38 on Tuesday.

Reporting by Mihir Dalal in Bangalore; Editing by Maju Samuel, Viraj Nair