Columbus, OH—Express Inc. today reported a weaker-than-expected 11% rise in third quarter profit and forecast lower full year profits as discounts will cut into its holiday profits. The news spooked Wall Street, sending the specialty retailer’s shares down in early trading.
For the quarter ended Oct. 27, Express posted net income of $19.3 million, or 23 cents a share, compared with income of $17.4 million, or 20 cents a share a year ago. Although that was in line with Express’ own forecast, analysts had expected more: 25 cents a share.
Net sales were up 7% to $503 million ahead of analysts’ estimate for $499.7 million. Comparable sales increased 5% compared to a 5% decline in third quarter of 2012. Online sales grew 29% to $71.2 million.
Gross margin widened 60 basis points to 32.9% and merchandise margin improved by 40 basis points.
‘Heighten Levels’ of Promotions Ahead
“Despite the promotional environment, we were able to recover some of the margin lost in last year’s third quarter by delivering a stronger product assortment, especially on the women’s side of the business,” the company noted.
Selling, general, and administrative expenses as a percentage of net sales rose 40 basis points to 25.5%, primarily reflecting payroll increases
and an increase in marketing expense, which includes certain costs associated with opening its Times Square store.
Michael Weiss, chairman/ceo, noted that the third quarter increase were achieved “against the backdrop of an extremely challenging and promotional retail environment.”
Those challenges—and promotions—are only likely to increase during fourth quarter.
“Our current product line consists of a well balanced mix of cold weather and spring merchandise, with styles that tested well and are on-trend,” Weiss said. Thanksgiving week sales exceeded last year’s, however results did not meet our expectations. We had been planning for a promotional holiday season but we now expect the intensity of those promotions to reach heightened levels and we are updating our full year guidance accordingly.”
Hence, Express now expects its fourth quarter earnings to be 66 to 72 cents a share with comparable store sales in the low single digits. Analysts’ average estimate expects 78 cents a share on sales of $740.04 million.
For fiscal 2013, Express revised earnings downward: $1.46 to $1.51 a share and comparable sales in low single digits. Previously Express forecast $1.52 to $1.60 per share for the year.
Analysts’ consensus expects earnings of $1.61 a share on revenues of $2.23 billion for the year.