Express Sounds Alarm on Holiday Season; Shares Tumble 20%

Apparel maker Express (NYSE:EXPR) spooked Wall Street on Wednesday by disclosing a weaker-than-expected 11% rise in third-quarter profits and projecting a surprise decline in holiday season profits due to the need to offer hefty discounts.

The gloomy news from the retailer sent its shares careening 20% lower in premarket trading, wiping out a chunk of its stellar rally this year.

Express said it earned $19.3 million, or 23 cents a share, last quarter, compared with a profit of $17.4 million, or 20 cents a share, a year earlier. Analysts had called for EPS of 25 cents

Revenue rose 7.4% to $503 million, topping the Street’s view of $500 million. Same-store sales increased 5%. Gross margins expanded to 32.9% from 32.3%.

Express CEO Michael Weiss said the company achieved growth despite an “extremely challenging and promotional retail environment.”

Due to the need to heavily discount items, Express projected fourth-quarter EPS of 66 cents to 71 cents, which is below the year-earlier period’s 75 cents and the Street’s view of 78 cents.

Same-store sales are seen increasing in the low-single digits after gaining 1.5% the year before.

“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,” Weiss said.

For the full year, Express projected EPS of $1.46 to $1.51, compared with $1.60 the year before and estimates on Wall Street for $1.61. Same-store sales are seen rising in the low single digits.

Shares of Columbus, Ohio-based Express retreated 18.89% to $20.01 ahead of Wednesday’s opening bell. The selloff threatens to shave off some of the retailer’s 2013 surge of 63.5%.