• Q3 profit falls to US$14.6m
  • Gross margin declines 110 bps
  • Sales drop 1%

US apparel retailer Express Inc has sounded a note of caution on its outlook after booking a drop in third-quarter earnings and cutting its full-year EPS guidance.

In the three months ended 1 November, net income dropped to US$14.6m from $19.3m a year earlier.

Gross margin declined 110 basis points to 31.7% of net sales, which dropped 1% to $497.6m. Comparable sales were down 5%, while e-commerce sales rose 11% to $79.1m.

CEO Michael Weiss, noted an improvement in its merchandise margin of 30 bps and comparable sales were unchanged from the second quarter.

He added: "Our comparable sales reflected a weakening in our store performance as the quarter progressed that was only partially offset by strength in e-commerce and outlets. We have updated annual guidance to reflect our current retail store trends and expectations that mall traffic will continue to remain challenging throughout the holiday period."

For the full year, Express has forecast comparable sales in the negative mid to high single digits range, and net income of $59m to $65m. Diluted EPS is expected at around $0.69 to $0.76, lower than prior guidance of $0.85 to $0.95.

FBR & Co analyst Susan Anderson, noted: "A notable point is the continued delay of its debt refinancing, which could indicate continued Sycamore interest. With continued weak traffic trends and potential gross margin pressure, we remain on the sidelines and look for stabilisation or a more attractive entry point."