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Express posts 26% rise in Q2 profit, but lowers outlook for the year

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Young adult apparel retailer Express (NYSE:EXPR) reported a 26 per cent increase in second quarter profit Wednesday, but lowered its outlook for the year on slower than expected sales growth. 

Shares dropped more than 7 per cent before the bell as the company lowered its full-year earnings estimate by 10 cents to between $1.69 and $1.79 a share and said it expects same-store sales to rise in the low single digits. 

The company had already cut its forecast in May due to costs related to the opening of two flagship locations in the US. 

It had previously forecast same-store sales to increase in the low to mid-single digits.

The retail chain, which operates more than 600 stores, posted net income of $15.8 million, or 18 cents per diluted share, for the period that ended July 28, meeting the high end of its previous guidance. This compared to $12.6 million, or 14 cents per share, a year earlier. 

The year-ago period included a $2.2 million, or 3 cent per share loss related to the extinguishment of debt. Excluding this, earnings were 17 cents per share for the year ago period.

Net sales increased 2 per cent in the latest quarter to $454.9 million, falling well short of the $467 million in sales expected by analysts. Comparable sales rose just 1 per cent, down from a 6 per cent increase in the second quarter of 2011. 

Same store sales are a key metric by which to gauge a retailer's health as they exclude sales from stores that recently opened or closed during the year. 

"Our second quarter results included an increase in net sales, positive comparable sales, and disciplined expense management, which combined, offset increased promotional activity in the latter part of the quarter and drove earnings per diluted share to the high end of our guidance," said chairman, president and CEO, Michael Weiss. 

"We continued to focus on our growth pillars during the quarter, opening new stores and maintaining double digit growth in e-commerce."

Weiss also noted the company's progress internationally, securing its third international franchise agreement, with the latest deal in Mexico. 

Express is planning on opening US flagship locations in Times Square in New York, and Union Square in San Francisco by the fall of 2013 in an effort to help build its brand globally. The opening of these locations helped accelerate costs in 2012. 

Gross margin was 32.2 per cent, down from 33.6 per cent a year ago. Selling, general and admin expenses came in at $115.3 million, versus $117.7 million in the same period of last year. 

Looking ahead, Weiss said: "As we begin the second half of the year, we believe it is prudent to set our guidance more conservatively and in line with the trend we experienced in the second quarter."

Express forecast current-quarter earnings of 27 cents to 32 cents a share, while analysts polled by Thomson Reuters were looking for 37 cents. Third quarter comparable sales are anticipated to be flat to up low single digits, compared to an increase of 5 per cent a year ago. 

The company now plans to open 28 new stores this year, and close 12 stores in the United States, to end the year with 625 locations.  

Express, which broke off from Limited Brands Inc. (NYSE:LTD) in 2007, listed in 2010. Shares fell 7.3 per cent Wednesday premarket, to $15.66. 

Quick facts: Express, Inc.

Price: 3.42 USD

NYSE:EXPR
Market: NYSE
Market Cap: $230.05 m
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