Express Shares Soar After Clothing Chain Increases Forecast

Express Inc., the clothing chain facing a possible takeover fight, rose the most in more than two months after a cost-cutting plan helped the company increase its annual profit forecast.

Earnings will be 85 cents to 95 cents a share this year, the Columbus, Ohio-based company said today in a statement. Express had previously predicted 74 cents to 90 cents. Analysts estimated 81 cents on average, according to data compiled by Bloomberg.

Chief Executive Officer Michael Weiss has been working to turn around the company before handing the reins to President David Kornberg next year, a move announced last month. He also faces unsolicited interest from Sycamore Partners, a private-equity firm, in acquiring the company. Express’s latest results show that the retailer is making progress on a comeback, Weiss said today.

“Looking ahead to the back half of the year, the opportunity remains to drive further sequential improvements in both sales and profits, while simultaneously continuing our disciplined approach to inventory units and input costs,” he said.

Express shares climbed 13 percent to $16.45 at the close in New York, the biggest one-day gain since June 13. The stock has tumbled 12 percent this year, dragged down by concern Express was struggling to pull out of a sales slump.

Factory Outlets

Second-quarter results also exceeded analysts’ projections. The company’s new Express Factory Outlets, which offer lower-cost clothing, are exceeding expectations and its full-price stores did a better job of managing promotions last quarter, Weiss said. Even so, gross margins continued to shrink in the period, narrowing to 28.3 percent. Analysts had estimated 28.5 percent.

After amassing a 9.9 percent stake in Express, Sycamore Partners said in June that it would like to perform due diligence to determine an acquisition price. Express responded by adopting a poison-pill defense, though it said the move wouldn’t prevent it from considering or accepting a friendly offer.

Expense cuts have helped the company top projections, though Express still faces an uphill battle, Richard Jaffe, a Stifel Nicolaus & Co. analyst, said in a note to clients.

“A difficult retail environment (mall traffic declines and increased promotions industrywide) combined with select merchandise misses, will hold back results in the near term,” he said.

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