Ann reports 7 percent rise in quarterly sales

Women's apparel retailer Ann Inc forecast weaker-than-expected sales for the holiday selling season, and said it expects margin erosion in what the company called "a highly promotional retail environment".

Ann shares were down 2 percent in premarket trading.

The company, which reported better-than-expected third-quarter results, forecast sales of about $640 million in the fourth quarter, missing analysts' estimates of $642.2 million, according to Thomson Reuters I/B/E/S.

Ann also said it expects current-quarter same-store sales growth in mid-single digit percentage range.

"The teen environment, and women's in particular, remains tough and excessively promotional," Jefferies & Co analyst Randal Konik said in a note.

Retailers ranging from department store operator Macy's Inc (M.N) to apparel chain Urban Outfitters are offering huge discounts to help shift stock during what is expected to be the toughest holiday shopping season since 2008.

But clothing sellers such as Abercrombie & Fitch Co (ANF.N) are discounting the most, due in part to high unemployment rates among the young but also because customers are spending more on high-cost items such as mobile phones, gaming consoles and tablets.

Ann said it expects gross margin to fall to 49.5 percent in the current quarter, from 55.7 percent in the third quarter.

The company's net income in the third quarter ended November 2 rose to $41.2 million, or 89 cents per share, from $40.7 million, or 84 cents per share, a year earlier.

Revenue rose 7 percent to $657.5 million. Same-store sales increased 3.7 percent, in line with analysts' average expectations.

Analysts on average had expected a profit of 86 cents per share on revenue of $654.2 million, according to Thomson Reuters I/B/E/S.

Ann's shares, which have risen 15 percent in the six months to Thursday's close, were down at $35.45 before the bell on Friday. The stock closed at $36.27 on the New York Stock Exchange on Thursday.