Women's apparel retailer Body Central Corp BODY.O cut its second-quarter outlook following heavy discounting to clear out inventory, sparking a selloff that wiped out half its market value for the second time in as many months.
The mall-based retailer, which sells clothes, shoes and accessories to women in their late teens and 20s, has been struggling to drive sales for the past two quarters due to lackluster merchandise, losing ground to rivals such as Forever 21.
Jefferies analyst Randal Konik said there was a "severe lack of visibility around the product issue," cutting his rating on the stock to "hold" from "buy".
"We understand that there seems to be a broad-based problem with the merchandise. However, given (the company's) short lead-times we would have expected a correction to be in progress by now," Konik said in a client note.
The company's shares plummeted more than 50 percent last month, when it forecast bleak results for the second quarter, warning of weak sales.
"Our second-quarter comparable sales remain soft and have not improved since April," CEO Allen Weinstein said in a statement on Monday. "We continue to diligently manage inventory and take aggressive markdowns on slow moving items."
Body Central maintains relatively light inventories to respond faster to new styles and trends — known as the "fast fashion" model. It uses a "test-and-reorder" strategy, first trying out small quantities of a product in stores before placing large orders.
Fast-fashion chains such as Japan's Uniqlo 9983.T, Sweden's H&M HMb.ST and Spain's Zara ITX.MC have seen success in the United States recently, taking share from the more traditional fashion retailers, Gap Inc GPS.N and American Eagle Outfitters Inc AEO.N.
Body Central's dismal forecast starkly contrasts a strong showing by U.S. clothing retailers in general this year. Retailers have beaten analysts' same-store sales estimates in four out of the five months so far.
Body Central opened its first store under the Body Shop banner in Jacksonville, Florida in 1973 and went public in October 2010. In recent years, it has been moving away from its use of the Body Shop label, while developing its Body Central and Lipstick brands.
The company, which had a market value of nearly $259 million as of Friday, cut its second-quarter earnings forecast to 19 to 21 cents per share from 26 to 28 cents per share.
Body Central now expects net revenue of $77 million to $79 million, down from $80 million to $82 million. It expects same-store sales, or those at stores open at least a year, to fall 7 to 9 percent.
The company's shares plunged to $8.20, their lowest ever level. They were at $8.71 in early afternoon trade on Monday on the Nasdaq.
(Reporting by Aditi Shrivastava and Mihir Dalal in Bangalore; Editing by Viraj Nair)