NEW YORK — Slumping sales and skyrocketing costs knocked down Deb Shops Inc.’s second-quarter earnings by 62.8 percent, and the firm lowered its profit outlook for the year.

The Philadelphia-based specialty retailer, which sells apparel and accessories to teenagers in regular and plus sizes, said income evaporated to $2.7 million, or 20 cents a diluted share, for the three months ended July 31. That compares with income of $7.3 million, or 52 cents, in the same period last year. Sales for the quarter narrowed 4.8 percent to $73 million from $76.7 million, while total costs, including buying and occupancy and selling and administrative, sunk 900 basis points to 93.2 percent of sales from 84.2 percent.

“Economic softness in our core markets, poor weather in the first half of the quarter and subsequent merchandising challenges combined to negatively impact same-store sales for the quarter,” Marvin Rounick, president and chief executive, said in a statement. “Given these results, we are focused on evaluating our business at the corporate and store levels and remain committed to making the necessary adjustments that over time we expect will improve our sales trends.”

Putting a positive spin on its dire financial situation, Barry Susson, chief financial officer, said in a statement, “Fortunately, Deb Shops’ balance sheet gives us the financial flexibility to carefully evaluate our current condition and take steps to rectify any problems we might identify.”

The company said it expects earnings per share for fiscal 2004 to range between 70 cents and 80 cents, significantly lower than prior guidance of $1.25 to $1.30. It also said it expects sales to come in between $290 million and $300 million and projects a low-double-digit comparable store sales decrease for the second half. In fiscal 2003, Deb posted sales of $317.7 million.

For the six months, income plunged 71.7 percent to $3 million, or 22 cents a diluted share, compared with income of $10.6 million, or 76 cents. Sales fell 6.8 percent to $143.2 million from $153.6 million.

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