J.C. Penney Slashes 1Q Profit Forecast

By: AP
By: AP

PLANO, Texas - J.C. Penney Co., the big middle-market department store chain, warned Friday of disappointing first-quarter profits in another sign that consumers are cutting discretionary spending in the face of higher gasoline prices and falling confidence.

Penney's shares tumbled nearly 14 percent before regaining some ground, and the stock of other retailers also fell.

The company said it now anticipates first-quarter net income of about 50 cents per share, down from its prior forecast for a profit of 75 cents to 80 cents per share. Analysts had been expecting 75 cents per share, according to a survey by Thomson Financial.

Chief Executive Myron Ullman said higher energy costs, a drop in hiring and weak housing and credit markets were weighing down consumers.

"Consumer confidence is at a multi-year low," Ullman said in a statement. He said tax refunds might help for a while, but added, "we expect the continuation of a difficult environment over the course of 2008."

The chain said sales at stores open at least a year — a key measurement in retailing — would fall at least 10 percent in March and by a "high-single digit" percentage for the entire quarter.

The grim news from Penney came as the Commerce Department reported that personal spending rose an anemic 0.1 percent in February — its smallest growth in 17 months — despite gains in personal income.

The Penney's report raised new concern about the prospect of a recession, because consumer spending accounts for about 70 percent of the U.S. economy.

"Consumer spending is typically glacial and slow-moving, but this time a big chunk came off," said Richard Hastings, a retail analyst and economic adviser to the Federation of Credit and Financial Professionals.

The Conference Board reported this week that consumer confidence sank to a five-year low in March. Hastings said that uneasy feeling is compounded because consumers have less money to spend after shelling out more to buy gasoline, food and other staples.

Shares of Penney fell $2.84, or 7 percent, to $37.68 in midday trading. At one point, they were down 13.6 percent.

Stock in other retailers also fell. Shares of Target Corp. were off 78 cents, or 1.5 percent, at $50.20; Kohl's Corp. shares lost $2.06, or 4.6 percent, to $42.46; Macy's Inc. lost 84 cents, or 3.6 percent, to $22.52; and Sears Holding Corp. shares dropped $1.85, or 1.8 percent, to $103.63.

In recent years, Penney has been one of the brightest retailers, as it lured shoppers with reasonably priced private-label brands mixed with touches of affordable luxury such as cashmere, Sephora cosmetics counters and, just this year, an expensive line of clothing and home goods from Polo Ralph Lauren Corp. called American Living.

Dana E. Cohen, an analyst with Bank of America, said American Living could be contributing to the lower profit estimates. She said the new line is priced "well above" the competing Chaps brand at Kohl's just when consumers are growing more worried about prices.

Penney fights a two-front war, competing against Kohl's, Wal-Mart Stores Inc. and others for budget-minded shoppers, along with Macy's and other department stores for more affluent customers.

Plano-based Penney operates more than 1,000 department stores with 155,000 employees. It had sales of $19.86 billion last year.


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