J.C. Penney Cuts Outlook on Consumer Weakness

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    NEWSLETTERS

    Racked

    J.C. Penney Co. cut its profit outlook for the rest of the year, a sign of jitters that Americans, still stinging from the recession and worried about jobs, aren't going to spend more any time soon.

    The reduced outlook came Friday as Penney reported a second-quarter profit as it benefited from tight inventory controls and exclusive store-label brands.

    Penney, based in Plano, Texas, earned $14 million, or 6 cents per share, in the three months ended July 31. That compares with a loss of $1 million, or break-even per share, in the same quarter last year.

    The second-quarter 2010 results included a charge of about 5 cents per share related to a debt buyback completed in May.

    Revenue was $3.94 billion, down 0.1 percent from a year ago. Revenue at stores open at least a year rose 0.9 percent compared with a year ago. The measure is a key indicator of a retailer's health because it includes sales at existing stores while excluding sales at newly opened locations.

    Analysts surveyed by Thomson Reuters expected 5 cents per share on revenue of $4 billion.

    After a suprise pickup in overall consumer spending earlier in the year, most retailers have seen a slowdown since April as the economic recovery is stalling and the job market remains stagnant.

    With shoppers watching their spending, any sales gains are coming at the expense of other retailers. Department stores, in particular, are fighting a fierce battle for consumer dollars because the chains primarily sell discretionary items like clothing and home furnishings.

    To lure shoppers into their stores, Penney and its rivals like Kohl's Corp. and Macy's Inc. have been adding more exclusive fashions.

    This month, Penney became the only U.S. retailer to sell Liz Claiborne and Claiborne women's wear, except the Isaac Mizrahi-designed Liz Claiborne New York brand, which went to QVC. And this fall, Penney will become the only department store selling MNG by Mango, a European clothing brand.

    Penney said that back-to-school selling is off to a "good start" fueled by new brands like Uproar and Supergirl by Nestle and exclusive styles like Olsenboye and RS by Sheckler. The strongest merchandise results were in men's clothing and women's accessories during the second quarter, the chain said.

    "Our customers continue to be under financial pressure, and we are dedicated to providing them with a shopping experience that offers the style they want and the value they need," said Myron Ullman, III, chairman and chief executive in a statement.

    But despite such efforts, Penney seems to be losing business to rivals such as Macy's Inc.

    Last week, Penney reported a surprise 0.6 percent drop in July revenue at stores open at least a year and had warned that its second-quarter profit would come in at the low end of its forecast.

    Macy's reported better-than-expected July sales. And on Wednesday, Macy's said its net income surged in the second quarter as the department store chain saw a payoff from its focus on exclusive moderate-price fashions and tailoring merchandise to local markets. It boosted its profit outlook and increased its forecast for the key revenue measure. For the second quarter, Macy's reported a 4.9 percent gain in revenue at stores opened at least a year.

    Kohl's, which reported a 14 percent increase in net income for the second quarter, trimmed the top end of its yearly outlook because of spending to improve its e-commerce business and expectations for slowing sales growth in the second half of the year. Kohl's reported a 5.9 percent gain in revenue at stores opened at least a year.

    Penney said Friday that it expects revenue at stores open at least a year to be up 2 percent to 3 percent in the current quarter. Total sales should increase one percentage point less, which means anywhere from 1 to 2 percent, because Penney stopped publishing its Big Book catalogs.

    For the current quarter, earnings per share should be in the range of 16 cents to 20 cents. Analysts had expected 24 cents per share.

    For the year, Penney expects earnings per share to be between $1.40 per share and $1.50 per share. Analysts expect $1.54. In May, Penney had said it expected $1.64 for the full year.