J.C. Penney reported a smaller-than-expected fall in quarterly profit Thursday as the mid-tier department store operator offset falling sales with tight control on expenses, sending its shares higher.
But the retailer, which caters to middle-income shoppers who are grappling with the slumping housing market and high energy costs, said there is no clear indication the consumer environment will improve in 2008.
"The economic climate and retail environment have not shown any signs of near-term recovery," CEO Myron "Mike" Ullman said on a conference call. "In fact, depending on the economic pundits you listen to, it may even get worse before it gets better."
To offset the tough environment, Ullman said Penney is planning conservatively and has cut its store opening plans for the year.
Penney's profit fell to $430 million, or $1.93 per share, for its fiscal fourth quarter that ended Feb. 2, from $477 million, or $2.09 per share, a year earlier.
Earlier this month, it forecast fourth-quarter earnings to be at the high end of its original range of $1.65 to $1.80 per share. Analysts, on average, were expecting it to earn $1.77 per share, according to Reuters Estimates.
Shares rose 2.3 percent to $49.04 in late morning New York Stock Exchange trading.
Department Store Struggles
Many U.S. department store operators have faced declining sales in recent months as cash-strapped shoppers curb their trips to the malls amid the shaky economic environment.
Penney had warned its fourth quarter would be a difficult one, after poor third-quarter sales left it with excess merchandise that it had to mark down during the final months of the year, hurting its margins during the all-important holiday quarter.
For the quarter, total sales fell more than 4 percent to $6.39 billion from $6.66 billion. Sales at stores open at least a year, a key retail gauge known as same-store sales, fell 2.3 percent.
Penney said women's and children's clothing were the strongest selling categories, while fine jewelry and expensive items for the home were the weakest.
To offset the falling sales, it kept a close eye on expenses, saying selling, general and administrative expenses decreased 11.3 percent after it cut pension expenses and executive bonuses.
Ullman said that to navigate the tough environment, Penney has cut its store opening plans.
"For the balance of the year, we plan to open 36 stores, versus our original plan of 50," he said. "... We're reducing the pace of these openings to be in line with the consumer spending patterns we anticipate will remain for the rest of 2008."
While Penney has scaled back store opening and capital spending plans, the retailer is not backing down with the launch of a new brand, American Living.
Penney has said American Living, which began arriving in its stores this month, is the largest merchandise launch in its history. The brand's merchandise will eventually cover 40 categories, including clothes for men, women and children, as well as shoes, handbags, sheets, towels and drapes.
Executives said that while it is very early, they were "pleased" with how American Living is selling in stores so far. Penney will launch the marketing campaign for the brand on Feb. 24, during the U.S. Academy Awards television broadcast.
Penney said it expects first-quarter total sales to "increase slightly," with full-year total sales rising in the low-single digit range.
Same-store sales should fall low-single digits for both the first quarter and full year, it said, with gross margins under pressure for the first half of the year.
It forecast first-quarter earnings per share of 75 cents to 80 cents, and full-year earnings of $3.75 to $4.00 per share. Analysts, on average, had been expecting it to earn 81 cents per share in the first quarter and $4.02 for the full year, according to Reuters Estimates.