Department store operator J. C. Penney Friday cut its first-quarter earnings forecast and said it expects the environment to remain difficult throughout 2008, stoking fears that the second half of the year will not bring relief to struggling U.S. retailers.
"We believe that investors had generally anticipated weak performance from retailers in the first half" of 2008, wrote Sanford C. Bernstein analyst Uta Werner.
"However, we expect that J.C. Penney's commentary regarding its expectation of persistent weakness throughout the full year will be viewed as an incremental negative for the stock and the sector," she wrote in a research note.
Penney's shares were off more than 9 percent in early New York Stock Exchange trading. The warning also dragged down shares of competitors like Kohl's , Macy's and Dillard's.
Department store operators like Penney that cater to middle-income Americans have been hit hard by the slowdown in consumer spending as these shoppers forgo purchases of clothes, jewelry and home furnishings amid fears of a U.S. recession.
But even upscale department store chains like Nordstrom and Neiman Marcus Inc are starting to feel the strain of the spending slowdown, and investors are losing hope that the later part of the year, marked by the holiday shopping season, will offer much reprieve from current struggles.
"I'm hearing more and more that people are just assuming that things are going to stay pretty much difficult for the whole year," said Jason Asaeda, a retail analyst with Standard & Poor's Equity Research. "In doing so, they're planning a lot more conservatively."
Confidence at Multi-Year Low
Penney now expects first-quarter earnings of approximately 50 cents per share, down from its previous view of 75 to 80 cents per share.
It also expects a low-double-digit decline in March sales at stores open at least a year, known as comparable store sales, and a high-single-digit decline in comparable-store sales for the first quarter. Its previous view was for comparable store sales in March and the first quarter to decline in the low single digits.
"Consumer confidence is at a multi-year low," Myron "Mike" Ullman, chairman and chief executive officer, said in a statement.
"J.C. Penney counts half of American families as its customers, and they are feeling macro-economic pressures from many areas, including higher energy costs, deteriorating employment trends and significant issues in the housing and credit markets," he said.
In February, Penney reported a nearly 10 percent decline in quarterly profit and said there was no clear indication the consumer environment would improve in 2008.
It also posted a 6.7 percent drop in February sales at stores open at least a year while analysts, on average, were expecting a decline of just 1.9 percent.
Those disappointing February sales figures prompted JP Morgan analyst Charles Grom to downgrade his rating on the retailer's shares to "neutral" from "overweight," and he said at the time that the company's outlook for its March sales was "too aggressive."
Shares of Penney were down $3.86, or 9.5 percent, at $36.66.