AP
J.C. Penney's 2Q profits fall 36 percent
Friday August 15, 9:21 am ET
By Anne D'Innocenzio, AP Business Writer
J.C. Penney's 2Q profits fall 36 percent amid tough economy


NEW YORK (AP) -- J.C. Penney Co. reported a 36 percent drop in second-quarter profits Friday and issued a downbeat outlook for the current quarter as shoppers cut back on clothing spending in a tough economy.

The Plano, Texas-based department store chain said it earned $117 million, or 52 cents per share, in the three-month period ended Aug. 2, compared with $182 million, or 81 cents per share, a year earlier.

Total net sales fell 2.5 percent to $4.28 billion from $4.39 billion. Same-store sales, or sales at stores opened at least a year, fell 4.3 percent. Same-store sales are considered a key indicator of a retailer's health.

Analysts polled by Thomson Reuters expected earnings of 50 cents per share on revenue of $4.28 billion.

Penney said it expects third-quarter earnings to be in the range of 70 cents to 75 cents per share. A poll by Thomson Reuters projects 76 cents per share. The company also predicted that total sales would drop by a low-single digit percentage and that same-store sales would drop in the mid-single digits in the same period.

"In this difficult consumer environment, we have continued to focus on tightly controlling all aspects of our business, and our second-quarter results show the benefits of our approach," said Myron "Mike" Ullman, chairman and chief executive, in a statement.

The company reported that comparable-store inventory levels at the end of the second quarter were below last year, and it remains on track for total inventory to be below 2007 levels by the end of the back-to-school season.

Penney and other apparel chains have been hard hit in a challenging economy as customers, aiming to save money for gas and food, focus their buying on necessities and shop at discounters and warehouse clubs that offer a breadth of merchandise. High-end department store chain Nordstrom Inc. reported a 21 percent drop in second-quarter profit on Thursday and cut its full-year forecast. Meanwhile, Kohl's reported a 12 percent drop in profits but upgraded its full-year outlook to reflect stricter inventory control that boosted profit margins.

In response to the slowing economy, Penney announced in June that it would further slow the pace of new department store openings and cut capital spending next year because of the weak economy. It now plans 20 new or relocated stores next year, down from the 36 it expects to open in 2008. Penney had once planned 50 new stores a year through 2011.

Meanwhile, Penney is expanding its repertoire of exclusive offerings. For the back-to-school season, it introduced six new lines aimed at teens and young adults, compared with only one last year. Earlier this year, Penney unveiled American Living, an exclusive collection that is part of an alliance with Polo Ralph Lauren Corp. The collection is the biggest brand launch in Penney's history. Ullman noted in a statement that the back-to-school launches had "good initial customer response."