JCPenney (NYSE: JCP) said this morning that its net income in the third-quarter dropped 9% to $261 million, or $1.17 per share, the first profit decline in three quarters. Excluding a 14-cent tax credit, earnings totaled $1.03 per share, above analysts' expected $1.01 per share (though well below the retailer's earlier outlook of $1.28 per share). Last month, the company reduced its third-quarter outlook to a range of $1.00 to $1.04 per share (excluding the tax-credit item).
Sales fell 1.1% to $4.73 billion, as same-store sales dropped 3.5%. Gross margin was down 1.8 percentage points to 39.7%. During the period, the company slashed prices to reduce inventory. Calendar shifts also had a negative impact, as the 2006 third quarter had an extra week's worth of sales. Bloomberg quoted CEO Myron Ullman as noting, "We were disappointed to see sales weaken dramatically in September and October." Like many retailers that posted lackluster sales results last month, JCPenny cited unseasonably warm weather and rising fuel costs, which have crimped consumers.
Looking ahead to the fourth quarter, JCPenney has lowered its outlook to $1.65 to $1.80 per share, down from an earlier target of $2.41. Same-store sales are expected to decline in the low-single-digits, on a percentage basis. For the full year, JCPenney expects to bank $4.63 to $4.78 per share, compared with an earlier outlook of $5.50 per share. In early trading, the stock fell $1.73, or 3.7%, hitting $45.
JCPenney is facing mounting competitive pressure. On one end are stores such as Kohl's (NYSE: KSS), which offer similarly priced merchandise but have a trendier feel. On the other end are the Nordstoms (NYSE: JWN) of the world, which JCPenney simply can't compete against.
One thing the company has going for it is a venerable name. And I've also noticed that oftentimes - especially in the Midwest - JCPenney will build a store where no other department store exists. This is the case in my husband's home town of Sedalia, Missouri, which lacks many retailing names, including Kohl's and Target. Hence why we had to register at Penney's when we got married 3 years ago. Unfortunately, these small-town consumers feeling the pinch of higher gasoline prices and a tricky housing market.
Beth Gaston Moon is an analyst at Schaeffer's Investment Research.
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Reader Comments (Page 1 of 1)
1-17-2008 @ 7:39PM
Alexia said...
It is a wonder JC Penney will survive. They have been connected with many disturbing events on the way they treat the people in their community. Several incidents in Missouri alone make JC Penney a target for liability in their condoning of their employees behavior.