J.C. Penney Co Inc
Penney acknowledged its shoppers, who tend to have a lower household income and are more likely to turn to discount chains and dollar stores when budgets are tight, were vulnerable to weak economic conditions.
We are taking a relatively conservative approach to the economic climate and especially the moderate consumer, Chief Executive Myron Ullman said on a call with analysts.
That view was also highlighted in forecasts on Thursday from rival department store operator Kohl's Corp
However, Penney has proved to be among the poorest performers in recent months, showing weaker sales growth compared with Kohl's and Macy's Inc
Penney said on Friday it expects earnings in the current quarter of 16 cents to 20 cents per share, below Wall Street forecasts of 24 cents.
Its full year 2010 profit forecast of $1.40 to $1.50 per share also fell short of estimates of $1.54 per share.
Industry analysts expressed concern Penney would be more likely to require discounts to sell its merchandise, as inventory levels were up 7.1 percent at the end of its second quarter and outpaced sales forecasts.
JC Penney's inventory position looks the least favorable amongst all the department stores we cover, particularly Macy's, J.P. Morgan analyst Charles Grom wrote in a note.
Ullman said the company had stocked more merchandise partly to guard against container shortages in Asia that could disrupt shipments.
Penney shares fell 2.7 percent in midday trading and are down nearly 24 percent this year. Macy's rose 0.9 percent while Kohl's slipped 1.9 percent and Nordstrom tumbled more than 8 percent.
In another sign of tepid consumer demand, a government report showed U.S. retail sales rose in July, but attributed the gain to auto and gasoline sales rather than an improvement in underlying economic momentum.
Penney reported net income of $14 million, or 6 cents per share, for its second quarter ended July 31, compared with a loss of $1 million, or nil per share, a year earlier.
Overall sales fell 0.1 percent to $3.94 billion, with the drop attributable to the discontinuation of its Big Book catalogs. Internet sales were up 4 percent to $317 million during the quarter.
Analysts had been expecting a profit of 5 cents per share on sales of $4 billion, according to Thomson Reuters I/B/E/S.
For the full quarter, Penney's same-store sales were up 0.9 percent, far below Kohl's 4.6 percent gain and Macy's 4.9 percent increase.
Last week, Penney reported an unexpected drop in sales at stores open at least a year in July as it slashed prices at the end of the month to lure shoppers. Ullman said the spike in discounting was tactical and would have a short-term impact.
But it expects to get a boost from its expansion of exclusive, more profitable product lines and forecast same-store sales to rise between 2 percent and 3 percent in the third quarter.
Last week, Penney became the exclusive retailer for Liz Claiborne Inc's
Penney's is also seeing better traffic at stores located outside of shopping malls and plans to announce some new locations soon. Ullman said on the call that traffic at its off-mall stores outperformed mall stores by 3.5 percentage points during the quarter.
Penney, based in Plano, Texas, operates about 1,100 stores in the United States.
(Reporting by Phil Wahba; editing by Derek Caney, Dave Zimmerman and Andre Grenon)