* Macy's cuts full-year profit forecast on weak sales
* Warns same-store sales could fall in second half of 08
* Macy's shares down nearly 9 percent (Adds analyst comment, byline; updates stock moves)
By Sarah Coffey
NEW YORK, Oct 10 (Reuters) - U.S. department store operator Macy's Inc (M.N) slashed its full-year forecast on Friday, warning that its sales could fall sharply in the back half of its fiscal year as shoppers stick to buying necessities.
Macy's shares were down nearly 9 percent in early afternoon trading and led declines in the sector amid a wider U.S. market sell-off on recession fears. The Standard & Poor's Retail Index .RLX was off 7.4 percent.
For months, U.S. consumers have avoided shopping at department stores as rising food and fuel prices pressure household budgets also hurt by the housing market slump, job losses and a credit crunch.
Shoppers cut spending even more in September, as a global financial crisis took a turn for the worse. Department stores such as mid-tier J.C. Penney Co Inc (JCP.N) and more upscale Saks Inc SKS.N said this week that their same-store sales languished, forcing some to slash profit and sales forecasts.
Some analysts are concerned that Macy's, which also operates the Bloomingdale's chain, could face weak sales into the beginning of 2009 given the general shock to U.S. consumer sentiment. Macy's fiscal year runs through January.
"We expect 2008 and early 2009 to be difficult periods for the US consumer, and are reluctant to recommend a stock that is so dependent on (comparable store sales) for growth," wrote Merrill Lynch retail analyst Lorraine Maikis in a note.
Macy's shares were down $1.02 to $10.44 on the New York Stock Exchange. J.C. Penney shares were off 5.5 percent, Kohl's Corp (KSS.N) slipped 3.3 percent. Saks Inc fell 8.5 percent while Nordstrom Inc (JWN.N) lost 3.3 percent.
SAME-STORE SALES DROP
Macy's said its same-store sales, which measures sales at stores open at least one year, fell 5.8 percent in the third quarter to date, which combines August and September.
If sales remain weak, same-store sales sales could fall 3 percent to 6 percent in the fall season, Macy's warned. The company had previously expected fall same-store sales fall to be flat to down 1 percent.
Macy's defines the fall season as the period from August to January, which includes the critical holiday shopping season, said a Macy's spokesperson.
Macy's now expects to earn $1.30 per share to $1.50 per share for fiscal 2008, excluding some impairment charges and costs tied to consolidating its divisions.
It had previously forecast earnings of $1.70 per share to $1.85 per share, on that basis.
Analysts had expected Macy's to earn $1.75 per share for fiscal 2008, according to Reuters Estimates.
Tough credit conditions have also been a source of worry for many companies due to the growing financial markets crisis.
Macy's said it has about $740 million in cash and cash equivalents at the end of September, a position that marks it as "one of the most financially able of the mall anchors in a very challenging environment," said Credit Suisse retail analyst Michael Exstein in a note.
It expects to meet additional working capital needs by borrowing from its existing $2 billion bank credit agreement. Macy's said it does not have borrowings under the credit agreement currently. (Reporting by Aarthi Sivaraman and Sarah Coffey, editing by Dave Zimmerman and Tim Dobbyn)