J.C. Penney breaks even for Q2 but year may be light

SEATTLE Fri Aug 14, 2009 1:38pm EDT

The sign outside the J.C. Penney store is seen in Westminster, Colorado February 20, 2009. REUTERS/Rick Wilking

The sign outside the J.C. Penney store is seen in Westminster, Colorado February 20, 2009.

Credit: Reuters/Rick Wilking

SEATTLE (Reuters) - J.C. Penney Co Inc (JCP.N) posted a smaller-than-expected net loss on Friday, as it reined in costs, but the retailer signaled that full-year profit might miss expectations, and its shares fell over 6 percent.

Penney, which is trying to attract shoppers with its value message and trendy merchandise, raised its fiscal-year forecast for earnings and sales at stores open at least a year.

Still, the outlook from the department store operator was for a same-store sales decline and lower profit than last year, as consumers pick and choose what they buy in the recession.

Penney is also "cautious" about the first half of 2010, Chief Executive Myron "Mike" Ullman said in a conference call.

"From my perspective the consumer is further behind the recovery than the statistics would indicate," Ullman said.

The company said it now expects this year's sales to fall 5.5 percent to 6.0 percent, with same-store sales down 7 percent to 7.5 percent. It had previously forecast a same-store sales drop of about 9 percent.

Doug Conn, managing director at investment banking firm Hexagon Securities, said investors are looking for improved sales, which might not come right away. That means J.C. Penney's shares, which have fallen nearly 15 percent over the last year, could likely remain under pressure for some time.

"I am not expecting very big things out of them in terms of topline" in the near future, since consumers are still being squeezed, Conn said.

Penney also said it expects to earn 75 cents per share to 90 cents per share this year, up from a prior forecast of 50 to 65 cents, citing second-quarter results and anticipated gross margin improvement.

Analysts have expected earnings of 88 cents per share.

"The guidance for the full year looks fairly low," said Robert W. Baird analyst Erika Maschmeyer, adding that it implied a lofty gross margin expansion in the fourth quarter.

"The Street already expects them to be conservative. (So) if they don't beat, they are in trouble."

RESULTS BEAT BUT SALES DOWN

Penney reported a net loss of $1 million, or nil per share, for the second quarter ended August 1, compared with a year-earlier profit of $117 million, or 52 cents per share.

Analysts on average had expected a loss of 1 cent per share, according to Reuters Estimates.

Sales fell 7.9 percent to $3.94 billion, while same-store sales declined 9.5 percent.

Total pension-related costs of $83 million also weighed on the retailer during the quarter.

Penney, which has fashioned itself as a value destination in the downturn, said it sold more merchandise at regular promotional prices and less at clearance prices.

It opened a new store in Manhattan last month, taking direct aim at the flagship Macy's Inc (M.N) store nearby. That store will reach $100 million in sales "at some point," and is expected to be Penney's highest volume store, Ullman said.

Ullman said it is still early in the back-to-school sales season "to declare victory," but Penney is "encouraged" by early signs. Penney launched a website for teenagers as part of its effort to drive demand in the season, which is second only in importance for retailers to the holiday sales period.

The results came two days after Macy's posted a better-than-expected profit and raised its full-year outlook, but mixed results from two of its suppliers showed that times remain tough in the retail sector.

On Thursday, Kohl's Corp (KSS.N) gave a weak outlook for the rest of 2009 due to higher costs from new store openings, but more upscale Nordstrom Inc (JWN.N) raised its profit view for the year, saying recent sales trends were encouraging.

For the current third quarter, Penney expects results to range from a loss of 5 cents per share to a profit of 5 cents. Analysts have expected earnings of 14 cents.

Penney said sales should fall 3 percent to 5 percent in the current quarter, with same-store sales down 5 to 7 percent.

It expects to open five or fewer stores in 2010.

Penney shares were down $2.04 or 6.1 percent at $31.30 in afternoon trading on the New York Stock Exchange, while the Standard & Poor's Department Stores Sub-Industry .GSPRETD index was down 3.5 percent.

(Additional reporting by Jessica Wohl in Chicago; Editing by Lisa Von Ahn and Gerald E. McCormick)

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