JC Penney tumbles on cut earnings forecast

By Nicole Maestri

NEW YORK (Reuters) - Department store operator JC Penney Co Inc (JCP.N: Quote, Profile, Research) on Friday cut its first-quarter earnings forecast and said it expects the environment to remain difficult throughout 2008, stoking fears that the second half of the year will not bring relief to struggling U.S. retailers.

"We believe that investors had generally anticipated weak performance from retailers in the first half" of 2008, wrote Sanford C. Bernstein analyst Uta Werner.

"However, we expect that JC Penney's commentary regarding its expectation of persistent weakness throughout the full year will be viewed as an incremental negative for the stock and the sector," she wrote in a research note.

Penney's shares were off more than 9 percent in early New York Stock Exchange trading. The warning also dragged down shares of competitors like Kohl's (KSS.N: Quote, Profile, Research), Macy's Inc (M.N: Quote, Profile, Research) and Dillard's Inc (DDS.N: Quote, Profile, Research).

Department store operators like Penney that cater to middle-income Americans have been hit hard by the slowdown in consumer spending as these shoppers forgo purchases of clothes, jewelry and home furnishings amid fears of a U.S. recession.

But even upscale department store chains like Nordstrom (JWN.N: Quote, Profile, Research) and Neiman Marcus Inc are starting to feel the strain of the spending slowdown, and investors are losing hope that the later part of the year, marked by the holiday shopping season, will offer much reprieve from current struggles.

"I'm hearing more and more that people are just assuming that things are going to stay pretty much difficult for the whole year," said Jason Asaeda, a retail analyst with Standard & Poor's Equity Research. "In doing so, they're planning a lot more conservatively."

CONFIDENCE AT A MULTI-YEAR LOW