JC Penney profit down 50 pct; sees difficult year

By Nicole Maestri

NEW YORK (Reuters) - J.C. Penney Co Inc (JCP.N: Quote, Profile, Research, Stock Buzz) said on Thursday its first-quarter profit dropped 50 percent as the retailer cut prices to clear unsold merchandise, and it forecast a similar profit drop for its current quarter.

But its shares, which had fallen 42 percent in the past year through Wednesday, rose 4 percent to its highest level in four months.

The department store operator's most recent profit decline was less than Wall Street expected, and while price cuts will pressure margins in the current quarter, it forecast second-quarter earnings that could surpass current analyst targets.

Wayne Hood, a retail analyst with BMO Capital Markets, said the first quarter earnings were able to beat very low expectations and Penney's second-quarter forecast was above his estimate, which is seen as a positive in this difficult environment.

"I think it's good news in the sense that things have stabilized. It doesn't appear to be getting worse," he said of Penney's forecast.

Penney's net income was $120 million, or 54 cents per share, for its fiscal first quarter ended May 3, down from $238 million, or $1.04 per share, a year earlier.

Analysts, on average, were expecting it to earn 50 cents per share, according to Reuters Estimates.

Penney's middle-income consumers have been hit hard by the weakened U.S. economy. More of their paychecks are going toward paying for necessities like food and fuel at the same time as their home values are declining and their access to credit has diminished.