J.C. Penney cuts 1st-quarter earnings forecast

PLANO, Texas – J.C. Penney, whose stores help anchor hundreds of malls across the country, delivered fresh evidence that the economy is faltering in the face of higher gasoline prices and lower consumer confidence.

The department store chain warned that first-quarter profits will be one-third lower than Wall Street expected, sending its shares tumbling nearly 14% at one point. The stock of other retailers dropped as well.

Chief Executive Myron Ullman said higher energy costs, a drop in hiring and weak housing and credit markets were weighing consumers down.

“Consumer confidence is at a multi-year low,” Ullman said. While tax refunds might help for a while, he said, “we expect the continuation of a difficult environment over the course of 2008.”

The company said it now expects first-quarter net income of about 50 cents per share, down from its earlier forecast for a profit of 75 cents to 80 cents per share. Analysts had been expecting 75 cents per share, according to a survey by Thomson Financial.

Sales at stores open at least a year – a key measurement in retailing – are expected to fall at least 10% in March and by a “high-single digit” percentage for the entire quarter, which ends May 3.

Penney didn’t say what parts of its business were suffering most, and officials declined to elaborate on the company’s statement. But analysts said they believed categories such as women’s and juniors’ clothing and linens were selling more slowly.

Penney’s announcement raised new concern about the prospect of a recession, because consumer spending accounts for about 70% of the U.S. economy.

“Consumer spending is typically glacial and slow-moving, but this time a big chunk came off,” said Richard Hastings, a retail analyst and economic adviser to the Federation of Credit and Financial Professionals.

Shares of Penney fell $3.04, or 7.5%, to $37.48 after dropping as much as 13.6% earlier in the day.

Stock in other retailers also fell. Shares of Kohl’s Corp. were off $2.19, or 4.9%, to $42.33; Macy’s Inc. shares lost $1.39, or 6%, to $21.97; Sears Holding Corp. shares dropped $3.28, or 3.1%, to $102.20; and Target Corp. shares lost $1.29, or 2.5%, at $49.69.