J.C. Penney 3Q profit falls by more than half

Department-store operator J.C. Penney Co. said Friday its third-quarter profit fell by more than half as consumers cut back on spending and took fewer trips to the mall amid the deteriorating economy.

The company also said mall traffic in general has been weak so far this month and issued fourth-quarter guidance well below analyst expectations.

J.C. Penney shares fell $1.60, or 8.3 percent, to $17.68 during midday trading, nearing its 52-week low of $16.39. In February, the stock had traded at a year-high of $51.42.

Department stores, including mid-tier J.C. Penney, have been among the retailers hardest hit by consumers' cutbacks and bargain hunting amid an economic slowdown, shaky job market and prolonged housing slump. On Friday the Commerce Department reported that retail sales plunged by the largest amount on record in October as consumers cut back on spending in the wake of the financial crisis.

The company said profit for the three months ended Nov. 1 fell 52 percent to $124 million, or 56 cents per share, from $261 million, or $1.17 per share, last year. Revenue slid 9 percent to $4.32 billion from $4.73 billion last year.

Analysts surveyed by Thomson Reuters expected a profit of 53 cents per share on slightly higher revenue of $4.39 billion.

"As sales have been impacted by lower consumer spending and declining mall traffic, we have been effective in reducing selling, general and administrative expenses without compromising our customer experience and in managing our inventories to appropriate levels," Ullman said in a statement.

Sales in stores open at least one year fell 10.1 percent. Women's and children's apparel and family shoes were the best performers while jewelry and home divisions continued to be weak. Sales held up best in the Northeast and Central regions, but were offset by weak results in the Southeast and Southwest, where the housing slump has been the most pronounced.

Looking ahead, Ullman said he expects the weak environment will persist "well into 2009" and is planning business accordingly.

Heading into the holiday season, Plano, Texas-based J.C. Penney plans to woo customers into its stores by ramping up its gift assortment and customer service and launching a marketing campaign aimed at conveying both the style and value of its products.

"Our marketing shows our customers we understand their financial pressures," said Chairman and Chief Executive Myron E. Ullman III said in a conference call with investors.

The company is also "aggressively" targeting customers of the 177 stores that Mervyns has closed or is closing under its bankruptcy-protection plan in an effort to convert those shoppers to J.C. Penney.

But the company expects fourth-quarter earnings will range between 90 cents and $1.05 per share, far below the $1.32 per share analysts are predicting, on a 7 percent to 9 percent sales decline. J.C. Penney expects same-store sales to fall 9 percent to 11 percent in the fourth quarter.

The company also said it will record a hefty charge in fiscal 2009 related to an accounting method it uses for its pension plan, but will not know the actual value of the charge until the end of the fiscal year.