Check out the 50 percent drop in quarterly profit at JC Penney.

The mid-tier department store operator had warned in late March that its first-quarter profits would be hammered after a drop in store traffic and dismal Easter sales forced it to cut prices to clear out unsold merchandise.

Penney shoppers can expect more price cuts on future visits to the retailer. 

The department store operator said it is now trying to get inventory in its stores to better match the weak sales environment, meaning it will roll out more promotions and cut future merchandise orders.

Based on its forecast, Penney is expecting profits to decline yet again in its second quarter.

It forecast earnings per share of 38 cents–a dramatic drop from the 78 cents per share of earnings from continuing operations it reported a year ago.

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(Photo: Reuters)

Check out Macy’s profit, or loss, depending on how you count.
 
The department store operator posted a $59 million loss in the first quarter, hurt by a drop in sales and the costs of restructuring.
 
So of course its stocks jumped.
 
Restructuring charges are seen by the investment community as “one-time items” and are generally disregarded when looking at how well a company did in any given quarter. 
 
So without ”one-time items” Macy’s posted a profit of 2 cents a share from continuing operations. That was better than the 2-cents-a-share loss that analysts expected.
 
Macy’s also affirmed its forecast for a profit of $1.85 to $2.15 a share for the year, possibly a sign that things at least are not getting worse for the company, which, like most department store operators, has been hurt by the slumping U.S. economy.
 
Of course, that forecast excludes “one-time” items.
 
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(Photo: Reuters)

JC Penney surprised the retail sector on Friday with its warning that first-quarter earnings could be as much as 38 percent below its initial forecasts, and it said it expects the difficult environment to persist throughout 2008.

The warning came the same day that the Reuters/University of Michigan Surveys of Consumers showed that U.S. consumers’ confidence weakened to the lowest in 16 years in March, pointing to recession. 

The news battered retail shares as investors’ hope faded that business would improve in the second half of the year. Here is a collection of comments on Penney’s warning:   

KIMBERLY PICCIOLA, ANALYST AT MORNINGSTAR :

“It seems as though the macro environment is really creating a much more challenging retail environment then maybe what was anticipated.” 

She said J.C Penney’s product line is made up of items consumers can hold off on buying in a weak economy. 

“The first half of the year is definitely going to be rocky for most retailers that have a very discretionary assortment. Consumers are very cautious right now in terms of their discretionary  spending.” 

CRAIG JOHNSON, PRESIDENT OF CUSTOMER GROWTH PARTNERS:

“J.C. Penney operates in a very challenged part of the retail sector.”

“The mid-tier mall-based department stores are the center of the retail sector difficulties. … They are the bull’s eye of it.”

ADRIANNE SHAPIRA, RETAIL ANALYST AT GOLDMAN SACHS:

“The direction of today’s revision was not a surprise, given our already below consensus and management guidance view on the quarter. That said, the magnitude of comp declines was worse and does imply that department store top-lines could be facing more near-term ‘core’ sales pressure than initially thought.”

“Importantly, we would remind investors that 1Q contributes the lowest amount of sales to the full year making it more susceptible to deleverage if top-line falls short making extrapolation to the full year incorrect.”

“Importantly, our thesis concerning 1H as being the trough of this down cycle remains unchanged, especially with stimulus checks on the way in 2 months time. As sales recover, we continue to believe that stocks will follow.”

MARSHAL COHEN, CHIEF INDUSTRY ANALYST AT NPD GROUP 

He said the bad Easter season was due to three factors: “It’s early. It’s cold. And the consumer is throttling back.” 

“So you’ve got these three things converging to create the perfect storm.”

He said Penney was being wise, preparing the market to expect less-than-stellar earnings results.  

“We’ve entered into an interesting time at retail. It’s called ‘create lower expectations and exceed them and your stock will jump’. We’ve seen several big retailers do this now over the last couple reporting periods. It’s good. They’re being fiscally responsible.”  

(Photo: Reuters)