JC Penney tumbles on cut forecast : US Business

By Nicole Maestri

NEW YORK (Reuters) - Mid-tier department store operator JC Penney Co Inc on Friday slashed its first-quarter earnings forecast, saying sales through the Easter holiday were below expectations and noting that consumer confidence is at a multi-year low.

Penney's shares were off 8 percent in early New York Stock Exchange trading. The warning also dragged down shares of competitors like Kohl's , Macy's Inc and Sears Holdings Corp .

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

But even upscale department store chains like Nordstrom and Neiman Marcus Inc are starting to feel the strain of the spending slowdown.

"JC Penney operates in a very challenged part of the retail sector," said Craig Johnson, president of retail consulting firm Customer Growth Partners. "The mid-tier mall-based department stores are the center of the retail sector difficulties. ... They are the bull's eye of it."

Penney now expects first-quarter earnings of approximately 50 cents per share, down from its previous view of 75 to 80 cents per share.

It also expects a low-double-digit decline in March sales at stores open at least a year, known as comparable store sales, and a high-single-digit decline in comparable-store sales for the first quarter. Its previous view was for comparable store sales in March and the first quarter to decline in the low single digits.

"JC Penney counts half of American families as its customers, and they are feeling macro-economic pressures from many areas, including higher energy costs, deteriorating employment trends and significant issues in the housing and credit markets," Myron "Mike" Ullman, chairman and chief executive officer, said in a statement.

"The sharp decline in sales is reflective of these trends," he said.

In February, Penney reported a nearly 10 percent decline in quarterly profit and said there was no clear indication the consumer environment would improve in 2008.

It also posted a 6.7 percent drop in February sales at stores open at least a year while analysts, on average, were expecting a decline of just 1.9 percent.

Those disappointing February sales figures prompted JP Morgan analyst Charles Grom to downgrade his rating on the retailer's shares to "neutral" from "overweight," and he said at the time that the company's outlook for its March sales was "too aggressive."

Shares of Penney were down $3.25 at $37.27.

(Additional reporting by Aarthi Sivaraman)

(Reporting by Nicole Maestri, editing by Mark Porter and Gerald E. McCormick)

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