J.C. Penney Co. Inc.'s slashing of its first-quarter profit projections by a third after a disappointing Easter could be a warning for the overall retail sector that the proverbial wall is just ahead. While retailers have been dancing around the impact of the economic slowdown for the last few months, evidence is mounting that the second half might not be pretty.
Consumers are pulling back, the subprime mortgage crisis continues to unravel, confidence is low and employers across the country are cutting payrolls. All this means Penney's probably won't be the only retailer to disappoint when comparable-store sales are reported April 10 or when first-quarter results come out in May. Comp results will likely offer a telling glimpse at not only the first quarter, but the mood of retailers and perhaps how they plan to position themselves going forward.
"Consumer confidence is at a multiyear low," said Myron "Mike" Ullman 3rd, chairman and chief executive. "J.C. Penney counts half of American families as its customers and they are feeling macroeconomic pressures from many areas, including higher energy costs, deteriorating employment trends and significant issues in the housing and credit markets."
Wall Street, at least, isn't optimistic about the outlook, driving retailers' shares down across the board on Friday. The S&P Retail Index fell 2.7 percent to 379.58.
Penney's stock fell 7.5 percent to $37.48. Other department store players posting declines included Macy's Inc., down 6 percent to $21.97; Kohl's Corp., off 4.9 percent to $42.33, and Saks Inc., down 4 percent to $11.91. Decliners on the specialty store side included Chico's FAS Inc., off 8.9 percent to $6.99, and Talbots Inc., down 8.7 percent to $10.22. Vendors also took a hit, especially those with close ties to Penney's.
Polo Ralph Lauren Corp., which just launched its new American Living brand exclusively with Penney's, saw its shares fall 5.5 percent to $57.62, while shares of Liz Claiborne Inc., which sells its Liz & Co. brand through Penney's, fell 9.1 percent to $17.77.
Even though Penney's hung the revision on macroeconomic woes, some company-specific issues might also have played a part.