UPDATE 4-JC Penney gives weak profit view; shares dip

* Q2 EPS $0.06 vs Street view $0.05

* Sees Q3 same-store sales up 2-3 percent

* Sees FY EPS $1.40 to $1.50 vs View $1.54

* Inventory levels up 7.1 percent

* Shares down 3 percent; Kohl’s, Dillard’s drop too
(Adds inventory reference to first paragraph, update shares)

By Phil Wahba

NEW YORK, Aug 13 (BestGrowthStock) – J.C. Penney Co Inc (JCP.N: )
forecast a full-year profit below Wall Street expectations and
stoked concerns that it may need further discounts to clear
merchandise built up last quarter, sending its shares lower.

Penney said its shoppers, who tend to have a lower
household income and are more likely to turn to discount chains
and dollar stores when budgets are tight, were vulnerable to
weak economic conditions.

“We are taking a relatively conservative approach to the
economic climate and especially the moderate consumer,” Chief
Executive Myron Ullman said on a call with analysts.

That view was also highlighted in forecasts on Thursday
from rival department store operator Kohl’s Corp (KSS.N: ) and
upscale retailer Nordstrom Inc (JWN.N: ). [ID:nN12261485]

However, Penney has proved to be among the poorest
performers in recent months, showing weaker sales growth
compared with Kohl’s and Macy’s Inc (M.N: ).

Penney said on Friday it expects earnings this quarter of
16 cents to 20 cents per share, below Wall Street forecasts of
24 cents.

Its 2010 profit forecast of $1.40 to $1.50 per share also
fell short of estimates of $1.54 per share.

Analysts expressed concern that Penney would be more likely
to require discounts to sell its merchandise, as inventory
levels were up 7.1 percent at the end of its second quarter and
outpaced sales forecasts.

“JC Penney’s inventory position looks the least favorable
amongst all the department stores we cover, particularly
Macy’s,” J.P. Morgan analyst Charles Grom wrote.

Ullman said the company had stocked more merchandise partly
to guard against container shortages in Asia that could disrupt
shipments.

Penney shares fell 3 percent. Macy’s rose 0.4 percent while
Kohl’s slipped 1.9 percent and Nordstrom tumbled nearly 6
percent.

SEEKING MOMENTUM

In another sign of tepid consumer demand, a government
report showed U.S. retail sales rose in July, but attributed
the gain to auto and gasoline sales rather than an improvement
in underlying economic momentum. [ID:nN13180040]

Penney reported second-quarter net income of $14 million,
or 6 cents per share, compared with a loss of $1 million, or
nil per share, a year earlier.

Sales fell 0.1 percent to $3.94 billion, with the drop
attributable to the discontinuation of its Big Book catalogs.
Internet sales were up 4 percent.

Analysts had been expecting a profit of 5 cents per share
on sales of $4 billion, according to Thomson Reuters I/B/E/S.

Penney’s same-store sales were up 0.9 percent, below Kohl’s
4.6 percent gain and Macy’s 4.9 percent increase.

Dillard’s Inc (DDS.N: ), which like Penney caters to a more
frugal shopper than Macy’s, reported flat same-store sales.
[ID:nN13174538]. The company’s shares fell 3.1 percent.

Last week, Penney reported an unexpected drop in sales at
stores open at least a year in July as it slashed prices at the
end of the month to lure shoppers. Ullman said the spike in
discounting was “tactical” and would have a short-term impact.

But it expects to get a boost from its expansion of
exclusive, more profitable product lines and forecast
same-store sales to rise between 2 percent and 3 percent in the
third quarter.

Last week, Penney became the exclusive retailer for Liz
Claiborne Inc’s (LIZ.N: ) namesake brand and Ullman said the line
was exceeding expectations. It will also open 16 more Sephora
cosmetics shops at its stores and will launch the fast-fashion
MNG by Mango shop inside its stores.

Penney’s is also seeing better traffic at stores located
outside of shopping malls and plans to announce some new
locations soon. Ullman said on the call that traffic at its
off-mall stores outperformed mall stores by 3.5 percentage
points during the quarter.

Penney, based in Plano, Texas, operates about 1,100 stores
in the United States.
(Reporting by Phil Wahba; editing by Michele Gershberg, Dave
Zimmerman, Andre Grenon and Robert MacMillan)

UPDATE 4-JC Penney gives weak profit view; shares dip