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J.C. Penney, Abercrombie earnings fall roughly 50%

The two retailers also lower their outlooks for the rest of the year, and they're far below Wall Street estimates.

November 15, 2008|Associated Press

NEW YORK — Grim seemed an understatement for the retail sector on Friday as J.C. Penney Co. and Abercrombie & Fitch Co. posted quarterly profits that fell by about half, and gave outlooks for the rest of the year that were far below Wall Street expectations.

"These are significant downward revisions and don't bode well, although they're not totally unanticipated given how dire things have begun to look," said Ken Perkins, president of research company Retail Metrics Inc. "It's just another of many signals that it is going to be a really difficult and painful holiday season for the retailers."

J.C. Penney said third-quarter profit fell 52%, hurt by weak mall traffic and lower consumer spending. The Plano, Texas-based company said it expected the tough environment to last well into next year and predicted that sales would drop 7% to 9% during the fourth quarter -- usually a retailer's best time of year.

Department stores have been among the hardest-hit retailers as consumers spend less and trade down to discounters for necessities.

J.C. Penney said it was increasing its marketing and improving its customer service, including extending store hours, during the holidays.

"Our focus is on delivering a great customer experience," Ken Hicks, the company's chief merchandising officer and president, said during a conference call. "We are fully aware of the challenges facing our customers this holiday season."

J.C. Penney said it now expected fourth-quarter earnings of 90 cents to $1.05 a share. That fell well short of the $1.32 a share that analysts polled by Thomson Reuters had expected.

Teen apparel retailer Abercrombie & Fitch Co., meanwhile, said third-quarter profit fell 46% to $63.9 million, hurt by weak demand for its girls' tops and the overall consumer spending slowdown.

The New Albany, Ohio-based company said it was sticking with its international investment plans and was keeping its clothes at full price during the downturn, a strategy it conceded was hurting short-term sales but which it said would position it well for the long term.

Stifel, Nicolaus & Co. analyst Richard Jaffe said Friday that he agreed with Abercrombie's long-term strategy, but said near term, the outlook for the holiday season looked "grim."

Abercrombie said fourth-quarter sales in stores open at least one year, a key retail metric known as same-store sales, could be down about 26%. It expects earnings of $1 to $1.05 a share in the period, a good deal lower than the $1.57 a share analysts expect. For the year, it predicts earnings of $3.27 to $3.32 a share, while analysts expect $3.81 a share.

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