JCPenney joins retail profit party
Posted: Monday, May 17, 2010 11:38 am
By: The Associated Press
The Messenger 05.17.10
By ANNE D’INNOCENZIO
AP Retail Writer
NEW YORK (AP) — JCPenney Co. finished a week of retail earnings reports that showed big improvements in sales and profits. But amid the gains, a string of muted outlooks fueled worries on Wall Street that the consumer comeback might not pick up steam.
Penney reported Friday that its first-quarter net income more than doubled as shoppers spent more on a variety of merchandise, from shoes to men’s clothing. The retailer also raised its full-year outlook, but even that didn’t impress investors, sending shares down more than 3 percent.
Penney’s results mirrored a theme played out all week. Nordstrom Inc., Kohl’s Corp. and Macy’s Inc. all saw shares fall for the week after posting big profit gains.
Amid such positive earnings reports, why are the stocks doing so poorly?
“I think Wall Street did get ahead of itself following March’s blowout,” said Ken Perkins, president of research firm RetailMetrics. “Retail management is trying to be cautious because they still don’t know if the jobs recovery is for real.” He also noted that the Greek debt crisis could throw a wrench into global growth.
Wall Street’s earnings expectations had been rising since early this year but racheted up after March’s stellar sales increases, the biggest since March 1999, according to the International Council of Shopping Centers. April wasn’t quite as good, partly because of an earlier Easter, but it all added up to a solid spring.
The Standard & Poor’s Retail SPDR, a basket of retail stocks, has risen more than 60 percent in the past year and 14 percent since the beginning of 2010, though it’s off its late April highs.
The first quarter is the toughest for merchants because there’s no key reason for consumers to buy, and retailers generally expressed optimism that sales would improve for the rest of the year, fueled by such holidays as Father’s Day and the critical back-to-school season. Still, while shoppers are spending more on a variety of merchandise, retailers are still seeing frugality.
“We believe that the consumer is no longer in hiding, but they are being very pragmatic,” Myron E. Ullman III, chairman and CEO, told investors Friday during a conference call. “We’re keeping in mind that the economy and the consumer environment remain unpredictable.”
More evidence will come later this week when more retailers report their first-quarter earnings.
Penney posted net income of $60 million, or 25 cents per share, for the quarter ended May 1. That compares with $25 million, or 11 cents per share, in the same period last year.
Total revenue rose 1.2 percent to $3.93 billion. Revenue at stores open at least a year rose 1.3 percent. That’s a key retail performance measurement because it excludes the effects of expansion.
Analysts surveyed by Thomson Reuters expected 25 cents per share on revenue of $3.93 billion.
Penney said home goods were the only area of the company’s seven merchandise divisions that didn’t have revenue gains. The strongest areas were men’s, shoes and handbags and children’s.
Penney’s sales have improved, but the gains haven’t matched those of some competitors such as Macy’s Inc. Macy’s reported Wednesday that revenue at stores open at least a year rose 5.5 percent during the first quarter. Macy’s has taken “aggressive” action to lower prices and is “attacking Penney’s ‘turf’ in the mall,” Charles Grom, a JPMorgan analyst, wrote Tuesday in a note to investors.
Penney, based in Plano, Texas, said it expects revenue at stores open at least a year to rise between 2.5 percent and 3 percent. It estimates that earnings per share between 10 and 13 cents per share. Analysts expect 13 cents per share.
For the full year, Penney said it expects that earnings per share will be $1.64, a penny below what Wall Street analysts had expected. Penney had said in February that it expected full-year profit to be $1.55 per share.