JCPenney, Macy's Profits Down; Improvements Expected

These days, retailing ain't for sissies: JCPenney says its first-quarter profits fell 49.6% to $120 million, while sales dropped 5.1% to $4.12 billion. On a same-store basis, sales fell 7.2% for the quarter.

That news follows Macy's announcement earlier this week of a hefty loss for the quarter--$59 million--due to some consolidations and litigation costs, not to mention the punishing climate for mid-tier department stores. Macy's sales in the first quarter fell 2.9% to $5.75 billion, and declined 2.6% on a same-store basis.

"Our financial performance in the first quarter was clearly impacted by the weakened consumer environment," Penney, which is based in Plano, Texas, says in its release. Last month, Penney introduced what it calls a Bridge Plan to help it navigate the negative consumer spending environment, including limiting new stores and renovations.

But it says it will not cut back on new brand launches, since "it is more critical than ever to provide merchandise innovation, smart prices and a great shopping experience that clearly differentiates us from the competition." Among the scheduled 2008 launches are Decree and Fabulosity in juniors, as well as Linden Street and Dorm Life in home.



And while it says its weaknesses covered most areas and categories, men's apparel and family footwear did well. In terms of geography, sales were strongest in the northeast and central regions, while Internet sales gained 8.7%.

While it expects 2008 to continue to be difficult, it says it will continue to lower prices and reduce inventory, and expects next quarter's sales decline to be smaller, in the low single digits.

Macy's says it's even seeing some bright spots, and the company says it is gaining market share, even in this tough environment.

"Given the very difficult economic environment, our company performed relatively well compared to the competition," the company says in its release, adding that its same-store declines were less than those of competitors. "This indicates that customers are preferring Macy's, and we appear to be capturing market share even in this period of weak consumer spending."

Some analysts agree, and were pleased to see that the Cincinnati-based retailer beat its earnings targets.

"Inventories are clean, and sales momentum is accelerating just as comparisons get easier," Deutsche Bank says in its research notes, "putting Macy's in great position for the second quarter," and adds that it is "perhaps the best positioned amongst all of the department stores."

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