J.C. PENNEY IMPROVES, BUT LIMITED, NORDSTROM FORETELL ROUGH MONTH

Byline: Jennifer Weitzman / With contributions from Evan Clark

NEW YORK — An updated, value-oriented assortment of women’s apparel helped propel J.C. Penney Co.’s September same-store sales ahead 8.1 percent, but analysts are concerned that Nordstrom and The Limited Inc.’s respective declines of 9.4 and 10 percent for the month may be more typical when comp results are released Thursday.
Plano, Tex.-based Penney’s said that its department stores rang in a better-than-expected 8.1 percent comp increase in September, driven by women’s apparel sales, and reaffirmed earnings guidance for the new quarter and full year.
By contrast, Nordstrom reported a 9.2 percent comp decline at its full-line stores and an 11.2 percent drop at its Rack stores. Comps fell in all geographic regions and merchandise categories. The drops were offset slightly by the inclusion of three days of special sale events that began Sept. 28, which the firm rolled out in order to entice customers back into the store following last month’s attacks. Without the sale, comps were headed for a decline of 15.2 percent.
Also, the Seattle-based retailer reduced its earnings guidance for its third quarter, reflecting the challenging economic and retail environment and weak consumer demand following the events of Sept. 11. The company said it now anticipates third-quarter earnings between 3 and 6 cents. It previously forecast earnings between 17 and 20 cents, while Wall Street hoped for 10 cents. Additionally, the company said it is expecting a mid-single-digit comp sales decline versus the earlier forecast of a low-single-digit dip.
The firm has already been forced to cut costs, including 1,600 layoffs nationwide.
Limited said late Tuesday that the weak sales trends since Sept. 11 would exact a toll on third-quarter earnings per share of about 3 cents.
As the industry prepares to release September results on Thursday, retail and apparel analysts are hoping that aggressive promotions by retailers tantalized consumers away from their television sets and into the malls, easing some of the sharp declines in retail results that came in the immediate aftermath of the tragic events of Sept. 11. Still, most said they believe September’s results will drop sharply, due to a steep decline in consumer confidence.
Allen Questrom, Penney’s chairman and chief executive officer, said in a statement: “The company’s sales were initially impacted by the tragic events. Despite those events, our department-store sales recovered and were significantly above plan for the month.” Goldman, Sachs’s broadline analyst, George Strachan, said: “J.C. Penney represents value and that value message is being driven home more aggressively than it was a year ago.” Another reason for Penney’s improvement, according to Strachan, is that, by emphasizing key brands and getting rid of dubious merchandise, the stores simply look better.
A Penney’s spokeswoman cited promotions, improved assortments, a centralized buying system with improved editing abilities and the hiring of experienced buyers for the strong results. “We know more or less what our customer wants, and what she doesn’t want is pretty much gone,” she said.
In addition, she pointed to Penney’s consistent marketing cadence and focus on its “mainstream American” customer, whom she defined as earning between $30,000 and $80,000 a year, turned off by discount stores and adverse to paying a premium to purchase national brands.
By category, women’s apparel rode a mid-teen comp gain, with strong sellers in careerwear, juniors, outerwear and plus sizes. Men’s apparel comps improved in the low double digits, driven by strength in mature men and young men’s sportswear.
For the October ending quarter, the retailer said it continues to project earnings in the range of 11 to 15 cents a share and for the full year, 30 to 35 cents. Analysts polled by First Call expected earnings of 12 cents and 30 cents, respectively.
Nordstrom President Blake Nordstrom said in a statement: “We are using all means within our control to manage our business through these uncertain times.” Over the balance of this fiscal year, the company said it will focus on enhancing the quality-value relationship of its merchandise, maintaining inventory levels appropriate to sales trends and executing aggressively during its semiyearly sale events for women (Nov. 7 to 18) and men (Dec. 26 to Jan. 5).
Jennifer Black of Wells Fargo Van Kasper wrote in research notes that she remains “concerned” about the impact of negative leverage that may result from fixed costs, including occupancy.
Separately, Lazard Freres & Co. analyst Mark Picard downgraded Sears, Roebuck & Co.’s stock to “sell” from “hold,” in light of difficulties facing Sears’s credit and retail businesses. The rating reflects the impact of increasing unemployment on the firm’s credit business.
Picard noted that “high bankruptcy levels and the deteriorating consumer environment will result in a decline in operating profit at the credit segment of approximately 12 percent in 2002.” The credit business currently represents more than 65 percent of Sears’s total operating profits.
Difficulties resulting from possible restructuring initiatives and strategy changes, compounded by the harsh retail climate, could further depress its retail operations, said Picard.
Elements of the firm’s repositioning strategy, expected to be laid out at the firm’s Oct. 24 analyst meeting, could include divesting several noncore retail businesses, eliminating several thousand jobs or revamping its softline business, he noted.
“Management’s operating changes will likely cause a major disruption to employee morale and sales growth,” Picard said, adding that “major changes may also confuse the loyal customer base, resulting in possible market share losses.”
The combination of poor credit, retail conditions and disruptions from an adjusted strategy should “weigh on the stock” over the next year, according to the analyst. Picard lowered his 2001 EPS estimate to $3.90 from $4.10.

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