Story originally printed in the La Crosse Tribune or online at www.lacrossetribune.com
Published - Friday, May 16, 2008
Department stores hurt by slumping apparel sales
MILWAUKEE — Department store stalwarts J.C. Penney Co., Nordstrom Inc. and Kohl’s Inc. all reported steep drops in first-quarter profits on Thursday as Americans snub apparel to focus on basic necessities at discounters in a challenging economy.
The three department store chains all predicted the softening sales environment would continue this year, as consumers grapple with soaring food and fuel costs.
They can’t delay buying groceries or filling up their cars, but they can put off buying new clothes, said Edward Jones retailing analyst Stephanie Hoff.
“Department stores have been hurt, pretty much more than any other class of stores. That makes sense in a weak economy,” Hoff said.
Sales at discounters like Wal-Mart Inc. are still strong. The world’s largest retailer posted first-quarter profit this week up 6.9 percent. TJX Cos., which operates stores under the T.J. Maxx, Marshalls, HomeGoods names, said its first-quarter profit rose almost 20 percent this week.
Department stores, meanwhile, are taking big hits. J.C. Penney, Nordstrom and Kohl’s all saw sales at stores opened at least a year — considered a key indicator of a retailer’s success — fall at least 6.5 percent in the quarter.
J.C. Penny posted the worst drop with a 7.4 percent dip. It also saw the worst earnings of the department stores on Thursday, as it reported first-quarter profit was halved. Net income fell to $120 million, or 54 cents per share, from $238 million, or $1.04 per share, a year ago, the suburban Dallas-based retailer said. Total sales fell 5 percent to $4.13 billion from $4.35 billion.
The company knows its customers are thinking about how they’re spending their dollars.
“It is obviously a very difficult time for all U.S. consumers,” said Myron E. Ullman III, chairman and chief executive. “They’re facing uncertainty in their financial well-being.”
The company is responding by reducing store openings and renovation plans, while trying to cut expenses. Inventory management will also prove key, Ullman said.
Kohl’s likewise pledged to continue to monitor inventory as it lowered its annual outlook on Thursday. First-quarter profit fell nearly 27 percent on flat apparel sales and poor homeware sales.
The Menomonee Falls, Wis.-based department store chain said it earned $153 million, or 49 cents per share, during the quarter that ended May 3. By comparison, Kohl’s earned $209 million, or 64 cents per share, during the same period a year ago.
Sales rose 1.5 percent in the quarter to $3.6 billion.
Kohl’s said it now expects earnings to fall in a range of $2.95 to $3.15, assuming an annual sales increase of from 2 percent to 4 percent and comparable sales drop of from 3 percent to 5 percent.
Nordstrom’s likewise cut its outlook as its wealthier customers are pulling back on their spending. The Seattle-based luxury retailer’s first-quarter profit fell 24 percent, with earnings of $119 million, or 54 cents per share in the quarter, down from $157 million, or 60 cents per share in the same three months last year.
Revenue slipped 4 percent to $1.88 billion from $1.95 billion a year ago.
It cut its outlook for the full year to $2.65 to $2.89 per share, from an earlier forecast for $2.75 to $2.90 per share.
On Wednesday, fellow department store chain Macy’s Inc. posted a $59 million loss for the quarter, or 14 cents a share, compared with a profit of $36 million, or 8 cents a share, in the same quarter a year ago. Revenue was $5.75 billion, down from $5.92 billion a year ago.
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