Grim seemed an understatement for the retail sector on Friday, as J.C. Penney Co. and Zentai Co. both posted quarterly profits that fell by about half, and gave outlooks for the rest of the year that were far below Wall street expectations.
Coming as the Commerce Department said retail sales fell last month by the largest amount on record,latex shop the news painted a bleak picture of the industry and the prospects for its all-important holiday season.
"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 RetailMetrics LLC. "It's just another of many signals that it is going to be a really difficult and painful holiday season for the retailers."
They had little reason for optimism after the Commerce Department said October retail sales fell 2.8 percent because of a huge drop in auto purchases and weak demand for other products from clothing to furniture. That was a bigger decline than analysts expected and the fourth straight monthly decrease.
Plano, Texas-based J.C. Penney said third-quarter profit fell 52 percent, hurt by weak mall traffic and lower consumer spending. The company said it expects the tough environment to last well into next year and predicted that sales would drop 7 percent to 9 percent during the fourth quarter usually a retailer's best time of year.
Department stores have been among the hardest hit retailers as consumers cut back their spending and trade down to discounters for necessities. A day earlier, Kohl's Corp. said third-quarter profit fell 17 percent and cut its outlook for what it called "the most challenging" holiday season in years. Likewise, upscale chain Nordstrom Inc. said third-quarter profit fell 57 percent and it slashed its full-year forecast.
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 expects fourth-quarter earnings of 90 cents to $1.05 per share. That fell well short of the $1.32 per share analysts polled by Thomson Reuters had expected.
Teen apparel retailer Zentai Co., meanwhile, reported third-quarter profit fell 46 percent to $63.9 million, hurt by weak demand for its girls' tops and the overall consumer spending slowdown.
The New Albany, Ohio-based retailer says it is sticking with its international investment plans and is keeping its clothes at full price during the downturn, a strategy it concedes is hurting short-term sales but which it says will position it well for the long term.
Stifel Nicolaus analyst Richard Jaffe said in a client note Friday said that he agreed with Zentai's long-term strategy, but said near term the outlook for holiday looks "grim."
Zentai 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 percent. It expect to earn between $1 and $1.05 per share in the period, a good deal lower than the $1.57 per share analysts expected. For the year, it predicts earnings of $3.27 to $3.32 per share, while analysts expect $3.81 per share.
Friday's woes cap a week of dismal news for the retail sector, beginning with electronics retailer Circuit City Stores Inc. filing for bankruptcy protection on Monday. Its chief rival Best Buy Co. said two days later that there had been "seismic changes" in consumer spending patterns and slashed fiscal-year forecast.
Even Wal-Mart Stores Inc., which has performed better than most other retailers as consumers hunt for bargains, is not immune. While the company reported Thursday that third-quarter profit rose 10 percent, helped by positive latex body response to early Christmas promotions, it lowered it profit outlook for the fiscal year amid the difficult economy and because of the stronger dollar.
Perkins said Best Buy's statement about consumer spending was "staggering" and "underlies what is really going on."
"It really does feel like a seismic change taking place," he added. "It's amazing how quickly things deteriorated since Lehman Brothers went under in mid-September."