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August 13, 2010 7:05 pm
Mike Ullman, chief executive of US department store chain JC Penney, painted a sombre picture of the economic health of his store’s core middle-class customers on Friday, as the chain lowered its earnings forecast for the year, citing weakening consumer sentiment.
Mr Ullman, who is also a member of the board of the Dallas federal reserve, said JC Penney’s middle-income customers “have had the brunt of the effect of the job situation”, with the number of new entrants to the job market continuing to exceed new jobs created on a monthly basis.
“To be realistic, the consumer restriction on credit, the job situation and the protracted housing situation has had the biggest impact on the middle-income consumer,” he said.
He contrasted the situation with more prosperous households “that never ran out of money”, and lower-income consumers where “families are getting by taking care of the needs of their families, and they don’t have much flexibility beyond that”.
JC Penney, with more than 1,000 stores in the US, lowered its earnings forecast for the full year to $1.40-$1.50 per diluted share, below a consensus forecast of $1.64, despite reporting stronger than expected second-quarter earnings.
Its rival Kohl’s also lowered its full-year earnings guidance on Thursday, with its chief executive Kevin Mansell saying the store was still seeing a “cautious consumer”.
“We see one that’s reluctant to spend. We see one that’s focused on the long-term value of what she buys,” he said.
Kohl’s trimmed the top of its earnings forecast by 5 cents to $3.70 a share.
Mr Ullman said that he expected virtually all of JC Penney’s forecast 2-3 per cent increase in comparable store sales in the third quarter would come from new initiatives, such as the launch of the MNG by Mango fashion units in its stores, rather than from strengthening underlying demand.
Nordstrom left its earnings guidance unchanged, with Blake Nordstrom, its president, saying management had not detected any changes in customer behaviour during the year, either upwards or downwards. It did not expect to see changes “in the foreseeable future,” he said.
Macy’s raised its guidance for the full year, after reporting a stronger than expected second quarter, saying it was gaining market share from competitors, and citing “strong performance” at its Bloomingdale’s top end department stores.
Macy’s also said it was pleased with initial demand this month at the beginning of the important back-to-school shopping season. However, Mr Ullman said he expected consumers to delay spending on items such as clothes and bedding for college as close as possible to the reopening of schools, with consumers trying to focus spending on the tax-free shopping days used by many states to support retail spending.
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