Updated from 8:27 a.m. EST
SAN FRANCISCO -- Shares of
tumbled 6% Thursday after the department-store operator offered a particularly bleak view of the holiday selling season.
The retailer expects its fourth quarter to look much like its third quarter, with gross margins experiencing pressure as a result of higher-than-usual inventory levels. Penney also said the dismal picture may also carry into next year, on the basis of consumer confidence reports that point to more purse-tightening.
The stock recently were sliding $2.71 to $44.02.
For the fourth quarter, the Plano, Texas-based company now anticipates earnings of $1.65 to $1.80 a share, down from its prior guidance of $2.41. Analysts polled by Thomson Financial project earnings of $1.91 a share for the quarter.
Penney expects its department-store same-store sales, or sales at stores open at least a year, will fall on a low-single-digit basis.
"The combination of weak housing conditions, mortgage and credit market concerns and rising fuel prices has clearly led to a challenging macroeconomic environment for consumers," said Chairman and CEO Myron Ullman.
For the year, Penney lowered its earnings forecast to $4.63 to $4.78 from its earlier view of $5.50 a share. Wall Street targeted earnings of $5.39 a share.
The new outlook comes after third-quarter results fell significantly below Penney's original expectations. Like many retailers, the company saw weak sales in September and October as economic concerns and warmer-than-average temperatures left many of its goods on its shelves.
The higher levels of inventory contributed to a gross margin decline of 180 basis points in the third quarter. Much of that came from markdowns to get rid of elevated inventory levels, which were 10% higher than a year ago.
Penney said about half of the elevated inventory levels were the result of the early arrival of holiday merchandise because of a calendar shift. The company expects its gross margins will continue to be pressured as it tries manage inventory better going forward.
For the third quarter, Penney's profit totaled $261 million, or $1.17 a share, down from $287 million, or $1.26 a share, a year earlier. The results included tax credits that added 14 cents to earnings per share.
Excluding the tax gain, Penney's earnings were in line with its projection of $1 to $1.04 a share. The company slashed its forecast in October from its original target of $1.28 after September sales were much worse than anticipated.
Penney's third-quarter sales fell to $4.73 billion from $4.78 billion, while same-store sales dropped 3.5%. Originally, Penney expected a low-single-digit increase in same-store sales.
Sales in all regions of the country were below expectations, the company said. Internet sales increased 11.8%, but that was far below last year's increase of 27%.
Penney said it remains cautious about consumer spending through next year, although it still sees opportunity in key categories such as home furnishings. Penney executives pointed to
as an example of a company that managed to improve sales in that department despite the housing slump.