PLANO, Texas (AP) _ J.C. Penney, whose stores help anchor hundreds of malls across the country, delivered fresh evidence Friday that the economy is faltering in the face of higher gasoline prices and lower consumer confidence.
The department store chain warned that first-quarter profits will be one-third lower than Wall Street expected, sending its shares tumbling nearly 14 percent at one point. The stock of other retailers dropped as well.
Chief Executive Myron Ullman said higher energy costs, a drop in hiring and weak housing and credit markets were weighing consumers down.
"Consumer confidence is at a multi-year low," Ullman said in a statement. While tax refunds might help for a while, he said, "we expect the continuation of a difficult environment over the course of 2008."
The company said it now expects first-quarter net income of about 50 cents per share, down from its earlier forecast for a profit of 75 cents to 80 cents per share. Analysts had been expecting 75 cents per share, according to a survey by Thomson Financial.
Sales at stores open at least a year — a key measurement in retailing — are expected to fall at least 10 percent in March and by a "high-single digit" percentage for the entire quarter, which ends May 3.
Penney didn't say what parts of its business were suffering most, and officials declined to elaborate on the company's statement. But analysts said they believed categories such as women's and juniors' clothing and linens were selling more slowly.
The grim news from Penney came as the Commerce Department reported that personal spending rose an anemic 0.1 percent in February — its smallest growth in 17 months — despite gains in personal income.
Penney's announcement raised new concern about the prospect of a recession, because consumer spending accounts for about 70 percent of the U.S. economy.
"Consumer spending is typically glacial and slow-moving, but this time a big chunk came off," said Richard Hastings, a retail analyst and economic adviser to the Federation of Credit and Financial Professionals.
The Conference Board reported this week that consumer confidence sank to a five-year low in March. Hastings said that uneasy feeling is compounded because consumers have less money to spend after shelling out more to buy gasoline, food and other staples.
Shares of Penney fell $3.04, or 7.5 percent, to $37.48 after dropping as much as 13.6 percent earlier in the day.
Stock in other retailers also fell. Shares of Kohl's Corp. were off $2.19, or 4.9 percent, to $42.33; Macy's Inc. shares lost $1.39, or 6 percent, to $21.97; Sears Holding Corp. shares dropped $3.28, or 3.1 percent, to $102.20; and Target Corp. shares lost $1.29, or 2.5 percent, at $49.69.
Investors had good reason to be concerned, judging from the feeling among shoppers.
Chinwe Ezennaya, a mother of three boys under age 5, said she and her husband, a government worker, have cut back to afford necessities including gasoline. She was waiting to get her oldest son in to see a dentist at a Dallas mall.
"Before, if I saw something on sale I would buy it. Now I don't buy it unless I really need it," Ezennaya said. When she does buy clothes, she goes to Big Lots or Ross instead of department stores, and treats for the boys come from Wal-Mart instead of Toys 'R' Us.
Christina Vonderhaar, shopping in downtown Cincinnati, said she and her husband were cutting back to cope with higher prices for gasoline and milk for their toddler. They now shop mostly at discounters such as Target, and get DVDs at the library instead of buying or renting them.
"We've cut out everything extra," said Vonderhaar, a systems coordinator. "We even cut out the Internet at home."
Another Cincinnati shopper, Shadell Barkley, toting her 2-year-old son, has cut spending since losing her job at a retirement home. She's not optimistic about the economy improving anytime soon.
"About all you can do is wait and keep on trying to spend less," Barkley said. "I've had to cut out the extras, like snacks at the grocery. I have to just get what we need."
In recent years, Penney has been one of the brightest retailers, as it lured shoppers with reasonably priced private-label brands mixed with touches of affordable luxury such as cashmere, Sephora cosmetics counters and, just this year, an expensive line of clothing and home goods from Polo Ralph Lauren Corp. called American Living.
Dana E. Cohen, an analyst with Bank of America, said American Living could be contributing to the lower profit estimates. She said the new line is priced "well above" the competing Chaps brand at Kohl's, just when consumers are growing more worried about prices.
Deutsche Bank analyst Bill Dreher Jr. said he also had doubts about American Living because its prices were often 25 percent higher than typical Penney merchandise. He said the company's high hopes for the launch of the new label "do not appear to have materialized."
Penney fights a two-front war, competing against Kohl's, Wal-Mart Stores Inc. and others for budget-minded shoppers, along with Macy's and other department stores for more affluent customers.
Plano-based J.C. Penney Co. operates more than 1,000 department stores with 155,000 employees. It had sales of $19.86 billion last year.
Associated Press writer Lisa Cornwell in Cincinnati contributed to this report.
Copyright 2008 The Associated Press.