Consumer

Sarah Halzack is a Bloomberg Gadfly columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.

If you're a big-name retailer, you always hope for brisk back-to-school shopping in the fall, giving you momentum for the crucial holiday-season sprint.

Unfortunately for J.C. Penney Co. Inc., it looks like it's going into that race without much gas in the tank.

Nosedive
J.C. Penney's stock was hit hard Friday morning after it offered a disappointing update on the third quarter
Source: Bloomberg
Intraday times are displayed in ET.

The department-store chain on Friday updated investors on its third-quarter performance, saying it expects to lose 40 to 45 cents per share, on an adjusted basis, compared with Wall Street's consensus estimate of 18 cents a share. It said comparable sales are poised to increase a meager 0.6 to 0.8 percent from a year earlier.

Hold The Applause
JC Penney expects 0.6 to 0.8 percent growth in comparable sales in the third quarter, which would snap a streak of declines, but doesn't exactly inspire confidence in a comeback
Source: Bloomberg

The results sent the stock down as much as 29 percent in early trading on Friday. The selloff looks even worse when you consider that J.C. Penney's prior earnings report also had investors running for the hills, with the stock sinking nearly 17 percent on the day it was released.

Spooked
J.C. Penney's earnings keep sending investors fleeing
Source: Bloomberg

The pummeling J.C. Penney's stock took on Friday likely isn't just about the individual chain's performance. Throughout the department-store sector, evidence is piling up that this retail category is in crisis.

Nordstrom Inc. was forced to temporarily suspend its efforts to go private, reportedly because it couldn't get favorable lending terms. Hudson's Bay Co., the parent of Saks Fifth Avenue and Lord & Taylor, just parted ways with its CEO without naming a long-term replacement. Bloomberg News has reported that suppliers to Bon-Ton Stores Inc. are scaling back shipments because of fears the department store won't be able to boost sales and manage its debt load.

Department Store Blues
While the broader stock market roars, investors are understandably losing faith in big department stores
Source: Bloomberg

Frankly, some of the reasons J.C. Penney revised its guidance don't sound that troubling to me. The company said it decided to clear a bunch of slow-moving inventory in order to upgrade its women's apparel departments with more contemporary, fashion-forward offerings. I can't criticize J.C. Penney for moving faster to unload ugly clothes and fill its shelves with the styles it thinks could help spark a turnaround.

And its cost of goods will increase compared to the quarter a year earlier, but not for worrying reasons. The uptick is in part because the company is doing a bigger business online, and that's indisputably a good thing. And it's also because more of J.C. Penney's sales are coming from big-ticket appliances. With hhgregg Inc. shuttering all of its locations earlier this year and Sears Holdings Corp. teetering on life support, I think it was wise for J.C. Penney to try to fill the vacuum.

But investors are looking at the big picture, and they are understandably dismayed. Department-store chains are under assault from many directions -- by Amazon.com Inc., sure, but also by specialty beauty emporiums such as Sephora and off-pricers such as TJX Cos. The malls that they anchor are the epicenter of retail gloom. 

Each time now that J.C. Penney or one of its peers revises guidance downward or delivers a lackluster earnings report, these broader forces will weigh heavily on how investors take the news. They'll keep asking: Is this a bump in the road to recovery? Or a distress call that signals eventual demise?

Until the department stores give them reason not to, investors will probably keep seeing these events as the latter.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Sarah Halzack in Washington at shalzack@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net