J.C. Penney Co. reported that its second-quarter profit was steady compared with a year ago as the department store retailer aggressively marked down prices on fashions to get its middle income shoppers to keep spending.
The retailer, based in Plano, Tex., also issued third-quarter profit guidance that was below Wall Street estimates. The company declined to offer a full-year outlook because of the increasing economic uncertainty in the wake of the Standard & Poor's downgrade of the federal debt a week ago. Since then, the stock market turmoil has increased.
The heightened worries about the economy come as J.C. Penney and other merchants are passing along higher prices as they aim to offset higher costs in raw materials. Penney started to test price increases late last year when the department store chain became aware of the looming cost pressures. During a conference call with analysts, CEO Mike Ullman III discussed how shoppers are reacting to the price hikes and what the company has learned.
QUESTION: How are shoppers reacting to price increases? What have you learned?
ANSWER (CEO Ullman): I think the main learning was that the customer didn't have much elasticity desire at the opening price points. The sharp opening price points were important to them and that has continued to be the case and they have responded very well, particularly Father's Day and early back-to-school (selling). I think there has been some willingness to pay a bit more for something that was fashionable and new and that is encouraging to us...This is a difficult unprecedented period of time. There hasn't been apparel inflation in 20 years. So we expect in this environment, there will be a lot of learning by each of our competitors and us.