Department store sales weak, but beat Street

By Alexandria Sage

LOS ANGELES (Reuters) - The weak economy took its toll on department stores on Thursday, as retailers Nordstrom, Kohl's and J.C. Penney reported lower first-quarter net profits, with all citing challenges stemming from the weakened U.S. economy.

Although the results were glum, investors had expected worse -- all three retailers beat Wall Street expectations for the first quarter, despite the slump.

Weak sales hit mid- and high-priced retailers alike, with J.C. Penney Co Inc (JCP.N: Quote, Profile, Research) and Nordstrom Inc (JWN.N: Quote, Profile, Research) reporting lower total sales in the quarter. Sales at Kohl's Corp (KSS.N: Quote, Profile, Research) rose a scant 1.5 percent, but its same-store sales fell, like the others.

U.S. retailers have been feeling the pinch of the economy. Shoppers' ability to spend has been squeezed by high gas prices, rising food costs, a deteriorating housing market, a credit crunch and weakening job market.

Both Nordstrom and Kohl's lowered their profit view for the full year from earlier estimates.

"This is where the smart boys and girls have to sharpen their pencils to see if they can outsmart their competition," said Patricia Edwards, managing director at investment firm Wentworth, Hauser and Violich, which owns shares of Nordstrom, and tracks the other companies.

"These beats tell me the retailers are doing what they're supposed to be doing," she said. "The trick is how long can they keep this running in this type of environment. It's easy to pull this out in one quarter. It's not as easy to do this in three or four if the environment stays lousy."

A 24 percent decline in net profit at Nordstrom, to $119 million, or 54 cents per share, was above analysts' average expectations, according to Reuters Estimates.