Aside from a few exceptions, like TJX (NYSE: TJX), it hasn't been a pretty year for retailers. Penny-pinching consumers are fleeing the shopping scene as food and oil costs eat away at discretionary income, sending valuations for retail stocks to the bottom of the bargain bin.

J.C. Penney (NYSE: JCP) has been no different, falling more than 40% in the past year. Over the past few years, the company had been schooling the competition, but it took a turn for the worse when the economy turned sour. Thus, the million-dollar question is: When will the trend become Penney's friend again? Tomorrow's first-quarter earnings release should clue us in.

What analysts say:

  • Buy, sell, or waffle? Sixteen analysts follow Penney's. Eight are bullish on the stock and eight have hold ratings. The Motley Fool CAPS community has given the company a two-star rating (out of five stars).
  • Revenue. Analysts are projecting $4.2 billion in first-quarter sales for a 4.2% year-over-year decline.
  • Earnings. Analysts expect quarterly earnings of $0.49, substantially below the $1.04 reported in last year's quarter.

What management says:
Back in March, management said it expected an overall Q1 sales decrease in the low single digits and a high-single-digit decline in same-store sales, which it projects will trickle down to earnings of $0.50. The balance of the year could also remain an uphill battle; it sees a "continuation of a difficult environment over the course of 2008."

What management does:
Penney's releases monthly sales results, so we already know Q1 was tough. Based on the April monthly sales release and the preliminary running total management compiles, total sales for the quarter fell 5.1% as same-store sales plummeted 7.4%.

May doesn't look much brighter as management said it expected another mid-single-digit decline. Margins have slimmed in the past few quarters, which isn't surprising considering fellow Fool Tim Otte recently observed that a lot of merchandise was on sale. So we'll keep an eye on the gross margin for signs of the degree of markdowns the retailer will have to make.





























Data courtesy of Capital IQ, a division of Standard & Poor's.
Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Discount retailers such as Wal-Mart (NYSE: WMT) and Costco (Nasdaq: COST) are holding up best in this challenging retail environment, but certain department store rivals, including Penney's and Kohl's (NYSE: KSS), are hanging in there. In fact, this morning Macy's (NYSE: M) reported stronger-than-expected sales and stuck to its earnings target for the year.

Still, uncertainty reigns, given that energy prices are skyrocketing, and low-price giant Wal-Mart offered a tepid near-term outlook for its business.

Conditions will settle down, and J.C. Penney should do just fine over the long haul. It has found consistent ways to connect with consumers through initiatives such as the American Living apparel brand, which was developed along with Ralph Lauren (NYSE: RL). Opening Sephora cosmetic store-in-stores was another savvy move, as is its strategy to open new stores in off-mall locations, which is where customers tend to shop these days.

For more Foolishness:

Costco is a Motley Fool Stock Advisor recommendation. Wal-Mart is an Inside Value pick.

Fool contributor Ryan Fuhrmann is long shares of Kohl's but has no financial interest in any other company mentioned. Feel free to email him with feedback or to discuss any companies mentioned. The Fool has an ironclad disclosure policy.