By Nicole Maestri
NEW YORK (Reuters) - J.C. Penney Co Inc and Abercrombie & Fitch Co reported quarterly profits that beat Wall Street expectations on Friday, but came up short in their earnings forecasts, joining other U.S. retailers who fear a deeper slowdown in consumer spending toward year's end.
Penney and Abercrombie capped a trend seen among other retailers reporting this week. Wal-Mart Stores Inc, Nordstrom Inc, and Macy's Inc posted earnings ahead of analysts' estimates, but issued cautious forecasts for the back half of the year.
Still, some investors are betting that the sales environment could improve as oil prices ease and the dollar strengthens. A survey released on Friday showed consumer confidence improved slightly in early August.
"There is no question that oil going down will help the consumer," said Howard Davidowitz, chairman of retail consulting and investment banking firm Davidowitz & Associates. "But, I think you've got to balance it against all of the other issues that the consumer faces."
Shares in Penney surged 7 percent on Friday while Abercrombie fell 0.6 percent. The Standard & Poor's Retail Index rose 1.3 percent and has advanced nearly 5 percent in the past week.
Retail executives said repeatedly this week they are unsure how consumer spending will hold up as a boost from U.S. tax rebate checks fades, inflationary pressures persist and the job market weakens.
"Macro economic conditions remained weak and the selling environment -- particularly as we moved into the back-to-school selling period -- was tough," Abercrombie Chief Executive Mike Jeffries said on a conference call on Friday.
One forecaster cut his view for the U.S. back-to-school shopping season that ends in September, the second-biggest sales period for retailers and a key test of consumer sentiment ahead of the crucial holiday period.
Britt Beemer, chairman of America's Research Group, now expects back-to-school spending to fall 4.0 percent below last year's results. He previously forecast a 1.5 percent drop.
"It's the first time I've heard parents tell their children 'This is all we can afford this year,'" he said.
A QUARTERLY SURPRISE
Needham & Co analyst Christine Chen said investors could be betting that retail stocks have reached a bottom and the cautious forecasts could lead to positive earnings surprises.
"Maybe numbers are being cut low enough that expectations can be met or even beat," she said.
Penney's net income fell to $117 million, or 52 cents per share, for the second quarter ended August 2, from $182 million, or 81 cents per share, a year earlier. But the results topped analysts' average forecast for earnings of 51 cents, according to Reuters Estimates, helped by strong inventory controls at the mid-priced retailer's stores.
Second-quarter income for teen clothing retailer Abercrombie & Fitch fell to $77.8 million, or 87 cents per share, from $81.3 million, or 88 cents per share. But the results beat the 86 cents per share analysts had expected, helped by sales to tourists that offset U.S. consumer cutbacks.
Penney forecast a third-quarter profit below what Wall Street was expecting.
Abercrombie forecast full-year earnings below analysts' estimates and said it plans to raise prices on some items to boost margins and distinguish itself from lower-priced rivals.
Retail Metrics president Ken Perkins said retailers are expected to report a 1.5 percent drop in third-quarter earnings. But that figure is weakening as retailers issue results, he said.
Because many teens could not get summer jobs, Beemer said high school and college-aged students are shopping at lower-priced stores like those of Kohl's Corp, Penney and Target Corp instead of Abercrombie and American Eagle Outfi