J Crew A/W 2010

SAN FRANCISCO, August 26 (Reuters) - U.S. clothing retailer J Crew Group Inc (JCG.N) posted earnings outlooks for the third quarter and full year that were below expectations, citing "nervous" shoppers and promotions by competitors, and its shares tumbled 7 percent.

Although J Crew reported robust quarterly profit and sales growth for the second quarter on Thursday, it lowered its forecast for the full year because of uncertainty about the economy.

J Crew forecast 2010 earnings of $2.25 to $2.35 per share, a range below Wall Street's target of $2.46. J Crew's previous 2010 profit outlook was $2.35 to $2.45.

Similarly, for the third quarter, J Crew said it expects earnings between 55 cents and 60 cents a share -- well below Wall Street's expectation of 71 cents.

"The continued economic uncertainty that we're all seeing is leading us to take a more conservative outlook for the back half of the year," Chief Executive Millard Drexler told analysts on a call.

The retailer, which sells upscale women's and men's apparel, accessories and shoes, has enjoyed strong momentum in recent months, outperforming most competitors.

The operator of 246 retail stores and 81 outlet stores in the United States has managed to sell most goods at full price without crimping profit margins, and analysts have credited their products as more attractive to current shoppers than rivals' offerings.

But most U.S. retailers have struggled this summer amid inconsistent sales and an increasingly promotional environment as shoppers have become more selective about purchases.

"I think the current environment we're in is different than at the end of Q1," said Chief Financial Officer James Scully. "I think we've seen a step down."

As Drexler explained: "People aren't out there (shopping) the way they were."

"They're deferring, they're waiting, they're comparison shopping and people are a little nervous," he added.

J Crew S/S 2010

Drexler said the consumer has already begun to expect lower prices well in advance of the holidays, and would continue to focus on pricing heading into the peak shopping season.

However, J Crew said it would continue to offer unique product not available in other retail outlets as a competitive strategy to differentiate itself.

"You cannot win by price alone," he said.

J Crew goes up against difficult same-store sales and margin comparisons in the second half of the year, and Scully said comp sales would be about flat to last year in its third quarter with a gross margin decrease of 250 to 350 basis points.

In its second quarter, J Crew posted an 88 percent rise in net profit to $34.9 million, or 53 cents per share, from $18.6 million, or 29 cents per share, a year earlier.

Excluding a benefit for recognition of forfeited share-based compensation for a recently resigned executive, the company earned 50 cents per share, above the 46 cents per share expected, on average, by analysts, according to Thomson Reuters I/B/E/S.

Revenue rose 14 percent in the quarter to $407.5 million, helped by an 11 percent same-store sales rise. J Crew's catalog and Web business rose 16 percent.

Shares fell over 7 percent to $31.00 after closing at $33.43 on the New York Stock Exchange.

(Reporting by Alexandria Sage, editing by Leslie Gevirtz, Gary Hill)