J.C. Penney overcomes loss to earn $72 million

Department store chain meets analyst expectations

August 18, 2004|By BLOOMBERG NEWS

PLANO, Texas - J.C. Penney Co. Inc., the second-largest U.S. department-store chain, posted a fiscal second-quarter profit yesterday of $72 million.

Profit from continuing operations was 23 cents a share, compared with a loss of $3 million, or 3 cents a share, in the second quarter last year. The figures exclude results from the Eckerd drugstore chain, which was sold this year.

Sales in the period that ended July 31 rose 5.8 percent to $3.86 billion.

Fiscal second-quarter profit met analysts' estimates. The company had said this month that profit would be as much as 23 cents per share, higher than it originally forecast.

Comparable-store sales increased 7.1 percent as shoppers bought more summer merchandise early in the season, leaving less for clearance sales, and demand for back-to-school items was better than the company expected.

"They're looking into what the customer wants," said Dimitri H. Kuriloff, an analyst with Capital Management Associates in New York, whose $1 billion in assets include about 193,000 J.C. Penney shares. "The kids seem to like it. If kids like it, you're driving fashion to what their expectations are."

J.C. Penney predicted its fiscal third-quarter profit from continuing operations would be 35 cents to 40 cents a share. Analysts expect the company to have a profit of 37 cents for the period.

Shares of J.C. Penney fell 27 cents to close at $38.48 yesterday on the New York Stock Exchange. The stock has gained 46 percent this year.

The company had net income of $1 million, or a per-share net loss of 2 cents, which reflects dividends on preferred shares. Discontinued operations included the Eckerd loss.

Chief executive Allen I. Questrom sold Eckerd, which had a loss of $71 million, to focus on the department stores. CVS Corp. and Jean Coutu Group Inc. bought the drugstore chain for $4.53 billion in cash. J.C. Penney paid $3.3 billion for Eckerd in 1997 and spent almost $2 billion remodeling stores and upgrading computer systems.

Sales of house brands including Stafford suits and Arizona jeans rose, Vanessa Castagna, chief executive of department stores, said in a conference call with analysts and investors. The company also added suede pillows and bath accessories by designer Chris Madden in May. Such private brands are more profitable than national brands, Kuriloff said.

Gross margin, or the portion of sales left after subtracting the cost of goods, widened to 37.4 percent of sales from 35.9 percent, Penney said. The company had about 25 percent less clearance merchandise at the beginning of August than a year earlier, Castagna said.

J.C. Penney, with more than 1,000 department stores, trails Sears, Roebuck and Co. in annual sales.

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