Thread: J.C. Penney's Profit Rises 36%

FEBRUARY 25, 2011, 2:04 P.M. ET.

J.C. Penney's Profit Rises 36%


By KAREN TALLEY And TESS STYNES

NEW YORK—J.C. Penney Co.'s fiscal-fourth-quarter earnings rose 36% as the department-store operator benefited from cost controls and improving sales in areas like men's apparel, women's accessories and beauty products from in-store Sephora boutiques.

The retailer said this year will see it leaning further on exclusive lines, such as Liz Claiborne from Liz Claiborne Inc., MNG by Mango and Call It Spring by Aldo Group Inc. as it hopes to differentiate itself from other department stores.

J.C. Penney continues to streamline its operations, following its January announcement that it will close underperforming stores and its catalogue business, shut its 19 outlets and consolidate call centers. Cost-cutting steps are "rigorous," Ullman said.

J.C. Penney, which is in heated competition with Macy's Inc. and Kohl's Corp., is under a bit more pressure, given the large stake that activist investor William Ackman took last year.

The retailer on Friday also announced a $900 million share-buyback plan, its largest in five years. Stock repurchases are the sort of measure large investors push to boost shareholder value.

The size of the buyback program "represents the confidence that our board has in our financial strength and outlook," a Penney's spokeswoman said. The board now includes Mr. Ackman and Steven Roth, chairman of Vornado Realty Trust. Mr. Ackman's Pershing Square Capital Management in October disclosed a 16.5% stake in J.C. Penney, while Vornado disclosed a 9.9% stake the same month.

During a conference call with analysts, Investor Relations Manager Kristin Hays said the year "is getting off to a fast start."

J.C. Penney, Ms. Hays said, feels it has come up with an effective approach for passing along higher raw-material costs to customers, perhaps the biggest issue facing retailers this year.

The company determined that business was lost when prices were raised on less-expensive, or, "good," merchandise, in industry jargon, but that more-expensive products bore up under higher prices.

"In the 'good' price points, when you raised prices, let's just say $1 on an opening price point, units did go down," Ms. Hays said. But "in the 'better' and 'best' price points, when we raised the price, let's say a $1, we sold enough units to cover what we lost in the 'good' price point and at better margin."

For the quarter ended Jan. 29, J.C. Penney reported a profit of $271 million, or $1.13 a share, up from $200 million, or 84 cents a share, a year earlier. Earnings from continuing operations rose to $1.09 a share from 84 cents.

Gross margin fell to 37.6% from 38.2%.

The company three weeks ago reported that total sales rose 2.8% to $5.7 billion, while sales at stores open at least a year rose 4.5%.

For the current year, the company projected per-share earnings of $2 to $2.10 on total sales growth in the low-single digits on a percentage basis. Analysts polled by Thomson Reuters most recently forecast a profit of $1.75 a share and revenue growth of 2%.

Write to Karen Talley at karen.talley@dowjones.com and Tess Stynes at tess.stynes@dowjones.com

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