JCPenney Cuts Costs

Don Hogsett, May 15, 2006

With strong margins and cut interest costs, JCPenney drove first-quarter profits up 22.1% to $210 million from $172 million last year.

Sales advanced just 2.5%, to $4.2 billion. Comps grew by 1.3% in department stores, while Internet sales soared by 22%, offsetting a long decline in catalog sales.

Average gross margin improved by 80 basis points, to 41.9% from 41.1% a year ago, gaining, the retailer said, “from better performance from private brands as well as continued improvement in seasonal transition and merchandise flow.”

At the same time, costs were cut by 40 basis points, to 33.2% of sales from 33.6% last year, reflecting “leverage of salary costs and efficiencies in the Direct business, which were partially offset by higher marketing costs, including the launch of the company's new branding campaign in March.”

In another big lift to the bottom line, interest costs were slashed by 30.6%, to $34 million from $49 million last year, generating a cash savings of $15 million. Interest costs came down as long-term debt was reduced by 10.0%, to $3.1 billion from $3.5 billion last year.

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