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JCPenney battles back with fourth quarter gain

J.C. Penney Company, Inc. continued to make ground in its battle back to financial soundness in 2003. The company posted a 12.9 percent pickup in operating profit for the year and a 27.5 percent gain for the fourth quarter.

In releasing these results, the retail giant also announced that it is moving forward on plans to sell the Eckerd drug-store chain. Allen Questrom, JCPenney chairman and CEO, said, "We are in active negotiations with interested parties and continue to make progress on a sale transaction."

Because of the Eckerd sale, JCPenney reported expenses from discontinued operations of $1.3 billion for both the fourth quarter and the full year. That resulted in net losses of $928 million for the year and $1.1 billion for the quarter.

Aside from such accounting, the company looks to be gaining financial momentum. Questrom said the department-store business and the catalog-Internet operations generated good sales results. Same-store sales recorded a gain for the third year in a row, and the catalog-Internet unit posted its first sales increase after several years of repositioning.

The top line provided much of the strength in JCPenney's numbers for 2003. For the fourth quarter, the company tacked on 6.2 percent to its sales, finishing at $6.1 billion. The year's results were less spectacular, with a sales gain of less than 1 percent and total sales of $17.8 billion.

Still, those sales results helped offset increases in selling, general and administrative expenses as a percentage of sales. JCPenney's SG&A ratio was 32.8 percent for the year, up 80 basis points over the previous year. For the quarter, this number finished at 28.6 percent, or 70 basis points ahead of the fourth quarter in 2002.

Questrom feels JCPenney will benefit from "a much better consumer environment" in 2004. "In 2004," he said, "higher refunds and lower withholding rates from the president's tax package ... will benefit the moderate customer."

JCPenney Company Inc.

Qtr. 1/31/04 (x000) 2003 2002 % chg
*Includes losses for both the fourth quarter and the full year related to discontinued operations from the intended sale of the Eckerd's drug-store chain.
Sales $6,098,000 $5,743,000 6.2
Operating income 445,000 349,000 27.5
Net income -1,069,000* 202,000
Earnings per share -3.42 0.68
Average gross margin 35.9% 34.0%
SG&A percentage 28.6% 27.9%
12 months 2003 2002 % chg
Sales 17,786,000 17,633,000 0.9
Operating income 790,000 700,000 12.9
Net income -928,000* 405,000
Earnings per share -3.13 1.36
Average gross margin 37.2% 35.9%
SG&A percentage 32.8% 32.0%


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