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JCP: Bedding and Bath Lead Home Performance in First Quarter

PLANO, TEXAS - The soft home side of JCPenney's home business was rewarding during the first quarter, particularly bedding and bath, but furniture is still lagging.
     During the mid-tier department store's earnings call last week, chairman and ceo Myron "Mike" Ullman called soft home's performance in the 13- week period "actually quite good" with the "real strengths" being bedding and bath followed by housewares, gadgets, small electrics as well as luggage.
     He continued, "Despite the ongoing softness in the housing industry, we are seeing a very good performance in our soft home business, especially online."
     Such is not the case, however, in furniture, which Ullman described as "a real drag" in the quarter.
     "But we are taking a look at how to improve our furniture business on this environment... We are still quite confident that home will be a major contributor [to JCP's business]," Ullman said. "And our customer feedback... has been improving, so we feel that we're right on track."
     As in earnings calls of other major retailers lately, the topic of price increases was raised by an analyst.
     "We got ahead of it. We were working with our suppliers probably three to four months before our peers," Ullman responded.
     "I think we got a sense of what they could do to mitigate cost increases by advanced fabric placements, balancing production. And I think we also got on top of price testing very, very early in terms of determining price elasticity," he continued.
     "We found that customers were very focused [on us not changing] our opening price point offers on key items. But on the better and best price points, we had no difficulty passing on cost increases. They felt the style and quality warranted it ...And frankly, as some [other] brands increased their prices more aggressively than we did, the gap between their offer and our private brand offer increased, making ours more attractive."
     Despite slack sales growth, net income increased 6.7% to $64 million, or 28 cents per share including certain restructuring charges.
     The wind-down of JCP's catalog business included the closure of a call center and a custom decorating fabrication center. JCP still expects to exit its outlet store business entirely by the end of 2012. Together, those moves are expected to cut approximately $25 million to $30 million from operating expenses starting in 2012.
     Sales rose 0.4% to $3.943 billion, and comps grew 3.8%. Online at www.jcp.com , sales rose 6.6%.
     Second quarter guidance calls for: comparable store sales to increase 3% to 4%; total sales to increase approximately 250 basis points less than comparable store sales due to the impact of the company's exit of its catalog and related businesses; and earnings per share to be in the range of 20 to 24 cents per share, including restructuring charges of approximately 6 cents.
     For the full year, earnings per share are now expected to be in the range of $2.15 to $2.25 per share.

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