JCPenney profits rise with same-store sales

Lifted by a big improvement in same-store department store sales, and by strong results in its Eckerd drugstore business, first-quarter profits more than doubled at J.C. Penney Co. Inc., surging ahead by 109.8 percent, to $86.0 million from $41.0 million a year ago.

In another boost to the bottom line, the big retailer benefited from a change in accounting that added $0.07 a share to the quarterly profit of $0.29 a share, more than offsetting lower pension income which pulled $0.03 a share away from earnings.

With the strong opening performance of $0.29 in per-share earnings, Penney easily beat a Wall Street consensus forecast that projected a $0.25 per-share profit.

Overall sales at the retailer rose by 2.7 percent, to $7.7 billion from $7.5 billion last year, lifted by stronger sales in the Eckerd drugstore business, which more than offset some softness in the department store and catalog division.

Helping to drive the earnings turnaround, same-store sales in Penney department stores climbed higher by 7.9 percent, a big improvement over last year's slender gain of 1.1 percent during the first quarter. But overall sales in the department stores and catalog business declined by 1.4 percent, to $4.0 billion from $4.1 billion the previous year.

Based on improved first-quarter results, Allen Questrom, chairman and ceo, said he now expects operating profits for all of this year to be in the range of $0.90 to $1.00 per share, up sharply from just $0.39 the prior year.

"Results for the quarter exceeded Wall Street expectations and provide additional evidence that our turnaround is on track," said Questrom. "I am pleased that each of our businesses continue to make progress toward their financial goals, and I am confident that we will return our operating profits to competitive levels during the next several years."

Department store same-store sales, he noted, climbed by almost 8 percent, a fifth straight quarterly increase. "The changes we are making in our merchandise, marketing and store presentation are registering with the consumer. Catalog continues to make a positive contribution to profit improvements."

J.C. Penney Co. Inc.

Qtr. 4/27 (x000) 2002 2001 % chg
a-First-quarter results include acquisition amortization costs of $10 million, compared with $35 million a year ago; and restructuring and other charges of $2 million, compared with $5 million the prior year. Effective in fiscal 2002, the company adopted an accounting change which eliminates the amortization of goodwill. This increased first-quarter 2002 earnings by seven cents per share.
b-Average gross margin and SG&A expenses are calculated as a percentage of department store and catalog sales, excluding the Eckerd drug store business.
Sales $7,728,000 $7,522,000 2.7
Oper. income (EBIT) 3,279,000 3,243,000 1.1
Net income 86,000a 41,000a 109.8
Per share (diluted) 0.29 0.13 123.1
Average gross margin 37.8%b 36.0%b
SG&A expenses 33.9%b 32.7%b

JCPenney Dep't Stores and Catalogs
Operating results

Qtr. 4/27 (x000) 2002 2001 % chg
Sales $4,006,000 $4,062,000 -1.4
Same-store sales 7.9% 1.1%
Operating income 157,000 133,000 18.0
Average gross margin 37.8% 36.0%
SG&A expenses 33.9% 32.7%

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