Favorable Comparison Means Big Gain At Penney

Plano, Texas — Aided by rising same-store sales, stronger margins and the absence of the one-time charges that dogged the bottom line a year ago, third quarter profits at J.C. Penney Co. Inc. soared 57 percent, to $234 million from $149 million a year ago.

Last year's earnings were held in check by a $47 million one-time charge for bond premiums and unamortized costs. Gauging results on an apples-to-apples basis, operating profits were up a more subdued, but still substantial, 17.3 percent, to $401 million from $342 million during the same period a year ago.

Overall sales edged up 2 percent, to $4.5 billion from $4.4 billion, with improving department store results offsetting a drop in the catalog and Internet business. Same-store department sales increased 2.5 percent, while direct-to-consumer sales dipped 0.9 percent.

Providing a lift to the bottom line in addition to the stronger sales, average gross margin expanded 110 basis points, or 1.1 percentage points, to 41.8 percent from 40.7 percent during the prior-year period. The stronger margins, the retailer said, reflect “improvements in inventory management, seasonal transition and overall flow of merchandise, as well as continued strength in the performance of the company's private brand merchandise.”

Operating costs held steady, dipping a tenth of a percentage point, to 32.9 percent of sales from 33 percent.

Merchandise stockpiles were reined in during the period, and were virtually unchanged at $4.2 billion.

Myron Ullman, chairman and CEO, commented, “Customers are reacting positively to changes that we are making to our merchandise, marketing and sales environment, and the performance of our new stores continues to exceed plan.”

J.C. Penney Co. Inc.

Qtr. 10/29 (x000) 2005 2004 % change
a. Third quarter results include $5 million in real estate and other income. Prior year results include $47 million in bond premiums and unamortized costs and $1 million in income from discontinued operations.
b. Nine month results include $18 million in bond premiums and unamortized costs, down 62 percent from $47 million a year ago; $41 million in real estate and other income; and $10 million in income from a discontinued operation, compared with year-ago loss of $142 million.
Sales $4,479,000 $4,391,000 2.0
Oper. income (EBIT) 401,000 342,000 17.3
Net income 234,000a 149,000a 57.0
Per share (diluted) 0.94 0.50 88.0
Average gross margin 41.8% 40.7%
SG&A expenses 32.9% 33.0%
Nine months
Sales 12,578,000 12,141,000 3.6
Oper. income (EBIT) 922,000 715,000 29.0
Net income 537,000b 191,000b 181.2
Per share (diluted) 2.05 0.64 220.3
Average gross margin 40.4% 39.4%
SG&A expenses 33.1% 33.5%

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