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JCP's shopper remained cautious over 2Q, causing sluggish sales

Plano, Texas - Faulting in part the lethargic economy for continuing to tighten the pocketbooks of middle-income shoppers, JCPenney Company Inc. reported softer-than-expected top line results over its second quarter.

While comparable store sales for the quarter rose 1.5%, total sales decreased 0.8%, reflecting the company's exit from its catalog business, JCP said.

Internet sales through jcp.com grew only 2.8% to $326 million, representing JCP's "difficult conversion away from the catalog business and its effect on dot-com," explained Myron "Mike" Ullman III, chairman and ceo, during the retailer's earnings call this morning.

"We still feel we're in the middle of that transformation."Over half of our dot-com business today is the home, and big-ticket home is the most troubled of our businesses."

JCP.com is "getting good sell-through on fresh merchandise," Ullman continued. "As a matter of fact, we continue to see very sharp price points being best sellers as well as newness and fashion, and Sephora is actually the highest trending business in the store."

With that in mind, JCP is optimistic about its ability to maintain margins, he continued. "But we still have the drag a bit of our dot-com. So in the first half and particularly in the second quarter, half of our decline in margin to last year was the effect of dot-com."

Overall, the strongest merchandise results in the period were in women's apparel and accessories and fine jewelry. Home was not included in this group, but housewares was singled out among various categories that performed double digits ahead of last year, Ullman said.

Net income for the quarter was $14 million, or $0.07 per share, including previously announced restructuring charges.

JCP noted that it is "comfortable with the level and content" of its inventory, as it is in line with expected sales trends, and up approximately 2.3% over last year.

"The challenging economy continues to impact the moderate consumer," he continued. "Nevertheless, we have made significant strides in implementing our merchandising growth initiatives, with sales gains across our apparel and accessories businesses both in stores and on jcp.com. Through our focus on building attractions, improving sales productivity in stores, managing expenses and streamlining operations, we are committed to delivering on the Company's long-term earnings targets."

Looking to the third quarter, JCP offered its guidance, which calls for comparable store sales to increase 2% to 3%; 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 $0.15 to $0.20 per share, including restructuring charges of approximately $0.05 per share.

The company said this guidance does not include the impact of JCP's voluntary early retirement program that was communicated to associates this month. The company expects to disclose the number of associates who elect to participate in the program as well as the operational efficiencies resulting from the program as part of its third quarter earnings release.

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