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JCPenney posts loss of $58M

Don Hogsett -- Home Textiles Today, February 26, 2001

PLANO, TX -With margins under heavy pressure as sales dropped off in its core department stores and catalog, J.C. Penney Co. posted an operating loss of $58 million during the make-or-break Christmas quarter, compared with a year-ago profit of $255 million.

And further weighed down by a $285 million restructuring charge as it shuts down stores and lays off workers, the retailer posted a sharply widening loss of $284 million, compared with last year's $12 million deficit.

Indeed, cautioned Allen Questrom, brought in as chairman and ceo to chart a turnaround course for the becalmed retail giant, it will be "two to five years" before Penney returns to former levels of profitability.

Dragging at the bottom line, average gross margin in the department stores and catalog narrowed sharply, by 310 basis points, to 22.7 percent from 15.8 percent a year ago, as the retailer slashed prices to move out goods as part of a narrowing of assortments.

Sales in the department stores and catalogs fell by 3.0 percent, to $6.0 billion from $6.2 billion last year. Same-store sales in department stores declined by 1.6 percent, while catalog sales dropped off by 5.8 percent. In one bright spot, Internet sales virtually doubled, climbing to $126 million from just $64 million in last year's fourth quarter.

Questrom noted, "While our fourth quarter and fiscal 2000 results were disappointing, free cash flow in 2000 exceeded our plan, and we begin 2001 with approximately $1 billion in cash investments. Many significant changes were initiated in 2000, including a rebuilding of our organization, closing unproductive stores, transitioning to the centralized merchandise process, clearing and streamlining our inventory and a renewed focus on expense reduction."

Going forward, he added, "We will be focusing our efforts on merchandise assortments, enhanced marketing and expense reductions. Although it will be two to five years before we fully restore the profitability of our business to competitive levels, I am confident that incremental progress will continue to be made over the next several years."

J.C. Penney Co.


Qtr. 1/27 (x000) 2000 1999 %CHG

Sales

$9,753,000a

$9,834,000a

-0.8

Oper. income (EBIT)

(58,000)

255,000

-

Net income

(284,000)b

(12,000)b

-

Per share (diluted)

(1.11)

(0.08)

-

Average gross marginc

22.7%

25.8%

-

SG & A expenses

23.8%

22.9%

-

12 months

2000

1999

%CHG

Sales

32,649,000a

32,510,000a

0.4

Oper. income (EBIT)

178,000

853,000

-79.1

Net income

(409,000)b

336,000b

-

Per share (diluted)

(1.68)

1.16

-

Average gross margin

27.9%

29.6%

-

SG & A expenses

26.5%

26.1%

-


( ): Denotes loss

a-Including department store and catalog sales of $6.0 billion, down 3.0 percent form last year; drug store sales of $3.5 billion, up 2.7 percent; and direct marketing services of $295 million, up 2.8 percent. 12-month sales include department store and catalog sales of $18.4 billion, down 3.0 percent from $19.0 billion a year ago; drugstore sales of $13.1 billion. Up 5.3 percent; and direct marketing services sales of $1.2 billion, up 4.0 percent.

b-Fourth-quarter loss includes $285 million in restructuring charges vs. $169 million last year; and $47 million in acquisition amortization charges vs. $49 million. 12-month loss includes $488 million in restructuring charges, up from $169 million a year ago; and $126 million in acquisition amortization charges vs. $129 million last year.

c-Average gross margin and the expense ratio are calculated as a percentage of department store and catalog sales.

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