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Home Sits Out Q1 Surge at JCP

James Mammarella -- Home Textiles Today, May 24, 2010

“I am pleased to report that all the businesses except home had sales gains for the quarter,” said JCPenney chairman and ceo Mike Ullman to analysts during the company's first quarter earnings call earlier this month.

“We actually look at home as a positive,” Ullman stressed, “because frankly it has languished a bit over the past couple of years and we think there's upside.”

In response to an analyst question on the performance of the home division, Ullman said, “There are a number of initiatives in home which have been quite successful over the last several years.” He cited the introduction of Linden Street and also “Cindy Crawford Style, which has resonated very well online as well as in our stores.”

Ullman continued, “Having said that, I'm not sure that we've messaged the price points and the depth of our offer very effectively in the past. I think John Tighe is a very skilled merchant; he and his team are putting together a solid plan -- which I think we'll see some results in the second half of the year in terms of going after the business.”

Just two months ago, JCP named Tighe svp, gmm of home.

“We are seeing pickup now in some of the soft home categories, so I would expect that to continue — the real question is the balance between online and in-store, and the balance between hard home and soft home,” Ullman pointed out. At JCPenney, window coverings and furniture comprise the hard home categories, which he said are particularly lagging.

On the topic, Ullman summed up, “I would expect clearly by the fourth quarter to start to see a meaningful contribution” from the home departments. Included in that assessment is the oncoming launch of JCP's exclusive Liz Claiborne lifestyle brand in more than 30 categories across the store, as well as continuing “accretive” gains by JCP's classic-traditional private brand, American Living.

JCP results were generally above expectations. Net income for the quarter ended May 1, 2010 boomed 140% to $60 million from $25 million in the same period one year ago. Earnings per diluted share of 25 cents in Q1 2010 represented a 127% gain from the year-ago eps of 11 cents.

Sales advanced 1.2% to $3.929 billion, with a comparable store gain of 1.3%. Sales at grew by about 1% over the year-ago period, the company said -- and Ullman said that e-commerce gains were “dragged down a bit by our home performance.”

Operating income for the quarter ended May 1, 2010 expanded 46.2% to $155 million from $106 million last year, built on a gross margin gain of 90 basis points, to 41.4% of sales.

SG&A expenses were up 50 basis points, but that was expected in light of recent inflow of fresh inventory after much tightening -- the company entered the quarter with inventory 7% below the year-ago level, and ended the quarter close to 1% below year-ago inventories.

On the strength of its Q1 performance, Penney's guidance improved for Q2 and the full year. Bob Cavanaugh, evp and cfo, projected a 2.5% to 3% comp gain for the second quarter, with an eps of 10 cents to 13 cents.

For all of 2010, the company now projects low single-digit comp gains and eps of $1.64 -- up from the previous guidance of $1.55 eps.

J.C. Penney Company, Inc.

Qtr. 5/1 (millions) 2010 2009 % change
a. Excluding the impact of the non-cash qualified pension plan expense from both the current and last year's first quarter, operating income increased 12.3% to $210 million, or 5.3% of sales, and adjusted earnings per share were $0.40 versus $0.34 last year.
b. Total qualified pension plan expense was $55 million compared to $81 million in last year's first quarter.
Sales $3,929 $3,884 1.2%
Oper Income (EBIT) $155a $106a 46.2
Net income $60 $25 140.0
Per share (diluted) $0.25a $0.11a 127.3
Average gross margin 41.4% 40.5% --
SG&A expenses 32.8%b 32.3%b

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