JCPenney records a taxing fourth quarter

Plano, Texas -- Paying a sharply higher tax bill this year, up by more than 50% from last year when it reaped a fistful of one-time tax benefits, JCPenney said fourth-quarter profits fell by 13.4%, to $477 million from $551 million last year.

All of the decline was accounted for by the increase in taxes, which pulled $92 million away from the bottom line. But even without the skewing effects of the tax bill, Penney earnings would have risen only modestly during the all-important Christmas quarter, up about 3.2% to $569 million.

Penney sales increased by 7.4%, to $6.7 billion from $6.2 billion last year, helped by an extra week of sales, 14 compared with 13 in last year's Christmas quarter. Without that extra week, overall sales would have climbed more slowly, the retailer said, by 4.1%, compared with the actual gain of 7.4%.

But the acid test measure of same-store sales in its department store business couldn't keep pace with last-year's Christmas quarter. Measuring same-store sales on like 13-week periods, excluding the extra week, same-store sales rose by 2.2%, lagging the 2.6% growth rate of 2005.

Penney's catalog business continued to act as a drag. The retailer didn't break out dollar figures, but said that while internet sales shot up by 24.2%, overall sales in the direct-to-consumer business advanced just 4.4%, pointing to a continued decline in catalog sales.

In a prop to the bottom line, private label brands helped the retailer score a big advance in average gross margin, up 180 basis points, or 1.8 percentage points, to 38.0% from 36.2% last year.

But acting as a partial offset, costs climbed higher as well when measured as a percentage of sales, rising by 90 basis points, or nine-tenths of a percentage point, to 24.9% from 24.0% during last year's Christmas quarter.

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