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JCPenney: Home “Stabilizing” in Q2

While home dragged the online business during the second quarter, its improving sales trends at stores is encouraging J.C. Penney Company Inc. to expect better results in the near term for the business segment.

“We continue to see stabilization of our home business,” said Mike Ullman, chairman and ceo, during the 1,106-unit mid-tier department store chain's second-quarter earnings call last week. “Linden Street, in particular, continues to gain traction. We're looking forward to the upcoming launch of Cindy Crawford Style, which is currently only available at our Manhattan store. It will launch nationwide in September.”

And as the anchor of JCP's current back-to-college Dorm Life program, bedding was singled out as providing “solid results,” he added.

“We've had seven or eight years in a row where back-to-school has been one of the strongest parts of the year for us,” he added. “We're seeing a good response to the newness and freshness in the inventories.”

Nonetheless, sales fell during the second quarter ended Aug. 1, and earnings were break even at 0 cents per share, compared to 52 cents per share in last year's second quarter. The performance, Ullman noted, was better than expected.

The company blamed a pre-tax negative swing in non-cash qualified pension plan expense of $106 million, or 28 cents per share after-tax, for the results.

JCP posted a net loss of $1 million in the period versus a profit of $117 million during last year's second quarter.

Sales decreased 7.9% to $3.9 million versus. Comparable store sales fell 9.5% on top of a 4.3% decline last year.

For the first half of the year, net income fell 90% to $24 million, or 11 cents a share, from $237 million, $1.06 per share. Sales declined 6.9% to $7.8 million, with comps falling 8.5% on top of a 5.8% drop in the first half of 2008.

Like most other retailers, Penney chopped inventory and ended the quarter with total inventory down 11.8%. Comparable inventory declined 14%.

Year to date, the company has made capital improvements on 50 existing stores. In the second quarter, five new units were opened, including JCP's new store in Manhattan, “which we anticipate will be our highest volume store,” Ullman noted. “It will capitalize on JCPenney's success already in the New York metro market.” The store was designed to capture local Manhattan customers and community customers, as well as out-of-town visitors, he added.

During the quarter, JCP reopened its Alexandria, La., unit, which had been extensively damaged during Hurricane Gustav. “The customer response has been overwhelming,” Ullman said.

During the third quarter, the company plans to open three additional new stores — two in Texas and one in Arizona – completing its 2009 store-opening program totaling 17 new stores.

JCP's guidance for the third quarter projects sales to decrease 3% to 5% and comparable store sales to decline 5% to 7%.

Commenting to analysts during the company's webcast presentation, Ullman said JCP expects business to pick up during the second half of 2009.

“Given the sluggishness of the business over the last 11 to 12 months, that there are replacement things that people need at some point, and that when they are trafficking the stores for back-to-school, we're likely to get some business in home and some of the adult categories,” he said.

Regarding the search for a replacement for Ken Hicks, Ullman offered a brief update.

“We started the search — that's the update,” he said. “We're considering both inside and outside candidates. But frankly, everybody's very busy here to be focused on the search. We're focused on the fall season.”

Hicks resigned from his post as president and chief merchandising officer, effective July 6, to become ceo of Foot Locker. Ullman has temporarily taken on Hick's former responsibilities until a replacement is appointed.

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