Home business drives Penney growth

Carole Sloan, Staff Staff, June 25, 2001

Boston — Home business at JCPenney has been running ahead of other department store competition in the last few months, a major step in the company's overall goal of achieving a 2 percent compound sales increase for the year.

And June sales to date are running at a positive rate for the department stores and are above plan.

The department stores also are expected to produce a 6 percent to 8 percent operating profit, according to Allen Questrom, chairman and ceo of J. C. Penney Corp., who led a presentation of the company's plans at an investor meeting sponsored by Bear Stearns here last Friday.

The catalog segment of the department stores will have a negative impact on second quarter results as it restructures, and also as the result of a planned later activation of the fall/winter Big Book.

The catalog, a $4 billion-plus business is being scaled back to a $3.5 billion business, Questrom explained, as the new catalog management rebuilds. "We hired expertise in catalog and expect a 5 percent to 8 percent profit in 2001 vs. a loss in 2000."

Penney's Internet business is expected to hit $400 million this year, Questrom said. "We have the infrastructure" via the catalog. And while the Internet business lost $40 million in 2000, "we expect to make a profit in 2001," he added.

Questrom said the turnaround of the department store segment "was more complicated than the situation at Eckerd," the company's drugstore chain.

Overall, for the department store business, Questrom forecast a positive sales increase for the second quarter — "better than the first quarter."

And the company's marketing efforts that are in high gear will see a $100 million increase in advertising for the second half, he said. Of the total, $80 million is targeted for the fall, Questrom told investors.

Discussing the company's financial strength, Bob Cavanaugh, executive vp and cfo, told investors that the $1.1 billion after-tax proceeds realized from the sale of its Direct Marketing Services unit "will be enough for debt retirement." Penney, he said, "has a $5.4 billion debt and currently has 40 percent of the cash on hand."

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