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Home fashion sales help drive JCP turnaround

Plano, TX — Furthering a complex turnaround and lifted by a major improvement in its department stores and catalog, J.C. Penney virtually quadrupled its third-quarter earnings, leveraging stronger margins and sales into profits that shot up by 296.8 percent, to $123 million from $31 million a year ago.

Sales at the giant retailer climbed by 1.9 percent, to $7.9 billion from $7.7 billion a year ago. Same-store sales climbed by 3.9 percent in department stores and catalog, and by 4.9 percent in the Eckerd drugstore business.

Much of the same-store sales improvement in department stores, said Allen Questrom chairman and ceo, was due to a strong performance in home fashions, as well as apparel and fine jewelry.

Helping to fuel the earnings renaissance, the retailer boosted its margins by 100 basis points, or 1.0 percentage point, to 30.5 percent from 29.5 percent a year ago. Importantly, margins in the department store and catalog operation climbed up even faster, rising by 130 basis points, to 36.6 percent from 35.3 percent the prior year.

Stronger margins helped to offset rising costs, which climbed to 27.4 percent of sales from 27.2 percent a year ago, with higher costs in the department stores and catalog offsetting improvement at Eckerd. Costs in department stores climbed higher by 80 basis points, to 32.7 percent of sales from 31.9 percent last year. Eckerd costs, by contrast, were trimmed to 20.9 percent of sales from 21.2 percent a year ago.

Extending a recent comeback, operating profits in the department store business improved by 14.9 percent, to $170 million from $148 million. Eckerd profits more than doubled, rising to $79 million from $30 million.

Ceo Allen Questrom, architect of the retailer's turnaround, commented, "In department stores, our sales momentum demonstrates that the changes in merchandise assortments, marketing and store presentation under the centralization model are registering with the customer. Department stores and catalog operating profit reflects higher gross margin coupled with expense management."

Despite a difficult retail environment, Questrom said Penney is sticking to its forecast for further improvement in the fourth quarter, with earnings projected to jump to $0.60 per share from $0.35 a year ago. Questrom emphasized, "We recognize we are only in the second year of a very complex turnaround effort, and that we will continue to face a number of variables as we move forward."

Driving the 3.9 percent same-store sales gain in department stores, said the company, were "a good Back-to-School season and an especially strong October."

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