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JCPenney Profits Rebound

Don Hogsett -- Home Textiles Today, February 28, 2005

Plano, Texas — Helped by stronger same-store sales, wider margins and lower costs, fourth quarter profits at J.C. Penney Co. Inc. rebounded to $333 million from a year-before loss of $1 billion, when the company struggled with its troubled Eckerd drug store business, since sold off.

Pull Eckerd results out of the picture last year, and the improvement remains dramatic, with earnings from continuing operations shooting up 29.6 percent, to $328 million from $253 million a year ago.

Overall sales subsided slightly, by 0.4 percent, nicked by a 1.5 percent drop in catalog and internet sales. But the crucial gauge of same-store sales in department stores improved by 3 percent.

Driving the bottom-line improvement, average gross margin improved by 130 basis points, or 1.3 percentage points, to 37.2 percent from 35.9 percent the prior year.

In a further lift to profits, the retailer whittled down costs, by 100 basis points, or 1 percentage point, to 27.6 percent form 28.6 percent.

Following the sale of the Eckerd drug store business, Penney is in the midst of a share and debt reduction program begun in August 2004. By the end of January, the retailer had repurchased about 50 million shares of its common stock for about $2 billion, and plans to keep on buying through the first half of this year. At the same time, using Eckerd proceeds, the company retired about $1.7 billion of long-term debt. The company is currently sitting on a war chest of $2.5 billion in cash.

J.C. Penney Co. Inc.

Qtr. 1/29 (x000) 2004 2003 %change
(loss)
a. Fourth quarter results include $25 million in real estate and other expenses; and $5 million in after-tax profits from the discontinued Eckerd operation, compared with a prior-year loss of $1.3 billion from discontinued operations. Excluding the sold-off Eckerd operation, earnings from continuing operations rose 29.6 percent, to $328 million from $253 million during the same period a year ago.
b. 12-month results include $47 million in bond premiums and unamortized costs; $12 million in real estate and other expenses, compared with miscellaneous income of $17 million last year; and a $143 million after-tax loss from the discontinued Eckerd operation, compared with a prior-year loss of $1.3 billion. Excluding the sold-off Eckerd business, earnings from continuing operations rose 83.2 percent, to $667 million from $364 million.
Sales $6,073,000 $6,098,000 -0.4
Oper. Income (EBIT) 581,000 445,000 30.6
Net income 333,000a (1,069,000)a
Per share (diluted) 1.17 (3.42)
Average gross margin 37.2% 35.9%
SG&A expenses 27.6% 28.6%
12 months
Sales 18,424,000 17,786,000 3.6
Oper. Income (EBIT) 1,312,000 790,000 66.1
Net income 524,000b (928,000)b
Per share (diluted) 1.76 (3.13)
Average gross margin 38.7% 37.2%
SG&A expenses 31.6% 32.8%


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