2nd UPDATE: JC Penney 1Q Net Up; Cautious About 2Q, Full-Year
May 14 2010 - 12:28PM
Dow Jones News
J.C. Penney Co. (JCP) said earnings more than doubled in its
first quarter, helped by lower pension-expense charges and an
uptick in sales, but the retailer took a guarded view of the rest
of the year and expenses rose.
J.C. Penney said just about all of its product categories showed
improvement during the first quarter, with men's and children's
merchandise and shoes and handbags making the greatest gains. Home
goods remained soft and the retailer's online unit showed virtually
no growth.
"The consumer is no longer in hiding, but they are being very
pragmatic in terms of the way they shop," said Chief Executive
Myron Ullman during a conference call with analysts Friday.
J.C. Penney's results follow those earlier in the week by fellow
department stores Macy's Inc. (M) and Kohl's Corp. (KSS), which
said they are seeing a pickup in demand from customers, but not a
return to robust buying.
J.C. Penney is striving to raise its market share by focusing on
exclusive brands, such as an expanded line by Liz Claiborne Inc.
(LIZ) that it will begin selling exclusively in the U.S. this
August. The retailer is also aiming to improve its stores, put more
resources into its website and take a "disciplined approach" to
inventory and promotions.
For the quarter ended May 1, J.C. Penney reported a profit of
$60 million, or 25 cents a share, up from $25 million, or 11 cents
a share, a year earlier. The results met Wall Street's expectations
and were above J.C. Penney's own April guidance of 20 cents to 24
cents a share. Excluding items such as pension-plan expenses,
earnings from continuing operations rose to 40 cents from 34 cents,
J.C. Penney said.
Overhead in the form of selling, general and administrative
expenses rose 2.7%, which was slightly higher than Penney's
original guidance. Ullman said the retailer had "invested to
support increased sales volume."
Gross margin increased to 41.4% from 40.5%, which Penney
attributed to better sales of new merchandise, expense controls, a
new clearance strategy and improved pricing in certain areas.
Same-store sales rose 1.3%, with off-mall locations continuing to
do better than those in malls. Merchandise inventories were $3.2
billion at the end of the first quarter, down a bit from a year
ago.
The company last week reported that its total sales rose 1.2% to
$3.93 billion and same-store sales increased 1.3%. Sales rose in
six of seven merchandise divisions, with home goods the laggard.
While other retailers are reporting double-digit gains in online
sales, J.C. Penney saw its Web sales rise just 1%. Ullman
attributed the slight performance to softness in certain home
products and less volume from J.C. Penney customers that had been
placing their catalogue orders online.
J.C. Penney projected a second-quarter profit of 10 cents to 13
cents a share, with total sales growth of 2% to 2.5% and same-store
sales growth of 2.5% to 3%. Analysts polled by Thomson Reuters
projected earnings of 13 cents and 2% total-sales growth to $4.03
billion. The year's profit target was raised 9 cents from
February's view to $1.64, but is below Wall Street's expectation
for $1.65.
Penney has at least a couple of matters to contend with, said
Michelle Clark, retail analyst at Morgan Stanley. The retailer's
gross margins are at or near peak levels and top-line performance
could lag Wall Street expectations as Macy's continues to benefit
from its localization efforts and Kohl's from the success of its
private label and exclusive offerings, Clark said.
J.C. Penney shares are off 80 cents, or 2.8%, to $27.38 in
recent trading.
-By Karen Talley, Dow Jones Newswires; 212-416-2196;
karen.talley@dowjones.com
(Tess Stynes contributed to this article.)
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