UPDATE: JC Penney 3Q Profit Rises 63% After 2009 Charges
November 12 2010 - 12:28PM
Dow Jones News
J.C. Penney Co.'s (JCP) third-quarter earnings rose 63% as the
department-store operator benefited from fewer charges, but high
merchandise levels and indications of poorer profits from the
products it sells raised eyebrows.
The retailer also saw the slightest rise in sales of its two
major competitors, Macy's Inc. (M) and Kohl's Corp. (KSS), which
reported their own results earlier this week, and blamed
unseasonably warm weather in the north part of the U.S. for the
sluggishness.
But Chief Executive Myron Ullman said in a call with analysts
that conditions had greatly improved in November, which was "off to
a great start." J.C. Penney is also well positioned for the holiday
season, with compelling products and initiatives like a new mobile
commerce site that was launched this week, Ullman said.
But total inventory was up 6.2% going into the fourth-quarter
holiday period, which analysts said looked high given the small
0.2% increase in sales during the prior period. The amount of
merchandise was also deemed heavy given J.C. Penney's 3% to 4%
fourth quarter comparable-store sales growth expectation and
overall sales projection of 1.5% to 2.5% growth.
During the most recent quarter J.C. Penney also saw its gross
margin, which gauges how much profit is derived from sales, fall to
39% from 40.6%.
Ullman said much of the decrease was due to discontinuing the
company's Big Book catalogs, promotional activities during the
quarter and in part to a shift in merchandise mix to emphasize more
lower-costing items.
The third-quarter results were "low quality," said Morgan
Stanley analyst Michelle Clark, who also said J.C. Penney's
fourth-quarter outlook for same-store sales and gross margin "could
prove optimistic."
Ullman himself, while confident of J.C. Penney's positioning,
did say as the company enters the holiday season, it expects the
environment to remain "highly promotional." The condition could
further eat at margins.
Other merchandising initiatives are paying off in a significant
way, Ullman said, citing the third quarter launch of the Liz
Claiborne Inc. (LIZ) brand and expansion of Sephora in-store
cosmetic boutiques.
Penney has been striving to turn itself around and fend off
rivals like Macy's and Kohl's, which have designs on its frugal
customer base. Pressure for Ullman to turn the retailer around has
increased in recent months as activist investor William Ackman's
Pershing Square Capital Management and Vornado Realty Trust
recently jointly amassed a stake of more than 26% in Penney.
Penney -- which offers a wide range of moderately priced
merchandise -- expects a lot of its growth to come from expanding
such initiatives as Sephora cosmetics boutiques and increasing
distribution of its exclusive brands, such as MNG by Mango and Liz
Claiborne.
J.C. Penney on Thursday said it is setting up a unit to focus on
specialty brands, in an expansion beyond its namesake department
stores.
For the quarter ended Oct. 30, the company reported a profit of
$44 million, or 19 cents a share, up from $27 million, or 11 cents
a share, a year earlier. The company in August projected 16 cents
to 20 cents, below analysts' views at the time.
Excluding pension expenses and real-estate impacts, earnings
rose to 34 cents a share from 30 cents.
Operating costs fell 4.9%.
Total sales edged up 0.2% to $4.19 billion, while same-store
sales rose 1.9%. Shoes and men's apparel were the strongest
categories.
For the fourth quarter, Penney expects earnings of 90 cents to
$1 a share on revenue growth of 1.5% to 2.5% and same-store sales
growth of 3% to 4%. Analysts polled by Thomson Reuters recently
projected earnings of 94 cents a share and 2% revenue growth to
$5.64 billion.
Shares of Penney, which confirmed its earnings guidance for the
year, were recently off 2.1%, to $31.54.
-By Tess Stynes, Dow Jones Newswires; 212-416-2481;
Tess.Stynes@dowjones.com
-By Karen Talley, Dow Jones Newswires; 212-416-2196;
karen.talley@dowjones.com
Kohls (NYSE:KSS)
Historical Stock Chart
From Jun 2024 to Jul 2024
Kohls (NYSE:KSS)
Historical Stock Chart
From Jul 2023 to Jul 2024