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Gross margin rate achieving new peak for Q2, JCPenney
16 Aug '10
5 min read
The strongest merchandise results were in men's apparel and women's accessories, and geographically, the best performance was in the northeast region of the country. Internet sales through jcp.com were $317 million in the second quarter, increasing 4 percent over the same quarter last year.
Operating Performance
Operating income for the second quarter increased 41.8 percent to $95 million or 2.4 percent of sales. The qualified pension plan expense was $55 million compared to $73 million in last year's second quarter. Excluding the impact of the pension plan expense from both this year's and last year's second quarter, adjusted operating income increased 7.1 percent. A reconciliation of non-GAAP adjusted operating income is included in this release.
For the quarter, gross margin increased 90 basis points over last year to 39.4 percent of sales. SG&A expenses were tightly controlled, increasing $31 million or 2.5 percent when compared to last year's second quarter. As a percent of sales, total operating expenses were 37.0 percent in the second quarter, up slightly from the same period last year.
Financial Condition
The Company ended the second quarter with $2 billion in cash and cash equivalents on its balance sheet. During the second quarter, the Company completed several related transactions that further strengthen its financial position and create additional financial flexibility to support its growth plans. In May, the Company completed its public offering of $400 million of 5.65% Senior Notes due 2020.
Upon closing, the Company used the net proceeds of the offering of approximately $392 million to make a voluntary cash contribution to its qualified pension plan. In addition, in the quarter, the Company repurchased $300 million principal amount of outstanding 6.375% Senior Notes due 2036 pursuant to a cash tender offer for up to $300 million aggregate principal amount of outstanding debt securities. As a result of these transactions, at the end of the second quarter, the Company's long-term debt was $3.1 billion.
Interest expense for the quarter was $57 million compared to $68 million in last year's second quarter. The Company also incurred approximately $20 million in additional expenses, due primarily to bond premiums paid in connection with the debt tender offer.
Outlook
Management's 2010 third quarter guidance is as follows:
• Comparable store sales: expected to increase 2 to 3 percent.
• Total sales: expected to increase approximately 100 basis points less than comparable store sales due to the impact of the Company's discontinuation of its Big Book catalogs.
• Gross margin rate: expected to decrease modestly.
• SG&A expenses: expected dollar increase of approximately 2 percent.
• Depreciation and amortization: approximately $129 million.
• Interest expense: approximately $57 million.
• Income tax rate: approximately 38 percent.
• Average shares for EPS calculation: approximately 238 million common shares.
• Earnings per share: expected to be in the range of $0.16 to $0.20 per share.
Operating Performance
Operating income for the second quarter increased 41.8 percent to $95 million or 2.4 percent of sales. The qualified pension plan expense was $55 million compared to $73 million in last year's second quarter. Excluding the impact of the pension plan expense from both this year's and last year's second quarter, adjusted operating income increased 7.1 percent. A reconciliation of non-GAAP adjusted operating income is included in this release.
For the quarter, gross margin increased 90 basis points over last year to 39.4 percent of sales. SG&A expenses were tightly controlled, increasing $31 million or 2.5 percent when compared to last year's second quarter. As a percent of sales, total operating expenses were 37.0 percent in the second quarter, up slightly from the same period last year.
Financial Condition
The Company ended the second quarter with $2 billion in cash and cash equivalents on its balance sheet. During the second quarter, the Company completed several related transactions that further strengthen its financial position and create additional financial flexibility to support its growth plans. In May, the Company completed its public offering of $400 million of 5.65% Senior Notes due 2020.
Upon closing, the Company used the net proceeds of the offering of approximately $392 million to make a voluntary cash contribution to its qualified pension plan. In addition, in the quarter, the Company repurchased $300 million principal amount of outstanding 6.375% Senior Notes due 2036 pursuant to a cash tender offer for up to $300 million aggregate principal amount of outstanding debt securities. As a result of these transactions, at the end of the second quarter, the Company's long-term debt was $3.1 billion.
Interest expense for the quarter was $57 million compared to $68 million in last year's second quarter. The Company also incurred approximately $20 million in additional expenses, due primarily to bond premiums paid in connection with the debt tender offer.
Outlook
Management's 2010 third quarter guidance is as follows:
• Comparable store sales: expected to increase 2 to 3 percent.
• Total sales: expected to increase approximately 100 basis points less than comparable store sales due to the impact of the Company's discontinuation of its Big Book catalogs.
• Gross margin rate: expected to decrease modestly.
• SG&A expenses: expected dollar increase of approximately 2 percent.
• Depreciation and amortization: approximately $129 million.
• Interest expense: approximately $57 million.
• Income tax rate: approximately 38 percent.
• Average shares for EPS calculation: approximately 238 million common shares.
• Earnings per share: expected to be in the range of $0.16 to $0.20 per share.
J. C. Penney Company Inc
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