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Breakeven earnings per share, better than initial expectations - JCP

Aug '09
J. C. Penney Company, Inc. reported fiscal second quarter results that reflect the continued successful execution of its Bridge Plan strategy and further improvement in cash flow performance. For the second quarter ended Aug. 1, 2009, the Company reported breakeven earnings of $0.00 per share compared to $0.52 per share in last year's second quarter.

Earnings for this year's second quarter were impacted by a pre-tax negative swing in non-cash qualified pension plan expense of $106 million, or $0.28 per share after-tax, compared to last year's second quarter. Net income for this year's second quarter was a loss of $1 million versus income of $117 million last year.

“JCPenney's financial performance in the second quarter shows that our strategy to navigate the current, very difficult consumer climate is working and will continue to position us well over the near and longer term. Our stepped up style along with the quality and value that have become synonymous with the JCPenney brand allowed us to compete as one of the strongest anchors in the nation's malls, where we are customers' value destination,” said Myron E. (Mike) Ullman, III, chairman and chief executive officer of JCPenney.

“At the same time, our strong financial position enabled us to continue to invest in areas that differentiate JCPenney. These initiatives include opening new stores in key markets such as Manhattan, further expanding our successful Sephora inside JCPenney concept and improving our industry-leading product development and merchandise flow processes. We are also investing in our Associates, which has resulted in higher scores for both Associate engagement and customer service. Within a tough climate, we are focused on winning customers and managing our business to maintain our financial strength.”

In view of its better-than-expected second quarter operating results and expectations for further gross margin improvement in the second half, management has raised its 2009 full year earnings guidance to a range of $0.75 to $0.90 per share. This guidance updates the previous range of $0.50 to $0.65 per share provided with the Company's first quarter earnings release.

Operating Performance
Total sales in the second quarter decreased 7.9 percent compared to last year, while comparable store sales decreased 9.5 percent. The strongest merchandise results were in shoes and women's apparel, and geographically, the best performance was in the southwest region of the country. The weakest results were in children's apparel and in the southeast region.

For the quarter, gross margin increased 100 basis points over last year to 38.5 percent of sales as better alignment of inventory to sales trends resulted in more merchandise sales at regular promotional prices and less selling at clearance prices. SG&A expenses continued to be well managed in the second quarter and decreased $28 million compared to last year's second quarter, but increased 180 basis points to 31.5 percent of sales due to lower sales volume. Qualified pension plan expense was $73 million compared to a credit of $33 million in last year's second quarter. As a percent of sales, total operating expenses were 36.8 percent in the second quarter.

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