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Breakeven earnings per share, better than initial expectations - JCP

17 Aug '09
5 min read

Operating income for the second quarter declined 72.4 percent to $67 million or 1.7 percent of sales. Excluding the impact of the non-cash qualified pension plan expense from both the current and last year's second quarter, adjusted operating income decreased 33.3 percent.

Interest expense for the quarter was $68 million, which included approximately $2 million of bond premiums paid in connection with the Company's debt tender offer for the 8 percent Notes due March 1, 2010 that was completed in May 2009.

Financial Condition
The cash and cash equivalents balance as of the end of the second quarter of 2009 was $2.3 billion, an increase of $69 million over the same period last year. For the first half of 2009, free cash flow improved $397 million compared with last year's first half. Free cash flow, a non-GAAP measure, is defined as net cash provided by operating activities of continuing operations less capital expenditures and dividends paid, plus proceeds from sales of assets.

During the second quarter, long-term debt, including current maturities, was reduced by $113 million to $3.4 billion, principally as a result of the completion of the above-referenced debt tender offer. The Company also made a tax-deductible voluntary contribution of $340 million of JCPenney common stock to its qualified pension plan to further strengthen the plan's funded status.

2009 Third Quarter Guidance
Management's 2009 third quarter guidance is as follows:
Total sales: expected to decrease 3 to 5 percent.
Comparable store sales: expected to decrease 5 to 7 percent.
Gross margin rate: expected to increase in a range of 120 to 130 basis points.
SG&A expenses: expected dollar increase of approximately 4 percent.
Depreciation and amortization: approximately $127 million.
Pre-opening expenses: approximately $5 million.
Interest expense: approximately $66 million.
Income tax rate: approximately 38 percent.
Average shares for EPS calculation: approximately 237 million common shares.
Earnings per share: expected to be in the range of a loss of $0.05 to earnings of $0.05 per share.

2009 Full Year Guidance
Management's 2009 full year guidance is as follows:
Total sales: expected to decrease approximately 5.5 to 6.0 percent.
Comparable store sales: expected to decrease approximately 7.0 to 7.5 percent.
Gross margin rate: expected to increase in the range of 160 to 180 basis points.
SG&A expenses: expected to be approximately flat to last year in dollars.
Income tax rate: approximately 38 percent.
Average shares for EPS calculation: approximately 233 million common shares.
Earnings per share: expected to be in the range of $0.75 to $0.90 per share.

J. C. Penney Company Inc

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