Department store operator JC Penney Co., Inc. (JCP) reported Friday a sharp fall in profit for the third quarter, reflecting lower comparable store sales as well as higher expenses. The Plano, Texas-based company noted that its earnings per share was well above management's initial guidance. The company also provided fourth quarter outlook and lifted its fiscal 2009 guidance, based on better than expected year-to-date results.
Third-quarter net income fell 78.2% to $27 million from $124 million last year. On a per-share basis, earnings plunged 80.4% to $0.11 from prior year's $0.56.
On a continuing operations basis, income declined 78% to $27 million from $123 million a year ago, and earnings fell 80% to $0.11 per share from last year's $0.55 per share.
The company pointed out that its earnings per share of $0.11 for the quarter was well above management's initial guidance for earnings per share to be in the range of a loss of $0.05 to earnings of $0.05, reflecting the continued successful execution of its Bridge Plan strategy. Of late, the company was projecting third-quarter earnings of between $0.10 and $0.11 per share.
The latest quarter results included a non-cash qualified pension plan expense of $73 million or $0.19 per share, while prior year's results included a qualified pension plan credit of $33 million or $0.09 per share.
Excluding the impact of qualified pension plan expense, adjusted income from continuing operations was $72 million, down 30.1% from $103 million last year, and adjusted earnings per share fell 34.8% to $0.30 from prior year's $0.46.
Third-quarter earnings per share also reflected a $0.03 charge related primarily to non-recurring real estate impairments included in real estate and other expenses.
On average, 12 analysts polled by Thomson Reuters expected the company to report earnings of $0.12 per share for the quarter. Analysts' estimates typically exclude special items.
Total net sales, as reported on November 5, were $4.18 billion, down 3.2% from $4.32 billion last year. Analysts expected revenue of $4.18 billion for the quarter. Comparable store sales for the thirteen weeks declined 4.6% compared to a 10.1% decline in the same period of the prior year. JC Penney was looking for a total sales decline of 3% to 5%, and comparable store sales were anticipated to be down by 5% to 7%.
The company noted that the strongest merchandise results were in shoes and women's apparel, and geographically, the best performance was in the southwest region of the country, while the weakest results were in fine jewelry and in the northwest region.
Gross profit for the quarter, however, rose 1.9% to $1.70 billion from last year's $1.66 billion, and gross margin rate improved 210 basis points to 40.6% from 38.5% a year ago.
Meanwhile, operating income fell 58% to $107 million from $255 million last year, and operating margin declined to 2.6% from prior year's 5.9%, reflecting a 12.8% rise in total operating expenses to $1.59 billion. Adjusted operating income decreased 18.9%, and adjusted operating margin was 4.3%, compared to 5.1% last year.
Commenting on the results, Myron (Mike) Ullman, III, chairman and chief executive officer of JCPenney, stated, "JCPenney's third quarter results reflect the success of our strategy to balance top line performance with bottom line profitability. Our ability to deliver earnings above original expectations resulted from better than expected improvement in gross margin as we have maintained appropriate inventory levels and reduced both clearance selling and unprofitable discounting."
Quarter-end cash and cash equivalents balance was $2.1 billion, an increase of $505 million versus last year's third quarter.
During the third quarter, JC Penney opened three new stores, all in the off-mall format, bringing the total of new and relocated stores for the year to 17, and completing the 2009 new store program. The company also added 12 Sephora inside JCPenney locations, bringing the total to 155 locations.
In its preceding second quarter, JC Penney had reported a net loss of $1 million or $0.00 per share, compared to net income of $117 million or $0.52 per share last year, hurt by pension plan expenses as well as 7.9% decline in sales to $3.94 billion on lower consumer demand amid the economic downturn. Comparable store sales dropped 9.5% compared to a decline of 4.3% in the year-ago quarter.
Among other department stores chains, Menomonee Falls, Wisconsin-based Kohl's Corp. (KSS) Thursday posted higher profit for the third quarter, driven by inventory management and expansion of exclusive brands. The company's third-quarter net income was $193 million or $0.63 per share, compared to $160 million or $0.52 per share last year. Quarterly net sales totaled $4.05 billion, 6.5% higher than the previous year's $3.80 billion, and comparable store sales rose 2.4%.
Cincinnati, Ohio-based department stores operator Macy's, Inc. (M) reported Wednesday a narrower loss for the third quarter, reflecting strong sales at Bloomingdale's and "outstanding growth" in its Internet businesses. The company's third-quarter net loss was $35 million or $0.08 per share, compared to prior year's loss of $44 million or $0.10 per share. Excluding restructuring costs, the loss was $0.03 per share compared to a loss of $0.08 last year. Quarterly net sales declined 3.9% to $5.28 billion from $5.49 billion in the previous year, with a 3.6% decline in same-store sales.
For the nine months of fiscal 2009, JC Penney's net income fell 85.9% to $51 million from prior year's $361 million, and earnings per share declined 86.4% to $0.22 from last year's $1.62. Adjusted income from continuing operations dropped 36.5% to $190 million from $299 million in 2008, and adjusted earnings per share fell 38.8% to $0.82 from $1.34 a year ago.
Total nine-month net sales dropped 5.7% to $12.01 billion from $12.73 billion in the previous year, and comparable store sales declined 7.2%, compared to a decline of 7.3% in the year earlier.
Looking ahead, JC Penney said it expects fourth-quarter earnings in a range of $0.70 to $0.85 per share, total sales to decrease 3% to 5%, and comparable store sales to decrease 4% to 6%. Wall Street analysts estimate earnings of $0.82 per share for the quarter, with estimates ranging between $0.73 and $0.92 per share, while sales are estimated to be $5.63 billion, representing a 2.3% drop from last year.
Further, the company lifted its fiscal 2009 forecast, based on better than expected year to date results and the fourth quarter guidance.
For fiscal 2009, earnings are now expected to be in the range of $0.93 to $1.08 per share, higher than previous forecast in the range of $0.75 to $0.90 per share. Comparable store sales are now expected to decrease 6.5% to 7%, in comparison to previous expectation of a decline of about 7% to 7.5%.
In the year 2008, JC Penney had recorded net income of $572 million or $2.57 per share and income from continuing operations of $567 million or $2.54 per share, on total net sales of $18.49 billion.
Wall Street is currently looking for earnings of $1.05 per share for fiscal 2009, with estimates ranging between $0.93 and $1.15 per share, while revenues are estimated to be $17.63 billion, representing a 4.6% drop from last year.
Peer Kohl's expects fiscal 2009 earnings to be in the range of $2.98 to $3.08 per share, which was raised from previous forecast of $2.59 to $2.70 per share, while analysts expect earnings of $3.02 per share.
Macy's fiscal 2009 same-store sales are now expected to be down between 5.4% and 5.7%, better than the company's original guidance of down 6% to 8% provided at the beginning of the year.
JCP is currently trading at $30.90 in the pre-market activity, up $1.51 or 5.14%. In the past 52 weeks shares have been trading in a broad range of $13.71 to $37.21, with a 3-month average volume of 4.93 million shares.
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