NEW YORK — J.C. Penney Co. Inc. may be 104 years old, but it’s finding new ways to draw shoppers, boost sales and maximize earnings.
The retailer posted a 65.5 percent increase in profits in the fourth quarter that sailed past Wall Street analysts’ expectations, while full-year earnings more than doubled over the prior period.
“The team hit every internal metric. They are all expecting bonuses,” said Myron “Mike” Ullman 3rd, chairman and chief executive officer, in a telephone interview.
The ceo said margins in the quarter reflected “good sell-through” as well as a positive response by shoppers to the company’s planning and merchandising efforts. Ullman emphasized the quarterly results also reflect the retailer’s ability to deliver lifestyle merchandise at “smart prices.” Ullman said despite the competitiveness at retail, the “environment has been positive for us. The customer wants new alternatives.”
He said the company’s bolder marketing of some of its brands has resonated with its customers, connecting with them on an emotional level, which is why sell-throughs have been better.
J.C. Penney said net income for the three months ended Jan. 28 rose to $551 million, or $2.34 a diluted share, from $333 million, or $1.17, last year. The results included income from discontinued operations of 42 cents a share, as well as 21 cents a share from the effects of a previously disclosed tax benefit. On an adjusted basis, earnings per share of $1.71 was 8 cents better than Wall Street consensus estimates, according to Thomson First Call.
Sales for the quarter rose 4.2 percent to $6.2 billion from $5.96 billion, with same-store sales rising 2.6 percent. During the quarter, direct-to-consumer sales in the catalogue and Internet channels went up 3.7 percent, with sales at jcp.com gaining 22 percent. The company said gross margin increased 3.9 percent in the quarter to $2.29 billion from $2.21 billion. The retailer opened 18 new stores last year, the most in eight years.
For the full year, profits climbed to $1.09 billion, or $4.26 a diluted share, from $524 million, or $1.76, in the year-ago period. Gross margin in the year rose 5.5 percent to $7.38 billion from $6.99 billion. Sales gained 3.8 percent to $18.78 billion from $18.1 billion.
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Investors were pleased with the company’s performance and sent shares up 2.3 percent to close Thursday at $57.85 in New York Stock Exchange trading.
Ken Hicks, president and chief merchandising officer, said during a conference call to Wall Street analysts that strong divisional performance came from family shoes, women’s accessories, children’s and fine jewelry.
“While women’s apparel was a challenging business this fall across the entire industry, our planning and allocation processes and controls enabled us to effectively manage our inventory ending the season on our stock plan in women’s apparel,” Hicks told analysts.
Robert Drbul, analyst at Lehman Brothers, wrote in a research note that the retailer has seamlessly executed a complete transformation in its department store operations and that its move from a decentralized to a centralized business model better positions it to capitalize on long-term growth opportunities.
“We are encouraged by J.C. Penney’s efforts to adapt to consumers’ changing preferences and reposition itself within the retail landscape,” he wrote in his note.
Bernard Sosnick, analyst at Oppenheimer & Co. Inc., wrote in a research note that the $4.14 to $4.21 EPS guidance for 2006 by management reflects “prudent assumptions. We raised our estimate to $4.25 and believe that the target is likely to move higher during the year.”
Sosnick also noted in his report that the retailer sells at 13.3 times the 2006 earnings estimate of $4.25, which he said is a “conservative multiple for a company that is demonstrating strong EPS gains, larger-than-expected free cash flow, is repurchasing its common stock and will raise its dividend rate 44 percent. In our view, J.C. Penney seems capable of continuing to beat expectations by a wide margin. We expect JCP shares to move into the $60 to $70 range.”