May 17, 2007 8:29 am US/Central
Plano's J.C. Penney 1Q Profit Rises
Company Credits Higher Revenue, Improved Gross Margin
PLANO (AP) ―
J.C. Penney Co. posted a 13 percent increase in first-quarter income on strong sales of exclusive fashions, and the department store chain raised its profit outlook for the year on Thursday.
Shares of Penney rose $3.73, or 5 percent, to $79.45 late morning trading.
Chairman and Chief Executive Myron E. Ullman III told investors in a conference call Thursday that the company was benefiting from strong sales of private-label brands and improved inventory flow, which gets fashions on the shelves more quickly.
The middle-income shoppers that Penney serves face pressures from higher gasoline prices, a slowing economy and weaker housing markets. Ullman said he was aware of the potential impact but that Penney hasn't yet seen a change in customers' behavior.
Earnings in the quarter that ended May 5 rose to $238 million, or $1.04 per share, up from $210 million, or 89 cents per share, during the same period a year ago.
Analysts had expected net income of $1.03 per share, according to a survey by Thomson Financial.
Revenue increased 3 percent, to $4.35 billion from $4.22 billion a year earlier. Analysts had expected $4.39 billion.
Same-store sales, or sales at stores opened at least a year, rose 2.2 percent. That's a key indicator of a retailer's health.
The company raised its forecast of full-year profits from continuing operations by a nickel, to $5.49 per share, bringing it in line with the expectation of analysts.
Penney said it expects to earn 77 cents per share in the May-July quarter. That includes costs of 3 cents per share for early debt retirement. The company said same-store sales should rise by low- to mid-single digits.
Penney competes with Kohl's Corp., Target Corp., Macy's and other retailers for middle-class consumers. The Plano-based company has done that by offering more stylish clothing than it once did, and grooming a stable of highly profitable private-label brands, which account for nearly half its sales.
The strategy helped Penney increase gross profit margins from 40.8 percent to 41.5 percent of sales in the first quarter.
Ullman said a new private-label lingerie brand, Ambrielle, and the Liz & Co. and Concepts brands from Claiborne have sold well. Customers who come in to shop at Sephora cosmetics stores inside Penneys are staying to shop in other departments such as shoes, he added.
Penney plans to make its biggest bet yet on the private-brand strategy next year, when it rolls out a line of clothing and home items called American Living, which will be designed by Polo Ralph Lauren Corp.
The company is on an expansion binge, planning to open 15 stores this quarter and 250 over the next five years. Many of the new stores are outside of malls, competing directly with Kohl's. It also plans to renovate 65 older stores this year.
Ullman said the company expects costs will rise for apparel made in China, but he said the chain is insulated from that trend for this year.
At an investor meeting last month, Penney officials said they expect per-share earnings to grow 16 percent and same-store sales to rise by low- to mid-single digit percentages each year from 2008 through 2011.
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