Despite Loss, J.C. Penney Makes Strides
Updated from 11:39 a.m. EST
J.C. Penney
(JCP) - Get Report
reported a more than $1 billion fourth-quarter loss and guided below consensus. But things at the retailer aren't as bad as they may appear.
The loss stemmed from charges related to the company's Eckerd drugstore chain, which J.C. Penney plans to sell and now classifies as a discontinued operation. The company's guidance excludes any results from Eckerd.
Without the drugstore albatross, the company's earnings per share would have risen 43%, topping analysts' expectations.
After some doubt in early trading, investors seemed to pick up on the company's positive theme. J.C. Penney shares were recently up 34 cents, or 1.1%, to $30.10.
In its fourth quarter, J.C. Penney lost $1.07 billion, or $3.42 a share, on sales from continuing operations of $6.10 billion. In the year-earlier period, the company earned $202 million, or 68 cents a share, on $5.74 billion in sales from its department store operations.
But the company took $1.33 billion in charges in the quarter related to discontinuing its Eckerd operations and selling off its department stores in Mexico. Without those charges, J.C. Penney would have earned $253 million, or 83 cents a share, compared to $174 million or 58 cents a share, in the fourth quarter a year ago.
Analysts surveyed by Reuters' MultexNet service were looking for earnings of 80 cents a share on $10 billion in total sales, including Eckerd's results. Without the charges, Eckerd would have earned about 5 cents a share; J.C. Penney did not disclose the company's sales.
For the first quarter, J.C. Penney projects earnings of 9 to 12 cents a share, excluding Eckerd. Analysts were looking for earnings of 23 cents -- but that includes Eckerd's results.
In the fourth quarter, J.C. Penney saw relatively strong sales at its older department stores. The company's same-store sales, which compare like results at outlets more than one year old, grew 3.2%.
That was an acceleration both from the year-ago quarter, when comparable-store sales grew by 1.9%, and from the previous nine months. For the full year, J.C. Penney's same-store sales grew 0.9%.
The company's bottom line also benefited from a significant expansion in its gross profit margin. J.C. Penney's gross margin, which is the difference between what a company charges for its goods and services and its direct costs of acquiring and providing them, surged 193 basis points to 35.88% of sales. The improvement came in part from the retailer's centralized buying initiative, the company said in a statement.
But J.C. Penney didn't have as much luck with operating expenses. Such costs, which include marketing, general and administrative expenses, jumped 71 basis points to 28.58% of sales. The company attributed the rise to planned advertising costs, an increase in non-cash pension expenses and rising costs at its distribution centers.
While the company doesn't expect to see much more gross margin gains this year, one of its key initiatives is to bring down operating expenses, company officials said on a conference call with investors and analysts. The company's goal is to post operating profits equal to about 5.2% of sales in 2004 and 6% to 8% of sales in 2005. In 2003, the company's operating profit, which excludes taxes and interest expenses, was about 4.4% of sales.