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Forecast Dulls Shiny J.C. Penney

Shares slip even as the department store giant tops fourth-quarter targets.

Department store giant

J. C. Penney

(JCP) - Get J. C. Penney Company, Inc. Report

posted fourth-quarter earnings that beat Wall Street's targets, though its first-quarter forecast came in shy of estimates.

Shares, which have enjoyed a big run over the past year, recently were down 4%.

For the quarter ended Feb. 3, the Plano, Texas-based retailer reported net income of $477 million, or $2.09 a share, down from $551 million, or $2.34 a share, a year earlier. The year-earlier results were boosted by a gain from discontinued operations and a lower tax expense.

Earnings from continuing operations climbed to $457 million, or $2 a share, from $450 million, or $1.92 a share, last year. The earnings on this basis beat Thomson Financial's average analyst forecast of $1.97.

Revenue increased 7% to $6.7 billion, topping Wall Street's projection of $6.6 billion.

Fourth-quarter department store sales increased 4.1%. Comparable department store sales, measuring sales at stores open at least a year, climbed 2.2%.

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The company said the strongest-selling merchandise included children's apparel, fine jewelry and family shoes, and the best regional performances were in the Western and Northeastern areas of the country.

"Over the course of 2006, we saw continued growth in both sales and operating profit," said Chairman and CEO Myron Ullman. "This reflects the ongoing improvements we made in our merchandise assortments, as well as further refinements to our highly effective planning and allocation systems to ensure we have the right products for our customers whenever they want them."

Gross margin in the quarter climbed by 180 basis points to 38% of sales. J.C. Penney attributed the improvement to a strong performance of its private brands and stronger inventory management, including better flow of seasonal goods.

Though margins improved, the bottom line was hit by higher income tax expense, which climbed 51% to $271 million.

For the year, the company earned $1.15 billion, or $4.96 a share, up from $1.09 billion, or $4.26 a share, a year earlier. Revenue increased 6% to $19.9 billion.

Looking ahead, J.C. Penney forecast first-quarter earnings of 99 cents a share, short of Wall Street's expectation of $1.05. For the year, the company expects earnings of $5.44 a share, while analysts are calling for a profit of $5.42 a share.

J.C. Penney predicts that total department store sales will increase by mid-single digits for both the first quarter and full year. Comparable department store sales growth is expected to be in the low-single-digit percentage for both the first quarter and full year.

As a percent of sales, gross margin, total expenses and operating profit are expected to be flat for the first quarter, with moderate improvement for the full year, the company said.

Shares of J.C. Penney recently were trading down $3.53 to $82.82. Over the past 52 weeks, the stock has surged 51%, reaching an all-time high of $87.18 on Wednesday.