By  on August 14, 2011

J.C. Penney Co. Inc., slowed by markdowns and middle market consumers fretting the economy, reported second-quarter profits were flat at $14 million while same-store sales were ahead 1.5 percent.

On a per share basis, income rose 16.7 percent to 7 cents from 6 cents in the quarter ended July 30. Total sales were down 0.8 percent to $3.9 billion from $3.93 billion, reflecting the company’s exit from the catalogue business.

“The consumer climate is clearly uncertain,” Myron E. “Mike” Ullman 3rd, Penney’s chairman and chief executive officer, said during a conference call Friday. Referring to this month’s stock market convulsions, Ullman said “the tumultuous last 10 days or so hasn’t given our core customer, the middle-income family, any reason to be more confident.”

Penney’s showing was mediocre compared to Macy’s Inc., Nordstrom Inc., Dillard’s Inc. and Kohl’s Corp., which all reported robust second-quarter gains, and the outlook wasn’t particularly bright. Penney’s third-quarter gross margins are forecast down slightly and comp-store sales are forecast up 2 to 3 percent. Ullman also said that back-to-school selling would start later this year as consumers shop closer to need. In the second quarter, gross margin decreased about 110 basis points, to 38.3 percent of sales, due to softer-than-expected selling in May and June leading to more markdowns.

Ullman, however, presented the bright side. “Due to our compelling value proposition, now more than ever, our ability to offer great style and quality at compelling prices is a sustainable competitive advantage,” he said. “While the top-line sales number was softer than initially planned, we effectively managed expenses, maintained our strong liquidity position, and continued to transition our store for the products and brands to excite existing customers and attract new customers.

“Our identified growth initiatives — Liz Claiborne, Sephora inside J.C. Penney, our tops business, modern shoes and handbags, fast fashion, Modern Bride fine jewelry, housewares and center core — are performing double digits ahead of last year.…Sephora is the highest trending business in the store,” Ullman said.

The Penney’s chief also said Liz Claiborne and Call It Spring are ahead of expectations, American Living from the Global Brands unit of Ralph Lauren Corp. is “a top 10 brand” in the store, and tops, intimate apparel and modern assortments — young businesses — are encouraging. Overall, the strongest results were women’s apparel and accessories and fine jewelry, and the Southwest was the strongest region.

On the other hand, big-ticket home products, such as furniture and window coverings, and basics have been weak, Ullman said.

He updated some of Penney’s accomplishments this year, saying that as part of the $650 million 2011 capital expenditures program, 500 store updates and 20 major renovations were completed last quarter, including the largest renovation in the company’s history, which occurred at the Roosevelt Field store in Long Island. He also cited:

•  The closing of the catalogue business, which included three big books and 75 smaller specialized catalogues.

•  The closing of clearance outlets. Penney’s is in talks to sell the 19 locations.

•  The ongoing rollout of RFID, markdown and price optimization technologies.

•  The new big and tall men’s wear chain called The Foundry, with 10 stores operating and an “excellent” sell-through. “Several stores are hitting their three-to-five-year productivity in the first couple months.

“Additionally, we’re looking at the design structure of our entire organization to ensure we have the right people in the right roles to reflect our future growth opportunities,” Ullman said. “In some situations, primarily at the home office, we will staff organizations differently to meet the changing needs of our business.” The company recently initiated a voluntary early retirement program.

In November, Ullman will be succeeded by Ron Johnson, who currently heads up Apple Retail, as ceo. Ullman remains as chairman until February, when he retires. The two have been visiting stores together and were in Asia for Penney’s vendor fair earlier this year. “We have a full agenda of initiatives,” Ullman said. “Ron is very aware of what’s in progress.”

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