By and  on February 22, 2008

Price promotions ate into J.C. Penney Co. Inc.'s fourth-quarter profits and a cautious consumer has the retailer scaling back store growth, but chief executive officer Myron "Mike" Ullman 3rd sees additional brand launches — private label and national brands — drawing shoppers into stores this year.

For the fourth quarter ended Feb. 2, profits fell 9.9 percent to $430 million, or $1.93 a diluted share, a better showing than Wall Street analysts expected, who had penciled in $1.77 for the quarter. Year-ago profits tallied $477 million, or $2.09 a share. Sales fell 4.1 percent to $6.39 billion from $6.66 billion, as comparable-store sales slid 2.3 percent.

Using square footage more profitably could help the firm boost its bottom line, which is why the retailer is adding 45 Sephora store-within-stores this year. There are 55 units already in place, which brings in a "different shopper" to the chain.

"She is somewhat younger [but she's] buying the same brands....She is more affluent and cross-shops the rest of the store," Ullman said in an interview Thursday after the company reported fourth-quarter results. Sephora in-store shops are three times more productive per square foot than the product that occupied the space before, he said.

Meanwhile, the drop in the retailer's quarterly profits is the result of steps taken by Penney's to lure shoppers over the holidays. The company offered discounts of 20 to 60 percent. Such promotions contributed to a 187 basis-point drop in the firm's gross margin rate. Countering that decline, however, was a 186 basis point decline in selling, general and administrative expenses, as a percent of sales.

The efforts to clear goods have left the firm feeling good about its inventory position and merchandise mix on the floor between basic and more fashionable looks. That cleared the runway for American Living, a brand designed by Polo Ralph Lauren Corp., which was rolled out to 600 stores over the last three weeks.

Penney's will bring American Living to America's living room Sunday night with an ad campaign that kicks off during the Academy Awards.

There are additional brand launches planned for 2008 and although Ullman did not elaborate on the names that will be launched, he said it will be a mix of private label and national brands. Industry sources said they would not be surprised if the brands included heavyweights such as Sephora.

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