Dillard’s Inc. became the first major U.S. retailer to report higher first-quarter profits, while J.C. Penney Co. Inc. saw earnings decline during the period.

This story first appeared in the May 18, 2009 issue of WWD. Subscribe Today.

Little Rock, Ark.-based Dillard’s net income nearly tripled despite a 12 percent sales decline.

Even as J.C. Penney’s first-quarter earnings fell 79.2 percent on a 5.9 percent sales decline and a pension expense, chairman and chief executive officer Myron E. “Mike” Ullman 3rd said the chain is standing its ground strategically.

“We know who we are,” Ullman said on a conference call Friday. “We are a department store that offers style and quality at affordable prices. We’re opening stores, not closing them. We’re improving our processes versus inventing them.…We have the financial flexibility to focus on growing our business.”

The Plano, Tex.-based chain, now with 1,101 doors after nine openings in the last quarter, projected earnings of 50 to 65 cents a diluted share this year, less than the 76 cents Wall Street had penciled in.

Ullman said Penney’s recently has seen greater stability but was careful not to underestimate the severity of the recession.

“The duration of unemployment is now 21.4 weeks, which is among the longest periods on record,” said the ceo, who also sits on the board of the Federal Reserve Bank of Dallas. “And notably, of the people employed, 11 percent of firms have actually cut their compensation for employees, which is a record high.”

Including the ranks of people who have given up job hunting, the nation’s unemployment rate is at 15.8 percent, he said.

Penney’s earnings dropped to $25 million, or 11 cents a diluted share, from $120 million, or 54 cents, a year earlier. Pension expense dragged earnings down by 32 cents a share. But the bottom line beat analysts’ profit forecast of 10 cents by a penny. Sales fell to $3.88 billion from $4.13 billion on a 7.5 percent drop in comparable-store sales for the three months ended May 2.

Gross profit margins grew to 40.5 percent of sales from 40 percent, reflecting leaner inventories and better-than-planned sales. The firm’s shares ended the day at $26.54, down 11 cents or 0.4 percent.

Women’s apparel was the best performing line of business for Penney’s, said Ken Hicks, president and chief merchandising officer.

Hicks said the company has worked to improve its a.n.a., Worthington and St. John’s Bay private label brands and that its spring launches, Allen B. and I [Heart] Ronson, had “good starts.” American Living, designed by Polo Ralph Lauren Corp., is ahead of a year ago on both the sales and the profit margin fronts.

To help build American Living, Penney’s is launching a marketing campaign with the country and western band Rascal Flatts. The three men will dress in American Living’s casual sportswear and the logo will be splashed across trucks during a two-year concert tour that’s expected to draw two million fans.

“They have a large following that happens to be the core of our customers,” Ullman noted at the firm’s annual meeting later on Friday.

Sales and inventory levels are projected to drop 10 percent this year, he said. The company is investing $600 million in capital expenditures in fiscal ’09 and probably $400 million next year compared with $1 billion in ’08.

In the three months ended May 2, Dillard’s reported net income of $7.7 million, or 10 cents a diluted share, compared with 2.7 million, or 4 cents a share, a year ago as sales eased to $1.47 billion from $1.67 billion and same-store sales dropped 13 percent.

Excluding a pretax gain of $1.5 million related to the repurchase of unsecured notes, Dillard’s posted profits of $6.2 million compared with adjusted earnings of $3.6 million in 2008.

The company said it achieved inventory reduction of $371.3 million in the quarter, and that inventory in comparable stores fell by 17 percent versus 2008.