Myron Ullman 3rd

J.C. Penney Co. Inc., riding strong private label, jewelry and men's division sales, rolled to a 22.1 percent increase in first-quarter earnings and raised full-year guidance Thursday.

NEW YORK — J.C. Penney Co. Inc., riding strong private label, jewelry and men’s division sales, rolled to a 22.1 percent increase in first-quarter earnings and raised full-year guidance Thursday.

Though the retailer’s forecast was 1 cent above Wall Street’s expectations, Penney’s shares dropped 1.39 percent to close at $65.98, down 93 cents, in New York Stock Exchange trading. Overall, stocks had the biggest decline since Jan. 20 because of concern over higher interest rates and rising fuel prices.

Penney’s, which plans to invest $3 billion to build and renovate stores, a beauty partnership with Sephora and a new traditional career line for women called E. 5th, said containing overhead costs boosted quarterly profits, although women’s apparel was soft. Sales gained 2.5 percent and comps rose 1.3 percent for the 12th consecutive quarter of same-store sales gains.

“Looking at the consumer in terms of their expectations, their sentiment, as well as the effect of fuel prices, we believe we’re well positioned with great style and quality at a smart price, and we’re competing effectively in the malls, and particularly taking on new growth in the off-mall concept, with 28 stores this year and 50 in the following years,” Myron “Mike” Ullman 3rd, chairman and chief executive officer, said during a conference call with Wall Street analysts.

In a statement, Ullman said, “We are pleased with the progress the company continues to make in executing the long-range plan, which is focused on building long-term growth for our business. We have established strong momentum and are focused on accelerating growth and becoming a leader in the retail industry.”

Earnings for the three months ended April 29 were $210 million, or 89 cents a diluted share, compared with $172 million, or 63 cents, in the year-ago quarter. The company beat Wall Street’s consensus estimates by 1 cent. The quarter included a charge related to the sale of Penney’s Eckerd business in July 2004. Excluding the charge, the company on a continuing operations basis earned 90 cents in the quarter. Sales were $4.2 billion versus $4.1 billion a year ago.

Earnings from continuing operations for the year are forecast at $4.24 to $4.34; the high end of the range is 1 cent shy of Wall Street’s updated consensus of $4.35. The company’s previous guidance for the year, disclosed earlier this month, was $4.22 to $4.32, which compared with Wall Street’s earlier estimate of $4.26.

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Penney’s “guidance appears conservative, assuming sales come in at or above plan,” Bernard Sosnick, analyst at Oppenheimer & Co., wrote in a research note.

Merrill Lynch analyst Stacy Turnof wrote, “We reiterate our ‘buy’ recommendation on J.C. Penney as the company continues to post double-digit earnings driven by strong improvements in operating margins and share repurchase activity. Merchandising, particularly in private label; marketing and advertising, and inventory management initiatives continue to drive the growth.”

The Plano, Tex., retailer expects second-quarter earnings per share in the 60-cent range.

Ken Hicks, president and chief merchandising officer, said on the conference call that women’s apparel continues to be soft, reflecting a trend in the industry, but added that the company has had sales gains in fashion and basic merchandise, and private brands continue to perform well. Fine jewelry and men’s showed strong performances.

“In our women’s apparel business, we’re taking aggressive action with markdowns to keep our inventory fresh, as well as building our key brands,” Hicks said.

He noted that while direct-to-consumer sales rose 3.9 percent, the Internet continues to be the retailer’s fastest-growing sales channel, gaining more than 22 percent in the quarter. In addition to launching Sephora in a handful of Penney’s stores and taking more than 20 weeks out of its cycle time in key merchandise categories, the retailer plans to open 50 stores in 2007 in its off-mall format. The goal is to open over 175 stores by 2009, for 3 percent growth per year in gross square footage, Hicks said. The company has 25 off-mall stores in operation and has identified 400 new locations.

“The bottom line is, we have a growing company with new stores, powerful private brands and the leading department store Internet business,” Hicks said. “While we have delivered consistent growth the past few years, we believe we have the right merchandise, marketing and people in place to drive J.C. Penney to a position of leadership in the retail industry.”

In trading Thursday, the Dow Jones industrial average plunged 141.92 points to 11,500.73. Gold hit a 26-year high and crude oil prices rose amid worries about overseas supplies. The Nasdaq shed 48.05 points to 2,272.70, and the S&P 500 lost 16.93 points to 1,305.92.