J.C. Penney Inc. came up 0-for-2 on Thursday.

A New York State appeals court reinstated much of Macy’s Inc.’s case against the retailer, reopening claims that J.C. Penney interfered with Macy’s contract with Martha Stewart and engaged in unfair competition.

And investors gave J.C. Penney’s fourth-quarter results the thumbs-down, pushing the stock 10.1 percent lower to $8.20 in after-hours trading.

J.C. Penney’s net losses for the quarter tallied $59 million, or 19 cents a diluted share, and compared with earnings of $35 million, or 11 cents a year ago.

Factoring out special items, J.C. Penney said it broke even for the quarter. That’s well below the EPS of 11 cents that analysts had penciled in.

Sales for the three months ended Jan. 31 rose 2.9 percent to $3.89 billion from $3.78 billion as comparable-store sales grew 4.4 percent. Sales through jcpenney.com rose 12.5 percent to $428 million.

The company is still working itself out of the hole it dug when former chief executive officer Ron Johnson tried to dramatically rework the chain, eliminating price promotions and many national brands and negotiating a controversial deal with Martha Stewart Living Omnimedia Inc.

A spokeswoman for J.C. Penney said, “While we are disappointed that the appellate court reversed the trial court’s dismissal of two claims, the decision does not meaningfully change our position…We’re also considering options for appeal.”

The legal news wasn’t all bad for J.C. Penney. The appellate court agreed with the lower court’s decision that Macy’s was not due punitive damages.
Macy’s in a statement trumpeted what it called “a resounding victory.”

“Not only did the Appellate Division affirm the trial court’s decision, after a long trial, that [J.C. Penney] had unlawfully interfered with Macy’s exclusive contractual rights for Martha Stewart housewares, but it recognized the impropriety of [J.C. Penney’s] efforts to obtain Macy’s confidential information and recognized that J.C. Penney had engaged in unfair competition…We now look forward to completing the damages phase of this case and to a forthcoming award of damages.”

The appeals court agreed with the lower court’s finding that J.C. Penney’s “‘relentless efforts’ to pursue MSLO and Ms. Stewart were ‘over the top’ and had ‘exceeded the minimum level of ethical behavior in the marketplace,’ and that by its conduct, it had wrongfully induced MSLO to breach its contract with Macy’s.”

For a time, Martha Stewart designers were working on goods for both Macy’s and J.C. Penney. The appeals court found that, “In using MSLO’s designers to develop its designs and products at the same time those designers were developing designs and products for Macy’s, and by using Macy’s confidential competitive information obtained by MSLO…[J.C. Penney] misappropriated Macy’s labor, skill, expenditures, [and] good will.”

That constituted a viable claim for unfair competition, the court said.

The legal fight is largely rehashing battles fought in the past. Johnson’s successor (and predecessor), ceo Myron “Mike” Ullman III, axed the Martha Stewart deal when he retook the helm of the company and unwound almost all of Johnson’s initiatives.

Ullman is getting ready to hand the torch to president Marvin Ellison, who will move into the corner office at J.C. Penney in August. 

For the full year, the retailer saw its losses narrow to $771 million, or $2.53 a diluted share, from $1.39 billion, or $5.57, in 2013. Sales rose 3.4 percent to $12.26 billion.

This year, J.C. Penney is looking for comparable-store sales to rise 3 to 5 percent, while expanding gross margins by 50 to 100 basis points and cutting selling, general and administrative expenses by $50 million to $100 million.

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