NEW YORK — Driven by improved margins and strong sell-throughs on winter merchandise, J.C. Penney Co. reported overall operating earnings improved 5.2 percent in the fourth quarter. However, higher LIFO, interest and credit costs resulted in a 1.9 percent dip in net profits.
Penney’s operating earnings in the quarter ended Jan. 28 rose to $665 million from $632 million. Sales for the Plano, Texas-based chain improved 5 percent to $6.6 billion from $6.3 billion, with women’s sportswear and accessories, young men’s sportswear, men’s clothing, wrinkle-free shirts, and the Arizona private label line pacing the business. Gross margins improved to 31.2 percent from 30.8 percent, reflecting a strong selling performance at the stores and improved inventory management at the catalog. “The catalog did okay but the driver of earnings continues to be the stores,” said Janet Mangano, an analyst at Burnham Securities.
Mangano called Penney’s performance in the quarter “exemplary, considering industry consolidations and a ramp up in advertising.” She said the company had planned to boost advertising in the holiday season, but became even more aggressive when it saw apparel sales were generally soft.
“They were able to clear winter inventories so that now they are 100 percent spring,” she said. Sales-per-square-foot in the year increased to $157 from $146 in fiscal 1993, Mangano noted.
Selling, general and administrative expenses increased to 21.2 percent of sales from 20.8 percent as a result of increased advertising and a LIFO credit of $1 million in the latest quarter versus a $36 million LIFO charge a year earlier.
After interest, credit expense and taxes, net earnings fell to $428 million from $437 million a year earlier. The year-ago quarter includes a $2 million charge to buy back debt. Interest expense gained 22.2 percent to $77 million due to the company’s stock buyback program. Credit card costs climbed 40.2 percent to $129 million as a result of increased credit card purchases. The company told analysts that 68 percent of the purchases came from credit cards versus 66 percent in 1993. Penney’s card represented 50 percent of the purchases, as it did in the same period a year earlier, while the share for other cards grew to 18 percent from 16 percent.
Per-share earnings improved to $1.66 a share from $1.64, reflecting the company buyback of 10 million shares in the year. Wall Street was expecting about $1.60 to $1.65, but was warned by Penney’s in December that sales weren’t coming in as strong as expected. In the year, earnings advanced 12.5 percent to $1.06 billion, or $4.05 a share, from $940 million, or $3.55, a year earlier. This marked the first time Penney’s net income exceeded $1 billion. Sales gained 7.4 percent to $20.4 billion from $19 billion.
A spokesman said all of Penney’s businesses, including stores, and catalog, as well as its drug stores and insurance, had higher profits in both the quarter and year.
At J.C. Penney stores, sales in the quarter advanced 5.7 percent to $5 billion with same-store sales up 5.6 percent. In the year, store sales rose 6.9 percent to $15.02 billion and same-store sales climbed 6.8 percent. Catalog sales inched ahead 1.3 percent in the quarter to $1.22 billion while rising 8.6 percent to $3.8 billion in the year.
Mangano expects 5 percent sales growth at both the stores and catalog this year, with slightly lower same-store sales gains at the stores. She expects earnings per share to reach $4.50 this year, with part of that reflecting its aggressive share buyback program.
Mangano estimated that Penney spent $440 to $450 million on its buyback program this year. The company just announced another program to buy back an additional 10 million shares.
Shares of Penney fell 3/4 to 43 Thursday on the New York Stock Exchange.
— Fairchild News Service