PENNEY’S PLANS SALE OF DMS SUBSIDIARY

NEW YORK — Looking to shed some weight to better focus on its struggling department store operations, J.C. Penney said Tuesday it would explore selling all or part of DMS, its direct marketing services subsidiary.
Penney’s, based in Plano, Tex., said options would include a joint venture. DMS markets life, health, accident, supplemental hospital and credit insurance as well as other products and services.
Credit Suisse First Boston has been retained to assist in the process.
Penney’s said DMS has had 12 consecutive years of growth in sales and profits, and it was responsible for 26 percent of Penney’s operating earnings in 1999. But James E. Oesterreicher, Penney’s chairman and chief executive, said in a statement, “We believe that an exploration of strategic alternatives is a logical continuation of our ongoing efforts to focus on our core businesses while at the same time taking actions to unlock value for our shareholders, which is not being recognized in our share price.”
According to the company’s 1999 annual report, “results proved to us that we must be more agile and focused. Our mission for 2000 is to combine the power, resources and the reach of J.C. Penney with the energy, agility and spirit of a small company.”
Sales for stores and catalog last year were $19 billion, a 0.8 percent decline from the prior year. According to a company spokeswoman, the retailer is looking to complete the transaction within the 2000 fiscal year.
Wall Street liked the plan, sending Penney’s stock up 1 7/8, or 12.8 percent, to 16 9/16 Tuesday.
To improve the performance of its department store and Eckerd’s drugstore divisions, senior management was brought in from outside, underperforming stores were closed and a number of Penney’s department stores were refurnished, Oesterreicher said.
The company sold its credit card operation to GE Capital and announced that it plans an initial public offering to establish a tracking stock for its drugstore business.
The company said that it would be using proceeds from any DMS transaction, as well as from the planned Eckerd tracking stock IPO, to continue reducing its debt and to buy back Penney’s common stock.