Management Revises Fourth Quarter Earnings Guidance
PLANO, Texas--(BUSINESS WIRE)--Nov. 15, 2007--J. C. Penney
Company, Inc. (NYSE:JCP) reported net income and income from
continuing operations of $261 million, or $1.17 per share, for the
third quarter ended Nov. 3, 2007. This year's third quarter included
$32 million, or $0.14 per share, of federal and state income tax
credits. For the quarter, operating income decreased 180 basis points
to 8.7 percent of sales, as a result of lower sales and gross margin
rates. In last year's third quarter, income from continuing operations
was $286 million, or $1.26 per share.
"After the completion of a strong Back-to-School season and a
favorable response to our early fall merchandise, we were disappointed
to see sales weaken dramatically in September and October," said Myron
E. (Mike) Ullman, III, chairman and chief executive officer of
JCPenney. "The combination of weak housing conditions, mortgage and
credit market concerns, and rising fuel prices has clearly led to a
challenging macroeconomic environment for consumers. Along with
unseasonable weather, this has created difficult conditions for most
retailers, and our third quarter performance shows that JCPenney was
not immune to those conditions.
"Notwithstanding the difficult retail environment, our team is
focused on the fourth quarter and beyond, and is working to seize
opportunities to improve operating performance. For the upcoming
holiday season, we are confident that our customers will find highly
compelling merchandise assortments and smart prices supported by a
competitive promotional calendar. In addition, we have expanded our
assortment of 'redbox gifts(TM)' to provide an easy way to fulfill
gift-giving needs, as well as an exciting shopping experience.
"As we look ahead, we continue to believe the strategies in our
Long-Range Plan provide the best opportunity to achieve sustainable
growth over the longer term. However, in light of the expected weak
retail environment, we will be taking a cautious approach to planning
our business for the fourth quarter and 2008."
Operating Performance
Third quarter operating income was $411 million, an 18.5 percent
decrease from last year's $504 million. Total Company sales decreased
1.1 percent, including a 3.5 percent comparable store sales decline
and 3.6 percent sales decline in Direct. Initial guidance was for both
comparable store and Direct sales to increase low-single digits. In
stores, the best sales results were in women's apparel, fine jewelry
and family shoes, although sales were soft across most merchandise
categories, with the weakest results in children's apparel and
big-ticket home. Sales in all regions of the country were below
expectations. Internet sales through www.jcp.com increased 11.8
percent and followed a 27.0 percent increase last year. Total Direct
sales, which include jcp.com, print and outlet stores, decreased
primarily as a result of declines in the print business.
Gross margin decreased by 180 basis points to 39.7 percent of
sales and was impacted by the acceleration of pricing action on
selected merchandise to help manage elevated inventories, as well as
calendar shifts resulting from last year's 53rd week. SG&A expenses
were well managed, decreasing 2.1 percent versus last year primarily
as a result of lower salary and related expenses, and were leveraged
despite the addition of 50 new stores in 2007 and the weak sales
environment. Including the impacts of depreciation and amortization
expense, pre-opening expenses and income from real estate operations,
total operating expenses were 31.0 percent of sales in the quarter, a
rate equal to last year's third quarter.
Interest and Taxes
Interest expense for the quarter was $41 million, slightly higher
than original expectations, compared to $36 million last year. The
effective tax rate for the quarter was 29.5 percent and benefited from
$32 million of one-time federal and state income tax credits.
Financial Condition
The Company continues to maintain a strong financial condition and
as of Nov. 3, 2007, had cash and short-term investments of $1.7
billion and $3.8 billion of long-term debt, including current
maturities. The cash position reflects a lower level of cash flow from
operating activities due to sales and earnings results that were below
original expectations.
Capital expenditures through the third quarter were $939 million,
in line with expectations and above last year's $560 million, with the
majority of spending related to the construction of new stores and the
renovation of existing stores.
Merchandise inventories at the end of the third quarter were $4.7
billion and reflect increases associated with 50 new stores opened in
2007 and the earlier receipt of holiday merchandise, but were above
plan as a result of third quarter sales performance. The Company will
be closely monitoring sell-through rates to ensure that appropriate
steps are taken on fall transition and seasonal merchandise in order
to meet targeted out-of-stock dates.
Store Opening and Renovation Update
During the third quarter, the Company opened 28 new and relocated
stores, completing its plan to open 50 stores in 2007. In addition,
the Company finalized work on the remodeling of 65 existing stores,
which completes the program for the year.
Earnings Guidance
Fourth quarter guidance:
- Monthly sales patterns: due to last year's 53rd week, fourth
quarter sales will vary by month from last year's sales
pattern, with the November period benefiting from an extra
week of pre-holiday sales. The December and January periods
will be negatively impacted by the calendar shift.
- Total department store sales: flat to up slightly (on a
comparable 13-week basis).
- Comparable department store sales: decrease low-single digits.
- Direct sales: decrease mid-single digits (on a comparable
13-week basis).
- Operating income: as a percent of sales, operating income is
expected to decline versus last year, as a result of lower
sales volumes and gross margin. Gross margin is expected to be
negatively impacted by a more competitive retail environment,
and is expected to decline as a percent of sales.
- Interest expense: approximately $43 million.
- Income tax rate: approximately 38 percent.
- Average diluted shares: approximately 224 million average
diluted shares of common stock, including about 2 million
common stock equivalents.
- Earnings per share: Management now expects fourth quarter
earnings to be in a range of $1.65 to $1.80 per share. This
compares with previous guidance of $2.41 per share.
Full-year guidance:
- Earnings per share: As noted above management is taking a more
cautious view of the consumer environment and now expects 2007
full year earnings to be in the range of $4.63 to $4.78 per
share. This compares to the Company's previous guidance of
$5.50 per share.
Conference Call/Webcast Details
Senior management will host a live conference call and real-time
webcast today, Nov. 15, 2007, beginning at 9:30 a.m. ET. Access to the
conference call is open to the press and general public in a
listen-only mode. To access the conference call, please dial
973-935-2035 and reference the JCPenney Quarterly Earnings Conference
Call. The telephone playback will be available for two days beginning
approximately two hours after the conclusion of the call by dialing
973-341-3080, pin code 8337169. The live webcast may be accessed via
JCPenney's Investor Relations page at www.jcpenney.net, or on
www.streetevents.com (for members) and www.earnings.com (for media and
individual investors). Replays of the webcast will be available for up
to 90 days after the event.
About JCPenney
JCPenney is one of America's leading retailers, operating 1,067
department stores throughout the United States and Puerto Rico, as
well as one of the largest apparel and home furnishing sites on the
Internet, jcp.com, and the nation's largest general merchandise
catalog business. Through these integrated channels, JCPenney offers a
wide array of national, private and exclusive brands which reflect the
Company's commitment to providing customers with style and quality at
a smart price. Traded as "JCP" on the New York Stock Exchange, the
Company posted revenue of $19.9 billion in 2006 and is executing its
strategic plan to be the growth leader in the retail industry. Key to
this strategy is JCPenney's "Every Day Matters" brand positioning,
intended to generate deeper, more emotionally driven relationships
with customers by fully engaging the Company's 155,000 Associates to
offer encouragement, provide ideas and inspire customers every time
they shop with JCPenney.
This release may contain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements, which reflect the Company's current views
of future events and financial performance, involve known and unknown
risks and uncertainties that may cause the Company's actual results to
be materially different from planned or expected results. Those risks
and uncertainties include, but are not limited to, general economic
conditions, including inflation, consumer spending patterns and debt
levels, the cost of goods, trade restrictions, changes in tariff,
freight, paper and postal rates, changes in the cost of fuel and other
energy and transportation costs, competition and retail industry
consolidations, interest rate fluctuations, dollar and other currency
valuations, risks associated with war, an act of terrorism or
pandemic, and a systems failure and/or security breach that results in
the theft, transfer or unauthorized disclosure of customer, employee
or Company information. Please refer to the Company's most recent Form
10-K and subsequent filings for a further discussion of risks and
uncertainties. Investors should take such risks into account when
making investment decisions. We do not undertake to update these
forward-looking statements as of any future date.
J. C. PENNEY COMPANY, INC.
SUMMARY OF OPERATING RESULTS
----------------------------------------------------------------------
(Unaudited)
(Amounts in millions except per share data)
13 weeks ended
--------------------------
Nov. 3, Oct. 28, % Inc.
2007 2006 (Dec.)
--------- -------- -------
STATEMENTS OF OPERATIONS:
-------------------------------------------
Total net sales $4,729 $4,781 (1.1)%
--------- --------
Gross margin 1,879 1,985 (5.3)%
Operating expenses:
Selling, general and administrative (SG&A) 1,348 1,377 (2.1)%
Depreciation and amortization 110 98 12.2%
Pre-opening 19 14 35.7%
Real estate and other (income) (9) (8) N/A
--------- --------
Total operating expenses 1,468 1,481 (0.9)%
--------- --------
Operating income 411 504 (18.5)%
Net interest expense 41 36 13.9%
Bond premiums and unamortized costs - - N/A
--------- --------
Income from continuing operations before
income taxes 370 468 (20.9)%
Income tax expense 109 182 (40.1)%
--------- --------
Income from continuing operations $ 261 $ 286 (8.7)%
--------- --------
Discontinued operations, net of income tax
expense/(benefit) of $-, $-, $4 and $(1) - 1 N/A
--------- --------
Net income $ 261 $ 287 (9.1)%
========= ========
Earnings per share from continuing
operations - diluted $ 1.17(1) $ 1.26 (7.1)%
Earnings per share - diluted $ 1.17(1) $ 1.26 (7.1)%
FINANCIAL DATA:
-------------------------------------------
Sales (decrease)/ increase:
Comparable department stores (3.5)% 5.2%
Total department stores (0.7)% 7.0%
Internet 11.8% 27.0%
Total Direct (3.6)% 5.3%
Ratios as a percentage of sales:
Gross margin 39.7% 41.5%
SG&A expenses 28.5% 28.8%
Total operating expenses 31.0% 31.0%
Operating income 8.7% 10.5%
Effective income tax rate for continuing
operations 29.5% 38.9%
COMMON SHARES DATA:
-------------------------------------------
Outstanding shares at end of period 221.7 224.7
Average shares outstanding (basic shares) 221.5 225.1
Average shares used for diluted EPS 223.7 227.6
Shares repurchased - 3.3
Total cost of shares repurchased $ - $ 220
39 weeks ended
----------------------------
Nov. 3, Oct. 28, % Inc.
2007 2006 (Dec.)
---------- ---------- ------
STATEMENTS OF OPERATIONS:
-----------------------------------------
Total net sales $13,470 $13,239 1.7%
---------- ----------
Gross margin 5,360 5,290 1.3%
Operating expenses:
Selling, general and administrative
(SG&A) 3,882 3,859 0.6%
Depreciation and amortization 310 274 13.1%
Pre-opening 40 21 90.5%
Real estate and other (income) (31) (30) N/A
---------- ----------
Total operating expenses 4,201 4,124 1.9%
---------- ----------
Operating income 1,159 1,166 (0.6)%
Net interest expense 110 102 7.8%
Bond premiums and unamortized costs 12 - N/A
---------- ----------
Income from continuing operations before
income taxes 1,037 1,064 (2.5)%
Income tax expense 363 387 (6.2)%
---------- ----------
Income from continuing operations $ 674 $ 677 (0.4)%
---------- ----------
Discontinued operations, net of income
tax expense/(benefit) of $-, $-, $4 and
$(1) 7 (1) N/A
---------- ----------
Net income $ 681 $ 676 0.7%
========== ==========
Earnings per share from continuing
operations - diluted $ 2.98(1) $ 2.90(2) 2.8%
Earnings per share - diluted $ 3.01(1) $ 2.90(2) 3.8%
FINANCIAL DATA:
-----------------------------------------
Sales (decrease)/ increase:
Comparable department stores 0.1% 4.4%
Total department stores 2.6% 5.5%
Internet 15.4% 24.6%
Total Direct (3.2)% 4.0%
Ratios as a percentage of sales:
Gross margin 39.8% 40.0%
SG&A expenses 28.8% 29.1%
Total operating expenses 31.2% 31.2%
Operating income 8.6% 8.8%
Effective income tax rate for continuing
operations 35.0% 36.4%
COMMON SHARES DATA:
-----------------------------------------
Outstanding shares at end of period 221.7 224.7
Average shares outstanding (basic shares) 223.3 230.6
Average shares used for diluted EPS 225.9 233.2
Shares repurchased 5.1 11.3
Total cost of shares repurchased $ 400 $ 750
(1) Includes one-time state and federal income tax benefits of $0.14
per share.
(2) Includes one-time state and federal income tax benefits of $0.11
per share.
SUMMARY BALANCE SHEETS AND STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in millions)
Nov. 3, Oct. 28,
2007 2006
-------- --------
SUMMARY BALANCE SHEETS:
--------------------------------------------------
Cash and short-term investments $ 1,660 $ 1,976
Receivables 716 300
Merchandise inventory (net of LIFO reserves of $8 and
$24) 4,734 4,275
Prepaid expenses 228 202
Property and equipment, net 4,745 4,023
Prepaid pension 1,308 1,462
Other assets 576 580
-------- --------
Total assets $13,967 $12,818
======== ========
Trade payables $ 2,322 $ 1,806
Accrued expenses and other 1,435 1,339
Current maturities of long-term debt 304 341
Current income taxes, payable and deferred - -
Long-term debt 3,505 3,112
Long-term deferred taxes 1,128 1,252
Other liabilities 782 968
-------- --------
Total liabilities 9,476 8,818
Stockholders' equity 4,491 4,000
-------- --------
Total liabilities and stockholders' equity $13,967 $12,818
======== ========
39 weeks ended
-----------------
Nov. 3, Oct. 28,
SUMMARY STATEMENTS OF CASH FLOWS: 2007 2006
--------------------------------------------------- -------- --------
Net cash provided by/(used in):
Total operating activities $ 38 $ 253
-------- --------
Investing activities:
Capital expenditures (939) (560)
Proceeds from sale of assets 8 11
-------- --------
Total investing activities (931) (549)
-------- --------
Financing activities:
Change in debt 336 (12)
Stock repurchase program (400) (750)
Other change in stock 60 139
Dividends paid (173) (113)
-------- --------
Total financing activities (177) (736)
-------- --------
Cash (paid) for discontinued operations (17) (8)
-------- --------
Net (decrease) in cash and short-term investments (1,087) (1,040)
Cash and short-term investments at beginning of
period 2,747 3,016
-------- --------
Cash and short-term investments at end of period $ 1,660 $ 1,976
======== ========
CONTACT: J. C. Penney Company, Inc.
Investor Relations:
Bob Johnson, 972-431-2217
rvjohnso@jcpenney.com
or
Phil Sanchez, 972-431-5575
psanc3@jcpenney.com
or
Media Relations:
Darcie Brossart or Quinton Crenshaw, 972-431-3400
jcpcorpcomm@jcpenney.com
SOURCE: J. C. Penney Company, Inc.
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