|JCPENNEY FOURTH QUARTER AND FISCAL 2017 EARNINGS EXCEEDED EXPECTATIONS|
Fourth Quarter Comparable Sales Increase 2.6%
Outstanding Debt Reduced by Over $600 Million in 2017
PLANO, Texas - (Mar. 2, 2018) - J. C. Penney Company, Inc. (NYSE: JCP) today announced financial results for its fiscal fourth quarter and full year ended Feb. 3, 2018. Comparable sales increased 2.6 % for the fourth quarter and increased 0.1 % for full year 2017. Fourth quarter earnings per share was $0.81 and full year net loss per share was ($0.37). Fourth quarter adjusted earnings per share was $0.57 and full year adjusted earnings per share was $0.22. A reconciliation of GAAP to non-GAAP financial measures is included in the schedules accompanying the consolidated financial statements in this release.
Marvin R. Ellison, chairman and chief executive officer said, "We are encouraged by our results for the fourth quarter and for fiscal 2017. Through the hard work and dedication of the entire JCPenney team, we delivered our second consecutive year of positive adjusted earnings. For 2017, we improved adjusted earnings per share by 175 %, reduced our outstanding debt levels by over $600 million and generated over $200 million of free cash flow. During the fourth quarter, we delivered our strongest positive sales comps and achieved our largest gross margin improvement for the year. Our fourth quarter gross margin improvement, combined with our continued commitment to expense discipline, helped us generate adjusted earnings per share of $0.57 for the quarter."
Ellison continued, "In 2018, we will intensify our market share efforts in Appliances, Mattresses and Furniture, while continuing to take steps to modernize our apparel assortment and omni-channel. Our strategy and plan is clear and consistent, and we remain focused on two critical factors - to operate the business for growth and deliver profitable earnings. I would like to thank our nearly 100,000 associates around our company for their hard work and more importantly, for their commitment to JCPenney."
Fourth Quarter 2017 Results
Total net sales for the 14 weeks ended Feb. 3, 2018 increased 1.8 % to $4.03 billion compared to $3.96 billion for the 13 weeks ended Jan. 28, 2017. Comparable sales increased 2.6 % in the fourth quarter and were on the same 13 week basis as the fourth quarter last year.
Jewelry, Home, Sephora, Footwear and Handbags and Salon were the Company's top performing divisions during the quarter. Geographically, the Southeast and Gulf Coast were the best performing regions of the country.
Cost of goods sold, which excludes depreciation and amortization, was $2.68 billion, or 66.4 % of sales, compared to $2.65 billion, or 66.9 % of sales in the same period last year. The improvement was primarily driven by decreased promotional activity during the quarter resulting from an improved inventory position. This improvement was partially offset by the continued growth in the Company's online and major appliance businesses and higher shrink rates.
SG&A expenses were $943 million compared to $925 million for the same period last year. As a percentage of sales, SG&A expenses were 23.4 % and flat compared to last year. Reductions primarily in store controllable costs and marketing spend were partially offset by lower credit income and higher incentive compensation.
Net income was $254 million, or $0.81 per share, compared to net income of $192 million, or $0.61 per share in the same period last year. The improvement was primarily due to a $75 million tax reform benefit recorded in the fourth quarter this year.
Adjusted net income was $179 million, or $0.57 per share, for the fourth quarter this year. Adjusted net income for the fourth quarter last year was $202 million, or $0.64 per share, which included a gain of $62 million, or $0.20 per share, associated with the sale of the Company's home office.
Full Year 2017 Results
Total net sales decreased (0.3) % to $12.51 billion compared to $12.55 billion last year. Comparable sales increased 0.1 % for full year 2017. The slight decline in total net sales was primarily due to store closures in 2017, most of which closed in the first half of the year, and was partially offset by incremental sales for the 53rd week.
For the year, cost of goods sold, which excludes depreciation and amortization, was $8.17 billion, or 65.4 % of sales, compared to $8.07 billion, or 64.3 % of sales last year. This increase was primarily driven by the liquidation of both closed store and slow-moving inventory, the continued growth in the Company's online and major appliance businesses and higher shrink rates.
SG&A expenses declined 2 % or $70 million to $3.47 billion, or 27.7 % of sales, a decrease of 50 basis points as a percentage of sales compared to last year. These savings were primarily driven by reductions in store controllable costs and marketing efficiencies, which were partially offset by lower credit income and higher incentive compensation.
Net loss was ($116) million, or ($0.37) per share, compared to net income of $1 million, or $0.00 per share last year. This reduction was driven primarily by restructuring charges associated with the fiscal 2017 store closures and voluntary early retirement program.
Adjusted net income increased $44 million to $68 million, or $0.22 per share, compared to adjusted net income of $24 million, or $0.08 per share, last year.
Adjusted EBITDA was $972 million compared to $1.01 billion last year.
Inventory at year-end was $2.76 billion, a decrease of 3.2 % compared to last year-end. Capital expenditures for the year, net of landlord allowances, were $375 million. Free cash flow was a positive $213 million for full year 2017, an increase of $210 million versus last year.
Cash and cash equivalents at the end of year were $458 million. During fiscal 2017, the Company reduced its outstanding debt position by over $600 million. The Company ended the fiscal year with liquidity in excess of $2.3 billion.
The Company's 2018 full year guidance is as follows:
Starting in the first quarter of fiscal 2018, the Company will adopt the new accounting standards, which relate to revenue recognition and pension accounting. The Company expects the impact from the accounting changes will not have a material impact on its 2018 full year earnings results.
 A reconciliation of non-GAAP forward-looking projections to GAAP financial measures is not available as the nature or amount of potential adjustments, which may be significant, cannot be determined at this time.
Fourth Quarter and Full Year Earnings Conference Call Details
Telephone playback will be available for seven days beginning approximately two hours after the conclusion of the conference call by dialing (855) 859-2056, or (404) 537-3406 for international callers, and referencing 6887218 conference ID.
Investors and others should note that we currently announce material information using SEC filings, press releases, public conference calls and webcasts. In the future, we will continue to use these channels to distribute material information about the Company and may also utilize our website and/or various social media to communicate important information about the Company, key personnel, new brands and services, trends, new marketing campaigns, corporate initiatives and other matters. Information that we post on our website or on social media channels could be deemed material; therefore, we encourage investors, the media, our customers, business partners and others interested in our Company to review the information we post on our website as well as the following social media channels:
Any updates to the list of social media channels we may use to communicate material information will be posted on the Investor Relations page of the Company's website at www.jcpenney.com.
J. C. PENNEY COMPANY, INC.
SUMMARY BALANCE SHEETS
SUMMARY STATEMENTS OF CASH FLOWS
February 3, 2018, respectively, and $32 million and $43 million for the three and twelve months ended January 28, 2017, respectively.
Reconciliation of Non-GAAP Financial Measures
We report our financial information in accordance with generally accepted accounting principles in the United States (GAAP). However, we present certain financial measures and ratios identified as non-GAAP under the rules of the Securities and Exchange Commission (SEC) to assess our results. We believe the presentation of these non-GAAP financial measures and ratios is useful in order to better understand our financial performance as well as to facilitate the comparison of our results to the results of our peer companies. In addition, management uses these non-GAAP financial measures and ratios to assess the results of our operations. It is important to view non-GAAP financial measures in addition to, rather than as a substitute for, those measures and ratios prepared in accordance with GAAP. We have provided reconciliations of the most directly comparable GAAP measures to our non-GAAP financial measures presented.
The following non-GAAP financial measures are adjusted to exclude restructuring and management transition charges, the impact of our qualified defined benefit pension plan (Primary Pension Plan), the mark-to-market adjustment for supplemental retirement plans, the (gain)/loss on extinguishment of debt, the net gain on the sale of non-operating assets, the proportional share of net income from our joint venture formed to develop the excess property adjacent to our home office facility in Plano, Texas (Home Office Land Joint Venture), the tax impact for the allocation of income taxes to other comprehensive income items related to our Primary Pension Plan and interest rate swaps and the impact of tax reform. Unlike other operating expenses, restructuring and management transition charges, the (gain)/loss on extinguishment of debt, the net gain on the sale of non-operating assets, the proportional share of net income from the Home Office Land Joint Venture, the tax impact for the allocation of income taxes to other comprehensive income items related to our Primary Pension Plan and interest rate swaps and the impact of tax reform are not directly related to our ongoing core business operations. Primary Pension Plan expense/(income) and the mark-to-market adjustment for supplemental retirement plans are determined using numerous complex assumptions about changes in pension assets and liabilities that are subject to factors beyond our control, such as market volatility. Accordingly, we eliminate our Primary Pension Plan expense/(income) in its entirety as we view all components of net periodic benefit expense/(income) as a single, net amount, consistent with its presentation in our Consolidated Financial Statements. We believe it is useful for investors to understand the impact of restructuring and management transition charges, Primary Pension Plan expense/(income), the mark-to-market adjustment for supplemental retirement plans, the (gain)/loss on extinguishment of debt, the net gain on the sale of non-operating assets, the proportional share of net income from the Home Office Land Joint Venture, the tax impact for the allocation of income taxes to other comprehensive income items related to our Primary Pension Plan and interest swaps and the impact of tax reform on our financial results and therefore are presenting the following non-GAAP financial measures: (1) adjusted net income/(loss) before net interest expense, income tax (benefit)/expense and depreciation and amortization (adjusted EBITDA); (2) adjusted net income/(loss); and (3) adjusted earnings/(loss) per share-diluted.
In addition, we believe that EBITDA is a useful measure in assessing our operating performance and are therefore presenting this non-GAAP financial measure in addition to the non-GAAP financial measures listed above.
ADJUSTED EBITDA, NON-GAAP FINANCIAL MEASURE:
The following table reconciles net income/(loss), the most directly comparable GAAP measure, to adjusted EBITDA, a non-GAAP financial measure:
ADJUSTED NET INCOME/(LOSS) AND ADJUSTED EARNINGS/(LOSS) PER SHARE-DILUTED, NON-GAAP FINANCIAL MEASURES:
The following table reconciles net income/(loss) and earnings/(loss) per share-diluted, the most directly comparable GAAP measures, to adjusted net income/(loss) and adjusted earnings/(loss) per share-diluted, non-GAAP financial measures:
Reconciliation of Non-GAAP Financial Measures
Free cash flow is a key financial measure of our ability to generate additional cash from operating our business and in evaluating our financial performance. We define free cash flow as cash flow from operating activities, less capital expenditures, plus the proceeds from the sale of operating assets. Free cash flow is a relevant indicator of our ability to repay maturing debt, revise our dividend policy or fund other uses of capital that we believe will enhance stockholder value. Free cash flow is considered a non-GAAP financial measure under the rules of the SEC. Free cash flow is limited and does not represent remaining cash flow available for discretionary expenditures due to the fact that the measure does not deduct payments required for debt maturities, payments made for business acquisitions or required pension contributions, if any. Therefore, it is important to view free cash flow in addition to, rather than as a substitute for, our entire statement of cash flows and those measures prepared in accordance with GAAP.
FREE CASH FLOW, NON-GAAP FINANCIAL MEASURE:
The following table reconciles cash flow from operating activities, the most directly comparable GAAP measure, to free cash flow, a non-GAAP financial measure, as well as information regarding net cash provided by/(used in) investing activities and net cash provided by/(used in) financing activities:
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