JC Penney Company reported a second quarter loss of $0.02 per share compared with a loss of $0.05 per share in last year's quarter.
Allen Questrom, Chairman and Chief Executive Officer said, “I am pleased with the rebound in Department Stores and encouraged by the turnaround in Catalog/Internet sales. Eckerd's sales and operating profits were clearly disappointing. As we begin the second half, we anticipate benefits from a more favorable consumer environment supported by the positive impacts that the tax package will have on our customers. We believe our Department Store and Catalog/Internet business will continue to improve in the second half, beginning with the back-to-school selling season. This improvement reflects greater experience working with our centralized business model, and delivering a more compelling value to both Department Store and Catalog/Internet customers. At Eckerd, we are making changes to improve the business, but recognize that it will take time for these changes to register with our customers. Accordingly, Eckerd's operating profits are likely to be below last year's level in the third quarter, and about equal to last year's profit in the fourth quarter. On a consolidated basis, we currently expect third quarter earnings to be in the range of $0.25 to $0.30 per share, and the full year to be in the range of $1.25 to $1.35 per share.”
Department Stores and Catalog
Second quarter LIFO operating profit more than doubled to $51 million compared with $22 million last year, an increase of 80 basis points as a percent of sales. Comparable department store sales increased 2.1 percent in a challenging retail environment. All merchandise divisions had comparable store sales increases. Catalog/Internet sales increased 3.9 percent, representing the first quarterly sales gain in three years. Sales benefited from improved print media, including a positive early customer response to the Fall/Winter Big Book. In addition, Internet sales continue to experience strong growth, increasing by more than 60 percent during the quarter and 40 percent year-to-date.
Department Stores and Catalog gross margin decreased by 20 basis points as a percent of sales, reflecting a more aggressive merchandise clearance strategy. Comparable department store inventory levels increased about three percent over last year, and are balanced and in line with current sales expectations. SG&A expense dollars were $22 million lower than last year, and were leveraged, improving by 100 basis points as a percent of sales. The decrease related primarily to salary savings and lower Catalog expenses that more than offset transition costs for the new store distribution network and higher non-cash pension expense.
Eckerd Drugstores
LIFO operating profit was $54 million in this year's second quarter compared with $73 million last year. Operating profit margin decreased by 60 basis points as a percent of sales. Total drugstore sales increased 2.3 percent. Comparable store sales decreased 0.8 percent during the quarter, with pharmacy sales increasing 1.7 percent and non-pharmacy, or front-end, sales decreasing 6.0 percent. Pharmacy sales were negatively impacted by approximately 430 basis points from the effects of higher generic dispensing rates and other changes in branded drugs. The best performing front-end categories for the quarter were seasonal items and over-the-counter medications, while photo and cigarette sales declined significantly. Eckerd's sales reflect increased competitor store openings, particularly in Florida and south Texas, coupled with execution issues. These issues are being addressed through merchandise and marketing changes, as well as a more competitive store opening program beginning in 2003.
Gross margin for the quarter decreased by 40 basis points as a percent of sales. Gross margin for the quarter includes a LIFO charge of $11 million compared with a charge of $9 million last year. SG&A expenses increased 3.2 percent and were not leveraged as a percent of sales.
Other unallocated in this year's second quarter was a net credit of $11 million. The credit includes $30 million of real estate gains on the sale of closed department store facilities and the charges include $24 million of previously announced Catalog restructuring and department store closings.
J. C. PENNEY COMPANY, INC.
SUMMARY OF OPERATING RESULTS
----------------------------
(Amounts in millions except per share data)
13 weeks ended 26 weeks ended
-------------------------- --------------------------
July 26, July 27, % Inc. July 26, July 27, % Inc.
2003 2002 (Dec.) 2003 2002 (Dec.)
------- ------- ------ ------- ------- ------
Comparable store
sales increase/
(decrease)
Department
stores 2.1% -2.4% -1.6% 2.5%
Eckerd
drugstores -0.8% 6.1% -1.0% 6.9%
Total retail sales
Department
stores
and catalog $ 3,658 $ 3,623 1.0% $ 7,381 $ 7,629 -3.3%
Eckerd
drugstores 3,655 3,575 2.3% 7,425 7,297 1.8%
------- ------- ------- -------
Total 7,313 7,198 1.6% 14,806 14,926 -0.8%
Margins and
expenses
--------------
Gross margin - LIFO
Department
stores
and catalog 1,314 1,307 0.5% 2,774 2,821 -1.7%
Eckerd
drugstores 833 828 0.6% 1,699 1,667 1.9%
------- ------- ------- -------
Total 2,147 2,135 0.6% 4,473 4,488 -0.3%
Selling, general
and administrative
(SG&A) expenses
Department
stores
and catalog (1,263) (1,285) -1.7% (2,640) (2,642) -0.1%
Eckerd
drugstores (779) (755) 3.2% (1,527) (1,494) 2.2%
------- ------- ------- -------
Total (2,042) (2,040) 0.1% (4,167) (4,136) 0.7%
Segment operating
profit - LIFO
Department
stores
and catalog 51 22 100.0%+ 134 179 -25.1%
Eckerd
drugstores 54 73 -26.0% 172 173 -0.6%
-------- ------- ------- -------
Total 105 95 10.5% 306 352 -13.1%
Other
unallocated 11 (5) N/A 18 (15) N/A
Net interest
expense (108) (92) 17.4% (212) (194) 9.3%
Acquisition
amortization (8) (7) 14.3% (18) (17) 5.9%
------- ------- ------- -------
Income/(loss)
before income
taxes 0 (9) 100.0%+ 94 126 -25.4%
Income taxes 0 3 -100.0%+ (33) (46) -28.2%
------- ------- ------- -------
Net
income/(loss) $ 0 $ (6) 100.0%+ $ 61 $ 80 -23.8%
======= ======= ======= =======
(Loss)/earnings
per share -
diluted $ (0.02) $ (0.05) 60.0% $ 0.18 $ 0.24 -25.0%
