J.C. Penney raises earnings view; shares up
U.S. department store operator J.C. Penney Co Inc
Penney also reported a third-quarter profit that met Wall Street expectations on Friday and improved its sales forecast for the full year, which includes the crucial holiday season.
Earlier this week, rivals Macy's Inc
That news sent J.C. Penney's shares down as investors were expecting the retailer to follow suit with forecasts that would also fall short of Wall Street expectations.
But its revised outlook was in line with expectations, so Penney's shares rebounded to just above where they closed on Tuesday, at $31.15, the last session before Macy's released its earnings.
Expectations were low and J.C. Penney's guidance was not as conservative as investors had feared, said Erika Maschmeyer, a senior research analyst with Robert W. Baird.
The company said it had benefited from tighter inventory management that raised its profit margin by 210 basis points to 40.6 percent during its third quarter, which ended on October 31.
Penney maintained appropriate inventory levels and reduced both clearance selling and unprofitable discounting, Chief Executive Officer Myron Ullman said in a statement. We expect these strategies to be particularly effective in the fourth quarter.
Despite expecting lower sales, Penney forecast fourth-quarter earnings per share of 70 cents to 85 cents. Analysts on average were expecting 82 cents, according to Thomson Reuters I/B/E/S.
That would bring full-year profit to a range of 93 cents to $1.08 per share, up from the company's prior outlook of 75 cents to 90 cents. The company improved its outlook for full-year, same-store sales, predicting they would fall between 6.5 percent and 7 percent for the year, rather than a previously anticipated 7 percent to 7.5 percent.
A CLOSE WATCH ON PROFITS
Analysts credited Penney with protecting profits despite the drop in ret ail spending.
We may see sales trends continue to lag competitors' but their gross margins have improved dramatically all year long and that will continue, said Liz Dunn, an analyst with Thomas Weisel Partners.
Penney's net profit fell to $27 million, or 11 cents a share, from $124 million, or 56 cents a share, a year earlier, in line with analysts' expectations.
Excluding a qualified pension plan expense in the current year, profit from continuing operations declined to 30 cents per share from 46 cents. Year-earlier results included a pension plan credit.
The company's strongest results came from its shoes and women's apparel categories, with jewelry the weakest sector.
Sales fell 3.2 percent to $4.18 billion, in line with Wall Street estimates, while sales at stores open at least one year fell 4.6 percent.
The chain opened three new stores during the quarter and added 12 Sephora makeup shop locations within its JC Penney stores.
Penney shares rose 7.2 percent to $31.49 in mid-day trading.
(Reporting by Phil Wahba, editing by Gerald E. McCormick, Lisa Von Ahn, Leslie Gevirtz)
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