Retail Giant Scores Pretty Penney With 21 Percent Jump

J.C. Penney Co. said fiscal fourth-quarter earnings rose 21 percent as the department store retailer reined in inventory costs during the holidays to offset a decline in sales.

Earnings before charges rose to $365 million, or $1.36 a diluted share, from $301 million, or $1.20, in the year-earlier period. That beat the $1.33-a-share average estimate of analysts surveyed by IBES International Inc.

Lower costs for inventory and labor offset a 2.8 percent sales decline at J.C. Penney department stores open at least a year in the quarter ended Jan. 31. The cost controls widened gross margins at its department stores and catalog business to 30.7 percent of sales from 28.3 percent, boosting profits.

The improved margins helped the company show a 42 percent operating profit increase at its department stores and catalog business, Buynack said. Gross margin is the percentage of revenue left after subtracting cost of goods sold.

Revenue for the quarter rose 16 percent to $9.75 billion from $8.37 billion. J.C. Penney said it operates 1,220 department stores and 2,800 Eckerd drugstores.

Shares of Plano, Texas-based J.C. Penney rose $1.06 Friday, closing at $70.69.

Operating profit at J.C. Penney’s department stores and catalog business rose to $633 million from $445 million in the year-ago period. Profit rose as inventory levels declined 2 percent and selling, general and administrative expenses fell to 21.3 percent of sales from 21.6 percent, analysts said.

“They held down salaries. They hired fewer part-time workers and had fewer people on the selling floors,” said Joseph Ronning, an analyst at Brown Brothers Harriman & Co.

The company expects total and so-called same-store sales at its department stores to rise about 3 percent to 4 percent this year.

Operating profit at its Eckerd drugstore business was little changed at $135 million as the company completed the conversion of its Thrift drugstores to the Eckerd format. Still, same-store sales, or sales at stores open at least a year, rose 6.9 percent at the drugstores.

J.C. Penney said integrating the Thrift stores into the Eckerd chain is expected to generate annual savings of $100 million starting this year.

In the most recent quarter, charges of $141 million, or 51 cents a diluted share, to close 75 department stores, fire 4,900 employees and integrate the Eckerd drugstore business resulted in net income of $224 million, or 85 cents.

The restructuring moves are expected to save J.C. Penney $50 million before taxes in 1998 and $105 million a year once the moves have been completed.

Some of the stocks that moved substantially Friday:

NYSE

Pulitzer Publishing, up 16-3/8 at 84

The St. Louis-based media company is considering selling its broadcast business. Pulitzer said it will continue to own and operate its newspaper properties, which include The St. Louis Post-Dispatch and the Arizona Daily Star in Tucson.

MGM Grand, down 1-1/16 at 36-1/8

The hotel and casino operator warned that its first-quarter earnings will be far below analyst expectations. MGM Grand blamed lower profit margins from gambling at MGM Grand Las Vegas.

NASDAQ

VLSI Technology, down 5-7/16 at 19-5/16

The San Jose, Calif.-based circuit maker warned late Thursday that first-quarter revenue and earnings will be significantly below analyst expectations. VLSI said orders and shipments for wireless communications and consumer entertainment products have slowed.

SmarTalk TeleServices, up 6-3/16 at 33-5/8

The maker of prepaid phone cards reported fourth-quarter earnings that topped Wall Street analyst forecasts.