J.C. Penney Beats, Outlook Positive

J.C. Penney Company Inc. (NYSE:JCP), a leading retailer of apparel and footwear, accessories, fashion jewelry, beauty products and home furnishings, reported fiscal 2009 fourth-quarter results before the opening bell on Friday.

Quarterly earnings came in at 84 cents per share, which declined 10.6% from 94 cents recorded in the year-ago quarter. However, the result surpassed the Zacks Consensus Estimate of 82 cents derived from 13 covering analysts as well as the recent management guidance of 77 cents to 82 cents per share. The better-than-expected result was primarily driven by robust growth in gross margin.

J.C. Penney also provided guidance for full fiscal 2010 as well as the first quarter of the same fiscal. The company expects earnings during fiscal 2010 to be $1.55 per share assuming a low-single-digit increase in same-store sales and flat gross margin rate.

The outlook is well ahead of the Zacks Consensus Estimate of $1.05 per share, which has remained steady over the past 2 months. Shares of J.C. Penney have gained more than 6% to $27.66 in morning trade on the New York Stock Exchange.

For the first quarter of fiscal 2010, J.C. Penney anticipates earnings to range between 16 cents to 20 cents per share assuming a flat to slightly positive same-store sales and marginal increase in gross margin rate from the year-ago period. This guidance is in line with the current Zacks Consensus Estimate of 20 cents per share, which moved up a penny over the past month as one analyst increased while another lowered expectation.

Meanwhile, during the fiscal fourth quarter, total sales dipped by 3.6% to $5.6 billion from $5.8 billion in prior-year quarter, primarily due to a 4.5% reduction in same-store sales. J.C. Penney recorded the most sluggish performance in the home division, and in terms of geography, the Northwest region, while the best results came in at women’s apparel and shoes and in the Central region of the U.S.

J.C. Penney’s gross profit grew by 6.3% to $2.1 billion, while gross margin expanded by 360 basis points (bps) to 38.2%. The growth was mainly driven by prudent management of inventory and promotions.

However, operating income declined by 1.5% to $383 million primarily due to a 1.4% increase in selling, general and administrative expense coupled with the existence of a pension expense of $81 million, compared to a pension income of $24 million in the year-ago period.

J.C. Penney ended the quarter with cash and cash equivalents of $3.0 billion, compared to $2.4 billion in the prior-year quarter. During fiscal 2009, the company deployed $600 million towards capital expenditure, $183 million towards dividend payments and $113 million towards debt repayments.

The company currently operates 1,108 department stores in the U.S. and Puerto Rico. J.C. Penney also operates the largest apparel and home furnishing site, jcp.com, besides the largest general merchandise catalog business.