JC Pennys 2nd Qtr Earnings Beats The Street

JCPenney Reports Second Quarter Financial Results
Second Quarter Highlights
-- Comparable store inventories below last year
-- Effective expense control in difficult consumer environment
-- Successfully launched several exciting brands for
Back-to-School
-- Opened 12 new stores, 11 in the off-mall format
-- Added 10 Sephora inside JCPenney locations bringing total to
81

PLANO, Texas--(BUSINESS WIRE)--Aug. 15, 2008--J. C. Penney Company, Inc. (NYSE:JCP) reported earnings per share from continuing operations of $0.52 for the second quarter ended Aug. 2, 2008, compared to $0.78 in last year's second quarter. Net income for the quarter decreased 35.7 percent to $117 million.

Operating Performance
During the second quarter, total sales decreased 2.5 percent. Comparable store sales decreased 4.3 percent, at the favorable end of the Company's guidance for a mid-single digit decrease. The Company opened 12 new and relocated stores in the quarter, including 11 in the off-mall format. The best sales performance was in women's apparel and family shoes, with continued weakness in home and fine jewelry. Geographically, the best performances were in the northeast and central regions while the southeast and southwest regions were the softest. Internet sales through www.jcp.com increased 5.6 percent on top of a 17.4 percent increase in the same quarter last year.
For the second quarter, operating income declined 180 basis points to 5.7 percent of sales, and gross margin decreased by 60 basis points to 37.5 percent of sales. The decline in gross margin was mitigated by our customers' positive response to new fall and Back-to-School merchandise, as well as better alignment of inventory to sales trends. Total operating expenses increased by 120 basis points to 31.8 percent of sales in the quarter, including the impacts of depreciation and amortization expense, pre-opening expenses and income from ongoing real estate operations. SG&A expenses continued to be well-managed across the entire organization, with broad-based savings in the quarter relative to initial expectations. Second quarter operating income was $243 million, compared to last year's $329 million.
Interest expense for the quarter was $55 million, and the tax rate was 38.3 percent.

Third Quarter Earnings Guidance Management's third quarter guidance is as follows:

-- Total sales: decrease low-single digits.

-- Comparable store sales: decrease mid-single digits.

-- Operating income: operating income is expected to decline year over year driven by both a reduction in gross margin dollars and an increase in SG&A expenses. As a percent of sales, operating income is expected to decline principally as a result of a higher SG&A ratio.

-- Interest expense: approximately $60 million.

-- Income tax rate: approximately 38 percent.

-- Average diluted shares: approximately 223 million average diluted shares of common stock, including about 1 million common stock equivalents.

-- Earnings per share: approximately $0.70 to $0.75 per share, which includes the impact of the Company's largest non-holiday marketing event moving from the third quarter in 2007 to the fourth quarter in 2008.