J.C. Penney Company Inc. (JCP) delivered better-than-expected fourth-quarter 2010 results on the heels of improved merchandise assortments and a redefined jcp.com platform.
The quarterly earnings of $1.23 per share beat the Zacks Consensus Estimate of $1.07, and shot up 20.6% from $1.02 earned in the prior-year quarter. The Zacks Consensus Estimate rose by 11 cents prior to the earnings release with 8 out of 16 analysts covering the stock revising their estimates upwards and none lowering their projections in the last 30 days.
On a reported basis, including one-time items, earnings came in at $1.13, up 34.5% from 84 cents posted in the year-ago quarter.
The shares of J.C. Penney rose 2.6% or 95 cents to $37.50 in pre-market trading.
Behind the Headline
The quarterly sales of $5,703 million came ahead of the Zacks Consensus Estimate of $5,638 million, and rose 2.8% from the prior-year quarter. Management had expected sales growth between 1.5% and 2.5% for the quarter. Total sales were adversely affected by the discontinuation of the publishing of Big Book catalogs. Internet sales through jcp.com grew 6.7% to $495 million in the quarter.
Comparable-store sales jumped 4.5% during the quarter, as against management’s target of 3% to 4% growth. J.C. Penney’saddition of ‘Liz Claiborne’, ‘MNG by Mango’ and ‘Call it Spring’ brands to its portfolio helped drive sales and improve traffic.
The in-store Sephora departments continue to outperform in drawing younger and more affluent customers. During fiscal 2010, J.C. Penney opened 231 stores, and plans to open 76 more in 2011. The Sephora concept is expected to be a significant revenue driver. The company also hinted at making the ‘MNG by Mango’ and ‘Call it Spring’ brands available in approximately 500 J.C. Penney stores by the end of 2011.
The company’s gross profit grew marginally by 1.1% to $2,143 million, whereas gross profit margin contracted 60 basis points to 37.6%. Management now expects fiscal 2011 gross margin to be approximately 39%, flat compared with the prior-year.
Other Financial Details
J.C. Penney ended fiscal 2010 with cash and cash equivalents of $2,622 million, long-term debt of $3,099 million, reflecting a debt-to-capitalization ratio of 36.2%, and shareholders’ equity of $5,460 million. The company deployed $499 million toward capital expenditures, and generated free cash flows of $158 million in fiscal 2010.
Management now expects to incur capital expenditures of $650 million in fiscal 2011. The company’s Board of Directors authorized a $900 million share repurchase program. J.C. Penney expects to initiate repurchase of shares in March 2011.
Sales and Earnings Forecast
The Plano, Texas-based J.C. Penney guided total sales growth in the low-single digit range and comparable-store sales growth in the low-to mid-single digit range for fiscal 2011. For first-quarter 2011, the company forecasted comparable-store sales between 3% and 5%.
Management now expects first-quarter 2011 earnings between 18 cents and 23 cents a share, and fiscal 2011 earnings in the range of $2.00 and $2.10. The first quarter earnings include a one-time charge of 3 cents a share. The current Zacks Consensus Estimates for the first quarter and fiscal 2011 are 30 cents and $1.81 per share, respectively.
Following the guidance range we could witness a correction in the Zacks Consensus Estimates in the coming days.
J.C. Penney, which competes with Macy’s Inc. (M) and Kohl’s Corporation (KSS), currently operates more than 1,100 department stores in the United States and Puerto Rico.
Currently, we have a long-term Neutral rating on the stock. Moreover, J.C. Penney holds a Zacks #3 Rank, which translates into a short-term Hold recommendation, and correlates with our long-term view.
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