JC Penney's second-quarter profit is flat

J.C. Penney Co. lagged behind its department store competitors as it reported flat second-quarter profits Friday and blamed its performance on the economy and its decision to exit the catalog business.

Penney said its profit margins fell from a year ago as it had to discount more than it planned, but it was able to lower expenses. More cost-cutting is coming, and the company has a voluntary early retirement program under way.

The Plano-based department store chain said it would earn less than what analysts forecast in the third quarter and it couldn’t yet forecast the fourth quarter.

“We’re being cautious about the back half of the year. We don’t think we’re going back into a recession,” said Penney chairman and CEO Myron “Mike” Ullman during a conference all with analysts. But the moderate-income consumer may not be able to spend as much, he said.

Penney lost about $400 million in sales this year due to its decision to exit catalogs, Ullman said. With a possible sale of its 19 catalog outlet stores pending, Penney is completing a transition to jcp.com that its customers were leading. But Penney didn’t realize that many of those shoppers were using its catalogs to shop online.

Home had been a big part of its catalog business.

Furniture and window coverings have accounted for 51 percent of its direct business, Ullman said. Together, those two categories have posted declines of 20 percent, erasing the double-digit sales gains that Ullman said other growth initiatives are posting. Adding Sephora shops inside Penney stores and new brands including Modern Bride jewelry, Liz Claiborne and MNG by Mango apparel have resulted in healthy double-digit sales gains, he said.

In its stores, Penney has modified required sales goals for staffers in the furniture and window covering departments because of the weakness.

In the second quarter, Penney reported a profit of $14 million, or 7 cents a share, in the period ended July 30, matching its year-ago profit. Last year, Penney earned 6 cents a share, reflecting more shares outstanding before a $900 million stock buyback this year.

Second-quarter sales were down 0.8 percent to $3.9 billion. Same-store sales were up 1.5 percent.

Ullman said incoming CEO Ron Johnson accompanied him on a trip to Asia this summer to meet suppliers and tour factories.

Johnson, who comes to Penney from Apple Inc., where he was its top retail executive, has joined Penney’s board of directors and starts his CEO job on Nov. 1. Ullman will retire from his chairman post on Feb. 1.

JCPenney Exiting Catalog Business -- Finally - DailyFinance

In all, 26 stores will close, including five department stores and 20 outlet centers associated with the chain's catalog business . Two call centers and a custom-decorating factory will close and the number of in-store customer decorating departments will be reduced to 300 from 525.The closures are: five JCPenney department stores in Morrow, Ga.; West Dundee, Ill.; Des Moines, Iowa; High Point, N.C.; and Culpeper, Va.; one JCPenney Home Store in Duluth, Ga. 19 outlet stores will close in 2011 and 2012. one furniture outlet in Rancho Cucamonga, Ca. two call centers in Grand Rapids, Mich., and Albuquerque, NM. JCPenney plans to complete the wind down of its catalog business, including getting out of its catalog outlets. "We are focused on increasing profitability and accelerating our growth," says Mike Ullman, chairman and CEO, in a statement. "To achieve this, we undertook a thorough evaluation of our operations to ensure we are managing costs and allocating our resources to the strategies that will best drive both our top and bottom line, with the objective of delivering enhanced returns to shareholders." "The actions we are announcing today are significant steps in an ongoing process to ensure we are best managing costs and allocating our resources effectively to the strategies that will allow us to improve margins and drive profitable sales over the long term," says Ullman. "We see significant opportunities ahead in our core department store and online businesses as part of our Long Range Plan and we are well prepared to capitalize on them in 2011." http://widgets.surphace.com/widgets/sphereit/content?siteid=blogsmith_inpage_dailyfinance&url=http://www.dailyfinance.

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