Penney’s Profits Up But Catalog Sales Slip

Cataloger/retailer J.C. Penney Co. (NYSE:JCP) doubled its quarterly profit as aggressive advertising and markdowns helped drive better-than-expected holiday sales. The Plano, TX-based behemoth reported net profit of $202 million for the fourth quarter ended Jan. 25, compared with last year's fourth-quarter earnings of $95 million, including one-time items. Quarterly sales inched up slightly to $9.55 billion, compared with $9.54 billion last year.

In its department store and catalog division, quarterly sales fell slightly to $5.8 billion, compared with $5.9 billion last year. Catalog sales fell 21%, and results continue to be affected by lower circulation, a reduction in page counts, and fewer outlet stores, as well as changes to customer payment terms. Internet sales, which are included in the catalog unit, increased 21%, to $138 million in the fourth quarter. Comparable department store sales increased 2%, driven by a strong holiday sales performance. Fourth quarter operating profit increased 35%, to $346 million compared with $256 million in last year's period.

For the year, sales totaled $32.3 billion, compared with $32.0 billion last year. Total department store and catalog sales fell 3%, to $17.7 billion, compared with $18.2 billion for the same period a year ago. Net income totaled $405 million, compared with $98 million last year.

Selling, general and administrative (SG&A) expenses increased from planned investments in advertising and transition costs for Penney’s new distribution network, as well as higher noncash pension expenses. In addition, operating expenses include $17 million for severance associated with closing stores and catalog distribution facilities.

"As we begin the third year of a very complex turnaround we face internal challenges and many uncertain external factors, but we believe that each of our businesses will continue to improve," said Allen Questrom, J.C. Penney chairman and chief executive in a statement.

Restructuring the catalog business is a key initiative for J.C. Penney. In January, Penney said charges related to the restructuring of its catalog operations will cut 2003 earnings by about $40 million. This restructuring is expected to generate annual savings of about $30 million, which will be fully realized in 2004.