This summary is based on the first quarter fiscal 2007 earnings call conducted by J.C. Penny Co., Inc. (JCP) on May 17, 2007.
Vice President, Director of Investor Relations: Robert Johnson
President and Chief Merchandizing Officer: Ken Hicks
Executive Vice President and Chief Financial Officer: Robert B. Cavanaugh
Chairman and Chief Executive Officer: Mike Ullman
Key Investors Issues
- Earnings per share rose 16.9% to $1.04, versus the year ago period.
- Quarterly net sales rose 3.1% to $4.35 billion, versus the year ago period.
- Fiscal 2007 earnings per share from continuing operations are expected at about $5.49.
First Quarter Fiscal 2007 Financial Highlights
Net income rose 13.3% to $238 million, versus $210 million in the year ago period. Earnings per share rose 16.9% to $1.04, versus 89 cents in the year ago period.
Total net sales rose 3.1% to $4.35 billion, versus $4.22 billion in the year ago period.
- Comparable department store sales increased 2.2%, versus 1.3% in the prior year period.
- Total department store sales increased 4.4%, versus 2.2% in the prior year period. Total store sales reflect 32 new or relocated stores opened subsequent to first quarter last year, including 7 stores opened in this year''s first quarter.
- Internet sales increased 17.8%, versus 22.1% in the prior year period.
- Total direct sales fell 3.6%, versus an increase of 3.9% in the prior year period.
The strongest merchandise results were in women''s apparel, fine jewelry and women''s accessories, with continued softness in home categories such as furniture and window coverings. All regions of the country generated sales gains in the first quarter, with the best performances in the northwestern and southwestern regions.
Gross margin rose 4.9% to $1.807 billion, versus $1.722 billion in the year ago period.
Gross margin improved by 70 basis points to 41.5% of sales, from 40.8% of sales in the year ago period. This reflects good customer response to spring merchandise assortments, especially private apparel brands, continued benefits from planning and allocation technology and processes, and initial benefits from the company''s cycle time reduction initiative.
- Operating income rose 9.7% to $419 million, versus $382 million in the year ago period. Operating income improved 60 basis points to 9.6% of sales, from 9% of sales in the year ago period.
- Income from continuing operations before income taxes rose 11.2% to $387 million, versus $348 million in the year ago period.
- Income from continuing operations rose 11.7% to $238 million, versus $213 million in the year ago period. Earnings per share from continuing operations rose 15.6% to $1.04, versus 90 cents in the year ago period.
- Benefit from discontinued operations, net of income tax, in the year ago period was $3 million.
Total operating expenses rose 3.6% to $1.388 billion, versus $1.34 billion in the year ago period.
- Total operating expenses rose to 31.9% of sales, from 31.8% of sales in the year ago period.
- Selling, general and administrative (SG&A) expenses were leveraged by 20 basis points or 2.2% to $1.291 billion, from $1.263 billion in the year ago period. SG&A expenses fell to 29.7% of sales, from 29.9% of sales in the year ago period.
- Depreciation and amortization rose 13.6% to $100 million, versus $88 million in the year ago period.
- Pre-opening expenses rose more than 100% to $6 million, versus $2 million in the year ago period.
- Real estate and other income was $9 million, versus $13 million in the year ago period.
- Net interest expense fell 5.9% to $32 million, from $34 million in the year ago period.
- Income tax expense rose 10.4% to $149 million, versus $135 million in the year ago period.
- Effective income tax rate for continuing operations was 38.5% of sales, versus 38.8% of sales in the year ago period.
Cash and short-term investments were $3.068 billion, versus $2.791 billion in the prior year period.
- Net cash used in total operating activities was $29 million, versus $119 million in the prior year period.
- Capital expenditure was $244 million, versus $126 million in the prior year period.
- Proceeds from sale of assets were $5 million in the year ago period.
- Net cash provided by financing activities was $595 million, versus $22 million in the prior year period.
- Cash paid for discontinued operations was $1 million, versus $7 million in the prior year period.
- Cash and short-term investments at beginning of the period were $2.747 billion, versus $3.016 billion in the prior year period.
- Merchandise inventory was $3.497 billion, versus $3.355 billion in the prior year period.
- Accounts payable and accrued expenses were $2.827 billion, versus $2.424 billion in the prior year period.
- Current maturities of long-term debt were $410 million, versus $345 million in the prior year period.
- Long-term debt was $3.706 billion, versus $3.116 billion in the prior year period.
On April 27, 2007, the company successfully completed a $1 billion debt offering. A portion of the net proceeds of this offering will be used for the early redemption on June 1, 2007, of the remaining $303 million principal amount of 8.125% debentures due 2027. The balance of the net proceeds will be used for general corporate purposes, including the repayment of 2007 and 2008 long-term debt maturities.
- Ambrielle, the largest private lingerie brand, was launched in company history and exclusive brand offerings were expanded with new lines from Liz Claiborne and Chip & Pepper Productions during the quarter.
- J.C. Penney plans to roll out a line of clothing and home items called American Living next year, which will be designed by Polo Ralph Lauren.
