J.C. Penney Posts Fourth-Quarter Losses

Friday, February 23rd 2001, 12:00 am
By: News On 6

J.C. Penney Co. closed the books on one of its most tumultuous periods by posting fourth-quarter and year-end losses.

Now the Plano-based retailer has a clean slate as it works toward a badly needed turnaround at its department stores, catalog and drugstore chain.

Penney's fiscal fourth-quarter net loss of $284 million, or $1.11 per share, included charges of $435 million that reflect costs to cover store closings, staff cuts and inventory markdowns for discontinued merchandise both at J.C. Penney and Eckerd stores.

That compares with a net loss of $12 million, or 8 cents a share, including restructuring charges of $169 million in the same period last year.

In the fiscal fourth quarter ended Jan. 27, total sales declined to $9.75 billion from $9.83 billion.

For the year, total sales were $32.65 billion vs. $32.51 billion in 1999. The net loss was $409 million, or $1.68 per share, in the just-completed year, compared with net income of $336 million, or $1.16 per share, a year ago.

Allen Questrom, Penney's chairman and chief executive officer, called the results "very disappointing but not unexpected."

"The good news is that we've cleaned up the inventory, eliminated unproductive stores, put together a professional workforce and people able to operate in a centralized buying environment, which was long overdue," he said.

The company starts its new year with about $1 billion in cash.

During a conference call with Wall Street analysts Thursday, Mr. Questrom said the company should report profit in the range of 70 cents to 80 cents per share this year. He estimated first-quarter earnings per share of 20 cents to 25 cents.

Mr. Questrom also repeated his earlier forecast that "It will be two to five years before we fully restore the profitability of our business to competitive levels.

"I am confident that incremental progress will continue to be made over the next several years," he said.

Vanessa Castagna, Penney's executive vice president, said about 130 stores were remodeled last year. This year, an additional 100 will get wider aisles, better lighting and lighter-color carpeting. Capital expenditures have been reduced to about $500 million from historic annual levels of about $700 million in recent years.

Mr. Questrom said the company will spend more on advertising than in past years but declined to say how much.

In recent years, Penney has spent about $1 billion a year on advertising.

Analysts are guarded about Penney's outlook. Its stock price declined by 15 cents a share Thursday to close at $13.50 on the New York Stock Exchange.

Robert Cavanaugh, Penney's chief financial officer, said the company was being "cautious about the first half of this year."

He estimated that sales will continue to decline in the coming months, including a drop of about $230 million from the 47 Penney stores that are closing by April as part of the company's restructuring.

In January, Penney announced it was closing its second batch of unprofitable department stores in two years and eliminating 5,565 jobs, or less than 2 percent of the company's workforce. Penney also said it continues to explore the sale of its Direct Marketing Services business, which posted the biggest share of profit in the fourth quarter. The division, which has 1,500 employees, mostly in Plano and Richardson, sells all types of insurance, including life, health, accident, supplemental hospital, credit and pet.

Before fourth-quarter charges, Penney's results were slightly better than Wall Street estimates. The retailer posted a loss of 3 cents per share before charges in the period, compared with profit of 45 cents per share last year. It had been estimated that Penney would post a 5-cents-a-share loss in the fourth quarter, according to a survey of analysts by First Call/Thomson Financial.

Wayne Harris, Eckerd's CEO, said that in order to increase general merchandise sales, the company is reconfiguring aisles and dumping slow-moving merchandise. It's also cutting prices, he said.

"We've renegotiated virtually everything we buy and are passing along some of those savings to the customer," Mr. Harris said during the investor conference call. "Light bulbs and batteries are faster turners, unless they're priced wrong, and then they don't move at all."