Increase in sales costly, Penney says

<b>Price slashing hurt profits in last quarter</b><br><br>J.C. Penney Co. said Thursday that its January department store sales were strong but came at a hefty price. In order to move merchandise last

Friday, February 4th 2000, 12:00 am

By: News On 6

Price slashing hurt profits in last quarter

J.C. Penney Co. said Thursday that its January department store sales were strong but came at a hefty price. In order to move merchandise last month, the Plano-based retailer slashed prices, which hurt profits for the fiscal fourth quarter ended Jan. 31.

Penney posted a 6.1 percent increase in same-store sales at its department stores, which is the highest increase since February 1997 when sales at stores open at least a year were up 11.4 percent. "Sales were very promotional, designed to reduce the level of seasonal merchandise, and consequently adversely affected gross margin," the company said in its monthly sales report.

Penney stock fell 25 cents Thursday to close at $18.14. The aggressive markdowns reduced inventories by 10 percent from a year ago, Penney said. The retailer has been criticized for having too much merchandise in its stores as it has struggled to regain market share.

Vanessa Castagna, Penney's executive vice president and chief operating officer for stores, said recently that part of the plan to rejuvenate sales going forward was to remove "the clutter."

Penney's deliberate inventory reductions are part of the retailer's larger plan to fine-tune merchandise assortments by shifting buying decisions from the stores and district offices to its headquarters. For months, Penney has been focusing most of its attention on the new fiscal year that started Tuesday. Penney will be releasing its fiscal fourth quarter and year-end results this month.

Last year in the fourth quarter it earned 72 cents a share. Department store and catalog sales together declined 1.5 percent from a year ago in the fourth quarter. Before Penney released its January sales results Thursday, a consensus of analysts had estimated the company would earn 58 cents a share in the period, according to First Call/Thomson Financial. However, analysts were beginning to lower their earnings estimates by Thursday afternoon, said Chuck Hill, First Call's research director.

Penney said home furnishings, women's apparel and accessories posted strong results in January, while sales decreased in athletic apparel and outerwear. Catalog sales increased 0.9 percent in January from the prior year.

The retailer's Internet Web site, JCPenney.com, ended the year with sales of $102 million, compared with $15 million in 1998. The Internet has been a bright spot for Penney as its profits continued to slide for the fifth concecutive year.

Penney's Eckerd drugstore chain's January same-store sales increased 5.2 percent. The softer January results included a 9.4 percent increase in pharmacy sales and a 1.9 percent decline in general merchandise sales. Softer January sales at Eckerd reflected strong demand in December for Y2K-related purchases, the company said. Weaker sales also resulted in lower than anticipated profit levels at Eckerd, Penney said.