By Nicole Maestri
NEW YORK (Reuters) - J.C. Penney Co Inc
But the retailer, which caters to middle-income shoppers who are grappling with the slumping housing market and high energy costs, said there is no clear indication the consumer environment will improve in 2008.
"The economic climate and retail environment have not shown any signs of near-term recovery," CEO Myron "Mike" Ullman said on a call. "In fact, depending on the economic pundits you listen to, it may even get worse before it gets better."
Penney's profit fell almost 10 percent to $430 million, or $1.93 per share, for its fiscal fourth quarter that ended February 2, from $477 million, or $2.09 per share, a year earlier.
Earlier this month, it forecast fourth-quarter earnings to be at the high end of its original range of $1.65 to $1.80 per share. Analysts, on average, were expecting it to earn $1.77 per share, according to Reuters Estimates.
The better-than-expected results came partly from an 11.3 percent decline in selling, general and administrative expenses after Penney cut pension expenses and executive bonuses.
"Based on our goal of maintaining a strong liquidity position, we elected to forgo making a voluntary pension plan contribution in 2007," said Chief Financial Officer Robert Cavanaugh on a conference call.
Penney shares were up 35 cents at $48.30 in afternoon New York Stock Exchange trading after reaching as high as $50.55 earlier in the session.
DEPARTMENT STORE STRUGGLES
Many U.S. department store operators have faced declining sales in recent months as cash-strapped shoppers curb their trips to the malls amid the shaky economic environment.
Penney, which operates 1,067 stores, had warned its fourth quarter would be a difficult one, after poor third-quarter sales left it with excess merchandise that it had to mark down during the final months of the year, hurting its margins during the all-important holiday quarter.
Total sales fell more than 4 percent to $6.39 billion from $6.66 billion, while quarterly sales at stores open at least a year, a key retail gauge known as same-store sales, fell 2.3 percent.
Penney said women's and children's clothing were the strongest selling categories, while fine jewelry and expensive items for the home were the weakest.
In an interview, Ullman said mall traffic remains "disappointing," as business at many of its competitors falters, but customer traffic at its more than 400 stores located outside of malls is performing better.
Ullman said tax rebate checks, which should arrive in shopper's mailboxes around May, when Penney gears up for the back-to-school season, "couldn't happen at a better time."
PLANNING CONSERVATIVELY
But in anticipation a tough 2008, Penney has cut the number of stores it plans to open this year to 36 from 50.
"We're reducing the pace of these openings to be in line with the consumer spending patterns we anticipate will remain for the rest of 2008," Ullman said.
While Penney has scaled back store opening and capital spending plans, it is not backing down with the launch of a new brand, American Living.
Penney has said American Living, which began arriving in its stores this month, is the largest merchandise launch in its history. The brand's merchandise will cover 40 categories, including clothes, shoes and sheets, and will be among some of the most expensive items in sells in those categories.
Executives said that while it is very early, they were "pleased" with how American Living is selling so far.
Goldman Sachs analyst Adrianne Shapira said in a research note that the biggest question is: Will today's J.C. Penney customer reach for American Living?
"If upselling higher price point merchandise proves challenging, then margins may come under pressure," she said.
Penney forecast first-quarter sales to "increase slightly," with full-year sales rising in the low-single digit range.
Same-store sales should fall low-single digits for both the first quarter and full year, it said, with gross margins under pressure for the first half of the year.
It forecast first-quarter earnings per share of 75 cents to 80 cents, and full-year earnings of $3.75 to $4.00 per share.
Analysts, on average, had been expecting it to earn 81 cents per share in the first quarter and $4.02 for the full year, according to Reuters Estimates.
(Reporting by Nicole Maestri; Editing by Derek Caney and Dave Zimmerman)
