JC Penny reports sharp drop in third quarter profits

NEW YORK -- J.C. Penney Co. reported a 78 percent drop in its third-quarter earnings because of a big expense for its pension plan.

However, the department store retailer upgraded its profit and sales outlook because it is selling more goods at regular price and seeing less clearance discounting, though sales are still weak.

The increases got investors' attention, driving the stock up $1.51, or 5.1 percent, in premarket trading.

The retailer, which is based in Plano, Texas, said Friday it earned $27 million, or 11 cents per share, for the period ended Oct. 31. That compares with $124 million, or 56 cents per share, in the year-ago period.

The third-quarter results included a charge of $73 million, or 19 cents per share, to write down the value of the company's pension-plan assets. Excluding that impact, adjusted income from continuing operations was $72 million, or 30 cents per share. That's down from $103 million, or 46 cents per share, in last year's third quarter, excluding a pension plan benefit.

Third-quarter 2009 results per share also reflect a 3-cent charge to write down the value of real estate.

Revenue was down 3.2 percent to $4.18 billion, from $4.32 billion a year ago. Analysts surveyed by Thomson Reuters expected 12 cents per share on revenue of $4.18 billion.

Sales at stores opened at least a year fell 4.6 percent in the quarter. This measure is considered a key indicator of a retailer's health.

J.C. Penney and other department store chains have faced big challenges as shoppers worry about job security and tight credit. The chains have seen bright spots, and consumers are beginning to treat themselves to small indulgences. Still, business remains weak overall.

Like other retailers, Penney has been cutting inventory in response to tepid spending. It also has been expanding its assortment of exclusive brands. Making their debut in September were "Cindy Crawford Style," an exclusive home furnishing and accessories collection, and JOE Joseph Abboud, a collection of men's sportswear and tailored clothing.

But Penney's biggest coup was a deal struck with Liz Claiborne Inc., announced last month. Penney will be the sole U.S. department store to sell the company's Liz Claiborne and Claiborne lines of women's wear, along with its Liz & Co. and Concepts by Claiborne brands. The deal includes accessories, shoes, household products and men's clothing, as well as women's.

Under the deal, Penney can at the end of year five or 10 acquire the licensed trademarks and other Liz Claiborne brands for use in the U.S. and Puerto Rico.

For the fourth quarter, Penney forecasts sales at stores open at least a year to be down anywhere from 4 to 6 percent and for earnings per share to be in the range of 70 cents to 85 cents per share. Analysts surveyed by Thomson Reuters expect 82 cents per share for the fourth quarter.

Based on those forecasts, Penney has raised its full-year sales and profit outlook. For fiscal 2009, sales at stores opened at least a year are now expected to decline 6.5 percent to 7 percent, better than the earlier forecast for a 7 percent to 7.5 percent drop. Penney also said that it expects earnings per share to be in the range of 93 cents to $1.08 per share. That's up from its prior forecast for earnings to be in the range of 75 cents to 90 cents. Analysts surveyed by Thomson Reuters expects $1.05 per share.