J. C. Penney Company, Inc. (JCP) has reported better-than-expected second quarter results with the successful execution of its Bridge Plan strategy and improvement in the merchandise flow processes.
The Bridge Plan strategy involves significant cost-cutting moves, including reduction of new store openings and remodeling operations, pruning of inventory in alignment with sales, and prudent capital expenditure plans.
The company reported break-even earnings during the quarter compared to 52 cents per share in the year-earlier quarter. The year-over-year decrease in net income was due to 28 cents per share in after-tax charges related to a qualified pension plan expense of $73 million during the quarter.
Total sales during the quarter decreased 7.9% while comparable store sales decreased 9.5%. The year-over-year decline in sales was primarily due to the continued economic downturn plaguing the industry that has resulted in reduced consumer discretionary income and a cut in non-essential spending.
Gross margin increased 100 basis points over the prior-year period to 38.5% of sales due to comparatively better alignment of inventory with sales trends. This resulted in more merchandise sales at regular promotional prices and less merchandise at clearance prices tagged with heavy discounts.
At quarter end, JCPenney had cash and cash equivalents of $2.3 billion. Free cash flow during the first six months of 2009 improved $397 million compared to the year-ago period. During the quarter, the company reduced its long-term debt to $3.4 billion.
JCPenney opened five new stores during the quarter in key markets, and debuted in Manhattan. The company also expanded its Sephora inside JCPenney concept in 38 locations, bringing its current total to 43. Sephora is a “store within a store” concept, selling Sephora beauty products in JCPenney stores.
In strong financial condition and with expectations for an improvement in gross margins in the second half of the current fiscal year, the company has raised its full year guidance to 75 cents to 90 cents per share, up from the earlier projections of 50-65 cents.
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