Feb 25, 2005 5 min read

By Christopher Wang AP Business Writer

NEW YORK (AP) – A strong finish to the holiday season lifted fourth-quarter profits at J.C. Penney Co. and Limited Brands Inc. well above Wall Street expectations as shoppers used gift cards to snatch up clearance items and spring merchandise last month.

But Columbus, Ohio-based Limited forecast receding sales in February and pegged its first-quarter profit below analysts’ targets. Meanwhile, J.C. Penney is expecting modest same-store sales growth this quarter and through the rest of the year.

Still, the latest results echoed an upswing at discount giants Wal-Mart Stores Inc. and Target Corp., which last week returned better-than-expected quarterly earnings – trampling concerns that deep holiday discounting would erode bottom-line figures.

Plano, Texas-based J.C. Penney said a wider gross margin bulked up its profit in the latest quarter, when lackluster sales during the early half of the gift-buying season sent retailers into a panic. In December, sales at its department stores open at least a year reversed course to gain 3.3 percent in January, while analysts had expected a decline.

Stellar post-holiday sales at Victoria’s Secret and Bath & Body Works also helped Limited post a healthy quarterly profit. Last month, Limited’s chains – which include Express and Limited Stores – saw same-store sales soar 9 percent.

“Clearly the holiday spending window has been lengthened with gift cards, and I think that’s an opportunity and also a challenge for retailers,” said Michael P. Niemira, chief economist at the International Council of Shopping Centers. “January tends to be a clearance month; retailers need to think clearance, but also need to consider new merchandise.”

He added that specialty apparel retailers have reported an average monthly same-store sales gain of 3.3 percent, while sales at department stores have grown 1.7 percent.

J.C. Penney shares rose 14 cents to $44.29 in late trading on the New York Stock Exchange, while Limited shares dropped 37 cents to $23.35.

J.C. Penney swung to a profit of $333 million from a year-ago loss of $1.07 billion, when results were saddled by problems at its former Eckerd drugstore chain. J.C. Penney sold its Eckerd stores last spring.

Income from continuing operations was $328 million, or $1.16 per share, up from $253 million, or 83 cents a share, last year. J.C. Penney’s results topped by 5 cents the average estimate of $1.11 per share from analysts polled by Thomson First Call.

Its sales fell slightly to $6.07 billion from $6.1 billion a year earlier – which included an additional reporting week – but gross margin improved 3.3 percent during the period. Its strongest performers were footwear, children’s apparel, sportswear and fashion jewelry, the company said.

“Driving the increase in margin was better overall execution and inventory management, including a clean seasonal transition and better timing of markdowns,” Ken Hicks, president and chief operating officer, said on a conference call with analysts.

In the latest quarter, same-store sales grew 3 percent, the company said. In comparable 13-week periods, overall catalog and Internet sales rose 4 percent, with sales from its Web site soaring 33 percent.

For the year, J.C. Penney earned $524 million, or $1.76 per share, versus a loss of $928 million, or $3.13 per share, in 2003. Revenue rose 4 percent to total $18.42 billion.

With February sales off to a strong start, J.C. Penney said it sees mid-single digit same-store sales growth for the month, and expects a low single-digit gain for current quarter ending in April.

The retailer forecast quarterly income from continuing operations of 48 cents to 53 cents per share, and full-year income of $2.89 to $3.01 per share for the year. Analysts currently see a first-quarter profit of 49 cents per share and a yearly profit of $3.10 per share.

Limited’s fourth-quarter profit rose to $415.8 million, or 95 cents per share, from $387.6 million, or 74 cents a share, the previous year. Analysts were looking for income of 90 cents per share.

Its sales grew 3 percent to $3.33 billion, with combined same-store sales climbing 2 percent during the period. At its Bath & Body Works chain, same-store sales rose 12 percent, while Victoria’s Secret saw a 5 percent increase.

Full-year income was $738.7 million, or $1.54 per share, including gains from the initial public offering of its New York & Co. unit and selling its interest in Galyan’s Trading Co. That compares with a profit of $716.8 million, or $1.36 per share, in 2003.

Sales of $9.41 billion were 5 percent higher than $8.93 billion a year ago.

Previously, Limited estimated high single-digit growth in February same-store sales, but the company now expects to post a decline. However, same-store sales are forecast to grow in the low single digits in March and at a high single-digit rate in April, when it anticipates a sales boost from clearance pricing.

Limited pegged its first-quarter earnings at 13 cents per share, and estimated yearly earnings in the range of $1.58 to $1.61 per share. Currently, analysts predict a quarterly profit of 16 cents per share and full-year income of $1.58 per share.

AP-ES-02-24-05 1609EST