JCPenney's Third Quarter Operating Profit Increases 66 Percent; Financial Position Strengthens and Cash Flow Accelerates; Holiday Season Outlook Positive

Business Wire, Nov 16, 2004

PLANO, Texas -- J. C. Penney Company, Inc. (NYSE:JCP) reported today that third quarter operating profit increased 66 percent and earnings from continuing operations were $0.50 per share compared to $0.31 per share last year. This year's quarterly earnings included the impact of $47 million, or $0.10 per share, for one-time charges associated with early debt retirements. Excluding the effects of these charges, earnings per share nearly doubled from last year.

Allen Questrom, Chairman and Chief Executive Officer said, "Third quarter operating profit was significantly higher than our original expectations and I am pleased with the progress we continue to make. We are entering the fourth quarter with confidence and momentum, and stores are set for the holidays with exciting merchandise assortments supported by powerful marketing. Catalog/Internet continues to show strong sales and a significantly improved profit contribution. We are optimistic the economic environment will continue to improve. Although high energy prices remain a concern for our customer segment, we are encouraged by recent trends."

Questrom added, "Our management team continues to focus on delivering trend-right fashion at affordable prices across all three of our shopping channels, Stores, Catalog and Internet. We have established a strong foundation over the past four years that provides a solid basis to take our performance to the next level as Mike Ullman leads JCPenney into the future."

Operating Results

Third quarter operating profit increased 66 percent to $346 million compared with $208 million last year, driven by sales gains and continued improvement in gross margin and expense leverage. Operating profit increased to 7.7 percent of sales, an improvement of 290 basis points over last year. Comparable department store sales increased 2.7 percent and reflect strength throughout all merchandise areas. Catalog/Internet sales increased 3.6 percent over last year while continuing to provide a significant contribution to operating profit. Internet remains the fastest growing channel, increasing nearly 30 percent for the quarter.

Gross margin increased by 230 basis points as a percent of sales reflecting continued benefits from our centralized business model, including better buying, marketing, store environment, and seasonal merchandise transition. Expenses were well managed and leveraged by 60 basis points as a percent of sales.

Financial Condition and Cash Flow

The Company's equity and debt reduction program announced in August is proceeding as planned and is expected to be completed within the next six to nine months. To date, the Company has repurchased 27.6 million shares of common stock for approximately $1.0 billion, and subsequent to completion of the call of the 5% Convertible Subordinated Notes, debt will have been reduced by $1.7 billion. At the end of the third quarter, long-term debt was $4.6 billion.

As of Oct. 30, 2004, cash investments were $4.6 billion. During the third quarter, the Company made a discretionary cash contribution to its pension plan of $300 million, or about $190 million after tax. The Company expects to have positive free cash flow for the year, driven by strong operating performance.

Fourth Quarter Sales and Earnings Guidance

Sales for the fourth quarter will be impacted by calendar shifts as a result of last year's fifty-third week, including the shift in the reporting of Thanksgiving into November this year from December last year. Sales for the fourth quarter on a 13 week versus 14 week basis are expected to be down low-single digits. The Company's monthly sales guidance is available on our investor relations website at http://www.jcpenney.net/company/finance/weekly.htm.> Operating profit for the fourth quarter is expected to benefit from improving gross margins and continued SG&A leverage. The Company currently anticipates that fourth quarter earnings from continuing operations will be in the range of $0.95 to $1.05 per share, including the impact of an estimated $0.05 to $0.10 per share from one-time charges. The one-time charges are principally related to the Company's recently announced senior management transition as well as potential asset impairments.

Senior management will host a live conference call and real-time webcast on Tuesday, Nov. 16, 2004, beginning at 9:30 a.m. ET. Access to the conference call is open to the press and general public in a listen only mode. To access the conference call, please dial 973-935-2035 and reference the JCPenney Quarterly Earnings Conference Call. The telephone playback will be available for two days beginning approximately two hours after the conclusion of the call by dialing 973-341-3080, pin code 4323460. The live webcast may be accessed via JCPenney's Investor Relations website (at JCPenney.net), or on StreetEvents.com (for members) and FullDisclosure.com (for media and individual investors). Replays of the webcast will be available for up to 90 days after the event.

J. C. Penney Corporation, Inc., the wholly-owned operating subsidiary of J. C. Penney Company, Inc., is one of America's largest department store, catalog, and e-commerce retailers, employing approximately 150,000 associates. As of Oct. 30, 2004, J. C. Penney Corporation, Inc. operated 1,020 JCPenney department stores throughout the United States and Puerto Rico, and 61 Renner department stores in Brazil. JCPenney Catalog, including e-commerce, is the nation's largest catalog merchant of general merchandise, and JCPenney.com is one of the largest apparel and home furnishings sites on the Internet. J. C. Penney Corporation, Inc. is a contributor to JCPenney Afterschool Fund, a charitable organization committed to providing children with high quality after school programs to help them reach their full potential.