JCPenney Reports Record Second Quarter Operating Profit; Earnings Per Share From Continuing Operations Increased 63 Percent to $0.75; Management Raises Full Year Earnings Per Share Guidance to $4.55

Business Wire, August 10, 2006

PLANO, Texas -- J. C. Penney Company, Inc. (NYSE:JCP):

Second Quarter 2006 Highlights

--Comparable store sales increased 6.6 percent

--Operating Profit increased 27.2 percent, or 100 basis points as a percent of sales

--Repurchased 8 million shares of common stock for $530 million

--Completed new POS rollout offering jcp.com access at over 35,000 store registers

J. C. Penney Company, Inc. (NYSE:JCP) reported record second quarter operating profit and earnings. Operating profit increased 27.2 percent to $271 million from $213 million last year and improved 100 basis points to 6.4 percent of sales. Operating profit improvement was driven by strong sales performance, coupled with improved gross margin and leverage of selling, general and administrative expenses. Second quarter 2006 earnings per share from continuing operations increased 63.0 percent to $0.75 from $0.46 last year. Earnings per share in both years include the benefits of one-time tax credits as well as the effects of the Company's ongoing share repurchase program.

"The Company had an excellent second quarter, with good customer response to fine jewelry, children's and women's accessories, as well as a solid rebound in apparel categories, particularly women's," said Myron E. (Mike) Ullman, III, chairman and chief executive officer. "We have broad-based momentum entering the back half of the year and are confident in our competitive positioning. While we are cautiously optimistic about the opportunities that lie ahead, we believe that it is prudent to plan conservatively in the current environment."

Ullman added, "We continue to improve the fundamentals of our existing businesses and are poised for the acceleration of our new store growth. In the third quarter, we will open 25 stores, with 17 in the new and successful off-mall format. Twenty of these stores will open on October 6th, the most store openings in a single day in the Company's recent history, and beginning in 2007, we plan to open 50 stores per year."

Operating Results

Second quarter total department store sales increased 7.1 percent and comparable department store sales increased 6.6 percent. Sales were ahead of the Company's initial guidance and increased in all merchandise divisions and regions of the country. The strongest merchandise results were in fine jewelry, children's and women's accessories, and the best regional performance was in the west and southeast. During the quarter, Direct sales increased 2.7 percent, and jcp.com sales increased approximately 25 percent.

Gross margin improved by 30 basis points to 38.4 percent of sales, reflecting continued benefits from private brand performance and better flow of merchandise. SG&A expenses improved by 70 basis points to 32.0 percent of sales, and reflect leverage of salary and marketing costs.

Second quarter operating profit was $271 million, a 27.2 percent increase from last year's $213 million.

Other Charges and Credits

Net interest expense was $32 million in the quarter and continued to benefit from rising short-term interest rates on the Company's cash investments.

Real Estate and Other provided income of $9 million in the current quarter, principally related to ongoing real estate operations. Last year, Real Estate and Other contributed $14 million of income in the second quarter, including approximately $8 million in gains from the sale of properties.

Second quarter taxes are shown net of $26 million, or $0.11 per share, in one-time federal and state income tax credits, which reduced the effective tax rate for the quarter to 28.2 percent. Excluding these one-time credits, the tax rate would have been 38.8 percent.

Financial Condition and Other Items

The Company continues to maintain a strong financial condition. As of July 29, 2006, the Company had cash and short-term investments of $2.4 billion and long-term debt, including current maturities, of $3.5 billion. Merchandise inventories were well controlled at $3.5 billion, with increases associated with the planned opening of 25 new stores in the third quarter essentially offset by better merchandise flow. Free cash flow for the first half was in line with expectations and the Company continues to anticipate annual free cash flow of approximately $200 million.

During the quarter, the Company repurchased 8 million shares of common stock for $530 million. Management expects to complete the current repurchase program in the third quarter.

In addition, the Company completed the rollout of its new POS system during this year's second quarter. This new system offers faster transaction times and provides access to jcp.com at all registers, enhancing the shopping experience and expanding the merchandise assortment.

Earnings Guidance

The following guidance reflects the Company's current expectations for the third and fourth quarters:

--Comparable store sales: low single digit increase in both quarters.

--Direct sales: low single digit increase in the third quarter, mid single digit increase in the fourth quarter (note: the fourth quarter includes a 53rd week in 2006).