JCPenney First Quarter Earnings Per Share Increased 45 Percent; Operating Profit Increased 20 Percent to 8.7 Percent of Sales; Progress on Long Range Plan for Growth Continues

Business Wire, May 11, 2006

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

First Quarter 2006 Highlights

--Continued strengthening of operating performance - EPS from continuing operations increased 45 percent

--Increased the quarterly dividend by 44 percent

--Revealed an accelerated new store growth plan beginning in 2007

--Announced an exciting new beauty initiative with Sephora

J. C. Penney Company, Inc. (NYSE:JCP) first quarter 2006 earnings per share from continuing operations increased 45.2 percent to $0.90 per share from $0.62 per share in last year's period. Operating profit increased 19.8 percent to $369 million from $308 million last year. Operating profit increased 120 basis points in this year's first quarter to 8.7 percent of sales, and benefited from growth in sales, gross margin and leverage of selling, general and administrative expenses. On a per share basis, net income in the quarter, including the effects of discontinued operations, was $0.89 per share compared to $0.63 per share last year.

"We are pleased with the progress the Company continues to make in executing the long range plan, which is focused on building long term growth for our business. We have established strong momentum and are focused on accelerating growth and becoming a leader in the retail industry," said Myron E. (Mike) Ullman, III, chairman and chief executive officer. "In the first quarter we delivered a strong increase in earnings, achieving our twelfth consecutive quarter of comparable store sales gains and continued to improve both our gross margin and SG&A expense ratios."

Ullman added, "While economic indicators are generally positive, we know that our customers - the moderate consumer - are faced with high energy prices and increasing interest rates. This makes it even more important that we deliver the style, quality, and shopping experience they want."

The Company believes it is well positioned to benefit from the changes occurring across the retail landscape. To capitalize on the opportunity for JCPenney in this new environment, the Company is focused on executing the long range plan to drive continued improvement in its existing business and to deliver growth.

Commenting on its growth strategies, Ullman added, "We have recently announced a number of exciting new programs to help achieve our goals, including a joint initiative with Sephora that will make beauty available to the JCPenney customer in our stores and through jcp.com; the acceleration of new store growth that will add approximately 175 new stores over the next four years; a cycle time reduction program that will increase the speed of new product introductions; and further improvement in our multi-channel initiative with jcp.com access at all our stores. To demonstrate the confidence we have in our prospects, we have increased our EPS growth target to 16 percent per year over the next four years."

Operating Results

First quarter total department store sales increased 2.2 percent and comparable department store sales increased 1.3 percent, in line with the Company's expectations. Sales were strongest in fine jewelry, family footwear, children's, and men's with the best regional performance in the southeastern and western regions of the country. During the quarter, Direct sales increased 3.9 percent, primarily as a result of continued strength from jcp.com, which increased approximately 22 percent on top of a 35 percent increase last year.

Gross margin increased 80 basis points to 41.9 percent of sales and benefited from better performance from private brands as well as continued improvement in seasonal transition and merchandise flow. SG&A expenses were well managed during the quarter, and improved by 40 basis points, to 33.2 percent of sales. SG&A expenses reflect leverage of salary costs and efficiencies in the Direct business, which were partially offset by higher marketing costs, including the launch of the Company's new branding campaign in March.

First quarter operating profit was $369 million, a 19.8 percent increase from last year's $308 million. As a percent of sales, operating profit increased 120 basis points to 8.7 percent of sales from 7.5 percent of sales last year.

Other Charges and Credits

Net interest expense was $34 million in the quarter and continued to benefit from rising short-term interest rates on the Company's cash investments. In addition, the Company recognized $13 million of income from real estate and other, principally related to ongoing real estate operations and gains on the sale of properties. In last year's first quarter, real estate and other provided income of $22 million.

Income from continuing operations increased 24.6 percent to $213 million, and earnings per share from continuing operations increased 45.2 percent to $0.90 per share. Net income, which includes discontinued operations, was $210 million, or $0.89 per share.

Discontinued Operations

During the quarter a net after-tax charge of $3 million, or about $0.01 per share, was recorded related to ongoing adjustments to Eckerd reserves.