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J. C. Penney Company, Inc. Reports 2012 Fiscal Third Quarter Results



     J. C. Penney Company, Inc. Reports 2012 Fiscal Third Quarter Results

PR Newswire

PLANO, Texas, Nov. 9, 2012

PLANO, Texas, Nov. 9, 2012 /PRNewswire/ -- J. C. Penney Company, Inc. (NYSE:
JCP) today announced financial results for its fiscal third quarter ended
October 27, 2012. For the quarter, jcpenney reported a net loss of $123
million or $0.56 per share. Excluding the net gain on the sales of non-core
assets, restructuring and management transition charges, and non-cash primary
pension plan expense, adjusted net loss for the quarter was $203 million or
$0.93 per share. A reconciliation of GAAP to non-GAAP financial measures is
included in the schedules accompanying the consolidated financial statements
included with this release.

(Logo: http://photos.prnewswire.com/prnh/20110222/DA51975LOGO)

Ron Johnson, chief executive officer of jcpenney said, "While the quarter
overall was challenging, the performance of jcp's new brands and shops
reinforces our conviction to transform jcpenney into a specialty department
store.  Today, jcp is really a tale of two companies.  By far the largest part
of our store is the old jcpenney, which continues to struggle and experience
significant challenges as evidenced by our third quarter results.  However,
the new jcp, centered around the shop concept, is gaining traction with
customers every day and is surpassing our own expectations in terms of sales
productivity which continues to give us confidence in our long term business
model."

Shops Update:
During the quarter, the Company opened shops under the Levi's ^®, Izod^®, Liz
Claiborne^®, The Original Arizona Jean Co. ^ ®, and jcp^™ brands.  The Company
also opened 38 Sephora inside jcpenney stores, bringing the total to 386. 
Currently, the Company has transformed approximately 7.2 million square feet
of selling space into the shop format.  The Company will provide additional
detail on year-to-date shop performance during an earnings presentation
conducted later today. 

Third Quarter Results:
Comparable store sales for the third quarter declined 26.1 percent and total
sales decreased 26.6 percent.  Internet sales through jcp.com were $214
million in the third quarter, decreasing 37.3 percent from last year. 

Gross margin was 32.5 percent of sales, compared to 37.4 percent in the same
period last year.  Gross margin was impacted by lower than expected sales in
the quarter and a higher level of clearance merchandise sales.  

The Company's SG&A expenses decreased $155 million compared to last year's
third quarter.

For the third quarter, the Company incurred $34 million in restructuring and
management transition charges. These charges comprised the following:

  o Home office and stores $4 million, or $0.01 per share;
  o Store fixtures $18 million, or $0.05 per share;
  o Supply chain $3 million, or $0.01 per share;
  o Management transition $6 million, or $0.02 per share;
  o Other $3 million, or $0.01 per share.

As a result of previous actions taken to reduce the workforce, the Company
re-measured its pension plans during the quarter, which resulted in a
reduction to non-cash primary pension plan expense of $27 million, bringing
total primary pension plan expense in 2012 to $167 million.

The Company ended the third quarter with approximately $525 million in cash
and cash equivalents on its balance sheet.   

During the quarter, the Company opened seven new jcpenney stores, including
four new stores and three relocations.

Sale of Non-Core Assets:
As part of jcpenney's strategy to monetize assets that are not core to its
operations, the Company generated $279 million of cash from the sale of
several non-core assets during the third quarter.

Earnings Event Today/Webcast Details:
At 8:00 a.m. ET today, the Company will host an in-person meeting with members
of the financial community at SIR Stage 37 in New York City where the jcp
leadership team will provide further commentary on the Company's third quarter
2012 financial results. The presentations and question-and-answer session will
also be available live via streaming video and webcast on the Company's
investor relations website at http://ir.jcpenney.com. Replays of the webcast
will be available for up to 90 days after the event.

For individuals without access to the webcast, the event will also be
available via live conference call in listen-only mode. To access the
presentations and question-and-answer session, please dial (866) 713-8395, or
(617) 597-5309 for international callers, and reference 50754540 participant
code.  Telephone playback will be available for seven days beginning
approximately two hours after the conclusion of the meeting by dialing (888)
286-8010 and (617) 801-6888 for international callers and referencing 15554609
participant code.

For further information, contact:

Eric Cerny and Angelika Torres; (972)431.5500
jcpinvestorrelations@jcpenney.com

Kristin Hays and Joey Thomas; (972)431.3400
jcpcorpcomm@jcpenney.com

Corporate Website
ir.jcpenney.com

About jcpenney:
More than a century ago, James Cash Penney founded his company on the
principle of the Golden Rule: treat others the way you'd like to be treated –
Fair and Square. His legacy continues to this day, as J. C. Penney Company,
Inc. (NYSE: JCP) boldly transforms the retail experience across 1,100 stores
and jcp.com to become America's favorite store. Focused on making the customer
experience better every day, jcpenney is dreaming up new ways to make
customers love shopping again. On every visit, customers will discover great
prices every day in a unique Shops environment that features exceptionally
curated merchandise, a dynamic presentation and unmatched customer service.
For more information, visit us at jcp.com.

This release may contain forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements, which reflect the Company's current views of future events and
financial performance, involve known and unknown risks and uncertainties that
may cause the Company's actual results to be materially different from planned
or expected results. Those risks and uncertainties include, but are not
limited to, general economic conditions, including inflation, recession,
unemployment levels, consumer spending patterns, credit availability and debt
levels, changes in store traffic trends, the cost of goods, trade
restrictions, the impact of changes designed to transform our business,
customer acceptance of our new strategies, the impact of cost reduction
initiatives, implementation of new systems and platforms, changes in tariff,
freight and shipping rates, changes in the cost of fuel and other energy and
transportation costs, increases in wage and benefit costs, competition and
retail industry consolidations, interest rate fluctuations, dollar and other
currency valuations, the impact of weather conditions, risks associated with
war, an act of terrorism or pandemic, a systems failure and/or security breach
that results in the theft, transfer or unauthorized disclosure of customer,
employee or Company information and legal and regulatory proceedings.  Please
refer to the Company's most recent Form 10-K and subsequent filings for a
further discussion of risks and uncertainties. Investors should take such
risks into account when making investment decisions. We do not undertake to
update these forward-looking statements as of any future date.

 

J. C. PENNEY COMPANY, INC.
SUMMARY OF OPERATING RESULTS
(Unaudited)
(Amounts in millions except per share data)
                         Three months ended          Nine months ended
                         Oct. 27,  Oct.     % Inc.   Oct. 27,  Oct.    % Inc.
                                   29,                         29,
                         2012      2011     (Dec.)   2012      2011    (Dec.)
STATEMENTS OF
OPERATIONS:
Total net sales          $ 2,927   $ 3,986  (26.6)%  $ 9,101   $       (23.1)%
                                                               11,835
Costs of goods sold      1,975     2,497    (20.9)%  5,959     7,254   (17.9)%
Gross margin             952       1,489    (36.1)%  3,142     4,581   (31.4)%
Operating
expenses/(income):
   Selling, general and
   administrative        1,087     1,242    (12.5)%  3,297     3,766   (12.5)%
   (SG&A)
   Primary pension plan  42        22       90.9%    139       65      100+%
   Supplemental pension  9         9        0.0%     28        23      21.7%
   plans
       Total pension     51        31       64.5%    167       88      89.8%
   Depreciation and      133       127      4.7%     386       383     0.8%
   amortization
   Real estate and       (197)     (5)      (100+)%  (412)     (24)    (100+)%
   other, net
   Restructuring and
   management            34        265      (87.2)%  269       297     (9.4)%
   transition
   Total operating       1,108     1,660    (33.3)%  3,707     4,510   (17.8)%
   expenses
Operating income/(loss)  (156)     (171)    8.8%     (565)     71      (100+)%
Net interest expense     55        55       0.0%     169       170     (0.6)%
Income/(loss) before     (211)     (226)    6.6%     (734)     (99)    (100+)%
income taxes
Income tax               (88)      (83)     (6.0)%   (301)     (34)    (100+)%
expense/(benefit)
Net income/(loss)        $ (123)   $ (143)  14.0%    $ (433)   $ (65)  (100+)%
Earnings/(loss) per      $ (0.56)  $        16.4%    $ (1.98)  $       (100+)%
share - basic                      (0.67)                      (0.30)
Earnings/(loss) per      $ (0.56)  $        16.4%    $ (1.98)  $       (100+)%
share - diluted                    (0.67)                      (0.30)
FINANCIAL DATA:
Comparable store sales   (26.1)%   (1.6)%            (22.3)%   1.2%
increase/(decrease)
Ratios as a percentage
of sales:
   Gross margin          32.5%     37.4%             34.5%     38.7%
   SG&A expenses         37.1%     31.2%             36.2%     31.8%
   Total operating       37.8%     41.7%             40.7%     38.1%
   expenses
   Operating             (5.3)%    (4.3)%            (6.2)%    0.6%
   income/(loss)
Effective income tax     41.7%     36.7%             41.0%     34.3%
rate
COMMON SHARES DATA:
Outstanding shares at    219.2     213.4             219.2     213.4
end of period
Weighted average shares
outstanding (basic       219.4     213.3             219.1     218.6
shares)
Weighted average shares  219.4     213.3             219.1     218.6
used for diluted EPS

 

CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in millions)
                                                        Oct. 27,    Oct. 29,
                                                        2012        2011
Assets
Current assets
    Cash in banks and in transit                        $ 141       $ 205
    Cash short-term investments                         384         880
                   Cash and cash equivalents            525         1,085
    Merchandise inventory                               3,362       4,376
    Income tax receivable                               69          175
    Deferred income taxes                               409         189
    Prepaid expenses and other                          265         285
Total current assets                                    4,630       6,110
Property and equipment, net                             5,391       5,242
Prepaid pension                                         -           668
Other assets                                            767         807
Total assets                                            $ 10,788    $ 12,827
Liabilities and stockholders' equity
Current liabilities
    Merchandise accounts payable                        $ 1,408     $ 1,831
    Other accounts payable and accrued expenses         1,242       1,404
    Current maturities of capital leases and notes      22          1
    payable
    Current maturities of long-term debt                -           230
Total current liabilities                               2,672       3,466
Long-term capital leases and notes payable              75          3
Long-term debt                                          2,868       2,868
Deferred taxes                                          786         1,152
Other liabilities                                       885         816
Total liabilities                                       7,286       8,305
Stockholders' equity                                    3,502       4,522
Total liabilities and stockholders' equity              $ 10,788    $ 12,827

 

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in millions)
                                       Three months ended    Nine months ended
                                       Oct. 27,  Oct. 29,    Oct.     Oct. 29,
                                                             27,
                                       2012      2011        2012     2011
Cash flows from operating
activities:
Net income/(loss)                      $ (123)   $ (143)     $ (433)  $ (65)
Adjustments to reconcile net
income/(loss) to net cash provided
by/(used in) operating activities:
  Restructuring and management         12        216         102      230
  transition
  Asset impairments and other          6         6           10       8
  charges
  Net gain on sales or redemption of   (197)     -           (397)    -
  non-core assets
  Depreciation and amortization        133       127         386      383
  Benefit plans                        31        18          110      46
  Stock-based compensation             12        7           38       33
  Excess tax benefits from stock-based 6         (1)         (17)     (5)
  compensation
  Deferred taxes                       (27)      9           (224)    (96)
Change in cash from:
  Inventory                            (369)     (804)       (446)    (1,163)
  Prepaid expenses and other           (26)      (89)        (41)     (86)
  assets
  Merchandise accounts payable         393       445         386      698
  Current income taxes                 74        (108)       108      (34)
  Accrued expenses and other           27        12          (237)    (82)
                  Net cash provided
                  by/(used in)         (48)      (305)       (655)    (133)
                  operating activities
Cash flows from investing
activities:
  Capital expenditures                 (341)     (174)       (580)    (469)
  Proceeds from the sales or           279       -           525      -
  redemption of non-core assets
  Acquisition of tradenames            -         -           (9)      -
  Proceeds from sale of operating      -         1           -        1
  assets
  Proceeds from joint venture cash     -         53          -        53
  distribution
                  Net cash provided
                  by/(used in)         (62)      (120)       (64)     (415)
                  investing activities
Cash flows from financing
activities:
  Payment of capital leases and        (13)      -           (13)     -
  notes payable
  Payment of long-term debt            (230)     -           (230)    -
  Financing costs                      -         -           (4)      (15)
  Stock repurchase program             -         -           -        (900)
  Proceeds from issuance of stock      -         -           -        50
  warrant
  Proceeds from stock options          1         1           70       12
  exercised
  Other changes in stockholders'       (11)      1           -        (1)
  equity
  Dividends paid                       -         (43)        (86)     (135)
                  Net cash provided
                  by/(used in)         (253)     (41)        (263)    (989)
                  financing activities
Net increase/(decrease) in cash        (363)     (466)       (982)    (1,537)
and cash equivalents
Cash and cash equivalents at           888       1,551       1,507    2,622
beginning of period
Cash and cash equivalents at end       $ 525     $ 1,085     $ 525    $ 1,085
of period

 

Reconciliation of Non-GAAP Financial Measures
(Unaudited)
(Amounts in millions except per share data)
We define (1) adjusted operating income/(loss) as operating income/(loss)
excluding the impact of markdowns related to the alignment of inventory with
our new strategy, restructuring and management transition charges, the
non-cash impact of the primary pension plan expense and the net gain on
sales or redemption of non-core assets and (2) adjusted net income/(loss)
and adjusted earnings/(loss) per share - diluted as net income/(loss) and
earnings/(loss) per share - diluted, respectively, excluding the after-tax
impacts of markdowns related to the alignment of inventory with our new
strategy, restructuring and management transition charges, the non-cash
impact of the primary pension plan expense and the net gain on sales or
redemption of non-core assets. We believe that the presentation of these
non-GAAP financial measures is useful in order to better understand our
financial performance as well as facilitate the comparison of our results to
the results of our peer companies. It is important to view each of these
non-GAAP financial measures in addition to, rather that as a substitute for,
the GAAP measures of operating income/(loss), net income/(loss) and
earnings/(loss) per share-diluted, respectively.

 

ADJUSTED OPERATING INCOME/(LOSS), NON-GAAP FINANCIAL MEASURE
The following table reconciles operating income/(loss), the most directly
comparable GAAP measure, to adjusted operating income/(loss), a non-GAAP
financial measure:
                                      Three months ended   Nine months ended
                                      Oct. 27,   Oct. 29,  Oct. 27,    Oct.
                                                                       29,
                                      2012       2011      2012        2011
Operating income/(loss)               $ (156)    $ (171)   $ (565)     $ 71
       As a percent of sales          (5.3)%     (4.3)%    (6.2)%      0.6%
Add:   Markdowns - inventory          -          -         155         -
       strategy alignment
       Restructuring and management
       transition
       charges                        34         265       269         297
       Primary pension plan expense   42         22        139         65
       Net gain on sales or
Less:  redemption of non-core         (197)      -         (397)       -
       assets
Adjusted operating income/(loss)      $ (277)    $ 116     $ (399)     $ 433
(non-GAAP)
       As a percent of sales          (9.5)%     2.9%      (4.4)%      3.7%

 

ADJUSTED NET INCOME/(LOSS) AND ADJUSTED EARNINGS/(LOSS) PER SHARE-DILUTED,
NON-GAAP FINANCIAL MEASURES
The following table reconciles net income/(loss) and earnings/(loss) per
share-diluted, the most directly comparable GAAP measures, to adjusted net
income/(loss) and adjusted earnings/(loss) per share-diluted, non-GAAP
financial measures:
                                      Three months ended   Nine months ended
                                      Oct. 27,   Oct. 29,  Oct. 27,   Oct.
                                                                      29,
                                      2012       2011      2012       2011
Net income/(loss)                     $ (123)    $ (143)   $ (433)    $ (65)
Earnings/(loss) per share - diluted   $ (0.56)   $ (0.67)  $ (1.98)   $
                                                                      (0.30)
        Markdowns - inventory
Add:    strategy alignment, net of    -          -         95         -
        tax of $-, $-, $60, $-
        Restructuring and
        management transition         21         167       165        186
        charges, net of tax of $13,
        $98, $104, $111
        Primary pension plan
        expense, net of tax of        26         14        85         40

        $16, $8, $54, $25
        Net gain on sales or
        redemption of non-core
Less:                                 (127)      -         (251)      -
        assets, net of tax of
        $(70), $-, $(146), $-
Adjusted net income/loss (non-GAAP)   $ (203)    $ 38      $ (339)    $ 161
Adjusted earnings/(loss) per share    $ (0.93)   $ 0.18    $ (1.55)   $ 0.73
- diluted (non-GAAP)

 

Reconciliation of Non-GAAP Financial Measures
(Unaudited)
(Amounts in millions except per share data)
Free cash flow is a key financial measure of our ability to generate
additional cash from operating our business and in evaluating our financial
performance. We define free cash flow as cash flow from operating activities,
less capital expenditures and dividends paid, plus the proceeds from the sale
of operating assets. Free cash flow is a relevant indicator of our ability to
repay maturing debt, revise our dividend policy or fund other uses of capital
that we believe will enhance stockholder value. Free cash flow is considered a
non-GAAP financial measure under the rules of the SEC. Free cash flow is
limited and does not represent remaining cash flow available for discretionary
expenditures due to the fact that the measure does not deduct payments
required for debt maturities, pay-down of off-balance sheet pension debt, and
other obligations or payments made for business acquisitions. Therefore, it is
important to view free cash flow in addition to, rather than as a substitute
for, our entire statement of cash flows and those measures prepared in
accordance with GAAP.

 

FREE CASH FLOW, NON-GAAP FINANCIAL MEASURE
The following table reconciles cash flow from operating activities, the most
directly comparable GAAP measure, to free cash flow, a non-GAAP financial
measure:
                                  Three months ended        Nine months ended
                                  Oct. 27,     Oct. 29,     Oct. 27,   Oct.
                                                                       29,
                                  2012         2011         2012       2011
Net cash provided by/(used in)    $ (48)       $ (305)      $ (655)    $ (133)
operating activities
Add:   Proceeds from sale of      -            1            -          1
       operating assets
Less:  Capital expenditures       (341)        (174)        (580)      (469)
       Dividends paid             -            (43)         (86)       (135)
Free cash flow (non-GAAP)         $ (389)      $ (521)      $ (1,321)  $ (736)

 

Non-GAAP Financial Measure
We report our financial information in accordance with generally accepted
accounting principles in the United States (GAAP). However, we present certain
financial measures identified as non-GAAP under the rules of the Securities
and Exchange Commission (SEC) to assess our results. We believe that the
presentation of these non-GAAP financial measures provides enhanced visibility
into our gross margin during our transformation, provides useful information
about our selling, general and administrative expense structure and
facilitates the comparison of our results to the results of our peer
companies. It is important to view non-GAAP financial measures in addition to,
rather than as a substitute for, those measures and ratios prepared in
accordance with GAAP. We have provided reconciliations of the most directly
comparable GAAP measures to our non-GAAP financial measures.

 

SELLING MARGIN, NON-GAAP FINANCIAL MEASURE 
We define selling margin as sales in our stores and internet divided by direct
cost from our vendors and freight.  Selling margin excludes costs indirectly
incurred in procuring and bringing inventory to its existing condition and
location, clearance markdowns and reserves under the retail method of
accounting and sales and gross margin associated with our outlet stores.  In
addition, it excludes sales adjustments for the change in reserve for
estimated returns and items that have been sold but not shipped and/or
delivered and shipping revenue.  The following table reconciles gross margin,
the most directly comparable GAAP financial measure, to selling margin, a
non-GAAP financial measure:

                         Q3 2012                   Q3 2011 
                                       Gross                         Gross
($ in millions)                Gross   Margin               Gross    Margin
                                                   Sales 
                        Sales  Margin  as a % of            Margin   as a % of
                                       Sales                         Sales
Gross margin (GAAP)     2,927  952     32.5%      3,986    1,489     37.4%
Sales adjustments       (26)           0.3%       (23)               0.6%
Outlet stores           -      -       0.0%       (40)     (14)      -0.4%
Inventory transition
markdowns on            -      -       0.0%       -        -         0.0%
merchandise that was
sold during the period
Buying and distribution        88      3.0%                88        2.2%
costs
Clearance markdowns and
reserves under the             56      1.9%                (6)       -0.2%
retail method of
accounting
Miscellaneous                  (24)    -0.8%               (22)      -0.6%
Selling margin          2,901  1,072   37.0%      3,923    1,535     39.1%
(non-GAAP)

 

SOURCE J. C. Penney Company, Inc.

Website: http://jcp.com
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