Delaware
(State or other jurisdiction
of incorporation )
|
1-15274
(Commission File No.)
|
26-0037077
(IRS Employer
Identification No.)
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6501 Legacy Drive
Plano, Texas
(Address of principal executive offices)
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75024-3698
(Zip code)
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[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Item 2.02
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Results of Operations and Financial Condition.
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By:
|
/s/ Michael Dastugue
Michael Dastugue
Executive Vice President and
|
|
Chief Financial Officer
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·
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Earnings of $0.07 per share
|
·
|
Growth initiatives, exclusive attractions and private brands continue to drive sales gains
|
·
|
Opened 22 Sephora inside jcpenney boutiques bringing total to 276
|
·
|
Expenses tightly controlled during the quarter
|
·
|
Strong financial condition, cash and cash equivalents of approximately $1.6 billion
|
·
|
Comparable store sales: expected to increase 2 to 3 percent.
|
·
|
Total sales: expected to increase approximately 250 basis points less than comparable store sales due to the impact of the Company’s exit of its catalog and related businesses.
|
·
|
Gross margin rate: expected to be down slightly when compared to last year.
|
·
|
SG&A expenses: expected to be flat to down slightly
|
·
|
Depreciation and amortization: approximately $135 million.
|
·
|
Real Estate and Other: net $11 million of expense, including expenses related to restructuring and other cost saving initiatives.
|
·
|
Interest expense: approximately $57 million.
|
·
|
Income tax rate: approximately 38 percent.
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·
|
Average shares for EPS calculation: approximately 216 million common shares.
|
·
|
Earnings per share: expected to be in the range of $0.15 to $0.20 per share, including restructuring charges of approximately $0.05 per share. This guidance does not include the impact of the Company’s voluntary early retirement program that was communicated
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J. C. PENNEY COMPANY, INC.
|
||||||||||||||
SUMMARY OF OPERATING RESULTS
|
||||||||||||||
(Unaudited)
|
||||||||||||||
(Amounts in millions except per share data)
|
||||||||||||||
Three months ended
|
Six months ended
|
|||||||||||||
July 30,
|
July 31,
|
% Inc.
|
July 30,
|
July 31,
|
% Inc.
|
|||||||||
2011
|
2010
|
(Dec.)
|
2011
|
2010
|
(Dec.)
|
|||||||||
STATEMENTS OF OPERATIONS:
|
||||||||||||||
Total net sales
|
$ 3,906
|
$ 3,938
|
(0.8)%
|
$ 7,849
|
$ 7,867
|
(0.2)%
|
||||||||
Gross margin
|
1,497
|
1,552
|
(3.5)%
|
3,092
|
3,182
|
(2.8)%
|
||||||||
Operating expenses:
|
||||||||||||||
Selling, general and administrative (SG&A)(1)
|
1,243
|
1,275
|
(2.5)%
|
2,524
|
2,567
|
(1.7)%
|
||||||||
Qualified pension plan
|
21
|
55
|
(61.8)%
|
43
|
110
|
(60.9)%
|
||||||||
Supplemental pension plans
|
7
|
8
|
(12.5)%
|
14
|
17
|
(17.6)%
|
||||||||
Total pension
|
28
|
63
|
(55.6)%
|
57
|
127
|
(55.1)%
|
||||||||
Depreciation and amortization
|
128
|
126
|
1.6%
|
256
|
251
|
2.0%
|
||||||||
Real estate and other, net
|
17
|
(7)
|
(100)%+
|
13
|
(13)
|
(100)%+
|
||||||||
Total operating expenses
|
1,416
|
1,457
|
(2.8)%
|
2,850
|
2,932
|
(2.8)%
|
||||||||
Operating income
|
81
|
95
|
(14.7)%
|
242
|
250
|
(3.2)%
|
||||||||
Net interest expense
|
57
|
57
|
-
|
115
|
116
|
(0.9)%
|
||||||||
Bond premiums and unamortized costs
|
-
|
20
|
-
|
-
|
20
|
-
|
||||||||
Income before income taxes
|
24
|
18
|
33.3%
|
127
|
114
|
11.4%
|
||||||||
Income tax expense
|
10
|
4
|
100%+
|
49
|
40
|
22.5%
|
||||||||
Net income
|
$ 14
|
$ 14
|
-
|
$ 78
|
$ 74
|
5.4%
|
||||||||
Earnings per share - diluted
|
$ 0.07
|
$ 0.06
|
16.7%
|
$ 0.35
|
$ 0.31
|
12.9%
|
||||||||
FINANCIAL DATA:
|
||||||||||||||
Adjusted earnings per share - diluted (non-GAAP)(2)
|
$ 0.13
|
$ 0.20
|
$ 0.47
|
$ 0.60
|
||||||||||
Comparable store sales increase
|
1.5%
|
0.9%
|
|
2.7%
|
1.3%
|
|
||||||||
Ratios as a percentage of sales:
|
||||||||||||||
Gross margin
|
38.3%
|
39.4%
|
39.4%
|
40.4%
|
||||||||||
SG&A expenses
|
31.8%
|
32.4%
|
32.2%
|
32.6%
|
||||||||||
Total operating expenses
|
36.2%
|
37.0%
|
36.3%
|
37.2%
|
||||||||||
Operating income
|
2.1%
|
2.4%
|
3.1%
|
3.2%
|
||||||||||
Effective income tax rate
|
41.7%
|
22.2%
|
38.6%
|
35.1%
|
||||||||||
COMMON SHARES DATA:
|
||||||||||||||
Outstanding shares at end of period
|
213.3
|
236.4
|
213.3
|
236.4
|
||||||||||
Average shares outstanding (basic shares)
|
213.3
|
236.4
|
221.3
|
236.3
|
||||||||||
Average shares used for diluted EPS
|
216.3
|
237.6
|
224.2
|
237.6
|
||||||||||
(1)
|
The statement of operations line item for pre-opening expenses has been eliminated due to the immaterial
|
|||||||||||||
nature of such expense over the past several years. Pre-opening expenses for both years is now included in
|
||||||||||||||
SG&A. The impact on the prior year quarter SG&A ratio was an increase of 10 basis points.
|
||||||||||||||
(2)
|
See below for reconcilation of non-GAAP financial measures to the most comparable GAAP measures.
|
J. C. PENNEY COMPANY, INC.
SUMMARY BALANCE SHEETS AND STATEMENTS OF CASH FLOWS
|
||||||||||||||
(Unaudited)
|
||||||||||||||
(Amounts in millions)
|
||||||||||||||
July 30,
|
July 31,
|
|||||||||||||
2011
|
2010
|
|||||||||||||
SUMMARY BALANCE SHEETS:
|
||||||||||||||
Cash in banks and in transit
|
$ 244
|
$ 226
|
||||||||||||
Cash short-term investments
|
1,307
|
1,777
|
||||||||||||
Cash and cash equivalents
|
1,551
|
2,003
|
||||||||||||
Merchandise inventory
|
3,572
|
3,490
|
||||||||||||
Income taxes receivable
|
334
|
499
|
||||||||||||
Prepaid expenses and other
|
194
|
205
|
||||||||||||
Property and equipment, net
|
5,237
|
5,298
|
||||||||||||
Prepaid pension
|
788
|
387
|
||||||||||||
Other assets
|
753
|
627
|
||||||||||||
Total assets
|
$ 12,429
|
$ 12,509
|
||||||||||||
Merchandise accounts payable
|
$ 1,386
|
$ 1,410
|
||||||||||||
Other accounts payable and accrued expenses
|
1,381
|
1,422
|
||||||||||||
Long-term debt
|
3,099
|
3,099
|
||||||||||||
Long-term deferred taxes
|
1,216
|
982
|
||||||||||||
Other liabilities
|
644
|
710
|
||||||||||||
Total liabilities
|
7,726
|
7,623
|
||||||||||||
Stockholders' equity
|
4,703
|
4,886
|
||||||||||||
Total liabilities and stockholders' equity
|
$ 12,429
|
$ 12,509
|
||||||||||||
Six months ended
|
||||||||||||||
July 30,
|
July 31,
|
|||||||||||||
2011
|
2010
|
|||||||||||||
SUMMARY STATEMENTS OF CASH FLOWS:
|
||||||||||||||
Net cash provided by/(used in):
|
||||||||||||||
Total operating activities
|
$ 172
|
$ (379)
|
||||||||||||
Investing activities:
|
||||||||||||||
Capital expenditures
|
(295)
|
(229)
|
||||||||||||
Proceeds from sale of assets
|
-
|
4
|
||||||||||||
Total investing activities
|
(295)
|
(225)
|
||||||||||||
Financing activities:
|
||||||||||||||
Proceeds from debt
|
-
|
392
|
||||||||||||
Other changes in debt
|
-
|
(693)
|
||||||||||||
Financing costs
|
(15)
|
(14)
|
||||||||||||
Stock repurchase program
|
(900)
|
-
|
||||||||||||
Proceeds from issuance of stock warrants
|
50
|
-
|
||||||||||||
Changes in stock
|
9
|
5
|
||||||||||||
Dividends paid
|
(92)
|
(94)
|
||||||||||||
Total financing activities
|
(948)
|
(404)
|
||||||||||||
Net (decrease) in cash and cash equivalents
|
(1,071)
|
(1,008)
|
||||||||||||
Cash and cash equivalents at beginning of period
|
2,622
|
3,011
|
||||||||||||
Cash and cash equivalents at end of period
|
$ 1,551
|
$ 2,003
|
J. C. PENNEY COMPANY, INC.
Reconciliation of Non-GAAP Financial Measures
|
||||||||||||||
(Unaudited)
|
||||||||||||||
(Amounts in millions except per share data)
|
||||||||||||||
ADJUSTED OPERATING INCOME EXCLUDING QUALIFIED PENSION
|
||||||||||||||
The following table reconciles operating income, the most directly comparable GAAP measure, to adjusted operating income, a non-GAAP financial measure, which excludes the impact of the qualified pension plan: | ||||||||||||||
Three months ended
|
Six months ended
|
|||||||||||||
July 30,
|
July 31,
|
% Inc.
|
July 30,
|
July 31,
|
% Inc.
|
|||||||||
2011
|
2010
|
(Dec.)
|
2011
|
2010
|
(Dec.)
|
|||||||||
Operating income
|
$ 81
|
$ 95
|
(14.7)%
|
$ 242
|
$ 250
|
(3.2)%
|
||||||||
As a percent of sales
|
2.1%
|
2.4%
|
3.1%
|
3.2%
|
||||||||||
Add: Qualified pension plan expense
|
21
|
55
|
43
|
110
|
||||||||||
Adjusted operating income (non-GAAP)
|
$ 102
|
$ 150
|
(32.0)%
|
$ 285
|
$ 360
|
(20.8)%
|
||||||||
As a percent of sales
|
2.6%
|
3.8%
|
3.6%
|
4.6%
|
||||||||||
ADJUSTED EARNINGS PER SHARE - DILUTED EXCLUDING QUALIFIED PENSION
|
||||||||||||||
The following table reconciles net income and earnings per share, the most directly comparable GAAP measure, to adjusted net income and earnings per share, which excludes the impact of the qualified pension plan, net of tax, a non-GAAP financial measure:
|
||||||||||||||
Three months ended
|
Six months ended
|
|||||||||||||
July 30,
|
July 31,
|
% Inc.
|
July 30,
|
July 31,
|
% Inc.
|
|||||||||
2011
|
2010
|
(Dec.)
|
2011
|
2010
|
(Dec.)
|
|||||||||
Net income
|
$ 14
|
$ 14
|
-
|
$ 78
|
$ 74
|
5.4%
|
||||||||
Earnings per share - diluted
|
$ 0.07
|
$ 0.06
|
16.7%
|
$ 0.35
|
$ 0.31
|
12.9%
|
||||||||
Add: Qualified pension plan expense net of tax
|
||||||||||||||
of $8, $21, $17 and $41
|
13
|
34
|
26
|
69
|
||||||||||
Adjusted net income (non-GAAP)
|
$ 27
|
$ 48
|
(43.8)%
|
$ 104
|
$ 143
|
(27.3)%
|
||||||||
Adjusted earnings per share - diluted (non-GAAP)
|
$ 0.13
|
$ 0.20
|
(35.0)%
|
$ 0.47
|
$ 0.60
|
(21.7)%
|
||||||||
J. C. PENNEY COMPANY, INC.
Reconciliation of Non-GAAP Financial Measures
|
|||||||||||||
(Unaudited)
|
|||||||||||||
(Amounts in millions)
|
|||||||||||||
FREE CASH FLOW
|
|||||||||||||
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 excluding discretionary cash contributions to our primary pension plan, less capital expenditures and dividends paid, plus the proceeds from the sale of assets. Adjustments to exclude discretionary pension plan contributions are more indicative of our ability to generate cash flows from operating activities. We believe discretionary contributions to our pension plan are more reflective of financing transactions to pay-down off- balance sheet debt relating to the pension liability. Free cash flow is a relevant indicator of our ability to repay maturing debt, both on and off-balance sheet, 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. | |||||||||||||
The following table reconciles cash flow from operating activities, the most directly comparable GAAP financial measure, to free cash flow, a non-GAAP financial measure:
|
|||||||||||||
Six months ended
|
|||||||||||||
July 30,
|
July 31,
|
||||||||||||
2011
|
2010
|
||||||||||||
Net cash provided by/(used in) operating activities
|
$ 172
|
$ (379)
|
|||||||||||
Add:
|
|||||||||||||
Discretionary pension contribution
|
-
|
392
|
|||||||||||
Proceeds from sale of assets
|
-
|
4
|
|||||||||||
Less:
|
|||||||||||||
Capital expenditures
|
(295)
|
(229)
|
|||||||||||
Dividends paid
|
(92)
|
(94)
|
|||||||||||
Free cash flow (non-GAAP)
|
$ (215)
|
$ (306)
|
|||||||||||