Penney's 4Q profit rises 36 percent

NEW YORK (AP) -- Cutting costs and selling more exclusive brands like Liz Claiborne drew new customers and helped J.C. Penney Co.'s fourth-quarter profit rise 36 percent, the company said Friday.

The results cap a week of similar reports from clothing and department store chains. And, like Gap Inc. and Kohl's Corp., J.C. Penney announced a new share buyback.

But Penney's shares fell $2.39, or 6.5 percent, to $34.16 Friday as investors appeared worried that price increases ricocheting through the retail industry would particularly hurt Penney's middle-income customers.

Macy's Inc., Kohl's and Abercrombie & Fitch Co. all said their shoppers should expect prices increases as merchants grapple with soaring costs of labor in China and raw materials worldwide.

"As we look to 2011, the consumer environment remains uncertain, and budgets for the moderate customers we serve remain tight," Penney's CFO Michael Dastugue said during a conference call with analysts Friday. "As a result, we are continuing to plan our business conservatively."

Kohl's Chairman, CEO and President Kevin Mansell voiced a similar theme Thursday.

"Continued uncertainty is still the biggest challenge," Mansell told The Associated Press in a phone interview. "As people are feeling better, they're being hit with higher prices" in food, fuel and clothing.

Penney's reported net income of $271 million, or $1.13 per share, for the three months that ended Jan. 29. That compares with $200 million, or 84 cents per share, in the same period last year.

Revenue rose 2.8 percent to $5.7 billion. Revenue at stores open at least a year increased 4.5 percent.

Analysts expected earnings of $1.11 per share on revenue of $5.7 billion for the quarter.

During the downturn, department stores began offering more exclusive products to give customers reasons to come to them specifically. Last fall, Penney became the only U.S. retailer to sell Liz Claiborne and Claiborne women's wear other than the Liz Claiborne New York brand, which went to QVC. Penney's also is the only department store selling MG by Mango, a European brand.

Penney's best sellers during the holiday season were its Sephora shops, women's accessories and men's clothing. Online revenue rose 6.7 percent for the quarter to reach $495 million.

Under pressure from activist shareholders, Penney's has cost-controls including closing some stores, outlets and call centers. It also will finish closing its catalog business, having announced in November 2009 that it would stop publishing its twice-yearly "big book."

Two opinionated shareholders, William Ackman and Steven Roth, chairman of Vornado Realty Trust, joined the board in January. Ackman's Pershing Square Management and Vornado Realty Trust took large stakes in the company late last year.

Penney officials said Friday that the company tested price increases last year to find out which would work best. The company said it was more successful with price hikes in its more expensive brands. The retailer is also focused on expanding its store-label merchandise, where it can control costs directly.

Penney didn't specify its planned price increases.

Penney's expects revenue at its stores open at least a year to rise by a percentage in the low to middle single digits for the year. That comparison is a key gauge of a retailer's health because it excludes stores that open or close during the year.

For 2010 as a whole, Penney's reported net income of $389 million, or $1.63 per share, up 55 percent. It said its revenue rose 1.2 percent to $17.76 billion.

For 2011, the company expects its total revenue to increase in the low-single digit range. And it expects earnings per share of $2 to $2.10, excluding the impact from the $900 million share repurchase. Analysts expect earnings per share of $1.82, according to FactSet.

For the first quarter, the company expects earnings per share of 18 cents to 23 cents. Analysts expect 31 cents, according to FactSet.

For the first quarter, Penney expects revenue at stores open at least a year to rise 3 percent to 5 percent.

J.C. Penney is based in Plano, Texas.

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