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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 10, 2006
J. C. PENNEY COMPANY, INC.
(Exact name of registrant as specified in its
charter)
Delaware 1-15274 26-0037077
(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation ) Identification No.)
6501 Legacy Drive
Plano, Texas 75024-3698
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (972) 431-1000
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition.
J. C. Penney Company, Inc. ("JCPenney") issued an earnings press release on
August 10, 2006, announcing its second quarter 2006 results of operations and
financial condition. This information is attached as Exhibit 99.1.
In addition to disclosing financial results presented in accordance with U.
S. generally accepted accounting principles (GAAP), JCPenney presents in the
earnings press release referred to above and will present in the related webcast
earnings conference call its results of operations in the manner that it
believes is most meaningful to investors, including use of certain non-GAAP
financial measures. These terms are identified and defined in Exhibit 99.2
attached hereto and incorporated by reference into this Item 2.02 as if fully
set forth herein. The methods used by JCPenney to calculate its non-GAAP
financial measures may differ significantly from methods used by other companies
to compute similar measures. As a result, any non-GAAP financial measures
provided by JCPenney may not be comparable to similar measures provided by other
companies.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
J. C. PENNEY COMPANY, INC.
By: /s/ Robert B. Cavanaugh
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Robert B. Cavanaugh
Executive Vice President,
Chief Financial Officer
Date: August 10, 2006
EXHIBIT INDEX
Exhibit Number Description
99.1 J. C. Penney Company, Inc.
News Release issued August 10, 2006
99.2 Glossary of Certain Non-GAAP Financial Measures
Exhibit 99.1
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
Second Quarter 2006 Highlights
o Comparable store sales increased 6.6 percent
o Operating Profit increased 27.2 percent, or 100 basis points as a percent
of sales
o Repurchased 8 million shares of common stock for $530 million
o Completed new POS rollout offering jcp.com access at over 35,000 store
registers
PLANO, Texas, Aug. 10, 2006 -- 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
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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
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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
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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
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and expanding the merchandise assortment.
Earnings Guidance
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The following guidance reflects the Company's current expectations for the third
and fourth quarters:
o Comparable store sales: low single digit increase in both quarters.
o 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).
o 53rd Week (4Q): approximately $150 million of sales for department stores
(no impact on comp sales) and $50 million of sales for Direct. Incremental
SG&A expenses are expected to be approximately $65 million.
o Operating profit margin: moderate improvement year over year in each
quarter, primarily as a result of SG&A expense leverage.
o Interest expense: approximately $40 million in each quarter.
o Income tax rate: approximately 38.5 percent in both quarters.
o Average diluted shares: approximately 228 million average diluted shares of
common stock in both the third and fourth quarters, and full year average
diluted shares of about 232 million (all share guidance includes about 3
million common stock equivalents).
o Earnings per share: approximately $1.07 per share in the third quarter and
approximately $1.84 in the fourth quarter. Full year earnings are now
expected to be in the area of $4.55 per share.
Conference Call/Webcast Details
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Senior management will host a live conference call and real-time webcast today,
Aug. 10, 2006, beginning at 9:30 a.m. ET. Access to the conference call is open
to the press and general public in a listen only mode. To access the conference
call, please dial 973-935-2035 and reference the JCPenney Quarterly Earnings
Conference Call. The telephone playback will be available for two days beginning
approximately two hours after the conclusion of the call by dialing
973-341-3080, pin code 6939847. The live webcast may be accessed via JCPenney's
Investor Relations page at www.jcpenney.net, or on www.streetevents.com (for
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members) and www.earnings.com (for media and individual investors). Replays of
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the webcast will be available for up to 90 days after the event.
For further information, contact:
Investor Relations
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Bob Johnson; (972) 431-2217; rvjohnso@jcpenney.com
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Ed Merritt; (972) 431-8167; emerritt@jcpenney.com
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Media Relations
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Darcie Brossart or Quinton Crenshaw; (972)431-3400;
jcpcorpcomm@jcpenney.com
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About JCPenney
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J. C. Penney Corporation, Inc., the wholly owned operating subsidiary of J. C.
Penney Company, Inc., is one of America's largest department store, catalog, and
e-commerce retailers, employing approximately 151,000 associates. As of July 29,
2006, J. C. Penney Corporation, Inc. operated 1,021 JCPenney department stores
throughout the United States and Puerto Rico. JCPenney is the nation's largest
catalog merchant of general merchandise, and jcp.com is one of the largest
apparel and home furnishings sites on the Internet. JCPenney refers to the
Internet/catalog business as Direct.
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, competition, consumer demand, seasonality, economic conditions, including
the price and availability of oil and natural gas, changes in interest rates,
changes in management, retail industry consolidations, government activity, and
acts of terrorism or war. 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. In addition, non-GAAP terms referenced are defined and presented in the
Company's most recent annual report on Form 10-K.
# # #
J. C. PENNEY COMPANY, INC.
SUMMARY OF OPERATING RESULTS
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(Unaudited)
(Amounts in millions except per share data)
13 weeks ended 26 weeks ended
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July 29, July 30, % Inc. July 29, July 30, % Inc.
2006 2005 (Dec.) 2006 2005 (Dec.)
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SALES INCREASES:
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Comparable department stores 6.6 % 4.2 % 3.9 % 3.5 %
Direct 2.7 % 7.1 % 3.4 % 6.2 %
STATEMENTS OF OPERATIONS:
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Total net sales $ 4,238 $ 3,981 6.5% $ 8,458 $ 8,099 4.4%
Gross margin 1,628 1,516 7.4% 3,397 3,210 5.8%
Selling, general and administrative
(SG&A) expenses 1,357 1,303 4.1% 2,757 2,689 2.5%
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Operating profit 271 213 27.2% 640 521 22.8%
Net interest expense 32 40 (20.0)% 66 89 (25.8)%
Bond premiums and unamortized costs - 5 N/A - 18 N/A
Real estate and other (income) (9) (14) N/A (22) (36) N/A
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Income from continuing operations
before income taxes 248 182 36.3% 596 450 32.4%
Income tax expense 70 60 16.7% 205 157 30.6%
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Income from continuing operations $ 178 $ 122 45.9% $ 391 $ 293 33.4%
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Discontinued operations, net of income tax
expense/(benefit) of $1, $28, $(1) and $28 1 9 N/A (2) 10 N/A
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Net income $ 179 $ 131 36.6% $ 389 $ 303 28.4%
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Earnings per share from continuing
operations - diluted $ 0.75 $ 0.46 63.0% $ 1.66 $ 1.09 52.3%
Earnings per share - diluted $ 0.76 $ 0.50 52.0% $ 1.65 $ 1.13 46.0%
FINANCIAL DATA:
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Ratios as a percentage of sales:
Gross margin 38.4% 38.1% 40.2% 39.6%
SG&A expenses 32.0% 32.7% 32.6% 33.2%
Operating profit 6.4% 5.4% 7.6% 6.4%
Depreciation and amortization $ 88 $ 88 $ 176 $ 175
Effective income tax rate 28.2% 33.0% 34.4% 34.9%
for continuing operations
COMMON SHARES DATA:
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Outstanding shares at end of period 227.3 255.6 227.3 255.6
Average shares outstanding (basic shares) 232.9 261.8 233.3 266.5
Average shares used for diluted EPS 235.4 264.5 235.9 269.2
Shares repurchased 8.0 12.5 8.0 20.2
Total cost of shares repurchased $ 530 $ 666 $ 530 $ 1,026
J. C. PENNEY COMPANY, INC.
SUMMARY BALANCE SHEETS AND STATEMENTS OF CASH FLOWS
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(Unaudited)
(Amounts in millions)
July 29, July 30,
2006 2005
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SUMMARY BALANCE SHEETS:
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Cash and short-term investments $ 2,374 $ 3,385
Merchandise inventory (net of LIFO reserves of $24 and $25) 3,461 3,445
Other current assets 521 406
Property and equipment, net 3,897 3,625
Other assets 2,010 2,051
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Total assets $ 12,263 $ 12,912
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Accounts payable and accrued expenses $ 2,672 $ 2,659
Current maturities of long-term debt 343 15
Current income taxes, payable and deferred - 36
Long-term debt 3,114 3,457
Long-term deferred taxes 1,260 1,320
Other liabilities 969 1,031
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Total liabilities 8,358 8,518
Stockholders' equity 3,905 4,394
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Total liabilities and stockholders' equity $ 12,263 $ 12,912
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26 weeks ended
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July 29, July 30,
2006 2005
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SUMMARY STATEMENTS OF CASH FLOWS:
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Net cash provided by/(used in):
Total operating activities $ 179 * $ 213 *
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Investing activities:
Capital expenditures (323)* (233)*
Proceeds from sale of assets 11 * 27 *
Proceeds from the sale of discontinued operations - 283
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Total investing activities (312) 77
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Financing activities:
Change in debt (7) (466)
Stock repurchase program (516) (1,018)
Other changes in stock 111 158
Dividends paid (71)* (69)*
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Total financing activities (483) (1,395)
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Cash (paid) for discontinued operations (26) (159)
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Net (decrease) in cash and short-term investments (642) (1,264)
Cash and short-term investments at beginning of period 3,016 4,649
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Cash and short-term investments at end of period $ 2,374 $ 3,385
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* Component of free cash flow, a non-GAAP measure. Free cash flow was $(204)
million and $(62) million for the 26 weeks ended July 29, 2006 and July 30,
2005, respectively.
Exhibit 99.2
Glossary of Certain Non-GAAP Financial Measures
Free Cash Flow from Continuing Operations - cash provided by operating
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activities from continuing operations less dividends and capital expenditures,
net of proceeds from the sale of assets. Management believes free cash flow from
continuing operations is important in evaluating the Company's financial
performance and measuring the ability to generate cash without incurring
additional external financing. Positive free cash flow generated by a company
indicates the amount of cash available for reinvestment in the business, or cash
that can be returned to investors through increased dividends, stock repurchase
programs, debt retirements or a combination of these. Conversely, negative free
cash flow indicates the amount of cash that must be raised from investors
through new debt or equity issues, reduction in available cash balances or a
combination of these. The most directly comparable financial measure calculated
and presented in accordance with GAAP is net cash provided by operating
activities.
Operating Profit/Earnings Before Interest and Taxes (EBIT) - represents gross
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margin less selling, general and administrative expenses, and is the key
measurement on which management evaluates the financial performance of the
retail operations. Operating profit/EBIT excludes net interest expense, bond
premiums and unamortized costs and real estate and other. The most directly
comparable financial measure calculated and presented in accordance with GAAP is
income from continuing operations before income taxes.