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J.C. Penney, Kohl's post solid results

Quarterly profit rises at the midprice chains, in contrast with Macy's steep decline. Earnings at Nordstrom inch up.

August 17, 2007|From the Associated Press

PLANO, TEXAS — Midprice department store powerhouses J.C. Penney Co. and Kohl's Corp. turned in solid profits Thursday that beat analysts' expectations, even as their middle-class consumers struggle with high gasoline prices and a weak housing market.

Kohl's said earnings jumped 15.8%, and executives said the back-to-school season was off to a good start.

Penney's profit edged up nearly 2%, but executives said sales of home furnishings were hurt by sluggish demand for new and existing homes.

At the more upscale Nordstrom Inc., earnings rose less than 1% as expenses related to the company's credit card business cut into solid sales.

The results at all three chains were better than those reported a day earlier by Macy's Inc., which suffered a 77% plunge in second-quarter profit and said the third quarter could be worse than Wall Street expected.

Longtime retail consultant Kurt Barnard said Penney and Kohl's were taking sales from Macy's by keeping their apparel offerings fresher.

"The fashion customer wants to see something she doesn't already have in her closet. Penney's is getting better at changing its merchandise more often," he said, adding that Macy's is still dealing with customers who were upset when regional chains such as Hecht's in the mid-Atlantic area and Foley's in Texas were closed or converted into Macy's.

Penney Chief Executive Mike Ullman said customers were worried about high energy prices and the housing slowdown, but sales of most items other than home furnishings were solid.

"Our customers have jobs. Our customers have lots of things they want and need, and we're seeing a good response," Ullman said. He said the company saw no indications of delinquencies or bad debt on credit card accounts.

Penney said it earned $182 million, or 81 cents a share, in the quarter ended Aug. 4. That was up from $179 million, or 76 cents, a year earlier.

Earnings from continuing operations increased to 78 cents a share. On that basis, analysts surveyed by Thomson Financial had expected 77 cents a share.

Second-quarter sales rose nearly 4% to $4.39 billion, but that fell short of analysts' estimates of $4.42 billion.

Same-store sales, or sales at locations open at least a year, a key barometer in retailing, rose a modest 1.9%. A year earlier, the increase was 6.6%.

Penney was helped by lower taxes and higher real estate income than expected in the second quarter.

Charles Grom, an analyst for JPMorgan, said the quality of Penney's second-quarter earnings was "just OK," but he rated Penney above other retailing stocks.

The Plano, Texas-based company raised its outlook for full-year profit by a penny, to $5.50 a share, higher than Wall Street's forecast of $5.48.

Penney stock rose $1.57, or 2.5%, to $64.14.

Kohl's said it earned $269.2 million, or 83 cents a share, compared with $232.4 million, or 69 cents, a year ago. Analysts had expected 82 cents a share, according to Thomson.

Sales rose 8.8% to $3.59 billion. Same-store sales rose just 1.3% at Kohl's, based in Menomonee Falls, Wis.

Shares of Kohl's rose $2.31, or 4.1%, to $58.25 before the quarterly results were released. In late trading, the shares were up an additional 75 cents.

Seattle-based Nordstrom said it earned $180.4 million, or 71 cents a share, up from $178.8 million, or 67 cents, a year earlier. Analysts had expected 69 cents a share, according to Thomson.

Sales rose 5%, to $2.39 billion. That slightly exceeded analysts' forecasts of $2.38 billion.

Same-store sales rose 5.9% -- a good mark that helped offset rising overhead costs, said Richard D. Hastings, a retail analyst at Bernard Sands.

"Nordstrom has very strong promotions, like the semiannual sales that bring in customers who find their prices a little too high the rest of the year," he said.

Nordstrom raised its outlook for the fiscal year ending Feb. 2 to earnings of $2.91 to $2.97. That was closer to Wall Street's $2.92-a-share forecast than the company's previous guidance of $2.81 to $2.90 a share.

Nordstrom shares were unchanged at $46.15 in regular trading but were up 35 cents in extended trading.

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