J.C. Penney Co. Inc. Thursday posted a better-than-expected 22 percent rise in quarterly earnings on strong sales of fine jewelry and shoes, and a private label business that helped drive profit margins higher.
Penney raised its full-year earnings outlook by 2 cents a share, but the forecast still fell short of Wall Street targets. Shares of Penney fell 2 percent.
"It looks like the results were good, but the forecasts was a little bit light," said Thomas Leritz, a portfolio manager with Argent Capital Management, which owns shares of J.C. Penney.
J.C. Penney, which is working to change its image from that of a frumpy department store to a fashionable retailer, reported net income of $210 million, or 89 cents per share, for the fiscal first quarter ended April 29, compared with earnings of $172 million, or 63 cents per share, a year earlier.
The company reported earnings per share from continuing operations of 90 cents, compared with 62 cents a year earlier.
Analysts, on average, had been expecting it to earn 88 cents per share, according to Reuters Estimates.
J.C. Penney has wrapped up a five-year turnaround plan and is now focused on luring customers with up-to-date merchandise. It is expanding its private and exclusive brand offerings, like "nicole" by Nicole Miller and home furnishings by designer Chris Madden, and has outlined an aggressive growth plan for opening new stores.
Penney, which operates 1,021 department stores in the United States and Puerto Rico, said quarterly sales increased to $4.22 billion from $4.12 billion, while analysts were expecting sales of $4.24 billion.
Comparable department store sales -- a key gauge that measures sales at stores open at least a year -- increased 1.3 percent. The company said its best regional performance was in the U.S. Southeast and West.
On a conference call with analysts, company executives said women's apparel sales continued to be soft, and it is taking "aggressive action" with markdowns to keep its inventory fresh. It also said it is launching new brands, like East 5th, to try to bolster women's clothing sales.
In the quarter, its gross margin increased 80 basis points to 41.9 percent of sales, helped by better performance from its private brands.
For the fiscal second quarter, Penney estimated earnings per share "in the area" of 60 cents. Analysts, on average, expect 58 cents.
It also forecast second-quarter comparable-store sales to increase in the low single digits.
Taking into account the first-quarter results, the company now expects full-year earnings from continuing operations of $4.24 to $4.34 per share, up from a forecast of $4.22 to $4.32 it outlined May 4.
Analysts, on average, now forecast full-year earnings per share of $4.35, excluding items, up from their $4.26 estimate earlier this month.
Leritz said investors have come to expect Penney to raise and beat its own earnings forecasts, so investors were likely disappointed when the retailer did not raise its full-year target above current analyst expectations.
Penney's shares had gained roughly 20 percent year to date through Wednesday, while competitor Kohl's Corp. has gained 17 percent and Federated Department Stores Inc. has risen almost 18 percent.