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updated 11/12/2010 8:21:29 AM ET 2010-11-12T13:21:29

J.C. Penney reported Friday that its earnings rose 63 percent in the third quarter, as the department store retailer says it saw strong reception to new exclusive brands such as Liz Claiborne and MNG by Mango.

But the company's gross profit margin slipped as the chain had to aggressively discounting, sending shares down almost 2 percent. Shares slipped 65 cents to $31.56 in morning trading.

The company also offered a solid profit outlook for the holiday quarter, though it acknowledged it will be heavily competitive.

The department store chain said its net income was $44 million, or 19 cents per share, in the quarter ended Oct. 30. That compares with $27 million, or 11 cents per share, in the year-ago period.

Gross profit margin slipped to 39 percent from 40.6 percent in the quarter.

Revenue reached $4.19 billion, up from $4.18 billion in the same period last year. Revenue at stores opened at least a year rose 1.9 percent. The measure is a key indicator of a retailer's health.

Analysts surveyed by Thomson Reuters expected profit of 17 cents per share on revenue of $4.25 billion for the period.

"We planned for our new merchandising initiatives to begin to take hold in the second half, and it's playing out this way," Myron E. Ullman III, chairman and CEO, said in a statement. "We have seen clear signs of strength in key businesses, and our Sephora inside J.C. Penney concept continues to surpass our expectations."

Ullman added that the company's strength in sourcing has allowed the company to "offer very sharp price points and to flow inventory into our stores in a way that reflects the ongoing trend of customer's buying closer to need."

He added, however, that retailing will remain "highly promotional" and consequently it has planned a "robust calendar" of events to make Penney stand out.

Department stores, hard hit by the Great Recesssion, have focused on expanding their exclusive items and working with suppliers to offer better prices.

This past fall, Penney became the only U.S. retailer to sell Liz Claiborne and Claiborne women's wear, except the Isaac Mizrahi-designed Liz Claiborne New York brand, which went to QVC.

Also this fall, Penney became the only department store selling MNG by Mango, a European clothing brand, a big coup as fast-fashion players have been a big threat to department stores.

Meanwhile, Penney announced Thursday it plans to collaborate with Hearst Magazines on two new online ventures as it starts a new unit devoted to finding new revenue streams.

J.C. Penney and Hearst will be partners on a site called Gifting Grace, targeted at gifts for women ages 30 to 54, and Clad, which will offer designer menswear for men ages 25 to 54.

The sites are scheduled to begin operation next summer. They will be supported by magazine and online ads in Hearst publications such as Good Housekeeping, Redbook and Esquire.

The sites are the first two projects from J.C. Penney's new growth brands division. J.C. Penney, based in Plano, Texas, said the unit will be devoted to finding "high potential opportunities in the retail sector."

The ventures are separate from the company's core J.C. Penney brand and include both retail store and digital ventures.

Penney said for the fourth quarter it expects to earn in the range of 90 cents to $1 per share. Analysts had projected 94 cents. Revenue at stores open at least a year should be up anywhere from 3 percent to 4 percent.

For the year, Penney continues to expect revenue at stores open at least a year to be up in the low single digits and earnings to be in the range of $1.40 to $1.50 per share. Analysts had expected $1.43 per share.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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