updated 8/16/2005 1:14:29 PM ET 2005-08-16T17:14:29

Department-store chain J.C. Penney Co. Inc. said Tuesday its second-quarter profit rose sharply, boosted by improved sales across all merchandise divisions.

Penney also offered an upbeat profit outlook, saying that earnings for the year would beat Wall Street expectations.

Still, Penney shares fell $1.66, or 3.2 percent, to $50.24 in late morning trading on the New York Stock Exchange.

For the three months ended July 30, Penney earned $131 million, or 50 cents per share, compared with last year’s net income of $1 million, which amounted to a per-share loss of 2 cents. On a continuing operations basis, Penney’s earnings were $122 million, or 46 cents per share, versus $68 million, or 22 cents per share, a year earlier.

The company’s earnings from ongoing business topped the average estimate for income of 40 cents per share from analysts surveyed by Thomson Financial.

Net sales totaled $3.98 billion, a gain of 5 percent from $3.78 billion a year earlier but just missing analysts’ consensus target of about $4 billion.

Sales at stores open at least a year, or same-store sales, grew 4.2 percent last quarter, after increasing 6.9 percent a year ago. Meanwhile, catalog and Internet sales jumped 7.1 percent, compared with a 1.6 percent decline last year.

Penney forecast third-quarter profit of 82 cents per share, and fourth-quarter income of $1.52 per share. Those figures would result in yearly profit of $3.35 per share, well ahead of the company’s earlier estimate for income between $2.96 and $3.08 per share.

Analysts currently predict third-quarter profit of 82 cents per share on $4.62 billion in sales, and fourth-quarter income of $1.50 per share and $6.32 billion in sales. For the year, earnings are projected to be $3.29 per share on $19.15 billion in sales.

Chairman and Chief Executive Myron Ullman said customers have absorbed higher gasoline prices “but we can’t expect that to continue” if energy prices keep rising.

Officials gave an upbeat assessment of the back-to-school season, including sales of teen clothes and dormitory-room appliances.

Penney’s profit margins have risen 7 percentage points in the past four years, which officials attribute partly to strong sales of high-margin private-label brands, such as Arizona jeans.

Ullman said the company would continue to stress those brands but added, “We still think offering national brands is part of what people expect to see at Penneys.”

The company plans to open 19 new stores this year, including 10 in October and November. Twelve of those will be away from shopping malls.

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