FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (MF Debit)

JCPenney Co. Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JCP)") else Response.Write("(NYSE: JCP)") end if %>
6501 Legacy Drive
Plano, TX 75024-3698
(214) 431-1000
http://www.jcpenney.com/

UNION CITY, Ca., November 12, 1996/FOOLWIRE/ --- JCPenney released third quarter 1996 results this morning. Earnings per share were up 8.5% to $1.03 versus $0.95 per share last year, missing analyst consensus estimates by a penny per share. Total sales increased 8%, above the company plan.

SALES. Stores had an increase of 8.2%, comparable stores increased 6.2%. Catalog experienced a decline of 0.8%. Their drug stores had an increase of 24.6% with a comparable plan of 5.7%.

INVENTORIES. Total FIFO was $5.974 billion versus last year's $5.352 billion for an 11.6% increase. That inventory includes the inventory for the Fay acquisition. Looking at stores and catalog, the inventory increase is up 8.1%. For a comparable store inventory, that is about 5.5%. Their inventories are set for holiday selling.

SALES BY REGION. The Top 10 market was #1, followed by the West, the South, and the Northeast.

SALES BY MERCHANDISE DIVISION. Children's was #1, followed by men's, women's, and the home division. The top sales entity was athletic apparel, missy/career sportswear with strong performances from Jacqueline Farrar, Docker's for men, family shoes, furniture, boys and girls apparel, and cosmetics.

FIFO GROSS PROFIT came in at $1.701 billion versus last year's $1.592 billion, up $109 million or 6.8%. Their margins came in at 30.7% versus 31%, down 30 basis points. This is coming from their very aggressive marketing program they had in place for third quarter and from the effects of some lower margins that are produced by their drugstore business and the sales in drugstores were up significantly in the third quarter. There is no LIFO charge or credit until the fourth quarter.

EXPENSES. SG&A came in very strong, $1.247 billion versus $1.201 billion, up just $46 million or 3.8%. As a percentage of sales, it is 22.5% versus 23.4% last year, better by 90 basis points. Their SG&A expenses were well leveraged. Their JCPenney stores expenses were leveraged. Catalog printing and paper costs for third quarter were below last year's levels so that helped their SG&A a lot. And, drugstores have lower expense ratios than department stores.

OPERATING PROFIT/MARGINS. Retail operating profit for the total company (FIFO margins minus SG&A expenses) were $454 million versus $391 million last year, up 16%. Operating margins were 8.2% versus 7.6% of sales last year, better by 60 basis points.

EARNINGS. Pre-tax profits were $411 million versus $384 million. That excludes the one-time charge. The tax rate is 37.4% versus 37.6% last year. Average fully diluted shares were 248.8 million versus 249 last year. Their net income was $257 million versus $240 million which brought operating earnings per share to $1.03 versus $0.95 per share, up by 8.5%. They did pick up a one-time non-recurring charge of $34 million pre-tax and $21 million after tax or $0.08 per share for the integration expenses for their recent acquisitions.

BALANCE SHEET. Total debt, including all on and off balance sheet financing was $7.7 billion versus $7.3 billion last year, up some $400 million. Equity is $6.3 billion versus $5.7 billion last year, up by $600 million. Equity per share was $25.83 versus $23.97 last year.

NET INTEREST AND CREDIT COSTS. Net interest and credit cards came in at a $92 million charge, pretty much as expected, versus a $58 million charge last year, up 59%. Finance charge revenue came in at $148 million versus $145 million last year, up $3 million. Total customer receivables is $4.297 billion versus $4.152 billion last year, up $145 million coming from better sales. The JCPenney proprietary card usage continues to be lower than last year by about 1% to 47%. Third party cards continue to accelerate, up about 1% for the year to about 21%. Interest expense came in at $93 million versus $84 million last year, due to increases in both receivables and inventory. Credit cards came in at $147 million versus $119 last year, up $28 million. Included in their credit cost is bad debt and bad debt is up 30%. That 30% includes a reserved increase that they took in the third quarter. Bad debt including the reserve increase affected them by $0.05 per share.

DELINQUENCIES. They have looked at delinquencies and they have edged slightly downward in each of the last 3 months, but still remain at a high level. Bankruptcies are still very high, but in the last 4 months they saw a stabilization in bankruptcy. So, for the fourth quarter, net interest and credit costs are planned higher than last year's $60 million. They are thinking it will come in in the low to mid $70 million range.

INSURANCE COMPANY AND BANK. The profits came in at $49 million versus $51 million last year. The insurance company's operating results were $48 million versus $41 last year. Their revenues were up 16% and their operating profits excluding gains were up 16%. The bank generated $1 million versus $8 million last year. The bank is very much impacted by bad debt, in fact the bank affected them also by about $0.02 per share. Their total revenues, insurance and bank, were up 12%.

FOURTH QUARTER MODELS. They expect total stores to generate a high single digit sales gain in the fourth quarter and that would come somewhere in the mid single digit area. They expect that catalog will generate a low single-digit sales gain and that drugstores will continue to perform well as they have all year. Also, models should add on $275 million for the Fay Drug acquisition. That should bring total sales up in the low double-digit area. They expect, once again, to have a very aggressive marketing program in the fourth quarter. That should generate very nice sales gains for them and should improve their gross profit dollars. As far as expenses are concerned, their SG&A expenses will again be very well leveraged. Their model does not assume any impacts from the recently announced Eckerd Drug acquisition. They are assuming that will close in the early part of the first quarter next year, so there is no impact in fourth quarter.

SUMMARY. Their recent sales performance has been good. Their inventories are set for holiday selling. Their management team is confident about the merchandise and the marketing program.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.