JCPenney Q2
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JCPenney Q2
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(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 %> UNION CITY, Ca., August 13, 1996/FOOLWIRE/ --- JCPenney released Q2 1996 results this morning. Earnings per share came out at $0.37 versus $0.46 per share last year. Sales for the quarter were $4.507 billion, an increase of 1.6%, below company plan.
By businesses, stores in Q2 had an improvement of 1.6%. Comparable stores improved 0.4%. JCPenney catalog experienced a sales decrease of 4.7%. By region, #1 was the ten markets region, followed by the South, West, and Northeast. By merchandise division, #1 was children's, #2 was home, followed by men's then the women's division. Top sales entities for Q2 were men's athletic apparel, furniture, family footwear, cosmetics, boy's, and women's accessories.
Total FIFO inventory this year was $4.863 billion versus last year's $4.645 billion. Inventories are on plan and positioned well for Back-to-School and the second half.
FIFO gross profit came in at $1.312 billion versus $1.292 billion last year, up by $20 million or 1.5%. Margins came in flat at 29.1% this year and last year. There was no LIFO charge credit in Q2 and there will not be one until Q4.
Pre-tax profits were $150 million versus $186 million, down about 20%. The tax rate was 37.5% versus 37.6% last year. Fully diluted shares were 247.6 million versus 251.4 million last year. And their net income came in at $93 million versus $116 million. Earnings per share was $0.37 versus $0.46 and both net income and earnings per share were down about 20%.
SG&A expenses came in at $1.150 billion versus $1.107 billion last year, up by $43 million or 3.9%. As a percent of sales, SG&A was 25.5% versus 25.0% last year. Their SG&A was not leveraged. Both salaries and advertising increased and a lot of that was due to the acceleration of expenses to clear merchandise and get themselves ready for the second half of the year. Also, in their catalog division, printing and postage is still increasing their expense dollars and had a lot to do with the increase of 3.9%.
Retail operating profits for the total company (FIFO margins minus SG&A) were $162 million, down from last year. Operating margins were 3.6% of sales versus 4.1% last year. Net interest and credit costs were $62 million charge this year versus a $48 million charge last year, up by 29%. Finance charge revenue came in at $149 million, down $2 million from the $151 million last year.
Total customer receivables were $3.911 billion versus $3.873 last year, up by $38 million. The JCPenney credit card percent to eligible continues to be down and they think it is going to come in at about 47% of eligible sales for the entire year, which will be down 1%. Offsetting that, 3rd-party cards continue to grow, are up about 1%, and they think will continue that for the whole year. If that's the case, that number will be about 20% of eligible sales.
Interest expense came in very good at $76 million versus $79 million last year. Lower interest expense primarily reflects the continued very strong cash flows they have had. Credit costs were $135 million this year versus $120 last year, that's up by $15 million. The main culprit of that increase is bad debts which is up 30% and that includes an adjustment of their reserve upwards in Q2. Bad debt to loaned impacted the company about $0.04 per share. Some of the things they are doing to get a better picture on bad debt are tighten their criteria for granting and extending credit, accelerated their collection efforts (which they think will start to have an impact in the second half of the year). In fact they think delinquencies and bankruptcies are levelling off and the third quarter will show a moderation. They still think their own net interest and credit costs forecast for third quarter will be in the low $70 million range this year versus $58 million last year. But, the fourth quarter and 1997 should present a much better picture.
The profits of their insurance company and bank came in at $50 million versus $49 million last year. The insurance company earned $47 million from operations versus $40 million last year, better by 17% (and that excludes capital gains). The insurance company's premiums were up 23% in Q2. They had $2 million of gains versus $1 million last year. So, their pre-tax profits of $49 million versus $41 million last year. The bank, which is very much impacted by bad debt (they issue Visa and Mastercards), only earned $1 million in Q2 versus $8 million last year. So the total company profits of the insurance company and bank came in at $50 million versus $49 million last year. Total revenues for the bank and insurance company combined came in at $246 million versus $208 million, that's up by 18% and is really driven by the insurance company.
Total debt including all debt on and off the balance sheet was $6.9 billion versus $6.6 billion last year, up about $300 million, coming primarily from the stock buybacks they did last year. Equity at $5.9 billion versus $5.7 billion was up by $200 million also attributable to stock buybacks and dividend increases. Debt to capital projection at the end of this year they still think that 52.5 is the number they are going to hit, the same as last year. It is still under their target ration of 55 debt 45 equity and means that they still have a lot of debt capacity to utilize. Equity per share was $24.71 versus $23.72 last year. They still have a very strong balance sheet. They have very good cash flows and they have been very consistent for the last several years.
They are projecting sales for Q3 to be in the mid-single digits. They should start to see some margin improvements, they should be up slightly in Q3. SG&A should go back to being leveraged in Q3. Most of the analyst estimates are currently between $1.00 and $1.05 versus last year's $0.95. The mean right now is at $1.01. And they are comfortable with that mean and that average of $1.00 to $1.05.
Inventory is in good shape with new private brands for women's and men's. They have fresh new looks and national brands in the women's division. Sales for the first two weeks of August are above the company plans of a mid-single-digit increase. Their management team is enthusiastic about the merchandise and the marketing strategy. Their balance sheet continues to be very strong. * 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. |
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Copyright 1996, The Motley Fool |