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JCPenney, Eckerd Drug unit improve first-quarter results

Wal-Mart and Home Depot also secured higher profits by aggressively controlling costs.

By Times staff and wire reports

© St. Petersburg Times, published May 16, 2001


J.C. Penney Co. Inc. on Tuesday reported net income of $41-million for its fiscal first quarter, reversing a year-ago loss.

Joining Penney in issuing earnings reports Tuesday were Wal-Mart and Home Depot, which scratched out higher profits for the fiscal first quarter by controlling costs.

Penney's profit for the quarter ended April 28 amounts to 13 cents per share and compares with a loss of $156-million, or 63 cents a share, a year ago, when the company took large charges for store closings.

Business also improved at JCPenney's Eckerd Drug unit. Compared with the same quarter last year, the Largo drugstore chain reported a gain of 9.3 percent in stores open more than a year, largely on the strength of higher sales in the pharmacies at the back of the store.

Sales in the rest of the store, however, were flat, increasing only 0.1 percent. Eckerd's answer to the problem -- stacking merchandise higher and forcing customers to walk past more of it to get to the pharmacy -- was installed in too few stores to have much of an effect yet.

Overall, Eckerd's revenues increased 3.8 percent to $3.46-billion.

On an operating basis -- not counting more than $78-million in one-time restructuring charges run up in the first quarter of fiscal year 2000 -- Eckerd's earnings improved by $8-million to $56-million during the first quarter of 2001.

"Eckerd has improved the competitiveness of its pricing, enhanced its marketing and has begun to change the layout of its free-standing stores," JCPenney chairman and chief executive Allen Questrom said. "During the second quarter, we expect Eckerd's operating profits to improve."

At Home Depot, net income in the quarter ended April 30 was $632-million, or 27 cents a share, up 0.4 percent from $629-million, or 27 cents a share, from a year ago. The per-share profit was 2 cents better than the consensus forecast of analysts surveyed by Thomson Financial/First Call.

Home Depot also said it remains comfortable with analyst forecasts that it will earn 37 cents per share in the second quarter. Sales will be flat, or slightly negative, for that quarter, said Carol Tome, Home Depot's chief financial officer.

"The economy certainly has fought us at every step of the way," Home Depot president and chief executive Robert Nardelli said in a conference call with analysts, calling the retail environment the toughest in the company's 23-year history.

Analysts, who generally praised the quarterly performance, attributed Home Depot's profit to aggressive cost controls, which helped the company achieve record gross profit margins for the quarter.

"It looks like they really have their costs under control," said Steven Baumgarten, an analyst with Parker/Hunter in Pittsburgh. "They've also been aggressive about maintaining low prices."

Wal-Mart earned $1.38-billion, or 31 cents a share, for the three months ended April 30, compared with $1.33-billion, or 30 cents a share, in the year-ago period. Sales rose 11.8 percent to $48-billion from $42.98-billion a year ago.

However, the retailer warned that double-digit growth won't return until the second half of its fiscal year, sending its stock down 4 percent to $52.

"The growth rate is not what we are accustomed to or what we are satisfied with," Wal-Mart president and chief executive Lee Scott said.

The earnings results matched the company's reduced profit forecast, issued April 13 when it cautioned investors that earnings would be slightly below the 32 cents per share it had initially forecast due to unseasonably cool weather and an uncertain economy.

Scott said the company is keeping its prices low, though that puts pressure on short-term earnings. But he said the low prices will enable the company to continue to build market share. Consumer spending has stabilized, but increased gas prices and rising unemployment tempers the spending assessment.

The retailer announced it would increase its share repurchase program to buy back up to $3-billion of its outstanding shares. The board approved an additional $1-billion to a previously approved $2-billion repurchase, and the company already has bought back $300-million in shares.

- Times staff writer Mark Albright, Associated Press and Bloomberg News contributed to this report.

Recent coverage

Penney escapes slump in retail (April 13, 2001)

Eckerd renews revenue focus (February 23, 2001)

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