Penney Projects Direct Sales Drop for 2003

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Expectations for 2003 include a 5 percent to 10 percent decline in direct sales at J.C. Penney Company Inc., it was revealed yesterday in the company's fiscal fourth-quarter conference call.

This contrasted with a 20.7 percent sales decline in the sector in the fourth quarter and a decrease of 22 percent for the 2002 year, which ended Jan. 25.

Vanessa Castagna, chairman/CEO of J.C. Penney stores, catalog and Internet, described the quarterly drop as consistent with the company's most recent projections.

"Sales were impacted by ... lower circulation and page counts, changes to our customer payment policies and fewer outlet stores," she said. "As we begin '03, we're beginning to see some stabilization in sales productivity. The changes to the catalog business model [have] resulted in catalog improving its profit contribution. Catalog inventories are well below last-year levels, reflecting lower sales volumes as well as less clearance and liquidation merchandise. We have lowered our average selling price to better fit our customer expectations.

"We're expecting combined print and Internet sales to have a modest sales decline during the first half of '03 [and] we're planning modest sales gains in the back half."

Also reported in the call were operating expenses of about $17 million in severance associated with the closing of store and catalog distribution facilities.

A 53rd week this year is expected to add $35 million in catalog sales.

Castagna said the Internet continues to represent a growing business.

"We believe this will become a $1 billion business within the next five years," she said. "We expect sales to be $450 million in '03."

Internet sales, which are included in catalog, rose 21.4 percent to $138 million in the fourth quarter and totaled $381 million for the year.

She added that the company expects comp-store sales to rise about 1 percent for the year.

The company reported that earnings increased for the sixth consecutive quarter. The earnings release also said that additional charges, related mainly to the restructuring of the catalog operations, are expected to reduce 2003 earnings by about $40 million. The company expects these actions to generate annual savings of about $30 million that will be fully realized in 2004.

The company's total retail sales in the department stores and catalog segment fell 2 percent from $5.88 billion in the 13 weeks ended Jan. 26, 2002, to $5.77 billion in the comparable period ended Jan. 25. Total retail sales, however, rose from $9.54 billion a year ago to $9.55 billion in the recently concluded quarter.


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