Bloomberg News

J.C. Penney Rises as Johnson’s Profit Outlook Tops Estimates

January 26, 2012

(Updates with analyst’s comments in fourth paragraph.)

Jan. 26 (Bloomberg) -- J.C. Penney Co. climbed the most in more than seven months after saying cost reductions from new Chief Executive Officer Ron Johnson’s turnaround plan may boost 2012 profit more than analysts estimated.

The shares rose 18 percent to $40.37 at 12:58 p.m. after earlier soaring 19 percent, the biggest intraday gain since June 14. The Plano, Texas-based company rose 8.8 percent in 2011.

J.C. Penney, the fourth-largest U.S. department-store chain, said today it may save $900 million in the next two years as it simplifies its pricing strategy and revamps management. The company gave a profit forecast that exceeded analysts’ estimates after changes Johnson announced yesterday failed to impress investors and sent the shares sliding 0.9 percent.

The announced savings were “much, much greater than anyone was anticipating,” Liz Dunn, an analyst at Macquarie Group in New York, told Bloomberg Television. She had estimated that the company would trim about $600 million. J.C. Penney is ’’freeing up a lot of dollars,’’ said Dunn, who recommends buying the shares.

Profit in the company’s fiscal 2012 may meet or exceed the adjusted earnings of $2.16 a share in its fiscal 2010, J.C. Penney said today in a statement. The average of 15 analysts’ estimates compiled by Bloomberg was for profit of $1.61. The company is scheduled to report results for its fiscal 2011, ending this month, on Feb. 24.

Branded Shops

J.C. Penney is holding its second day of presentations to analysts in New York to lay out Johnson’s plans. Chief Operating Officer Mike Kramer today said the retailer doesn’t need outside funding for its plan to convert its stores into a collection of brand-specific shops that was discussed yesterday.

The company now will provide only annual profit forecasts and quarterly same-store sales information, instead of the monthly reports it had been releasing, Kramer said.

Johnson, 52, the former head of Apple Inc.’s stores, yesterday said J.C. Penney will offer three types of prices and hold 12 sales events a year. The company will offer discounted prices on seasonal products, such as back-to-school items, and will have so-called “best prices” promotions on the first and third Friday every month, he said.

The strategy is risky if customers don’t view the new prices as good value, Dunn said.

“I think with the amount of communication they’re doing, that the customer will get it,” she said. “But it certainly has some risk in the near term.”

--With assistance from Margaret Brennan and Anne Torres in New York. Editors: Kevin Orland, Robin Ajello

To contact the reporters on this story: Matt Townsend in New York at; Lauren Coleman-Lochner in New York at

To contact the editor responsible for this story: Robin Ajello at

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