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J.C. Penney Co Inc JCP
Q4 2011 Earnings Call Transcript

Transcript Call Date 02/24/2012

Operator: Greetings and welcome to the J. C. Penney Fourth Quarter and Year End 2011 Earnings Conference Call. It is now my pleasure to introduce your host, Kristin Hays, Vice President of Investor Relations for J. C. Penney. Thank you. Ms. Hays, you may begin.

Kristin Hays - VP IR: The following discussions this morning, includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which reflects the Company's current view of future events and financial performance. The words expect, plan, anticipate, believe, and similar expressions identify forward-looking statements.

Any such forward-looking statements are subject to risks and uncertainties and the Company's future results of operations could differ materially from historical results or current expectations. For more details on these risks, please refer to the Company's Form 10-K and other SEC filings. Also, please note that no portion of this presentation maybe rebroadcast in any form without the prior written consent of J. C. Penney. Replays of today's webcast will be available for 90 days. For those listening after February 24, 2011 please note that this recording will not be updated and it is possible that the information discussed will no longer be current. With that, I would like to turn it over to our Chief Financial Officer, Mike Dastugue.

Michael P. Dastugue - EVP and CFO: Thank you and good morning everyone. This morning we reported fourth quarter earnings in line with our expectations and our most recent guidance. On a gap basis, we posted a net loss of $87 million or $0.41 per share including previously announced restructuring and management transitions charges of $0.56 per share. As well as the financial impact of actions taken to execute the company’s new pricing strategy which lowered our fourth quarter earnings by an additional $0.59 per share. While it was a challenging quarter from a sales and margin standpoint, the overarching theme in Q4 was the preparation and completion of the ground work necessary to begin the execution of our new transformational strategy which we launched on February 1st of 2012.

Now as we wrap up 2012, let me quickly walk you through our Q4 results. Comp store sales declined 1.8% in the fourth quarter compared to our guidance for the sales to be flat to down slightly. Gross margin however, decreased approximately 740 basis points to 30.2% of sales. Our gross margin in the fourth quarter was impacted by the softer than expected selling environment which resulted in higher promotional activity and more markdowns in the quarter. Margins were also impacted by the cost associated with the conversion to our new fare and square pricing strategy.

We recorded approximately $207 million related to the actions we took to convert our new pricing strategy. The markdown accrual represents a large portion of the charges and the rest is mostly related to merchandizing re-ticketing cost.

To be consistent with our account practices, the cost of pricing conversion flow through gross margin lowering the rate by approximately 370 basis points. SG&A for the quarter came in better than we anticipated, decreasing $122 million year-over-year to $1.34 billion or 24.8% of sales. This was largely driven by lower marketing spend, decreased incentive compensation and lower credit cost as well as the benefits realized from our expense reduction initiatives.

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