Penney shares soar on upbeat outlook for 2012

NEW YORK (AP) ? J.C. Penney Co. shares soared 15 percent Thursday after the department store chain delivered a 2012 profit outlook that's well above analysts' projections.

The company expects adjusted earnings per share to be at least $2.16 for the fiscal year, above analysts' $1.60 per share estimate, according to FactSet.

Penney's new CEO Ron Johnson, who was the mastermind behind the successful Apple Inc. stores, laid out an aggressive plan Wednesday to reinvent the business. That includes simplifying pricing, overhauling marketing campaigns and carving stores into 100 mini-shops.

Mike Kramer, chief operating officer, told investors on Thursday that it plans to spend $800 million this year to install the shops and improve technology, using cash from its operations.

The company is targeting $900 million in expense cuts to be completed over the first two years of its transformation, intending to lower the company's expenses below 30 percent of sales in two years. For the company's fiscal 2011 year, selling, general and administrative expenses accounted for 33 percent of annual sales. That's a higher percentage than rivals including Kohl's Corp. and Macy's Inc. Penney will cut costs from stores and advertising, and at operations at the company's home office, Kramer said. The company aims to reduce the layers of management there.

With its new pricing strategy, Penney will be getting rid of hundreds of sales it held last year and instead focusing on "every day" prices, with special monthly sales and clearance. That will reduce labor costs at the stores since associates won't have to use their time ticketing products and putting up big sales signs each night. It will also reduce advertising expenses.

Penney will launch the mini-shops beginning in August. Its new pricing strategy will start Feb. 1.

Johnson said Thursday that Penney will get its first "true read" of customers' reaction to the pricing strategy on Feb. 1. He said he doesn't know what the initial reaction will be, but he's confident that "it will get better and better."

Executives spelled out the Plano, Texas company's changes at a two-day investor meeting in New York.

Shares jumped $5.23 to $39.51 in midday trading Thursday. They had been up 2 percent in January.

Associated Press

Source: http://hosted2.ap.org/APDEFAULT/f70471f764144b2fab526d39972d37b3/Article_2012-01-26-Penney-Outlook/id-0f609548696a49f79c4b87dfd84fc88a

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