[R]11:30AM New York – J C Penney fourth quarter profit declined on sales weakness in big-ticket items and lower sales in the Southeast region.[/R]

J C Penney (JCP: chart) added $1.55 or 3% to $49.50 after reporting fourth quarter earnings.

Quarter in Review

Total sales in the fourth quarter decreased 4.1% compared to last year’s 14-week period, while comparable store sales decreased 2.3%. Sales in the quarter fell to $6.4 billion from $6.664 billion a year ago. Earnings per share declined 7.7% to $1.93 from $2.09 or net income fell to $430 million from $477 million.

Internet sales through jcp.com continue to represent our fastest growing channel increasing 13.7 percent on a 13-week basis.

The weakest performances were in fine jewelry and expensive home categories and strongest performance was in the women’s and children’s apparel categories. The strongest geographic region was in the northwest and weakest was in the southeast region of the country.

For the quarter, operating income as a percent of sales improved 10 basis points to 11.4%. Gross margin declined 180 basis points to 36.2% of sales and reflected pressure from a weak sales environment that led to increased promotional levels and in-season clearance activities.

SG&A expenses in the quarter declined 11.3% from last year. As a percent of sales, total operating expenses improved 190 basis points to 24.8% of sales in the fourth quarter and benefited primarily from lower salary and related costs.

Third largest department store retailer reported operating income of $729 million and earnings from continuing operations of $1.93 per share for the fourth quarter of 2007.

Annual Review

Net revenue in 2007 increased 0.2% to $19.8 billion from a year ago and gross margin decreased 2% to $7.67 billion. Net income in the year declined 3.6% to $1.11 billion and diluted earnings per share from continued operations increased 0.4% to $4.90 from $4.88.

Diluted earnings for the full year edged 0.6% lower to $4.93 from $4.96 a year ago. For the full year, operating income was $1.9 billion, or 9.5% of sales. Net income for this year’s fourth quarter and full year, including the impact of discontinued operations, was $1.93 and $4.93 per share, respectively.

Financial Metrics

Comparable same store sales were flat and declined from 4.9% from a year ago. Gross margin in the year fell to 38.6% from 39.3%, total operating expenses as sales percentage declined to 29.1% from 29.6% a year ago. Operating income fell to 9.5% in 2007 from 9.7% of sales in 2006.

The company repurchased 5.1 million shares at $400 million of shares in 2007 in addition to11.3 million shares at $750 million in 2006.

2008 Earnings Guidance

Management guided a ‘slight’ increase in sales in the current quarter and for the year expects sales to rise ‘low-single digits’ for the current fiscal year. Comparable sales are expected to decrease in low-single digits for both the first quarter and for the year.

Penney estimated earnings per share for the first quarter to be in the range of 75 cents and 80 cents and for the year in the range of $3.75 and $4.00. The company anticipates spending $1 billion in the year to renovate and expand existing stores and add new stores.

Operating income as a percent of sales is expected to decline for the first quarter and the full year, with the decrease resulting from pressure on both gross margin and operating expenses.