This summary is based on the fourth quarter fiscal 2006 earnings call conducted by J.C. Penney Company Inc. (JCP: chart) on February 22, 2007.

Management:

Chairman and CEO: Myron E. Ullman III

Key Investor Issues:

- Diluted EPS from continuing operations were $2 versus $1.92 last year quarter.
- Quarterly net income was $2.09 per share compared with $2.34 last year.
- Total net sales increased by 7.4% over prior year quarter to $6.7 billion.
- Q1 fiscal 2007 EPS is expected to be 99 cents.

Fiscal 2006 Highlights:

- Operating profit increased by 17.8% for the year from $1.6 billion to $1.9 billion.
- Same store sales rose 3.7%.
- Sales through jcp.com firmed 24% for the year to $1.3 billion.
- A total of 28 new stores were opened during the year.
- The company successfully launched a modern women’s casual brand that exceeded $300 million worth of sales in its first year.
- The CapEx were $772 million, an increase from last year’s $535 million, primarily due to 28 new store openings.
- The private brands grew by about 45% of store sales and they continue to outperform the company average.
- The company completed the rollout of 35,000 new POS terminals, making it easier to offer in-store customers the full assortment of currently over 250,000 SKUs.

Fourth-Quarter Financial Highlights

On a 13-week basis, fourth quarter total department store sales increased 4.1% and comparable department store sales rose by 2.2%.

- The sales were in line with forecasts for a low single digit growth.
- The best merchandise performance was in children’s apparel, fine jewelry and family shoes.
- The western and northeastern areas of the U.S. recorded the best regional performances.
- The new women’s casual sportswear private brand exceeded sales expectations, recording sales in excess of $300 million for the first year.
- In February 2007, the company also launched the largest ever private brand Ambriel. The management’s vision for the brand is to make it the first choice and preferred brand for lingerie.

- Direct sales, including catalog, dropped 1.2% on a 13-week basis.
- Under direct business, www.jcp.com was the strongest during the quarter and increased 22% for the year on a 52-week basis.
- The print customers using www.jcp.com for ordering make catalogs a powerful marketing tool.

During the quarter, gross margin improved by 180 basis points to 38% of sales.

This was a reflection of continued benefits from the strong performance of private brands and ongoing improvements in inventory management. The contributors to gross margin improvement are the continued strong performance of private brands and the benefits from the company’s sourcing capabilities. The company is now able to move inventory faster than ever and customers now have access to fresh and exciting inventory every time they shop with the retailer.
- The company recorded a fourth quarter LIFO credit of $16 million versus $1 million credit in the previous year.

The quarter operating profit was $756 million compared with $668 million last year quarter.

- This represented a comparable 13.2% increase.
- Real estate and other contributed $4 million quarter income.
- The company realized income of $20 million net of tax from discontinued operations during the quarter.

The total operating expenses were 26.7% of sales in the fourth quarter.

This was a result of the commitment of expense dollars to drive a successful holiday season, costs associated with the year’s 53rd week and operating costs for the 28 new stores.

- The costs associated with the company’s 13 store merchandise distribution centers have now been reclassified from SG&A expenses into cost of goods sold.
- Depreciation and amortization as well as pre-opening expenses were presented as separate components of the operating expenses.

The fourth quarter interest expense was recorded at $28 million versus $39 million in the past year quarter.

- This was caused by the benefits of higher interest rates on cash investments.
- The tax rate during the quarter was lower than anticipated at 37.2%. This was due to the reversal of certain tax issues.