Cost-cutting seems to be working for J.C. Penney Co. (JCP) The clothing retailer had a small loss in the second quarter, but managed to beat analysts' expectations by a penny, which counts as a win in this recessionary economy.
Penney's posted a net loss of $1 million on total sales of $3.9 billion, down 7.9 percent; same-store sales, which are considered a key indicator of a retailer's health, were down 9.5 percent from the same quarter last year. But the company broke even on earnings per share, while analysts had expected a loss of one penny.

The strongest sales came from shoes and women's apparel while children's clothing was weak. Sales were also strongest in the retailer's southwest stores while the southeast region was weakest.

While the company did beat expectations, its money-losing quarter is hardly surprising since Penney's is a Middle American retailer whose customers tend to be those hit hardest by these recessionary times --many of them facing foreclosures and unemployment.

But Penney is taking advantage of tough times to expand. The company has been adding stores -- especially off-mall stores in suburban communities -- and adding new brands, which had further squeezed its bottom line.

CEO Mike Ullman said the company keeps pushing down costs and inventory to deal with the weak sales environment. The cost-cutting will help improve margins for the rest of the year, he said. J.C. Penney increased its cash by $69 million to $2.3 billion during the quarter and it reduced its debt by $113 million to $3.4 billion.

But the sales outlook for the rest of the year is not too rosy: Penney's forecast total sales next quarter will be down in the low-single-digit percentages and same-store sales will drop in the mid-single-digit range. For the full-year, it's forecasting total sales down 5.5 percent to six percent and same-store sales down seven percent to 7.5 percent.

Still, Ullman & Co. felt optimistic enough about the cost-cutting to hike its forecast for the rest of the year. Ullman now expects earnings per share of 75 cents to 90 cents, better than the forecast of 50 cents to 65 cents per share Penney's made after the end of the first quarter.


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