M Macys Inc

By Anne Steele 

J.C. Penney Co. will shutter two distribution centers and 130 to 140 stores as the big-box department store contends with falling foot traffic and ramps up to compete with online retailers.

The closures announced Friday represent 13% to 14% of the company's store portfolio, less than 5% of total annual sales and 0% of net income.

The announcement came as Penney reported its first annual profit since 2010. Still, Penney's shares, battered 17% so far this year, lost another 3.5% premarket to $6.62.

Penney joins a parade of traditional chains announcing plans to close locations this year after struggling to draw shoppers during the holiday season. Macy's Inc. has plans to close 100 locations and is exploring options for the rest of its real estate, while Sears Holdings Corp. is closing 108 Kmart and 42 Sears stores.

Analysts have said that hundreds of department stores are likely to close, especially in weaker and older malls as they lose business to online shopping as well as off-price retailers like TJX Cos. This week the parent of TJ Maxx and Marshall's said it would open about 1,800 stores--about a 50% increase from its current base.

Chief Executive Marvin Ellison said closing stores will allow Penney to adjust its business to "effectively compete against the growing threat of online retailers."

He said maintaining a large store base gives Penney a competitive advantage in the evolving retail landscape since its locations are a destination for personalized beauty offerings, special sizes, affordable private brands, and home goods and services.

"While many pure-play e-commerce companies are experiencing dramatically increasing fulfillment costs, we are pleased with the double-digit growth of jcpenney.com and how leveraging our brick and mortar locations is enabling us to offset the last-mile delivery cost,' he said. "We believe the future winners in retail will be the companies that can create a frictionless interaction between stores and e-commerce, while leveraging physical locations to minimize the growing operational costs of delivery."

In 2016, about 75% of all Penney's online orders touched a physical store.

"Even with a reduced store count, JCPenney is competitively positioned to deliver a differentiated department-store model that meets the expectations of a digital world with an inspiring, tangible shopping environment," Mr. Ellison said.

Mr. Ellison said the company is starting an early retirement program for about 6,000 eligible associates. He said Penney expects to see a net increase in hiring as the number of full-time associates expected to take advantage of the early retirement incentive will exceed the number of full-time positions affected by the store closures.

During the quarter ended Jan. 31, the company's same-store sales fell 0.7%, compared with 4.1% growth in the previous year's period and worse than the 0.5% decline analysts cited by Consensus Metrix were expecting. Penney expects the metric to be down 1% to up 1% for the year.

Also for the fiscal year ending January 2018, the company guided for adjusted earnings between 40 cents and 65 cents a share, bracketing the average analyst estimate for 56 cents a share, according to Thomson Reuters.

In all for the quarter, Penney posted a profit of $192 million, or 61 cents a share, compared with a loss of $131 million, or 43 cents, the prior year.

Excluding certain items, earnings were 64 cents a share, up from 39 cents. Revenue slipped 0.9% to $3.96 billion.

Analysts had forecast adjusted earnings of 61 cents a share on $3.98 billion in revenue.

Gross margin fell to 33.1%% from 34.1% a year ago, on more promotional activity during the quarter as well as the continued growth in both online and major appliances.

On Thursday, fellow retailers Macy's and Kohl's Corp. reported lower revenue and comparable-store sales, a key retail metric that removes the sales impact of recently opened or closed stores.

Write to Anne Steele at Anne.Steele@wsj.com

(END) Dow Jones Newswires

February 24, 2017 09:34 ET (14:34 GMT)

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