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Tickers in this Article: JCP, M, SHLD, SKS, JWN, DDS
Mid-priced retailer JCPenney (NYSE:JCP) rode its successful merchandising initiatives and exclusive brand additions to a successful fourth quarter. The retailer also showed improved full-year results. Although the company provided an encouraging outlook, it still faces some challenges ahead.

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Solid Gains
Penney's fourth quarter, ending Jan. 29, 2011, saw net income rise to $271 million from $200 million the previous year's quarter. Diluted earnings per share from continuing operations was $1.09 versus 84 cents in the year ago quarter. The launch of exclusive Liz Claiborne brands as well as private label brands contributed to the quarter's success. Penney's Sephora shops did well during the holidays, while exclusives such as MNG by Mango and Call It Spring from the Aldo group helped balance Penney's mid-line approach. The company's same-store sales were up 4.5% from the quarter last year.

Re-Making a Niche
In a difficult competitive space such as retail, where the consumer is still balky as we emerge from recession, it's critical for a company to find its place. Macy's (NYSE:M) is re-finding itself with excellent results due to targeted merchandising, whereas Sears Holdings (Nasdaq:SHLD) remains unfocused and continues to bring in poor results. Penney has been able to draw new customers as it re-defines itself more sharply in the mid-price department store arena. With major investors Bill Ackman and Steven Roth onboard, the company has also embarked on cost-cutting and a share repurchase plan. The company is now executing well on several fronts. (Make sure you know the difference between a change in market outlook and short- term recovery, check out The Dead Cat Bounce: A Bear In Bull's Clothing?)

Retail Outlook
Some analysts worry about the price increases which Penney and other retailers have been incorporating, in the face of a still fragile consumer. Although Penney's revenue for the quarter rose 2.8% to $5.7 billion, the mid-price and value consumer remains vulnerable in this economy. While luxury players Saks (NYSE:SKS) and Nordstrom (NYSE:JWN) posted tremendous results, luxury has shown greater resiliency bouncing back from the recession than the mid-market. It has been a much harder road for Macy's, Penney and Dillard Department Stores (NYSE:DDS), all of which are emerging with improved prospects. Still, this has necessitated a combination of mid-price, value and high-price retailing which with looming gas price increases may remind us just how fragile the recovery is for the mid-market consumer.

The Company's Year and Outlook
Penney earned $1.63 per diluted share and net income of $389 million for the full year 2010, compared to $1.08 per share in 2009 and $251 million in net income. Revenue was $17.76 billion for the full year 2010, a 1.2% increase over 2009. The company expects a low-single digit revenue increase and EPS of $2.00 to $2.10 for 2011, not including the impact from share repurchase plans. The company will attempt to hold its gross margins at the 39% level (Recovering from an economic slump isn't the easiest thing to do, but here are a few potential methods of rebuilding, read Profiting From A Consumerless Recovery.)

For Investors
Interested investors will certainly want to take note of Penney's improved performance over the last fiscal year and the fourth quarter. With the strong backing of Ackman and Roth, along with Ackman's insistence on the retailer's value, that's another plus. Still, the economy remains fragile and the retail sector remains challenging, so it's worth waiting and watching to see if Penney can keep delivering.

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