Net earnings for the discount department store dropped 35% to $80 million, or $0.27 a share, from $123 million, or $0.42 a share. (The prior year's results include a $0.12 a share after-tax gain). Total revenues rose 1.4% to nearly $8 billion.
The contrast in J.C. Penney's operating segments can be clearly seen by comparing its drugstore division to its department stores/catalog division. Operating income from its department stores grew 22% to $207 million. However, Eckerd's operating income during the quarter tanked 57%, from $79 million to $34 million. Department store comparable store sales increased 1.7%, while at Eckerd comps were off 1%.
One problem facing Eckerd is the ongoing weakness in its front-end sales -- the non-pharmacy cosmetics, snacks, magazines, and the like it peddles. Fellow drugstores CVS
That trend on top of Eckerd's other difficulties, such as poor locations and simply being outcompeted by CVS and Walgreen, makes it a difficult business to support. J.C. Penney is again saying that it's considering its options with Eckerd, and will decide what to do with the flagging chain by year's end. CVS is reportedly interested in it.
The retail turnaround Allen Questrom has fashioned for the rest of the company hasn't translated into similar success for Eckerd. While throwing in the towel on the drugstore chain may not be Questrom's style, hopefully this time around the company will ultimately decide to either spin it off or sell it. That would keep Penney focused on its department stores and a continued move towards renewed financial vigor.
Should J.C. Penney keep Eckerd or kiss it goodbye? Talk about it on our J.C. Penney discussion board.