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US department store JC Penney on Friday announced plans to shutter between 130-140 stores in the coming months as it focuses on better competing with online rivals amid a downturn in department store sales and said it recorded its first annual profit since 2010.

The company that sold its headquarters in Plano, Texas and is leasing it back in an effort to lower costs, said the stores that are being shuttered represent less than 5 per cent of its annual sales and their comparable sales have been “significantly below” the remaining store base.

JC Penney also said it was closing two distribution facilities and the efforts would help redirect capital to locations and certain areas like beauty, home refresh and special size clothing with the greatest revenue potential. It is also offering a voluntary early retirement program for about 6,000 of its eligible employees.

“We believe closing stores will also allow us to adjust our business to effectively compete against the growing threat of online retailers,” Marvin Ellison, chief executive, said.

Shares slipped 1.5 per cent in pre-market trading.

The company expects to record a pre-tax charge of about $225m in the first half and annual cost savings of about $200m.

Accounting for the store closures, comparable sales are expected to range between a one per cent drop to a one per cent gain in fiscal 2017. Adjusting earnings are projected to range between 40 to 65 cents a share.

The news accompanied a 0.7 per cent decline in fourth quarter same-store sales, slightly worse than expectations for a 0.5 per cent drop. Meanwhile, net sales slid 0.9 per cent to $3.96bn, just shy of analysts’ estimates of $3.98bn.

The company swung to a profit of $192m or 61 cents a share, compared with a loss of $131m or 43 cents a share in the year ago period. Adjusting for one-time items, earnings of 64 cents a share, topped expectations. However, increased discounting during the quarter saw its gross margin slip by 100 basis points to 33.1 per cent.

The 115-year old department store has come a long way since its failed efforts to revive sales under former Apple executive, Ron Johnson, that saw sales plunge further.

But the quarterly sales dip comes as retailers and department stores face increased competition from fast fashion brands like H&M and Zara, off-price retailers and online marketplaces like Amazon.

JCPenney shares, which are down more than 17 per cent so far this year, slid 0.1 per cent in pre-market trading.

Copyright The Financial Times Limited 2017. All rights reserved.
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