NEW YORK (CNN/Money) -
The Eckerd drug store chain remains a thorn in the side of J.C. Penney Co.
The Plano, Texas-based company, known primarily for its namesake department store, posted a lower third-quarter profit Tuesday, although the numbers topped average forecasts on Wall Street. Without the burden imposed by Eckerd, J.C. Penney, in the third year of implementing a turnaround plan for the department store, would have done better.
"Our business is being hit from new pharmacy competition without a competent response from Eckerd," said Wayne Harris, chairman and CEO of Eckerd Stores. "We plan to open 250 new and relocated stores this year. This is not a quick fix but will help us gain comparable store sales as we begin to cycle our business this year."
Just what J.C. Penney will do to fix Eckerd on a more permanent basis remains a question.
The Eckerd unit, which accounts for about 45 percent of the company's total business, is facing problems in pricing, inventory and store location. And Penney (JCP: up $0.12 to $23.40, Research, Estimates) CEO Allen Questrom said the company expected "continued weakness in both sales and operating profit trends for Eckerd."
The company recently agreed to sell its six Mexico stores to Grupo Sanborns for an undisclosed amount. Robert Cavanaugh, Penney's chief financial officer, said in an earnings call that a decision on Eckerd was expected by the end of the year.
"Penney offered a benign set of comments about Eckerd," said Jeffrey Klinefelter, analyst with U.S. Bancorp Piper Jaffray. "While its department stores are doing a little better, Eckerd is deteriorating. The speculation is that Penney's first choice is to sell its drugstore business."
Overall Penney said it posted net income of $80 million, or 27 cents a share, in the quarter, down from $123 million, or 30 cents a share, a year earlier.
Analysts had forecast a profit of 26 cents a share for the quarter, according to Reuters.
CEO Questrom Penney forecast fourth-quarter earnings to be in the area of 80 cents a share, in line with analysts' estimates, and $1.25 a share for the full year. The full-year forecast is a penny better than Wall Street forecasts.
Sales for the third quarter rose 1.4 percent to $8 billion from $7.87 billion a year ago.
Same-store sales, or sales at stores open at least a year, rose 1.7 percent at Penney department stores but declined 1 percent for the company's Eckerd drugstore division.
Penney operates 1,038 department stores throughout the United States, along with 2,735 Eckerd drugstores.
CFO Cavanaugh also said he expects comparable department store sales in the fourth quarter to grow in the mid-single digits and in the low- single digits for its catalog and Internet businesses.
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