The quarter also marked a significant turnaround in profitability for the department store company. Q4 2004 operating profit was $581 million or 9.6% of sales, compared with $445 million last year. This represents an increase of nearly 31%, or 230 basis points as a percent of sales. Full year operating profit increased 66% to 7.1% of sales compared with 2003.

"The improvement in our business reflects effective merchandising programs and process improvements," said Myron Ullman, chairman and CEO of J.C. Penney, during the company's earnings conference call on Thursday. "These produced appropriate inventories coming out of the holiday season, and we also had a good transition of seasonal products, which is reflected in our strong January and early February results."

He added that the successful sale of the Eckerd drug store chain also contributed to the company's financial strength in 2004. "As we enter 2005, the company has increased financial flexibility to support the long-range plan that we're developing, and places us in a good position to implement additional capital structure repositioning," he said.

The company ended the year with $4.7 billion in cash and short-term investments; minus planned spending on stock repurchasing and debt reduction, the company has a war chest of about $2.5 billion going forward. Plans for the capital will likely include more stock repurchasing, and more debt retirement, both of which the company has been undertaking recently. It may also mean real estate purchases. "The increase in capital expenditures (in 2005) is related to additional spending on new and existing stores, as well as investments in new point-of-sale technology," said Bob Cavanaugh, the company's CFO.

Currently, J.C. Penney Co. operates 1,017 J.C. Penney department stores throughout the United States, and 62 Renner department stores in Brazil. In 2005, the company plans to open about 20 new department stores, 12 of which will be in an off-mall format, which the company is currently experimenting with.

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