(Reuters) - U.S. department store operator J.C. Penney Co Inc (JCP.N) said it expects to post its first annual profit in five years in 2016 and reported a bigger-than-expected profit for the fourth quarter due to strong holiday sales and fewer discounts.
J.C. Penney's shares jumped 15.4 percent to touch a four-month high of $9.65 in early trading on Friday.
The company's results were one of the few bright spots in the retail industry that has been struggling for some time to cope with a pullback in discretionary spending and more recently with unusually warm weather in November and December.
J.C. Penney, along with home improvement chains Home Depot Inc (HD.N) and Lowe's Cos Inc (LOW.N), has posted strong results, while department store chains such as Macy's Inc (M.N), Kohl's Corp (KSS.N) and Nordstrom Inc (JWN.N) have reported disappointing quarterly sales.
J.C. Penney also said mid-tier customers – those with household income of about $60,000 per year – had increased spending over the past year, a trend it expects will continue this year.
"Contrary to some of the negative macro data that has been discussed in the marketplace, our data shows that this mid-tier consumer has continued growth possibilities in 2016," Chief Executive Marvin Ellison said on a conference call.
J.C. Penney said it expects a 3-4 percent increase in same-store sales and a 40-60 basis points rise in gross margins for 2016, helping it post an adjusted profit for the year.
The company expects to overturn four years of losses by opening about 60 more Sephora beauty outlets, boosting margins in its clearance and private brands businesses, and through supply chain efficiencies.
"Another solid result in a flat out tough 4Q for department stores ... CEO Ellison has the right demeanor, discipline, and business acumen to restore JCP to its glory days," Sterne Agee analyst Renato Basanta wrote in a note.
J.C. Penney said Sephora products, footwear, handbags and home goods sold well in the fourth quarter ended Jan. 30.
Total sales rose a better-than-expected 2.6 percent, to $4 billion, while same-store sales rose 4.1 percent, in line with analysts' expectations.
Excluding items, the company earned 39 cents per share, compared with 4 cents a year earlier. Analysts on average were expecting a profit of 23 cents, according to Thomson Reuters I/B/E/S.
Reporting by Rishika Sadam and Sruthi Ramakrishnan in Bengaluru; Editing by Saumyadeb Chakrabarty and Savio D'Souza