J.C. Penney not selling Eckerds just yet

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Posted 7:38AM on Friday, March 29, 2002

DALLAS - J.C. Penney Co. chief executive Allen Questrom said Thursday the department-store company will take about two years to decide whether to sell its Eckerd drugstore chain, which faces lawsuits over drug pricing. Penney has tried to spin off Eckerd, and it fueled fresh speculation this year when it reorganized into a holding-company structure, which analysts said would make it easier to sell Eckerd. Questrom said many Eckerd stores have been updated, leading to sales gains of about 8 percent in those outlets, and the chain is poised to benefit from a jump in prescription-drug sales as more baby boomers enter their 50s. Questrom said Eckerd was worth about $3 billion when Wall Street analysts began urging Penney to sell the chain, which it acquired in 1997. He said Eckerd is now worth $6 billion - which would top the $5.4 billion market value for all of Penney - and will be worth $8 billion to $11 billion in a few years. In the nine months ended Oct. 27, Eckerd had sales of $10.19 billion, or 45 percent of the company's total. "It's a growth business that was badly run," Questrom said at luncheon for Southern Methodist University's business school. "We very strongly believe in it," he said. "We told the outside world we will run the business. The (Penney) board and I will decide in the next few years whether we can make more money for our shareholders keeping versus selling it." Questrom later told reporters a decision on Eckerd would be made in about two years. Eckerd is the subject of a class-action lawsuit in Florida that claims the chain shorted customers on some prescription medications. Questrom called the lawsuit "a silly story." Eckerd says some labels rounded metric measurements up but customers received the correct amount. Eckerd and three other chains were also sued in November by Texas Mutual Insurance Co., and the state of Florida is investigating possible overbilling at Eckerd. As for the department store chain that he has led since 2000, Questrom, who is also chairman, said Penney stores are "on track" to return to consistent profitability on the 3-to-5-year timetable he set in late 2000. Penney operates about 1,000 department stores and more than 2,600 Eckerds. Questrom also sharply attacked the conduct of executives at bankrupt Enron Corp. and its accounting firm, Arthur Andersen. Penney's auditor is KPMG. Citing news accounts about the partnerships used to move debt of Houston-based Enron's books, Questrom said: "If most of it is true, clearly people broke the law. People knew they were breaking the law ... we need to punish them." In trading Thursday, shares of Plano, Texas-based Penney rose 27 cents to $20.71. The shares have fallen 24 percent this year after rising 149 percent last year.