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Penney's shares gain after CFO's encouraging words

NEW YORK (AP) -- Shares of J.C. Penney Co. reached their highest point since late May in Thursday trading, after the mid-price department store chain's Chief Financial Officer Ken Hannah offered encouraging words at an investor conference that the transformation of its business remains on track.

.THE SPARK: Hannah told investors at the Goldman Sachs Global Retail Conference Wednesday that he has seen a "positive response" from customers as a result of the recent tweaking of its new pricing strategy, implemented in early February. He also noted that company has opened 10 specialty shops within 700 of its fleet of 1,100 stores over the last two months. He noted that the company has been pleased with customers' response to these branded shops.

"We are well on our way to transforming ourselves to America's favorite store, a specialty department store," he told investors.

THE BIG PICTURE: In February, J.C. Penney Co. eliminated coupons and the nearly 600 sales it used to have annually, under the stewardship of its new CEO Ron Johnson. It lowered prices in its stores permanently by 40 percent.

The company's three-tier price strategy also included monthly sales on select items and clearance sales every other Friday. The goal is to create predictable pricing so that shoppers would come back to Penney often, instead of just for the sales events.

The pricing strategy is part of an overall plan to transform every aspect of Penney's business, from the brands it carries to the store experience.

But the pricing plan has been more difficult to push through than originally expected.

Customers, accustomed to big discount signs, have not embraced the new pricing: Penney reported last month its second consecutive quarter of big losses due to severe sales drops. In response, Penney changed its pricing again on Aug. 1 — adding back more sales. Among other changes, the company began eliminating its month-long sales and instead is increasing its clearance sales to every Friday. It's also changing its advertising to better educate the customers about the new pricing.

Johnson acknowledged that Penney made some mistakes, but he's vowing to stick to the everyday pricing plan.

Meanwhile, Penney has been building shops for existing brands like Liz Claiborne and Levi's, as well bringing in new brands. The goal is to carve up the store into 100 specialty shops. It will also have an area in the middle of the store that will be meeting places for shoppers. At these so-called "Town Squares," which will offer different attractions every two months, shoppers would be able to create greeting cards or take yoga or Pilates classes.

Johnson recently told analysts he's creating a new kind of store — the specialty department store.

THE SHARES: Shares rose almost 6 percent, or $1.54, to close at $27.97 on Thursday, extending a rally seen since early last month as some investors are gaining some faith in the plan. Penney's stock has been beaten up — still down by almost 40 percent since their peak of $43.18 early in February in the afterglow of Johnson's announcing the pricing plan.