JCPenney disclosed the following in its "Management's Discussion and Analysis" section of its 1997 annual report: FIFO operating earnings increased to $1,371 million in 1997, up 15.9 per cent compared with $1,183 million in 1996. The increase was principally the result of improvements to gross margin and managing of selling, general, and administrative (SG&A) expenses. FIFO gross margin increased by 70 basis points in 1997 compared with 1996, despite a very promotional first half of the year. The Company recorded a LIFO credit of $20 million in both 1997 and 1996. SG&A expenses were well managed across all areas of the Com- pany, particularly advertising, and were flat as a percentage of sales as com- pared with 1996. FIFO operating earnings were $1,183 million in 1996 compared with $1,199 million in 1995. Sales in JCPenney stores were soft in the first half of 1996 compared with 1995 and accelerated in the second half as inventory levels rose and the Company implemented aggressive marketing programs to drive traffic in the stores. FIFO gross margin declined by 70 basis points in 1996 compared with 1995, primarily as a result of aggressive marketing programs designed to boost sales volumes and reduce inventory levels. In 1995, the Company recorded a $7 million LIFO credit. SG&A expenses were well man- aged in 1996, improving by 40 basis points as a percent of sales.

Required: Assume you are a financial analyst. Write a report on JCPenney’s performance for those of your clients who you know are not financially sophisticated. (A LIFO credit is the same as a change in the LIFO reserve for the year.)