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* Stores being closed account for less than 5 pct of annual sales
* Q4 comp sales drop 0.7 pct vs est -0.5 pct
* Voluntary early retirement program for about 6,000 employees
* Shares fall to more than a year low (Adds details from conference call, updates shares)
By Sruthi Ramakrishnan
Feb 24 (Reuters) - Department store operator J.C. Penney Co Inc reported a bigger-than-expected drop in same-store sales for the holiday quarter citing weak demand and competition from online retailers, sending shares down to more than a year low.
The company on Friday also said it would shutter 130-140 underperforming stores over the next few months to focus on more profitable ones.
Penney's results underscored the brick-and-mortar retail industry's struggles to overcome a drop in traffic in malls and a shift towards online shopping.
To save cash, retailers have been cutting costs and looking to make more money from their sprawling real estate assets. Rival Macy's Inc said it was closing 100 stores and exploring deals with other retailers to lease parts of its stores.
Penney's comparable store sales fell 0.7 percent in the fourth quarter ended Jan. 28, steeper than the 0.5 percent drop analysts polled by research firm Consensus Metrix had expected.
The sales drop was the company's third quarterly decline this year.
Penney also said that increased promotional activity and handing out more coupons weighed on its margins, which fell 1 percentage point to 33.1 percent.
Costs related to rolling out its low-margin appliances business to more stores also hit margins during the quarter.
In contrast Kohl's Corp and Nordstrom Inc managed to keep a grasp on their margins by stocking less and reining back on promotions.
"(Q4) store gross margin was negatively impacted by actions we took with couponing and increased promotional activity... These were poor decisions that will not be repeated," Chief Executive Marvin Ellison said on a conference call.
Shares of the company, which operates more than 1,000 stores in the United States, fell 10 percent to more than a year low of $6.18 in morning trading on Friday.
Penney on Friday said the stores being closed represent less than 5 percent of annual sales.
The retailer also said it would sell a supply chain facility in Buena Park, California to "monetize a lucrative real estate asset" and close a distribution center in Lakeland, Florida.
Along with the closures, the company will also offer voluntary retirement for about 6,000 employees in its headquarters, stores and supply chain.
The company expects annual savings of about $200 million from the cost cuts, but would incur a pre-tax charge of about $225 million in the first half of the current year. (Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Sriraj Kalluvila and Shounak Dasgupta)