J.C. Penney Co Inc (JCP) posted a higher-than-expected second-quarter profit on Tuesday, helped by stronger sales and the introduction of new brands.

But shares fell more than 3 percent in morning trade as a weak forecast from Wal-Mart Stores Inc (WMT) and concerns over rising oil prices weighed on the retail sector.

Penney's income from continuing operations jumped 79 percent to $122 million, or 46 cents per share, from $68 million, or 22 cents a year earlier.

Including the effects of discontinued operations, net income for the quarter was 50 cents per share compared to a loss of 2 cents per share last year.

In addition to strong operating performance, the company said its earnings per share were helped by its ongoing stock buyback plan.

Analysts, on average, had been expecting it to earn 40 cents per share, according to Reuters Estimates. The company itself forecast earnings of in a range of 35 cents to 40 cents per share.

The retailer is wrapping up a five-year overhaul that has earned cheers from Wall Street -- and shoppers. The company sold its money-losing Eckerd (search) drugstore chain to focus on its department stores and related Internet and catalog business.

On a conference call with analysts, the company said oil prices were a concern, but so far the costs had been absorbed by the consumer, although it didn't "expect that to continue forever."

Gasoline prices have reached as high as $3 per gallon in some regions. Penney said it benefited from being mall-based since shoppers who want to limit their driving are more likely to make one trip to a mall than drive to several stores.

"With gas prices the way they are and with people suddenly being burdened with monthly car payments, they are looking for bargains," said Kurt Barnard, president of Retail Forecasting Group. "People are taking their money from Bloomingdale's to Penney, Kohl's and Target."

The company said early back-to-school results have been "encouraging." Back-to-school is one of the most important selling seasons for retailers, after the winter holidays.

Late last year, Penney tapped luxury goods executive Myron Ullman as its new chairman and chief executive, replacing leader Allen Questrom, and there was concern among industry watchers that he would try to recast the company as a high-end retailer.

But the retailer has stayed focused on what it calls "the middle American consumer," and said it plans to build its private and national brand offerings.

Sales at department stores open at least a year, or same-store sales, rose 4.2 percent in the second quarter. Catalog and Internet sales rose 7.1 percent.

Overall sales rose 5.4 percent to $3.98 billion.

Analysts were, on average, expecting sales of $4.04 billion, according to Reuters Estimates.

For the third and fourth quarters, both same-store sales and catalog/Internet sales are expected to increase low-single digits. On the conference call, an analyst questioned if the company was guiding conservatively on sales or if Penney was expecting a drop-off in quarterly sales.

The company said that in its broad-based business it was best to "plan in a way that allows you to leverage success."

Penney expects earnings from continuing operations of about 82 cents per share in the third quarter and $1.52 per share in the fourth quarter. This would result in full year earnings from continuing operations of about $3.35 per share. Analysts polled by Reuters Estimates were expecting $3.29 per share.

Penney shares were down $1.75 at $50.15 in Tuesday morning trading on the New York Stock Exchange (search).