By Phil Wahba

NEW YORK, April 20 (Reuters) - JC Penney Co Inc (JCP.N) set a target for annual sales to increase by $5 billion by 2014, bolstered by a higher emphasis on fashions for younger women, a rebound in its jewelry business and an improved economy.

Photo: www.jcpenney.com

Penney's plan calls for sales at it stores open at least a year, a retail gauge known as same-store sales, to rise by 5 percent per year over the next five years and boost total sales to $23 billion by 2014, up from about $18 billion in 2009.

But investors questioned whether J.C. Penney can deliver on the new goals, released at its analyst day in New York, and its shares fell more than 3 percent.

"There is some skepticism about whether these targets can be met. Their 'on the mall format' is a dying breed," said Brian Sozzi, an analyst with Wall Street Strategies. Penney's planned store openings could also drain too much cash from its coffers, he said.

Department store operators like Penney and rivals Macy's (M.N) and Kohl's Corp (KSS.N) responded to the U.S. recession by cutting costs and inventory levels and are beginning to reap gains from the strategy.

Penney's Chief Executive Myron Ullman said that "all the economic indicators are going in the right direction," but noted that a high unemployment rate still weighs on U.S. consumers and that Penney shoppers were "more exposed to the job market" than those of its rivals.

"The midpoint consumer has a lot on her mind," said Ullman, who is also a director at the Federal Reserve Bank of Dallas.

JC Penney shares fell 3.1 percent to $30.48.

COUNTING ON WOMEN

Chief Financial Officer Bob Cavanaugh that the retailer expects $3 billion of the sales jump to come from its existing stores, while online sales and sales at new stores would each rise by about $1 billion over the five years.

Penney's plan targets a 25 percent compound annual growth rate in earnings per share in the four years following 2010, aiming to reach $5 by 2014. Its earnings from continuing operations were $1.07 per share in fiscal 2009.

Penney, based in Plano, Texas, plans 75 net store openings by 2014, though few of those are expected in 2010 or 2011. Penney will instead direct most of its capital spending early on to store renovations and the roll-out of sections dedicated to cosmetics retailer Sephora.

JC Penney, which is also ramping up deals with Spanish fast-fashion retailer Mango, is emphasizing more stylish offerings to differentiate itself and draw younger female shoppers between the ages of 25 and 44.

Beginning this fall, Liz Claiborne Inc's (LIZ.N) namesake brand will be exclusive to Penney stores.

"We need to earn more from our current customers, and attract a younger demographic," Ullman said.

So far this spring, sales of women's merchandise have been "above plan," said Liz Sweney, an executive who oversees women's apparel and other merchandise. Women's apparel makes up about 25 percent of JC Penney's overall sales.

Penney is also working to reestablish itself as a top fine jewelry retailer and has a partnership with supermodel Cindy Crawford on its "One Kiss" line.

Ullman told Reuters that the jewelry business once had annual sales of $1 billion and said they could return to those levels, given that spending on luxury items is on the upswing.

Penney was one of the slowest U.S. department store chains to see improving same-store sales, following the recession.

Earlier this month, Penney said March same-store sales rose 5.4 percent, just short of analysts forecasts of 5.7 percent.

Penney operates about 1,100 U.S. department stores. (Reporting by Phil Wahba; Editing by Lisa Von Ahn, Leslie Gevirtz, Bernard Orr)