NEW YORK — J.C. Penney reported a 78 percent drop in its third-quarter earnings because of a big expense for its pension plan.

However, the retailer upgraded its profit and sales outlook because it is selling more goods at regular price and seeing less clearance discounting, though sales are still weak.

The increases got investors' attention, driving the stock up $1.51, or 5.1 percent, in premarket trading.

The retailer, which is based in Plano, Texas, said Friday it earned $27 million, or 11 cents per share, for the period ended Oct. 31. That compares with $124 million, or 56 cents per share, in the year-ago period.

J.C. Penney and other department store chains have faced big challenges as shoppers worry about job security and tight credit. The chains have seen bright spots, and consumers are beginning to treat themselves to small indulgences.

Like other retailers, Penney has been cutting inventory in response to tepid spending. It also has been expanding its assortment of exclusive brands. Making their debut in September were "Cindy Crawford Style," an exclusive home furnishing and accessories collection, and JOE Joseph Abboud, a collection of men's sportswear and tailored clothing.

But Penney's biggest coup was a deal struck with Liz Claiborne, announced last month. Penney will be the sole U.S. department store to sell the company's Liz Claiborne and Claiborne lines of women's wear, along with its Liz & Co. and Concepts by Claiborne brands. The deal includes accessories, shoes, household products and men's clothing, as well as women's.

Under the deal, Penney can at the end of year five or 10 acquire the licensed trademarks and other Liz Claiborne brands for use in the U.S. and Puerto Rico.