J.C. Penney on Thursday reported earnings and sales for the holiday quarter that topped analysts' lowered expectations, as the company said it was successful in reducing a glut of unsold inventory in 2018.
But revenue was down sharply, and the company declined to provide a forecast for 2019 as it works to improve its financial performance. Part of its turnaround plan entails shutting 18 department stores this year, including three it already announced when it warned of dismal holiday sales last month. It said same-store sales at those 18 stores have been "significantly below" other locations, thus dragging on its overall business and running up expenses.
Penney will additionally close nine of its home and furniture locations, as it looks to trim a massive real estate footprint to focus on its more profitable shops. Management also warned additional store closures are a possibility in 2020 and beyond.
"I think as we go forward — as we mentioned, we're closing 18 [stores] this year," Treasurer Trent Kruse told analysts. "I think it's safe to assume that as you roll into 2020 and future years, it's likely to see some continuation of that effort. [It's] hard to say now, but I think that's a fair read."
The company's shares soared more than 20 percent in early trading on the news. As of Wednesday's market close, the stock had tumbled nearly 70 percent over the past 12 months, to trade around $1.30. J.C. Penney's market cap is roughly $473.1 million.
Here's what Penney reported for the fiscal fourth quarter compared with what analysts were expecting, based on Refinitiv data:
- Earnings per share, adjusted: 18 cents vs. 10 cents expected
- Revenue: $3.79 billion vs. $3.78 billion expected
- Same-store sales: down 4 percent vs. a drop of 4.3 percent expected
The retailer reported net income for the quarter ended Feb. 2 of $75 million, or 24 cents per share, compared with $242 million, or 77 cents a share, a year ago. Excluding one-time items, Penney earned 18 cents a share, 8 cents ahead of analysts' forecasts based on a survey by Refinitiv.
Revenue fell 8.4 percent, to $3.79 billion from $4.14 billion a year ago. That was slightly ahead of expectations for $3.78 billion.
Sales at Penney stores open for at least 12 months, on a shifted basis comparing the 13-week period ended Feb. 2 this year to last, were down 4 percent, better than an expected drop of 4.3 percent. Same-store sales were down 3.1 percent for all of last year.
Penney since last fall has had a new CEO, Jill Soltau, who's already started shaking things up at the retailer in a bid to turn its business around. The company has struggled with managing its inventory — getting dated apparel off shelves to make way for new styles — and hasn't been able to take advantage of rival Sears' struggles as much as anticipated.
Since joining the department store chain, Soltau has already made decisions to shut Penney stores and get out of the appliance business, a category her predecessor, Marvin Ellison, had invested heavily in. Soltau has said Penney, in turn, will make more investments in apparel — devoting even more space in stores to clothes and accessories. The verdict is still out for whether or not this approach will work. Penney has, meanwhile, vowed to get products to market faster to keep up with fast-fashion cycles.
"In spite of our past financial performance, we have already taken meaningful steps to drive improvement in key businesses such as women's apparel, active apparel, special sized apparel and fine jewelry," Soltau said Thursday in a statement. Sales of women's apparel were up 2 percent during the fourth quarter.
The company said it was able to cut its inventory by 13.1 percent in 2018.
In beefing up its leadership since Ellison's departure, Penney announced the hire of Michelle Wlazlo, a former senior vice president of apparel and accessories at Target, as chief merchant. It's also bringing on new heads of planning and allocation and asset protection. It said it's still searching for a head of e-commerce.
Meantime, those department stores set to close this year should be shut during the second quarter of 2019, Penney said. The company is anticipating recording a pretax charge of about $15 million associated with the closures. It hasn't yet offered a sales and profit outlook for 2019.
"Given our recent leadership transition — and the need to further assess current and go-forward execution of the business — we believe it is appropriate to withhold providing 2019 full-year earnings guidance at this time," Kruse said.