Struggling JC Penney Reports Bigger Loss Than Expected
Struggling department-store retailer J.C. Penney on Thursday reported operating margins plunged in the first quarter on weak sales and heavy clearance deals, as its new chief executive promised more promotions and a return to basics to win back shoppers.
J.C. Penney shares wavered following the news. (Click here to track the company's shares in after-hours trade.)
Penney, struggling with mass customer defections after a failed strategic shift by former Chief Executive Ron Johnson, said gross margins came in at 30.8 percent, nearly 7 percentage points lower than a year earlier. Total sales and same-store sales both posted double-digit declines, in line with the company's warning last week.
(Read More: JC Penney Margins Were 'Horrible': Pro)
Myron Ullman returned to Penney as CEO last month to stabilize the company, which suffered a 25-percent drop in sales last year after Johnson tried to wean the retailer's price-conscious customers off coupons.
"We need to make a connection with the customer that is meaningful as well as enduring. This won't happen overnight, but customers will begin to see important changes in the coming months that are aimed at meeting their need," Ullman said on a conference call with analysts. "Rest assured, we recognize the magnitude of the challenges that we face."
Since returning as CEO, Ullman moved to shore up Penney's finances ahead of the ordering period for the holiday season with a $1.75 billion loan arranged by Goldman Sachs.
He also launched an ad campaign that apologized to shoppers, and brought back more intense discounting, including doorbusters on Mother's Day.
"Trends are improving — this is still a year of change. But things are stabilizing and traffic is improving," said Marie Driscoll, an independent retail analyst.
Earlier this week, rivals Kohl's and Macy's each reported lower-than-expected same-store sales for the quarter, noting how cautious shoppers in the lower-to-middle class remain. But those Penney rivals did say they expect sales to rise this quarter.
Penney's net loss widened to $348 million or $1.58 per share, in the first quarter from $163 million, or 75 cents a share, in the year-earlier period.
This included $72 million in restructuring and management transition charges, including $28 million for its home office and stores, $28 million for store fixtures and $16 million for its management transition.
Excluding these items, J.C. Penney reported a quarterly loss of $289 million, or $1.31 a share, bigger than its loss of $55 million, or 25 cents per share, a year ago.
Revenue eased 16 percent to $2.64 billion from $3.15 billion. Sale-store sales fell 16.6 percent, as expected.
Analysts had expected the company to report a quarterly loss excluding items of 89 cents per share on $2.74 billion in revenue, according to a consensus estimate from Thomson Reuters.
(Read More: JC Penney: We're Sorry ... Now Come Back and Shop)
This is J.C. Penney's first quarterly report following the ouster of Johnson, who was fired last month after a tumultuous time at the company's helm, marked by a sharp decline in sales. Ullman had previously served as chief executive of the company from 2004 to February 2012.
"Our objective is to put J.C. Penney back on a path to profitable growth. To achieve this, over the past five weeks we have taken critical steps to stabilize the business, including improving our balance sheet and ensuring we have our senior leadership in place," Ullman said in the earnings release. "With that accomplished, together our team is focused on developing and executing strategies to enable us to reconnect with our customer and improve traffic and sales, while operating with strong financial discipline."
Vowing to turn the company into America's favorite store, Johnson had planned to convert the company into a series of shops within a store and to eliminate heavy discounting. His original plan called for only one sale a year, on Black Friday.
The everyday-low price strategy was not well received by J.C. Penney core customers, and sales fell 25 percent during the 2012 fiscal year. On Tuesday. the retailer said it plans to hold 26 promotions a year as part of its return to discounting.
To fund its in-store shops transformation, J.C. Penney burned through cash quickly last fiscal year, prompting investors to question the health of its balance sheet.
To shore up its finances, the company announced that Goldman Sachs had arranged a $1.75 billion loan, backed by its real estate.
J.C. Penney's stores, distribution centers and headquarters are worth a total of $4.08 billion, according to an appraisal conducted by Cushman & Wakefield for the department store chain and disclosed on Tuesday.