J.C. Penney to close 3 stores by spring as part of ongoing review, holiday sales drop

Key Points
  • J.C. Penney plans to close three stores by the spring as part of an ongoing evaluation of its performance. 
  • For the nine weeks ended Jan. 5, same-store sales fell 3.5 percent on an adjusted basis.
  • The department store chain said it would provide further details about future store closings on Feb. 28.
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J.C. Penney announced Tuesday that holiday sales fell and it plans to close three stores by the spring as part of an ongoing evaluation of its performance.

For the nine weeks ended Jan. 5, same-store sales fell 3.5 percent on an adjusted basis. On an "unshifted basis," sales were down 5.4 percent at stores open at least a year.

The retailer didn't specify which stores it planned to close but said it would provide more information when it reports fourth-quarter results on Feb. 28.

The company said it still expects to "generate positive free cash flow in fiscal 2018, reduce inventory in excess of $225 million or 8% and expects to end the year with liquidity in excess of $2 billion."

Expect strong retail season through end of 2018, sector analysts says

J.C. Penney shares closed Tuesday at $1.21. The stock, which has lost more than 67 percent over the past year, was recently trading below the $1 mark.

It first breached $1 on Dec. 26, as investors worried holiday sales would be poor at the department store chain. Although the retail industry is on track to have its best holiday shopping season in six years, not all stores are benefiting from the freer spending.

Penney has been struggling to turn its business around. It lost its CEO Marvin Ellison to Lowe's in July. In October, the company tapped former Joann Stores chief, Jill Soltau, for the top job.

Penney's has been hurt by a pile-up of unsold inventory, which has put pressure on its profits. When retailer have a backlog of unsold merchandise they tend to slash prices to clear shelves. Other retailers, including Macy's and Kohl's, made improvements in managing their merchandise last year and are expected to head into 2019 on good footing.

The company also has struggled to sell trend-right apparel, at a time when the apparel industry as a whole is going through somewhat of a renaissance with clothing sales climbing again.

"In our view, JCPenney went into the festive season in a weakened state and, therefore, was not able to capitalize on the favorable trends," said Neil Saunders, managing director of GlobalData Retail, in an email. "Stores, for example, were densely packed full of merchandise and provided consumers with a less than inspiring shopping experience. The same is true online where a vast array of products with few standout items reduced conversion rates. Extensive discounting did little to remedy these weaknesses or stimulate revenue growth."

— CNBC's Lauren Thomas contributed to this report.