J.C. Penney Swings to Loss on Sales Slide
08/10/2012| 02:08pm US/Eastern
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--CEO vows to "stay the course"
--Company says it has enough money to complete transformation
--Shares have roller-coaster ride
(Adds information from meeting Penney executives held with analysts, information about stock movement)
By Karen Talley and Saabira Chaudhuri
J.C. Penney Co. (>> J.C. Penney Company, Inc.) swung to a second-quarter loss and its same-store sales plummeted, raising further questions about Chief Executive Ron Johnson's everyday low pricing strategy. But Mr. Johnson vowed to "stay the course."
The quarter was the second in a row that Penney turned in dismal results since Mr. Johnson changed the retailer's pricing strategy. Penney now says as a result of the showings it no longer expects to meet its previously issued full-year earnings guidance for fiscal 2012, but it didn't provide an updated estimate. The results also raise questions about the third and fourth quarters, when analysts peg Penney to post profits. Moody's Investors Service Inc. on Friday downgraded shares further into junk territory.
The second-quarter report, and follow-up meeting with analysts, sent J.C. Penney's shares on a roller-coaster ride. The stock went from a 12% loss to an 11% gain at its peak. Shares were recently up 4.3% to $23.02.
The stock began moving higher when executives said J.C. Penney had more cash on hand in the second quarter than in the first quarter and almost $1 billion in cash on its balance sheet. J.C. Penney in January obtained a $1.5 billion credit line secured by inventory, executives said. Analysts said short-covering by investors that had bet the stock would fall also played a role in shares moving higher.
J.C. Penney envisions its stores as hubs of activity, especially at their centers, which are being set up as meeting places and will carry seasonal merchandise. Tables will feature iPads for customers to use, there will be activities for kids, like making greeting cards, and even pilates and yoga classes will be offered. "When we're done, we will have created a new class of department store," Mr. Johnson said.
The comments came after J.C. Penney posted a quarterly loss of $147 million, or 67 cents a share, versus a year-ago profit of $14 million, or 7 cents a share. The most-recent quarter included $159 million in restructuring and management-transition charges. Excluding pension-plan expenses, the adjusted loss was 37 cents a share from a year-ago profit of 19 cents.
J.C. Penney's same-store sales declined 22% for the quarter ended July 28, a drop that was deeper than expected by even the most bearish analysts. Total sales decreased 23% to $3.02 billion, which includes the effects of the company's exit from its outlet business, while Internet sales sank 33%.
Penney said sales for the quarter were hurt by its decision to "significantly reduce" its marketing activities during the latter half of the quarter.
Gross margin narrowed to 33.2% from 38.3%, a drop the company says partly came from lower-than-expected sales and about $102 million of markdowns taken to clear discontinued inventory in preparation for new product arriving in the fall.
Penney wants to transform itself as a way of setting itself apart from rivals like Macy's Inc. (M) and Kohl's Corp. (>> Kohl's Corporation). In February, Penney stopped using promotions in favor of everyday low prices. The move so far has alienated customers.
In May, Penney reported swinging to a steep loss as total sales declined 20% and same-store sales slid 19% on a double-digit drop in customer traffic.
Write to Karen Talley at karen.talley@dowjones.com and Saabira Chaudhuri at saabira.chaudhuri@dowjones.com
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