JC Penney’s sales trends improve in holiday quarter, but not enough; Shares tumble to near $5

Anne D'Innocenzio And Michelle Chapman, The Associated Press 0

NEW YORK, N.Y. – The first increase in more than two years for a key sales measure at J.C. Penney was not enough to win over Wall Street, which punished the retailer’s shares.

The company’s stock plunged almost 11 per cent Tuesday, closing at $5.08.

Sales in established stores, a key measure of a retailer’s health, rose 2 per cent during the November-January quarter. But analysts had expected a 4.2 per cent increase, according to FactSet estimates.

And it was not enough to erase from investors’ minds a 31.7 per cent plunge in the sales measure for the 2012 holiday quarter. That period had capped a disastrous first year under former CEO Ron Johnson.

During the nine-week holiday period in November and December, the sales metric rose 3.1 per cent.

It was a brutal holiday season, which can account for 20 per cent to 40 per cent of a retailer’s annual sales, for much of the retail sector.

The slow economic recovery, a stubbornly high unemployment rate and fierce competition from online retailers like Amazon.com forced traditional retailers to discount heavily just to get people through the door.

Heavy winter storms raking the United States in January have now cut into store traffic and weighed on post-holiday sales.

Chains including Wal-Mart Stores Inc., the world’s largest retailer, have cut their profit outlooks.

But J.C. Penney does not have anywhere near the room to manoeuvr that Wal-Mart and other major retailers have.

The rate at which J.C. Penney burns through cash has led to a large exodus by investors.

On Tuesday, the company said that it ended 2013 with more than $2 billion in total available liquidity. That was in line with most estimates, but far from healthy for a company that recently posted its seventh consecutive quarter of big losses.

“We believe (J.C. Penney) could run into another liquidity situation by 3Q14,” wrote Sterne Agee’s Charles Grom. He said the company’s sales trends need to get better, fast.

J.C. Penney is trying to recover from changes made by Johnson. He was ousted last April after 17 months on the job, and the company brought back Mike Ullman as CEO.

Ullman is trying to win back shoppers by restoring the sales events and basic merchandise ditched by Johnson, who was trying to target younger, wealthier consumers.

And earlier this month, the company announced thousands of jobs cuts and the closure of dozens of stores.

“While 2013 brought a lot of change and challenges to J.C. Penney, the steady improvements in our business show that the company’s turnaround is on track,” said Ullman.

For analysts who follow the company, the smaller-than-expected sales increase was at best a goal postponed during a rough time for retailers.

“Under the circumstances, it is progress,” said Bernard Sosnick, a retail analyst at Gilford Securities. “I thought the holiday season would be a really significant turning point (for Penney), but it may be spring.”

In Tuesday trading, the stock fell 60 cents to $5.08. Shares have lost 88 per cent of their value since early February of 2012 when investor enthusiasm was high over Johnson’s transformation plan.

It’s not clear how much the holiday sales gains, amid discounts at Penney, came at the expense of profits. Investors will find out when the company reports its fiscal fourth-quarter results on Feb. 26.

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