Penney's reports 3Q sales shortfall, cuts outlook

J.C. Penney cut its sales outlook for the year after reporting a surprise decline in a key sales figure for the third quarter as it wrestled with sluggish clothing sales.

The report is a setback for Penney, whose business has been volatile, bouncing back in the summer after a tough start to the year.

Nonetheless, shares rose in afternoon trading Friday after dropping as much as 10 per cent in premarket dealings.

Penney is trying to recover from a catastrophic reinvention plan under former CEO Ron Johnson that sent sales and profits into a free-fall in 2012 and 2013. Business stabilized under Mike Ullman, who took the helm in 2013 after Johnson was pushed out. Under Marvin Ellison, who has been CEO since 2015, Penney is looking for new ways to increase sales while playing catch up in e-commerce.

Like other department stores, J.C. Penney is trying to adjust to changing shopping patterns. Consumers are shifting their spending away from clothing and toward experiences like beauty treatments or toward furnishing their home. And when they do pick up clothing, it’s more often at off-price stores or online as Amazon moves more into apparel.

Given the environment, Penney wants to be less dependent on clothing, and is focusing its efforts on its home area and rolling out major appliances in it stores. It now has major appliances in 500 of its stores. It has expanded the Sephora beauty shops and is updating its beauty salons, now branded Salon by InStyle. It is also beefing up its store label brands like St. John’s Bay.

The company is aiming to be more competitive in the digital arena. Penney is arming its store associates with mobile devices to help check out online shoppers who are picking up orders in the store.

In a statement, Ellison said that sales accelerated in the latter part of the third quarter and he’s optimistic about a strong holiday shopping season.

“We are excited about the initiatives we have in place to drive incremental growth during the holiday season with our increased appliance penetration, new Sephora locations, free same-day pickup for online orders, a strong cadence of promotional events and our new lowest price guarantee,” said Ellison.

Ellison told The Associated Press that unseasonably warm weather hurt the clothing business. Unlike other department stores, Penney is evenly distributed across the country and was especially hurt in the South. Ellison also said that the company is shifting to more casual apparel to reflect changing preferences.

As for the distraction from the presidential election, he said it was hard to quantify. But he added, “From an economic standpoint, they are in really good shape.”

Still, it’s a tough challenge.

Penney reported a loss of $67 million in its fiscal third quarter, which had narrowed from a loss of $115 million in the year-ago period.

On a per-share basis, the Plano, Texas-based company said it had a loss of 22 cents. Losses, adjusted for restructuring costs, were 21 cents per share.

The results beat Wall Street expectations. The average estimate of 13 analysts surveyed by Zacks Investment Research was for a loss of 22 cents per share.

The department store operator posted revenue of $2.86 billion in the period, which missed Street forecasts. Eight analysts surveyed by Zacks expected $2.94 billion.

Revenue at stores opened at least a year fell 0.8 per cent, below the 2.2 per cent increase that analysts had expected.

The company now expects to see an increase of 1 to 2 per cent for the key sales measure, down from its original forecast of 3 per cent to 4 per cent it announced in the summer.

J.C. Penney Co. shares rose 20 cents, or 2.2 per cent, to $9.01 in afternoon trading Friday. The stock has risen almost 6 per cent in the last 12 months.


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Keywords: J.C. Penney, Earnings Report, Priority Earnings