JC Penney lowers sales expectations

Michelle Chapman and Anne D'Innocenzio
Associated Press

New York – J.C. Penney withdrew its profit guidance and lowered its sales expectations for the year, leading to a big drop in its stock in early trading before shares recovered.

Sales at stores open at least a year, a key gauge of a retailer’s health, declined 5.4 percent during the third quarter. That was much worse than the analysts’ prediction of a 0.5 percent decline, according to FactSet. J.C. Penney’s poor performance is an outlier at a time when the strong economy is helping retailers from Walmart to Home Depot. Many are also benefiting from struggling peers like Sears or Bon-Ton who are either fading or going out of business. They’re heavily investing in online services and bolstering their merchandise assortment. Instead, Penney has been floundering, weighed down by debt that limits how much it can aggressively reinvent its operations.

J.C. Penney said Thursday it withdrew guidance because its new CEO and interim CFO need more time to look over operations. The poor performance underscores big challenges for Jill Soltau, the former Jo-Ann’s Stores CEO who was named to Penney’s top post last month. Soltau succeeded Marvin Ellison, who left this past summer after less than four years to take the top job at home improvement chain Lowe’s. In October, Penney appointed Michael Fung as interim CFO. He succeeded Jerry Murray, who remains senior vice president of finance.

During a conference call with analysts, Soltau said she would be assessing many areas from promotions to merchandise strategies in the store and online.

“While this will be a lengthy process, I understand the need for quick action,” she said.

The department store has been trying to turn things around, bringing back big appliances like washing machines, adding year-round toy shops and improving its e-commerce operations. That has yet to show a substantial effect.

“The first and most pressing task for Jill Soltau is to get J.C. Penney back to thinking in a customer-centric way,” said Neil Saunders, managing director of GlobalData Retail. “For far too long the company has undertaken random initiatives with seemingly no consideration of who the core customer is or what they want. With an incredibly tight balance sheet, JCP can no longer afford to squander resources.”

Saunders called the drop in sales at established stores “poor.”

“To do it at a time when consumer confidence and spending are at their peak is nothing short of atrocious,” he added.

For the third quarter ended Nov. 3, the Plano, Texas, company posted a loss of $151 million, or 48 cents per share. A year earlier it lost $125 million, or 40 cents per share. The adjusted loss of 52 cents per share was a nickel better than analysts had expected. However, revenue of $2.73 billion fell short of Wall Street expectations of $2.81 billion.

The department store now foresees sales at stores open at least a year to be down low-single digits for fiscal 2018. Analysts had expected a 0.2 percent drop.

Shares of J.C. Penney Co. tumbled close to 14 percent before the opening bell, but recovered in afternoon trading to $1.24, up 2 cents.