JC Penney losses narrow, CEO tries to reinvigorate stores
New York — J.C. Penney, in the throes of yet another reinvention, offered some rare hope during the third quarter.
The troubled department store chain raised its annual profit forecast Friday after reporting narrowed losses. It still anticipates a sharp sales decline for the year, however.
Jill Soltau, the chief executive brought in just over a year ago to right the ailing chain, laid out the challenges ahead in a conference call with industry analysts.
“We are not simply running a business. We are rebuilding a business,” said Soltau. “This company has a rich history, and I am confident it has a brighter future.’
Department stores are trying to make themselves relevant in an era when Americans are buying more online or from discounters like T.J. Maxx for clothing.
But J.C. Penney Co. is still trying claw its way back after a disastrous reinvention plan in 2012 by former CEO Ron Johnson, who dramatically cut back on promotions and brought in new brands with hopes of attracting younger shoppers. Penney's sales went into a freefall and many longtime customers walked away and have not returned.
Soltau acted swiftly when she joined the company in October 2018, jettisoned from stores major appliances that were weighing down operating profits. That reversed the strategy of her predecessor, Marvin Ellison, who brought appliances to the showroom floor in an attempt to capitalize on the troubles of another ailing department store, Sears.
Soltau turned the company’s focus back to women's clothing and goods for the home like towels and bedsheets, which carry higher profit margins. Furniture is still available, but only online.
The shift cut into sales, at least in the short-term. Total sales declined 8.5%, to $2.5 billion in the third quarter.
Sales at stores opened at least a year fell 9.3% in the quarter. Even when the detrimental effect of appliance sales are removed, same-store sales still tumbled 6.6%.
That’s actually worse than the 5.4% decline Wall Street was expecting, according to a survey by FactSet.
Still, shares jumped 8%, or 9 cents, to $1.19 Friday.
J.C. Penney under Soultau is trying to generate energy in stores in a number of ways. It’s begun selling second-hand clothing in a couple dozen stores as part of a test with online the online retailer ThredUp. It’s testing styling classes and yoga studios.
Soultau says her team has made significant progress in their efforts to “return J.C. Penney to sustainable, profitable growth.”
The company reported a quarterly loss of $93 million, or 29 cents per share.
Losses, adjusted for non-recurring gains, were 30 cents per share, not nearly as bad as the per-share losses of 55 cents that industry analysts had expected, according to a survey by Zacks Investment Research.
Inventory was reduced by 9%.
J.C. Penney reaffirmed that it expects a decline of between 7% and 8% in same-store sales this year.
However, it said Friday that it now expects earnings before interest, taxes, depreciation, and amortization to exceed $475 million in 2019. It had previously projected EBITA between $440 million and $475 million.