FINANCE

J.C. Penney loss widens on store closing efforts; to boost apparel

BY Marianne Wilson

Liquidation efforts took a toll on J.C. Penney in its second quarter, which reported earnings and same-store sales below estimates.

Penney's net loss widened to $62 million in the quarter ended July 29, or 20 cents per share, from $56 million, or 18 cents per share, in the year-ago period.

Excluding one-time items, Penney's lost 9 cents a share, greater than the expected loss of 5 cents. Penney said the liquidation of inventory in 129 closing stores during the quarter had a negative impact on earnings and gross margins.

"These events were isolated to the second quarter," said Marvin Ellison, chairman and CEO, J.C. Penney. "As such, we are reaffirming our EPS guidance for the year, and remain confident in our ability to further strengthen our balance sheet, while driving sustainable growth and long-term profitability for J.C. Penney. To that end, we are pleased that we are off to a strong start in August for the all-important back to school season. We are excited by this momentum and expect to deliver improved results in the back half of the year."

Revenue rose 1.5% to $2.96 billion, better than analysts’ forecast of $2.84 billion. Same-store sales fell 1.3%, compared with an expected decline of 1.2%.

Home, fine jewelry, footwear and handbags, Sephora and salon were the company's top performing divisions during the quarter. Geographically, the Southwest and Southeast were the best performing regions.

On the chain's quarterly call, Ellison said Penney plans to boost its underperforming women's apparel offerings, with a better and expanded assortment and an emphasis on more casual and contemporary stylings. It plans to launch new lines in the fall. The company recently announced a new brand inspired by the TV show "Project Runway."

In a note, Neil Saunders, managing director of GlobalData, said that while Penney's second quarter performance was underwhelming, the company is moving in the right direction.

"Strategically, this is a year of advancement: Longstanding problems are being remedied, the balance sheet is being strengthened, and the business is on a more stable footing," he said.

"This is the platform on which growth can be built, but that growth won't come through until 2018 at the earliest." For more of Saunders' commentary, click here.

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FINANCE

Analyst: Penney turnaround is a long-term endeavor

Although J.C. Penney's numbers are not a disaster and represent a significant sequential improvement over the prior quarter, they are nevertheless underwhelming. While we maintain the company is moving in the right direction, the lack of progress on profit and same-store sales both highlight that the turnaround program is a long-term endeavor that will take some time to deliver.

Admittedly the second quarter numbers were impacted by some exceptional events. Among these was the liquidation of inventory across 127 stores which the company is closing. While necessary, this corrective action was damaging to margins and diluted profits. The pain of today, however, will turn into tomorrow's gain when the cost savings from the shuttered stores start to filter through.

Given that JCP remains in a state of flux, short term shifts in numbers do not always provide a full and meaningful measure of the business. It is better to take a step back and assess longer term trends and look at the general trajectory. On both of these fronts, we remain satisfied that JCP is a financially stronger business than it was several years ago, and that it is building a proposition that is more relevant and meaningful to shoppers.

On a category basis, we believe real progress has been made with home, footwear, and fashion accessories. The company has gained customers across these segments — including younger shoppers who might previously have shunned JCP. The demographic shift is, in part, aided by the expansion and success of Sephora which continues to act as a magnet, pulling consumers into JCP stores.

One area where much further work is needed is apparel. JCP has made strides in some areas like kidswear, but its performance on womenswear is still lackluster. This is partly a function of the market which remains saturated with choice, is discount focused, and is beset by consumers who are bored with clothes shopping.

However, against this backdrop, JCP needs to work much harder to create a compelling and well-defined fashion assortment. In our view, while some improvements are evident, collections still lack the oomph and excitement required to entice shoppers.

Looking ahead, we maintain our view that, financially, this will be a year of limited progress for JCP. The corrective actions required, and the costs associated with them, will cancel out any gains that are made.

However, strategically this is a year of advancement: Longstanding problems are being remedied, the balance sheet is being strengthened, and the business is on a more stable footing. This is the platform on which growth can be built, but that growth won't come through until 2018 at the earliest.

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REAL ESTATE

Mall of America turns 25

BY Al Urbanski

It was 25 years ago today the Ghermezian family taught American shoppers to play.

The Ghermezians and their Triple Five development company had already set a new standard for enclosed shopping centers with their West Edmonton Mall. But on August 11, 1992, on the former site of Metropolitan Stadium in Bloomington, Minnesota, they and managing agent Simon created a whole new ball game.

The 4.2-million-sq.-ft. (now 5.6 million -sq.-ft.) property proved that mall guests would clamor for roller coaster rides as well as big bargains. As Camp Snoopy gave way to Nickelodeon Universe and new attractions such as Sea Life Aquarium, Crayola Experience, and Rick Bronson’s House of Comedy, Mall of America continues to serve as the pace car for experiential retail.

“It’s the intersection of the best in retail, entertainment, and dining, and above all, a place for friends and family to gather and make memories,” said MOA senior VP of marketing, Jill Renslow.

More than a billion guests have visited the internationally known institution, which counts some 12,000 employees, 520 stores, and 50 dining establishments.

Adhering to its “bigger is better” philosophy, Mall of America began celebrating its 25th year with a Boyz to Men concert in February. That’s been followed by nighttime light shows, a birthday lounge pop-up, and a summer concert series.

Today’s birthday festivities at the mall will include assaults two world records (most conical birthday hats worn and most cupcakes decorated).


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