J.C. Penney’s shares plunge as earnings miss the mark

JCP FINALE
By Melissa “Missy” Enaje


J.C. Penney Co.’s shares tumbled after the troubled retailer turned in fiscal third-quarter loss that was fueled by weaker-than-expected sales.

For the quarter ended Nov.1, the Plano, Texas department-store chain’s net loss narrowed to $188 million, or 62 cents per diluted share from $489 million, or $1.94 per share in the year-ago quarter.

That performance was actually better than analysts’ expectations for an even deeper loss of 80 cents per share.

Penney’s sales, however, were a disappointment.

“JCP will have to achieve revenue growth while holding on to its current gross margin rate,” Credit Suisse analyst Michael Exstein wrote in a report. “If it is unable to do both at the same time, it will be difficult to create a sustainable enterprise.”

Although analysts’ expected a 5 percent rise in sales, the company said that sales had dipped 0.5 percent to $2.76 billion from $2.78 billion a year ago.

“August was our strongest month of the quarter with a solid start to the back-to-school season,” chief executive officer Myron E. “Mike” Ullman III told analysts in a conference call, “However, like many other retailers, we saw considerable slowdown in September, it is our weakest month in the quarter.”

Investors reacted badly to the results the company issued after market’s close Wednesday: In New York Stock Exchange trading early Thursday afternoon, Penney’s already battered shares were down 59 cents, or 7.8 percent, at $7.17.

Like its rival Sears Holdings Corp., Penney has struggled for years because its once-lucrative business model is out of sync in an evolving modern retail environment.

The stock had traded as low as $5 back in February, but by two months ago had more than doubled to $11.00; the stock lost some of its luster in the beginning of October after the company, citing softening customer spending, cut its sales forecast.

As recently as early 2012, the company’s shares were trading above $42 apiece.  But since then, investors have spurned the company and the stock has lost over 80 percent of its value.

Over the past two years, the company’s chief executives have come and gone like the latest fashion trend.  In January 2012, Penney brought in Apple Inc.’s former retail executive Ron Johnson as CEO.   That’s when Penney shares zoomed higher.  But even though the former Apple exec once spearheaded the tech company’s retail initiatives, Penney’s sales fell from fiscal 2011 through fiscal 2014.  In April 2013, directors sent Johnson packing.

He was succeeded in the top job by Myron Ullman, who had been serving as Penney’s chief executive until Johnson was brought aboard.

Ullman’s strategies helped improved the company’s gross margin to 36.6 percent in the latest quarter from 29.5 percent a year ago. But by August of next year, Ullman is slated to hand the CEO post to Marvin Ellison, a Home Depot Inc. executive.

Ullman told analysts that for the upcoming quarter, which includes the crucial holiday season,  Penney’s is “well positioned and ready to compete,” adding that he expects Penney to win additional market share.

Penney hopes to gain an edge during the holiday frenzy by opening an hour earlier than its competitors, at 5 p.m. on Thanksgiving.  Stores that will open at 6 p.m. include Sears Holdings Corp., Macy’s, Kohl’s and Target.