J.C. Penney posts bigger-than-expected loss
Scott Olson/Getty Images
(AP) NEW YORK - Six months after J.C. Penney Co. (JCP) launched a bold new pricing plan, customers still aren't buying it.
Update: J.C. Penney CEO salvages earnings disaster
The mid-price department store chain reported a bigger-than-expected loss and plummeting sales during the second quarter, as its customers remain confused by the new pricing strategy that ditched hundreds of sales in favor of every day lower prices. The bleak performance marks the second straight quarter of steep sales declines since the plan was introduced Feb. 1.
The company also withdrew its profit guidance for the year. Its shares tumbled more than 8 percent in premarket trading.
Penney's poor results, released Friday, underscore how difficult it is for a company to change the way consumer behave. In a still struggling economy, shoppers are still looking for racks of "70 percent off" sales signs and coupons. The latest financial performance also tests the patience of investors and adds more pressure on its new CEO and former Apple Inc. executive Ron Johnson to turn things around at the retailer.
J.C. Penney revives "clearance" sales
Penney reports loss, plummeting sales
J.C. Penney banks on permanent 40% markdowns
Under Johnson, Penney is transforming everything from prices to what it keeps in stock and the store experience. But the riskiest move has been its pricing plan, which is turning out to be an even tougher sale to shoppers than previously expected.
"'We have now completed the first six months of our transformation, and while business continues to be softer than anticipated, we are confident the transformation is on track," said Johnson in a statement." The transition from a highly promotional business model to one based on everyday value will take time and we will stay the course."
In May, Penney's stock plunged 20 percent in its biggest decline in four decades after the retailer posted a larger-than expected quarterly adjusted loss of 25 cents and a 20.1 percent drop in revenue in its first quarter because of the poor reception from shoppers.
Things got even worse in the second quarter as Penney it scrambled to backpedal and shift its marketing strategy to get shoppers back in the store.
The department store, based in Plano, Texas, says that it lost $147 million, or 67 cents per share, in the quarter ended July 28. That compares with net income of $14 million, or 7 cents per share, in the year-ago period.
Revenue tumbled almost 23 percent to $3.02 billion from $3.9 billion a year ago. Revenue at stores opened at least a year fell 21.7 percent, worse than the 18.9 percent drop in the first quarter.
Its adjusted loss excluding unusual items was 37 cents per share. Analysts had expected a 26 cent loss on revenue of $3.2 billion.
The company said that its gross profit margins fell to 33. 2 percent in the quarter, down from 38.3 percent in the year-ago period.
Its shares tumbled $1.87, or 8.5 percent, to $20.23 in premarket trading. Investors, who initially sent Penney shares soaring 24 percent to about $43 after Johnson announced the pricing plan in late January, have pushed them down almost 50 percent since then.
Penney on Feb. 1 began using a three-tiered pricing approach that called for consistently lower daily prices that were 40 percent below last year, deeper monthlong sales on specific items and periodic discounts that are even more generous throughout the year. But starting Aug. 1, Penney has eliminated the monthly sales events and increased the frequency of the periodic sales to every Friday. These had been called "Best Price" sales but are now being called "clearance." It's tweaking its advertising to better explain the pricing change.
Penney is keeping "Every Day" low prices, which has accounted for about 70 percent of sales since the company began the new strategy.
Johnson had said the new approach should make the pricing plan easier for customers to understand.
"We thought, 'Why are we trying to teach customers new language to shop?'" Johnson said in a recent interview with The Associated Press. "We're just trying to be straightforward."
To go along with the new pricing, Penney will tweak its ads. That will include inserts in newspapers every Friday during the back-to-school season that will highlight specific products like jeans. TV ads have been airing that tout free haircuts that the stores are offering for students during August.
The new ads are in stark contrast to the spots that Penney rolled out at first to introduce its new pricing plan. The "fair and square" brand campaign featured TV ads with dogs, kids and bright colors - but little explanation of Penney's pricing.
Some analysts believe Penney will have an easier time attracting shoppers once it makes the stores more inviting. Starting this fall, almost 50 percent of its merchandise will be new - the result of it dumping some brands while redesigning others. Among some of the new names shoppers will see are Vivienne Tam and Betsey Johnson who will be selling affordable versions to Penney. Additionally, the company plans to launch a new brand under the "JCP" label this fall.
Penney just launched shops for Levi's and its private label jeans brand Arizona. It plans a total of 100 shops within each of its stores by 2015 that will either focus on one brand or a variety of labels. The company is also planning to add areas in its stores called Town Squares to offer services and advice.
But there's even a wrinkle in Penney's plan to jazz up the stores. Last month, Macy's won a preliminary injunction against Martha Stewart Living that would prevent it from selling some of its products like cookware and kitchen utensils. Penney has been counting on the popularity of the Martha Stewart brand to revitalize its business.
Penney said Friday it no longer expects to meet its earnings guidance for 2012. It had expected a profit of $2.16 per share. Analysts expected the company to earn $1.26 per share for the year.
Popular on MoneyWatch
- When it comes to vacations, the U.S. stinks
- Reverse cell phone lookup service is free and simple
- Snapple co-founder Leonard Marsh dies at 80
- Amy's Baking Company could face legal 'nightmare'
- TGI Fridays nailed for doctoring booze
- Kate and Will: Nurseries fit for royalty
- Online learning gets fresh look from a heavyweight
- Amy's Baking Company: Post-meltdown PR campaign
But if people think we're a "free market" right now they'll believe just about anything.
JCP will soon be a part of the past and a very few people are gonna walk away filthy richer than when they came onboard and the employees...well...they get the shaft!
$150,000,000 loss in a quarter....well....there is longer a reason to wonder why!
Thieves from the top 1% are stealing more of America!
Heck, even Goldman Sachs got to walk away from the court room, taken care of by cronie capitalism!
I find the JCP episode to be a joke. They hired a new CEO from the world Apple to guide them. First off, their board pays the guy a huge multi-million dollar salary, then they throw in a $53,000,000 bonus!!!!
-------------------------------
This country is being STOLEN - Legally.
: (
The Christians need to remember that it's up to God to judge. Nobody else qualifies, and if the Christians were real they would understand why.
But beware, the rightwing will chide you with sarcastic, parochial prattle about who built what...
(Oh, and one side note: to all of you who are offended by Penny's {and Apple's and Ben and Jerry's, and IBM's and Microsoft's, etc.) policies of supporting the rights of gays: you are on the wrong side of social change - these companies are not stupid and realize that acceptance of alternative lifestyles is not only a majority view but growing. It is just smart business. Your threats are hollow and will increasingly carry less weight as progressive views of civil rights and fairness predominate.
Wow they had one day of good sales, went by a chick fil a yesterday during the lunch hour and it was almost empty, while the Burger King a block away was packed.
However, in the last year or so, JC Penney (and many other companies) has taken their focus off the American traditional family and has chosen to focus their advertising on non-traditional, alternative lifestyles.
As an American and a Christian living in the United States of American, I have the right to shop where I feel my business will profit a company who stands for the same beliefs I do and also cares about the needs of my family. I no longer feel JC Penney is a company that needs my business or truly cares for my families needs; their focus is on an alternative agenda. Therefore, I will no long shop there.
You beleive marriage is between a man and a woman...but you are lining up in droves to vote for Romney, who's very religion supports and demands that men have many wives, polygamy! Marriage between a man (read bigot) and many, many women! LOL! Sounds like the right wing wants America to become a theocracy and be more Iranlike, mullahs dictating to folks how to live, what to do and how to do it! Sheesh...what a bunch of hypocrites!
Polygamist Mormon religionist Romney for President...because he is a corporate fascist!