NEW YORK - Shares of J.C. Penney (JCP) fell more than 10 percent after the department store operator warned that its sales last month were weaker than expected and cut its outlook for a key sales measure for the current quarter.
The warning overshadowed the company's unveiling of a strategy at its analysts' meeting Wednesday that the retailer said would boost sales by $2.55 billion over next three years. It would do so by improving the productivity of its home area, expanding e-commerce and sprucing up key areas like beauty, jewelry and accessories.
Penney sees the opportunity for an additional $1 billion in sales in continued market-share growth. That would bring the chain's annual revenue to $14.5 billion by fiscal 2017. That's still well below the $17.3 billion it generated before sales went into a freefall under former CEO Ron Johnson.
While company officials blamed the current sales shortfall on too much clearance merchandise a year ago, they also cited a weak sales environment for retailers. That shows the company, which is based in Plano, Texas, won't turn around from a botched transformation plan by Johnson without some bumps in the road. Johnson, a former Apple executive, was ousted in April 2013 after only 17 months on the job.
Penney is clearly coming back from the dead, but the question remains whether the chain can continue the momentum as it heads into the holiday shopping season.
"J.C. Penney is in a far stronger position than it was when we began our turnaround 18 months ago," said Mike Ullman, who came back to the company's helm in April 2013. But he acknowledged there was still a lot of work to do. Before Johnson's tenure, Ullman had been the company's CEO for seven years.
Ullman has been trying to win back shoppers by restoring sales and basic merchandise that the company ditched under Johnson's tenure -- discontinuing some of the trendy new brands like William Rast and Joe by Joseph Abboud and bringing back store labels.
Penney also had to increase markdowns earlier in the year to get rid of excess inventory. That has helped result in three straight quarters of increases in sales at stores open at least a year, starting in last year's holiday quarter. But those increases still haven't outweighed last year's drastic declines.
It's been a long climb out of the hole. Penney recorded a nearly $1 billion loss as revenue dropped 25 percent to $12.9 billion for the year ended Feb. 2, 2013, the company's first year of Johnson's failed transformation plan. In the latest fiscal year ended Feb. 1, the company recorded a loss of $1.39 billion while revenue dropped 8.7 percent to $11.86 billion.
During the presentation in New York, Ullman and other executives said that revitalizing areas like beauty, shoes, handbags and jewelry is critical because customers that shop in those departments also cross the aisle to the fashion departments.
A lot of the work has been unraveling what Johnson implemented. Penney has overhauled its home area to refocus on more traditional brands after the former CEO's strategy, which emphasized lots of furniture, turned off shoppers.
It's also back to focusing on home categories instead of featuring mini shops devoted to a particular label. For example, the Michael Graves boutique under Johnson's era has now been converted to a department called "Main Squeeze," which features blenders and other juicers.
Penney also has focused on cutting costs. Earlier this year, it cut 2,000 jobs and shuttered 33 stores. Investors expected the company to announce more store closings Wednesday. But Ullman said that its remaining 1,100-store base was productive, including stores in small towns where Penney doesn't have much competition.
Brian Sozzi, CEO and chief equities strategist at Belus Capital Advisors, said he would have liked Penney to announce more store closings but he believes that will come early next year. He was pleased with the merchandising strategies.
"We finally got a glimpse of what the future of J.C. Penney will look like," he said.
Penney said it now expects sales at stores open at least a year to increase by a low single-digit percentage for the third quarter, down from its previous forecast of mid-single-digit growth. The company maintained its third-quarter and full-year earnings projections.
Penney has said that it is looking for a permanent CEO but Ullman offered no hints that would come any time soon. During a briefing with reporters, Ullman just said, "I'm thrilled to be here as long as necessary."
J.C. Penney shares fell $1, or nearly 11 percent, to $8.19. The shares have lost 80 percent of their value since early 2012 when investor enthusiasm was high over Johnson's turnaround strategy.