Penney posts wider Q2 loss, but cites positive signs
DALLAS — J.C. Penney Co. posted a wider-than-expected loss in the second quarter on a nearly 12% drop in revenue. But even though Penney’s results were worse than expected, there were small signs that interim CEO Myron Ullman may be starting to stop the bleeding related to former CEO Ron Johnson’s failed transformation of the chain.
The quarter was the first entirely under the watch of Ullman, who returned to Penney in April to undo the strategy put in place by Johnson, who planned to transform Penney stores into a series of branded in-store shops.
"Since I returned to J.C. Penney four months ago, we have moved quickly to stabilize our business — both financially and operationally — and we have made meaningful progress in important areas of the business,” Ullman said in a statement. “There are no quick fixes to correct the errors of the past. That said, we have identified the challenges, put solid plans in place to address them and have experienced and capable people in key roles to do so."
Penney lost $586 million for the three-month period ended Aug. 3, compared with a loss of $147 million in the year-ago period. Revenue for the quarter fell 11.9% % to $2.66 billion from $3.02 billion in the year-ago period, less than the 23% drop in the same period last year. It was the company’s ninth straight sales drop.
Same-store sales were down 11.9%, worse than the 8.3% analysts expected, but better than the 22% decline a year earlier.
The second quarter saw the unveiling of Penney’s revamped home department in some 500 stores, an effort that was spearheaded by Johnson. Echoing what many analysts have been saying, Penney said the new home strategy has not resonated well with consumers. The retailer is working to make the departments more appealing to its shoppers, and has begun restaging the departments by category.
“For example, early feedback has made it clear that customers would prefer a more balanced assortment between traditional and modern home furnishings, a better selection of good, better and best price points across key items, and would prefer to see certain merchandise arranged by category rather than brand,” Penney said. “The testing of this modified shopping environment has shown significant improvement in performance.”
Penney said that the back-to-school season is off to an "encouraging" start. “Moving forward, we're focusing our efforts on regaining customer loyalty by offering trusted brands, award winning service and affordability that families can depend on,” Ullman said. “We are encouraged by our early performance this Back-to-School season, which reflects customers' growing confidence in the brands and styles we offer.”
Ullman has been in a tough spot since he returned to bring a measure of stability to the troubled chain. He has increased discounts and promotions and run ads apologizing to Penney’s customers while, at the same time, he has had to work with Johnson’s costly store remodels.
In addition, most recently he fought off a challenge from Penney’s largest stakeholder, William Ackman Pershing Square Capital Management, who wanted to replace Ullman with a permanent CEO faster than his fellow directors thought was necessary. Ackman also called for a new board chairman. Last week, Ackman resigned from the board, which gave its full support to Ullman.
Penney ended the quarter with $1.5 billion in cash and cash equivalents. Taking into account additional funds available under the credit facility, the company`s total available liquidity is $1.85 billion.