J.C. Penney’s Turnaround Is Failing and Investors Are Fleeing

Fortune.com - Wall Street has completely lost faith in J.C. Penney's (JCP, -10.02%) turnaround.

After the struggling department store chain on Friday reported a much worse than expected drop in sales for the first quarter, Penney shares, already near 40-year lows, plummeted 8% below $5 to hit a new all-time record.

Penney said on Friday that comparable sales, which include e-commerce but exclude recently closed or opened stores, fell 3.5% in the three months ended April 29, a much deeper drop than the 0.7% decline Wall Street analysts had been forecasting, according to Consensus Metrix. It was also Penney's biggest quarterly drop in years.

For a company that had been showing signs of coming back from near-death after an ill-advised attempt to be hip in 2013, reporting a fourth quarter of declines in the last five is disheartening.

So much for being the comeback kid in the department store world.

It's not that Penney has been sitting idly by. On the contrary, CEO Marvin Ellison has been moving quickly to try to keep Penney on track with moves such as bringing back appliances last year after 33 years, expanding the number of Sephora beauty shops within a Penney store, and introducing new plus-size apparel lines. What's more, giving in to reality, Penney is now finally closing 138 stores, the better to focus its resources on stores those with potential to survive the retail storm.

And that's precisely why investors are so bearish on the company. Those efforts, while apparently successful, show just damaged the rest of Penney's overall business is.

Ellison told analysts on a conference call that Penney's home section (at one point it was 21% of sales, now it's 13%) had seen sales growth. So the company is expanding its appliance area, aimed at taking advantage of Sears' ongoing implosion, and testing home services like heating, ventilation and air conditioning systems.

The retailer also touted its beauty business, lifted by its ongoing Sephora expansion as well as the remaking of its large salon business, one it says brings shoppers to stores.

But given how expensive appliances are, and how productive the beauty areas are by sales per square foot, it's fair to expect them to give a bigger kick to results. The dismal results suggest Penney's sales in apparel, its largest category, were catastrophic.

A case in point: athleisure. Executives said on a conference call with Wall Street that "the casualization of America continues" and pointed to the growth of activewear. But given that Penney launched its own line a few years ago, Xersion, and one it has featured prominently in stores, it shouldn't have seen apparel sales decimated by this trend.

To that end, Penney is upgrading its Nike (NKE, +0.17%) areas at 600 of its 1,000 stores, and adding women's gear to suddenly resurgent Adidas at 400.

Good moves, but it's worth remembering that Nike is also available at Macy's and Kohl's, both of which also sell Under Armour. (That brand gave Kohl's, struggling as mightily as Penney to keep shoppers, a shot in the arm last quarter.)

Given that Penney wants house brand items to eventually become 70% of sales, as outlined last year in a multi-year road map, it may want to rethink as its own brands are apparently not catching on.

Penney and those rooting for it can take some comfort in how abysmal results have been for its most immediate rivals, like Macy's, Kohl's, Sears and even Target.. And Penney did stick to its 2017 sales forecast, despite the weak start to the year.

But the travails of its rivals have not provided much of a boost to Penney or prevented it from entering another period of decline. (ontineReading

Busted Retailer J.C. Penney to close 130 to 140 stores and offer early retirement to 6,000 workers

LATimes.com - J.C. Penney said Friday (Feb 24) it will be closing 130 to 140 stores as well as two distribution centers over the next several months as it aims to improve profitability in the era of online shopping.

The closures represent 13% to 14% of the department store operator's current store count, and less than 5% of total annual sales. The company said it also would initiate a voluntary early retirement program for about 6,000 eligible employees.

The company plans to release a full list of stores slated for closure in mid-March after notifying affected employees. Most locations will close in May. It also plans to sell its supply chain facility in Buena Park "in an effort to monetize a lucrative real estate asset."

The news came as the Plano, Texas-based chain posted a profit in the fourth-quarter compared with a loss a year ago. But total sales were down slightly, and a key revenue metric declined slightly as well.

Penney has been recovering from a catastrophic reinvention plan under former Chief Executive Ron Johnson that sent sales and profits into a free fall in 2012 and 2013. Business stabilized under Mike Ullman, who took the helm in 2013 after Johnson was pushed out. Under Marvin Ellison, who has been CEO since 2015, Penney is looking for new ways to increase sales while improving its e-commerce. Though annual sales still shrunk, Penney's profit picture is encouraging. Penney was able to pull in a $1-million profit for the full fiscal year, the first time it earned an annual profit since 2010.

Like other department stores, J.C. Penney is trying to adjust to changing shopping patterns and is joining other department stores like Macy's in shrinking their store footprint. Consumers are shifting their spending away from clothing and toward experiences like beauty treatments or toward furnishing their home. And when they do pick up clothing, it's more often at off-price stores or online as Amazon moves more into apparel.

Penney managed to outperform some of its department store rivals, which released results this week. Kohl's Corp. reported Wednesday a drop in fiscal fourth-quarter profit as total sales declined. Revenue at stores opened at least a year dropped 2.2% in the quarter. Nordstrom Inc., the department store recently scolded by President Trump, reported late Wednesday a better-than-expected quarterly profit with help from strong sales online and at Nordstrom Rack. But at the Nordstrom brand, comparable store sales decreased 2.7%. Macy's, the nation's largest department store chain, says its earnings for the quarter that includes the holiday period dropped nearly 13% as results were dragged down by lower sales, store closures and other costs.

Given the environment, Penney wants to be less dependent on clothing, and is focusing its efforts on its home area and rolling out major appliances in it stores. It has expanded the Sephora beauty shops and is updating its beauty salons, now branded Salon by InStyle. It also is beefing up its store label brands like St. John's Bay. In the fourth quarter, top performing areas included home, Sephora, its salon business and fine jewelry.


The company is aiming to be more competitive in the digital arena. Penney is arming its store associates with mobile devices to help check out online shoppers who are picking up orders in the store.

"With a slimmed-down store portfolio, [J.C. Penney] will be able to focus on making its remaining stores more of a destination," Neil Saunders, managing director of retail research firm GlobalData Retail, said in a report. "This is essential, as while progress has been made on categories like home, other departments still require attention."

Penney's Ellison said he understands that closing stores will affect the lives of its employees and that is why the company decided to initiate a voluntary early retirement program. He expects to see a net increase in hiring, as the number of full-time workers expected to take advantage of the early retirement incentive will far exceed the number of full-time positions affected by the closures.

For the fiscal fourth quarter, J.C. Penney reported net income of $192 million, or 61 cents per share. Earnings, adjusted for one-time gains and costs, came to 64 cents per share.

The results exceeded Wall Street expectations.

Revenue totaled $3.96 billion in the period, down 0.9% from a year ago. Penney expects full-year earnings in a range of 40 cents to 65 cents per share.

Shares fell 12 cents to $6.74 before the market open on Friday. (ontinueReading