J.C. Penney Co. (JCP), the department-store chain working to rebound from a $985 million loss, said its sales decline slowed in September and that the improvement will last through the end of the year.
Sales at stores open at least 12 months fell 4 percent in the fiscal month ended Oct. 5, the Plano, Texas-based company said today in a statement. Same-store sales dropped 12 percent in the quarter through Aug. 3.
Chief Executive Officer Mike Ullman is working to turn around the department-store chain after his predecessor’s failed attempt to transform J.C. Penney into a destination for younger, wealthier shoppers. Ullman has reinstituted sales events, revived popular private-label brands such as St. John’s Bay and tried to clear out slow-selling merchandise from the chain’s home sections, all while raising cash through borrowings and a share offering to shore up the retailer’s balance sheet.
Ullman “has been restoring the core assortments that the J.C. Penney customer has been accustomed to seeing,” Mary Ross Gilbert, an analyst with Imperial Capital LLC in Los Angeles, said today in a telephone interview. “They are making improvements, and we are seeing it.” She rates the shares underperform, the equivalent of a sell.
The company, which raised $785 million in cash from a share sale last month, said today it expects to have more than $2 billion in liquidity at the end of the fiscal year.
Sales of women’s apparel, J.C. Penney’s largest business, rose in September, the company said, without specifying how much. Men’s apparel, jewelry and women’s accessories also are performing better than the company average, the company said.
The retailer said getting its renovated home departments running has been “more challenging than originally planned.” The company said it is revamping the sections’ merchandise, pricing and layout after the previous strategy failed to catch on with shoppers.
The renovated home departments were a centerpiece of a plan by former CEO Ron Johnson to turn J.C. Penney’s stores into collections of boutiques. The home departments were renovated and began selling designer goods such as $60 toasters from architect Michael Graves and big-ticket items including a $1,695 chair from Happy Chic by Jonathan Adler. Home items generated 12 percent of sales in the 12 months through Feb. 2.
“The concept didn’t take off because Penney’s traditional customers didn’t want contemporary furnishings at higher price points,” Bernard Sosnick, an analyst with Gilford Securities in New York, said today by telephone. “Penney can’t get rid of the merchandise with a magic wand.” He recommends buying the shares.
J.C. Penney has said it will close some of the home boutiques and will devote extra floor space to towels, cooking utensils and more profitable categories such as luggage and window treatments.
Gross margin, the percentage of sales left after the cost of goods sold, continues to be hurt as the retailer uses discounts to clear out merchandise from the first two quarters of the year, J.C. Penney said.
Since Ullman returned in April, J.C. Penney has borrowed about $3.1 billion -- consisting of a $2.25 billion loan and an $850 million drawdown from its credit revolver -- to help fund its turnaround. The company hasn’t turned a quarterly profit since mid-2011 and lost $1.6 billion in the past year on a 22 percent drop in revenue.
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