J.C. Penney Surges on Smaller Loss, Strong Back-to-School

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J.C. Penney Turnaround Clothed in Narrower 2Q Loss

J.C. Penney Co. surged after posting a second-quarter loss that was smaller than analysts estimated and saying the back-to-school shopping season was off to a “strong start.”

The net loss in the quarter through Aug. 1 narrowed to $138 million, or 45 cents a share, the Plano, Texas-based company said in a statement Friday. Analysts projected a loss of 50 cents a share. Sales rose 2.7 percent to $2.88 billion, topping projections of $2.86 billion.

The results are a boon for Chief Executive Officer Marvin Ellison as he works to continue the turnaround started by predecessor Mike Ullman, who handed over the reins this month. Where Ullman stabilized J.C. Penney after former CEO Ron Johnson’s disastrous attempt to reinvent the century-old retailer, Ellison will now have to prove that J.C. Penney can keep increasing sales and become consistently profitable.

“Operationally, they are making improvements, and comparable-store sales and margins are headed in the right direction,” Poonam Goyal, an analyst for Bloomberg Intelligence, said in an e-mail.

The shares rose 5.6 percent to $8.52 at the close in New York for the biggest gain since May 15. The stock has gained 31 percent this year.

Comparable-store sales advanced 4.1 percent last quarter, topping analysts’ 3.9 percent average estimate. The company said revenue by that measure will increase more than that in the current quarter, helped by back-to-school sales that Ellison said on a conference call were off to a “strong start.”

Back to School

Back-to-school is the second-biggest shopping period of the year in the U.S. and is even more crucial to J.C. Penney because it mostly sells clothes to middle-class families. The company maintained its forecast that comparable-store sales would climb 4 percent to 5 percent this year.

Ellison said on the call that while the company had made progress, it still “has a lot of work to do to return J.C. Penney to its status as a world class retailer.”

The plans he’s outlined so far borrow from his time at Home Depot Inc., where he helped lead the home-improvement retailer back from a rocky period under former CEO Bob Nardelli. There, Ellison helped upgrade the supply chain and simplify store operations so workers could dedicate more time to customer service.

Private Brands

At J.C. Penney, he’s also focusing on expanding the chain’s private brands because they are exclusive, giving the company more pricing power and higher profit margins. He’s investing in intertwining the store and Web operations. Ellison said those moves should start aiding results in the second half of next year.

J.C. Penney is working to keep a lid on costs, with selling, general and administrative expenses falling 6.5 percent to $901 million in the quarter. The company now expects those costs to fall by $120 million for the year, up from a previous forecast of $100 million. The company’s gross margin -- the percentage of sales left after subtracting the cost of goods sold -- expanded to 37 percent from 36 percent.

The decreasing expenses prompted the retailer to boost its forecast for earnings before interest, taxes, depreciation and amortization to $620 million for the year, up from $600 million.

J.C. Penney’s results come after its competitors struggled. Macy’s Inc.’s profit missed estimates as sales fell. Kohl’s Corp. also trailed projections on earnings, with revenue gaining

0.6 percent.

Sales at all U.S. retailers were choppy during the quarter, according to Commerce Department data. Lackluster wage gains have been blamed for thwarting spending during the economic recovery. At the same time, declining gas prices and the improved job market have provided optimism that consumers eventually will spend more on discretionary items like apparel, which constitutes the bulk of purchases at department stores.

“J.C. Penney bucked the second-quarter weakness their rivals saw,” Goyal said.

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