J.C. Penney Falls as Monthly Sales Gain Disappoints Some
J.C. Penney Co. (JCP) met its forecast of increasing sales last month, yet the 10 percent gain still disappointed some investors and the shares fell.
“I was expecting double digits, and that’s as low in double digits as you can get,” Rick Snyder, an analyst at Maxim Group LLC in New York, said today in an interview. The company is using heavy discounting to drive sales, and “the big unknown” is how much that will hurt profit margins, said Snyder, who recommends holding J.C. Penney shares.
The chain, attempting a turnaround after large revenue declines and losses, said yesterday that sales at stores open at least a year rose for a second straight month. It had said that metric would increase in the fourth quarter ending in January. A year earlier, so-called same-store sales plummeted 32 percent as former Chief Executive Officer Ron Johnson’s changes to pricing and merchandise alienated shoppers.
J.C. Penney, based in Plano, Texas, fell 4.1 percent to $9.70 at 3:01 p.m. in New York. The stock had dropped 49 percent this year through yesterday, compared with a 26 percent gain for the Standard & Poor’s 500 Index.
Mike Ullman, who reclaimed the CEO job after Johnson was ousted in April, has returned J.C. Penney to sales growth after almost two years of declines by reinstating promotional events and reviving popular private-label brands such as St. John’s Bay. In the 12 months through Nov. 2, sales declined 18 percent to $12 billion, leading to a net loss of $1.98 billion. Before Johnson arrived, annual sales were more than $17 billion.
“The strategy of reconnecting with the core consumer is showing sales growth,” Brian Nagel, a New York-based analyst at Oppenheimer & Co., said in a phone interview. He has the equivalent of a hold rating on the shares. “Their consumer wants the discounts, and that’s what we’re seeing return.”
How sustainable and profitable J.C. Penney’s sales gains are remains to be seen, Snyder said. In October, same-store sales gained 0.9 percent while store visits declined. That means the chain is getting customers to buy more items -- what the industry calls conversion rate -- rather than attracting more people to its stores.
The company didn’t disclose details about store visits, or what it calls traffic, in yesterday’s statement after doing so the previous month. Kathleen Hays, a spokeswoman for J.C. Penney, declined to provide more financial data beyond the press release.
“Unless they start to get incremental customers in the door, a turnaround will be very difficult,” Snyder said. “If they don’t get traffic increases, they really have no hope.”
November was also J.C. Penney’s easiest comparison of this quarter to a year earlier because it was measured against a time when sales were lost to Hurricane Sandy, Michael Binetti, an analyst at UBS AG in New York, wrote yesterday in a note to clients. The chain also got a sales lift from opening at 8 p.m. on Thanksgiving, 10 hours earlier than last year’s Black Friday weekend.
Sales were boosted by “one-time items that abate in December” and “overstate the pace of J.C. Penney’s underlying recovery,” said Binetti, who recommends selling J.C. Penney shares.
The retailer is trying to turn itself around as rivals from Wal-Mart Stores Inc. (WMT) to Macy’s Inc. (M) pour on the discounts to attract wary shoppers this holiday season. The jockeying for market share will probably intensify after a lackluster Thanksgiving weekend, during which sales rose just 1 percent from a year earlier, ShopperTrak, a researcher, said yesterday.
The Chicago-based firm last week reiterated a forecast it gave in September that holiday sales will grow 2.4 percent, the smallest increase since 2009.
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