J.C. Penney Plummets After Loss Renews Concerns About Retail

  • Dismal report follows weak sales from peers Macy’s and Kohl’s
  • Liquidated inventory weighed on profit in second quarter

Bloomberg Gadfly’s Sarah Halzack discusses earnings and outlook from J.C. Penney. She speaks with Bloomberg's Alix Steel on 'Bloomberg Daybreak: Americas.' (Source: Bloomberg)

J.C. Penney is the bearer of more bad news for department-store investors.

On Friday morning, the company followed Macy’s Inc., Kohl’s Corp. and Dillard’s Inc. in reporting declining sales in the second quarter. J.C. Penney also posted a deeper loss than analysts expected -- hurt by clearance sales -- sending the shares on their worst decline in more than four years.

The results renewed fears that there’s no end in sight for the department-store industry’s drought. J.C. Penney Chief Executive Officer Marvin Ellison is trying to win back customers by expanding the company’s partnership with cosmetic retailer Sephora and bolstering the assortment of high-price items, like appliances. The company is also pushing services like salons that require shoppers to come into stores. But progress has been slow.

The company also is closing about 140 underperforming stores. And the liquidation of inventory in 127 of those locations hurt profit in the period, Ellison said in a statement.

“These events were isolated to the second quarter,” he said, adding that the company expects to “deliver improved results in the back half of the year.”

But investors saw little reason for optimism. The shares tumbled as much as 18 percent to $3.85 after the report was released, the biggest intraday drop since February 2013. That followed a 43 percent decline this year through Thursday’s close, bringing the stock to a record low.

Marvin Ellison

Photographer: Andrew Harrer/Bloomberg

The rout suggests investors don’t think the weak results can be attributed just to one-time liquidation sales, Citigroup Inc. analyst Paul Lejuez said in a note. J.C. Penney may need to give further assurances to investors, he said.

“They will have to provide more detail for the market to better understand what happened,” Lejuez said.

The selling frenzy weighed on other department-store stocks, including Nordstrom Inc., which had been seen as an outlier in the industry’s gloom. That company posted a surprise quarterly sales gain on Thursday evening, and its shares had gained in late trading. But the rally evaporated on Friday morning after J.C. Penney’s report. The stock fell 2.5 percent to $43.74.

Red Ink

Same-store sales at J.C. Penney fell 1.3 percent in the period, which ended July 29. That compared with the 1.2 percent decline projected by analysts, according to Consensus Metrix. The loss was 9 cents a share in the second quarter, excluding some items. Analysts estimated a 4-cent deficit on average.

Still, overall revenue came in a bit above projections. The company posted $2.96 billion in net sales, compared with an estimate of $2.85 billion.

“While broader retail remains challenged, we are encouraged by the improved performance in our total apparel business, including a significant acceleration in kids’ apparel,” Ellison said.

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