J.C. Penney's turnaround falters as losses widen

CEO says change is a marathon, not a sprint

Bloomberg NewsNovember 9, 2012 

— J.C. Penney Co. on Friday reported a third-quarter loss that was larger than analysts estimated as Chief Executive Officer Ron Johnson struggles to overhaul the fourth-largest U.S. department-store company.

The net loss of $123 million, or 56 cents a share, in the three months ended Oct. 27 compares with a loss of $143 million, or 67 cents, a year earlier, the Plano, Texas-based company said in a statement. Excluding restructuring and management-transition costs, the loss was 93 cents a share. The average of analysts’ estimates compiled by Bloomberg was a 7-cent loss.

Johnson, the former Apple retail chief who joined as CEO last year, has lost customers as he transforms most J.C. Penney stores into collections of branded shops, and implements an everyday low-pricing strategy. Johnson said Friday that the old-style J.C. Penney, which still encompasses most stores, struggled in the third quarter and faces “significant challenges,” calling it “a tale of two companies.”

“The results that J.C. Penney reported today are undeniably weak,” Brian Nagel, an analyst at Oppenheimer & Co., said in a note Friday. “JCP will require a lot of patience on the part of investors. This chain continues to head towards turnaround.”

The retailer’s third-quarter sales fell 27 percent to $2.93 billion, trailing analysts’ average estimate of $3.27 billion. Revenue declined by more than 20 percent in the first and second quarters. Same-store sales fell 26 percent in the third quarter. Analysts surveyed by researcher Retail Metrics Inc. had estimated a 15 percent decline.

The company’s gross margin narrowed to 32.5 percent of sales from 37.4 percent a year earlier – hurt by lower-than-expected sales in the quarter and by an increase in clearance sales.

J.C. Penney incurred $34 million in restructuring and management transition charges in the quarter, according to the statement.

In September, Johnson took 300 analysts on a tour of the company’s 30,000-square-foot prototype in Texas to help communicate his vision for turning J.C. Penney into a “specialty department store.” He said at the time results at the company’s boutiques, installed in almost 700 of its stores, were beating comparable sales of other merchandise.

The retailer’s branded shops are proving to be more productive on a sales-per-square-foot basis, Johnson said Friday in a conference call with analysts.

“If we can get a lift like that, you can imagine what will happen to the business as we move into the back half of next year, and that’s why we’re so excited about where we’re headed,” he said.

Johnson said in January that his transformation of the retailer would take four years and has reiterated since then that the change is a “marathon,” not a sprint.

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