J.C. Penney’s sales continue to lag

CEO Ron Johnson, formerly of Apple, stands by four-year makeover plan

Bloomberg NewsFebruary 28, 2013 

CONSUMER CONFIDENCE

A customer shops for clothing at a J.C. Penney Co. store in the Queens borough of New York, U.S., on Tuesday, Feb. 26, 2013. J.C. Penney Co. released disappointing earnings data on Feb. 27.

VICTOR J. BLUE — Bloomberg

J.C. Penney Chief Executive Officer Ron Johnson is facing mounting pressure after the first year of his turnaround plan resulted in the company’s lowest annual sales in more than two decades.

The company’s shares dropped 17 percent Thursday after J.C. Penney said its net loss in the quarter that ended Feb. 2 widened to $552 million, or $2.51 a share, from $87 million, or 41 cents, a year earlier. The Plano, Texas-based retailer’s annual revenue slid 25 percent to about $13 billion, the lowest since at least 1987.

Johnson, the former Apple retail chief who joined as CEO in November 2011, has retrenched on his everyday low pricing strategy by adding sales, promotions and new price displays in recent months. While Johnson on Wednesday reiterated a plan to install 100 boutiques inside most J.C. Penney stores, he also said he had “made some big mistakes.” The retailer’s sales now trail Gap Inc. and shrank to half of those at Macy’s.

“There’s really nothing that we’ve seen like it,” Erika Maschmeyer, an analyst at Robert W. Baird & Co. in Chicago, said of the decline. “They don’t give much in the way of guidance, which makes it really hard to figure out how to think about this one for 2013, what is the base, and how well are these new promotions working.”

Through the close of regular trading Wednesday, the shares had declined 30 percent since June 13, 2011, the day before Johnson was announced as J.C. Penney’s next CEO. The Standard & Poor’s 500 Retailing Index has rallied 42 percent in that time.

Johnson, a former Target executive, later helped Apple co-founder Steve Jobs create the iPod-maker’s retail stores, which are unrivaled in sales per square foot. At 52, he was recruited by activist investor Bill Ackman, who’s on J.C. Penney’s board. Ackman’s Pershing Square Capital Management is the company’s largest stockholder, with 18 percent of shares outstanding. Johnson has said his transformation of the company, presented to investors last January, would take four years.

Revenue in the fiscal fourth quarter, which includes the main holiday shopping period, slid 28 percent to $3.88 billion as sales at stores open at least a year fell 32 percent. Analysts estimated revenue of $4.08 billion on average.

On an earnings call with analysts Wednesday, Johnson said he wants to “stay out of the guidance business” and focus on the long term, declining to give details on sales in the current quarter. He said the company will have a better chance of returning to growth once it finishes upgrading more stores.

“Obviously, our commitment is to return to growth,” Johnson said. “The sooner we do that the better, but we’re here for the long haul, and we believe we’re taking the steps needed to return to growth, and we’ll report that to you as soon as that happens.”

Johnson, who seeks to turn the retailer into “America’s favorite store,” is using new displays showing suggested prices to help customers understand the value of merchandise, adding promotions and resuming some sales around events and holidays such as back-to-school and Valentine’s Day. He’s sending customers more emails and worked to regain shoppers with offers such as $10 in-store coupons and 30 percent discounts off clearance items. He also has switched up his marketing team.

“They’re essentially changing the premise they started with a year ago” by adding promotions, Maschmeyer said. “They needed that catalyst to drive initial traffic. They are getting closer to that. It’ll be interesting to see whether it’s enough.”

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