JC Penney Is Optimistic About Losses In Second Quarter

By Sam Lewis

Slower sales decline offers department store chain some hope

On Tuesday, struggling retailer JC Penney (JCP) unveiled results for the quarter ending August 3. The numbers revealed another consecutive quarter of loss for the 111-year-old department store chain. The numbers, however, might have more positive undertones than are seen at face value.

For the quarter, JCP reported a 12 percent loss in revenue, dropping to $2.66 billion. Most Wall Street analysts were predicting $2.8 million in revenue, so in their eyes, JCP fell short. Same store sales also tell a tale of woe for JCP. During the quarter, JCP saw a decline of nearly 12 percent in this key gauge of a retailer’s health. This drop was very prominent in JCP’s home department. Former CEO Ron Johnson began an overhaul on this department, and like the rest of his plan, it was met with failure. JCP is now occupied with overhauling Johnson’s overhaul on the department. Gross margins for the retailer also showed decline, down to 29.6 percent from 33.2 percent in 2012. The blame for this decline is placed on reduced revenue and an increase in clearance items and promotions.

It’s hard to imagine that any retailer could get excited about numbers like these, but, most retailers aren’t JCP. The 12 percent loss in revenue for the second quarter of 2013 is a dramatic improvement from the 23 percent loss it reported in the same time frame of 2012. Same store sales saw sequential increases of two percent during every month of the second quarter. This is the first time this has happened for JCP under the direction of interim CEO Mike Ullman. Ullman has chosen to return the retailer to its roots of discounts, coupons, and promotions, doing away with the smug image Johnson tried to give JCP.

Another positive sign for JCP is the back-to-school season numbers. JCP reported positive figures in web traffic, and reported better numbers for the season than competitors Macy’s and Kohl’s. Heightened back-to-school (the second biggest shopping season, behind the holidays) numbers offer an encouraging omen for JCP heading into the winter and holiday shopping season.

Finally, JCP plans to stop spending cash so freely. Turning around a department store chain, especially after the turmoil JCP has endured, is quite an endeavor to undertake and will require a lot of cash. Ullman is working to bolster the balance sheet, and believes JCP will reduce its cash spending significantly by the year’s end. “Since I returned to J.C. Penney four months ago,” Ullman says, “we have moved quickly to stabilize our business, both financially and operationally, and we have made meaningful progress in important areas of the business. There are no quick fixes to correct the errors of the past.”

Ullman knows the task ahead of him, and the CEO that will replace him when his interim tenure expires, is not a walk in the park. Gaining the trust of shoppers, and reversing the ideas Ullman’s predecessor implanted in them, will take lots of time and even more patience. At least now JCP has seen a few positive signs that there might a light at the end of the tunnel.