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As expected, sales at J.C. Penney Co. took a double-digit dive in the first quarter of the fiscal year as the chain battles to win back customers and maintain construction on in-store shops for new merchandise.
This story first appeared in the May 8, 2013 issue of WWD. Subscribe Today.
On Tuesday, Penney’s released preliminary unaudited sales results for its fiscal first quarter ended May 4, indicating total sales of about $2.64 billion, representing a 16.5 percent decrease from $3.15 billion in the same period last year. Comparable-store sales fell about 16.6 percent from the same period last year.
“The sales decline in the first quarter is partially attributable to construction activities in connection with the transformation of the home departments in 505 stores,” Penney’s said. The company also said results for the quarter reflect pricing and marketing strategies initiated by the former chief executive, Ron Johnson. Those strategies are being changed by Myron “Mike” Ullman 3rd, who took over for Johnson last month.
Another factor could have been the unseasonably cold weather in April, which many retailers have said hindered the apparel business.
Penney’s was obligated to release the preliminary sales numbers because of its previously announced proposed senior secured term loan financing transaction. Last week, Penney’s disclosed a new $1.75 billion loan from Goldman Sachs, giving Ullman breathing room to stabilize Penney’s, which lost nearly $1 billion last year as sales fell 25 percent. Penney’s will release full first-quarter results on May 16, including possible adjustments to the preliminary numbers.
For the first quarter, Penney’s estimates cash and cash equivalents of about $821 million as of May 4. Total debt is expected to be around $3.82 billion, including amounts outstanding on the revolving credit facility of $850 million, long-term debt of $2.87 billion, and capital leases and notes payable of $100 million.
According to sources, the new leadership is slowing down what had been an aggressive and costly shop rollout; reviving private brands that were downsized; cutting back on the tighter, contemporary fits in apparel to favor more classic, traditional looks for customers over 35, and bringing back big one-day sales and steeper markdowns and value deals while reducing everyday low pricing.
Ullman recently hired Young & Rubicam to work on a back-to-school campaign, considered crucial to Penney’s business.
Updated home goods from Bodum, Jonathan Adler and Michael Graves will be at the center of Penney’s remade home floor being introduced this spring, though it is believed there’s been somewhat of a shift back to traditional styling — think florals — while sticking with the updated merchandise with a European flair and an Ikea-esque character. Also on the home front, Penney’s is battling Macy’s in court in a contractual dispute over the right to sell certain Martha Stewart home products, including some designed by her but unbranded. The retailer also has an opportunity to recover market share in window coverings.