The 115-year-old J.C. Penney Co. Inc. is just catching up to modern retailing, according to Marvin Ellison, chairman and chief executive officer.
But even as Ellison pushes the company to sharpen its omnichannel chops, J.C. Penney finds itself in the midst of a market in radical transformation, leading to wider losses and lower sales. Apparel, the company’s largest business and still a hope for the future, lagged the generally weak results.
The retailer’s first-quarter net losses widened to $180 million, or 58 cents a share, from $68 million, or 22 cents, a year ago. The bottom line benefitted from the sale of a distribution facility that resulted in a first-quarter gain of $111 million. Sales slipped 3.7 percent to $2.7 billion from $2.8 billion a year ago as comparable-store sales dropped 3.5 percent.
The reaction on Wall Street was strong. Investors pushed shares of J.C. Penney down 14 percent to $4.55 on Friday, leaving the firm with a market capitalization of $1.4 billion.
“This disappointing top-line result was in large part due to a very difficult month of February,” Ellison told analysts on a morning conference call Friday. “Although we’re less than pleased with the overall top-line sales results for the first quarter, we were encouraged by the positive comp performance achieved in April. Our comp performance through the nine-week March and April period improved approximately 600 basis points versus February.”
The ceo said apparel comps were worse than overall company performance in the first quarter and acknowledged that “we have no great optimism that we’re going to swing apparel to positive comps” for the year.
But Ellison added: “There are categories in apparel, active being one, dresses and some components of contemporary and casual that we’re expecting to see positive comps in. But overall, we have apparel planned down appropriately. So if we can hit a plan, which is a modest plan of negative comps for apparel and continue to see the growth trajectory that we discussed in categories like home and appliances and Sephora and salon and fine jewelry, and all of those other growth areas, including [omnichannel retailing], we think we are well within our range for guidance.”
The retailer maintained its annual sales guidance, which calls for comps to range from down 1 percent to up 1 percent.
J.C. Penney is moving much more quickly than it did in the past and is getting looks from the design room to the sales floor 40 percent faster.
It is also better connecting its digital and store operations, something that’s been a big push across the industry, although progress has been uneven with some chains pushing ahead and others lagging behind.
Michael Amend, executive vice president of omnichannel, told analysts that the company is expanding its online stockkeeping units, which rose 40 percent in the first quarter to about twice the number of goods held in its largest store.
“There’s a huge opportunity for us to continue to expand in this space,” Amend said. “If you look at what customer feedback is, as well as if you look at what customers are searching for on our site, there’s a clear opportunity for us to both expand the categories that we’re already in [and grow with] new categories and with new brands.”
Like many other retailers, J.C. Penney is downsizing its store footprint as its web business grows and pressure generally intensifies in a weak market. The firm this month will start to liquidate goods at the majority of the 138 stores it previously pegged for closure.
All the more reason for the remaining store and the web to work more closely together.
Ellison hammered home the omni point, noting that J.C. Penney is also expanding its ability to fulfill online orders directly from the stores, moving from about 250 stores today to the full fleet of 875 doors, which will nearly quadruple the available inventory for sell online.”
“My optimism on the future of J.C. Penney is in large part due to the fact we’re still playing catch-up to many of our competitors,” Ellison said. “As we improve our in-store environment and modernize systems like pricing and omnichannel, we see immediate benefits, therefore, we know the upside for profit and revenue exist. We simply had to move faster.”
But how fast is fast enough?
Credit Suisse analyst Christian Buss wrote in an analysis that he remained “concerned about the company’s ability to generate adequate returns with store comps negative and investments skewed to lower-margin home, appliance and online business.”
He cut his target price on the company stock to $5 to $6 and kept his rating at “underperform.”
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