Shares of J.C. Penney Company Inc. are falling by more than 9 percent to $7.04 as the retailer reported a 1.6 percent decline in first-quarter sales, which were below Wall Street expectations.
The net loss for the quarter was $69 million, or 22 cents a diluted share, a 55 percent improvement over last year’s loss of $144 million, or 49 cents, a year ago. This actually beat the FactSet estimate for a loss of 38 cents per share.
Total sales for the three months ending April 30 decreased to $2.81 billion from $2.85 billion a year earlier. The FactSet estimate was for sales of $2.9 billion. Comparable sales fell 0.4 percent for the first quarter.
“The first quarter was clearly challenging from a sales perspective,” said chief executive officer Marvin Ellison. “Although our business was not immune to the issues facing other retailers, I am pleased that we were able to deliver our second consecutive quarter of positive operating profit.”
Ellison said on the earnings conference call that the company experienced negative comps in March and in early April. But things turned around and there were positive comps in the last two weeks of April heading into Mother’s Day.
The top-performing divisions for the quarter included men’s, Sephora, footwear and handbags. The best regions were the Northeast and the Ohio Valley.
The company’s gross margins suffered from markdowns as Penney’s unloaded cold weather clothes that didn’t sell. Gross margins fell by 2.2 percent from 36.4 percent last year to 36.2 percent this year.
The retailer said it remains confident that the turnaround is on track and sees the new Sephora locations to be big sales drivers for the year. Thirty Sephora locations are scheduled to open by mid-June and there are now 546 Sephora locations in Penney’s stores. Penney’s also began rolling out appliances in stores and has even accelerated the rollout.
The company updated its guidance for 2016. It plans on maintaining the comp store sales forecast for an increase of 3 to 4 percent. Gross margins were lowered to an increase of 10 to 30 basis points. The company also said that it expects free cash flow to improve over 2015. Penney’s said it is still on track to deliver $1 billion in earnings before interest, taxes, depreciation and amortization for the year.