Plano, TX—The quarterly report due after market close on Wednesday was expected to be bad, but it was even worse than expected.
JCPenney, which is undergoing a “transformation” brought about by former Apple retail chief Ron Johnson, posted a net loss of $552 million, or $2.51 a share, for the quarter ended Feb. 2. That’s compared to a loss of $87 million, or 42 cents a share a year earlier. Excluding restructuring charges and non cash pension plan expenses, the company’s adjusted loss was $1.95 a share, much worse than the 24 cents a share loss that analysts’ average expected.
Total sales fell 28.4% to $3.88 billion, below the $4.08 billion Wall Street expected. Gross margin narrowed 6.4 percentage points to 23.8%, which the company blamed on lower-than-expected sales and a higher level of sales on clearance.
But worse still, JCPenney’s comparable store sales, the typical metric of a retailer’s health, plunged 31.7%!
Wall Street’s reaction has been swift: shares of JCPenney fell 20% in trading today, to $17.18 a share. Adding that decline, the company’s shares have lost 60% of their value since early last year, some 13 months after the “Fair and Square” transformation plan was announced.
Results for its fiscal 2012 are also dismal: the store lost $985 million, or $4.49 a share, compared to a loss of $152 million, or 70 cents a share, a year earlier.
Total sales fell 24.8% to $12.98 billion from the previous year’s $17.26 billion.
“It’s the worst performance I have ever seen by a company in one year,” said Walter Loeb, a longtime retail consultant.
Referring to Johnson and his plan as a “farce,” Loeb added: “His (Johnson’s) effort to transform the company has brought extremely disappointing results and a question whether 2013 will be much better. I fear it will be much worse as consumers continue to walk away from JCPenney and its financial health continues to deteriorate.”
‘Demolition of a Building is a Transformation, Too’
Noting that Johnson “took responsibility” for mistakes the company has made, Henry Blodget, analyst at Business Insider, said Johnson “discussed the results as if the company were merely in the midst of a big transformation that will soon be complete. Whether JCPenney eventually completes the transformation that Ron Johnson has embarked on remains to be seen. But after a year of horrific results, one thing is clear: So far, this ‘transformation’ is only a ‘transformation’ in the way that the demolition of a building is a ‘transformation.’”
Blodget added: “It is possible that JCPenney just reported the worst same-store sales decline of a major retailer in industry history.”
For his part, Johnson tried to put as good a spin as possible on the results: “Sales and customer traffic were below our expectations in 2012, but as we execute our ambitious transformation plan, we are pleased with the great strides we made to improve JCPenney’s cost structure, technology platforms and the overall customer experience. We have accomplished so much in the last 12 months. We believe the bold actions taken in 2012 will materially improve the company’s long-term growth and profitability.”
For example, Johnson pointed to upcoming plans for “JCP”—as he refers to the retailer—which include opening nearly 20 shops for home products in 505 stores with brands such as Michael Graves, Jonathan Adler and Sir Terence Conran, among others (Plans for Martha Stewart shops are on holding pending the Macy’s Inc. lawsuit over JCPenney’s deal with the home doyenne). Also opening will be about 700 Joe Fresh apparel and accessories shops, a plan that will transform nearly 11 million square feet of retail space this spring. Other shops include Pearl by Georgina Chapman of Marchesa, L’Amour Nanette Lepore, William Rast, Lulu by Lulu Guinness and Duro Olowu for JCP.
This year, JCPenney also plans to open 60 Sephora shops inside its stores, bringing the total number to 446.
“Looking ahead, we are energized by our shop roll out plans for 2013 and the exciting work our teams are undertaking to transform the store,” Johnson said. “Combining a new marketing campaign focused on style and value, incredible new brands and updated merchandise, with continued enhancements to the customer experience both in our stores and on JCP.com, we are working towards reconnecting with our core customer while attracting new customers to JCPenney.”
Returning to Sales, Promotions
Noting that Johnson said “we are here for the long haul and we believe we’re taking steps needed to return to growth” analysts believe that Johnson already has already returned to some retail strategies that were initially dropped 13 months ago. Those include adding promotions and sale around events and holidays such as back to school and Valentine’s Day. The store resumed sending customers email offers such as $10 in-store coupons and 30% discounts on special clearance items.
“They’re essentially changing the premise they started with a year ago by adding promotions,” said Erika Maschmeyer, an analyst at Robert W. Baird & Co. “They needed that catalyst to drive initial traffic. They are getting closer to that. It’ll be interesting to see whether it’s enough.”
Johnson continues, too, to have the full backing of board member Bill Ackman, the billionaire owner of Pershing Square Capital, JCPenney’s largest shareholder.
Wall Street, however, will be keeping an eye on more than gross margin and comparable store sales figures, too.
The department store had $930 million in cash and cash equivalents at the end of the quarter down from $1.5 billion a year earlier. “Observers are particularly focused on whether Johnson will have sufficient cash reserves to fully withstand the customer flight,” noted one retail analyst this morning.