JCPenney Q2 Loss Nearly $600 Million, Sales Down 12%

In Industry News, Reports, What's New by Jeff PrineLeave a Comment

JCPenneyPlano, TX—No one was expecting good news at JCPenney’s second quarter report released today, but the struggling department store reported losses greater than expected.

Still, a more optimistic view of its third quarter and beyond gave hope and helped the company’s shares rise as much as 7% in early trading.

For the quarter ended August 3, JCPenney’s loss increased to $586 million, or $2.66 a share, compared with a loss of 147 million, or 67 cents a share, a year earlier. (Excluding one-time items, such as restructuring and management transition changes, adjusted loss was 37 cents a share). Analysts’ average estimate expected a loss of $1.07 a share.

‘No Quick Fixes’

Net revenue declined 12% to $2.66 billion, while analysts had estimated $2.76 billion in sales. Comparable store sales were down 11.9% missing estimates for a 7.4% drop. Gross margin narrowed to 29.6% from 33.2% due to lower sales and more clearance from due to merchandise carried over from earlier this year.

“There are no quick fixes to correct the errors of the past,” said CEO Mike Ullman “That said, we have identified the challenges, put solid plans in place to address them and have experienced and capable people in key roles to do so.”

Although clearly much of the poor showing was laid blame on former CEO Ron Johnson, the Apple retail chief who spent 17-months in a storewide transformation only to see longtime customers leave and sales losses exceeding $1 billion last year.

Ullman, who returned after leading JCPenney during a prior tenure, has had to implement some of Johnson’s projects already in progress and revise others. Nevertheless, he said that the retailer’s back-to-school business was “encouraging” and that there would be an increase in second half investments such as marketing.

Citing the recently-hired Debra Berman, an ex-Kraft foods leader, to head marketing, Ullman told analysts on a conference call that “we are…working quickly and forcibly to strengthen our marketing and messaging to restore customer loyalty and excitement. This includes positioning JC Penney as a primary destination for Black Friday and Cyber Monday and maintaining the same momentum throughout the holidays.”

New Hedge Fund Investor?

The company also plans to beef ups its social and digital channels to be more competitive with other promotional retailers.

And in an effort to stem worries about its financial state, JCPenney said it ended the quarter with about $1.5 billion in cash (including proceeds of a $2.1 billion loan it received during second quarter) Penney said it expects to end the year with $1.5 billion in cash overall.

While there’s no indication yet whether William Ackman, the activist investor and recently-resigned director at JCPenney, will sell off any of his Pershing Square Capital investment, JCPenney’s largest with some 18%, others are looking more “bullishly” at department store.

According to what a source told Bloomberg News, J. Kyle Bass, a hedge-fund manager for Hayman Advisors, has been into JCPenney’s secured loans.