JCPenney Swings into Q4 Loss on New Strategy Costs

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JCPenney defended its new spokesperson, comedienne/talk shot host Ellen Degeneres, after anti-gay groups protested her selection.

Plano, TX—JCPenney today reported that it swung into a fourth quarter loss due in part to restructuring costs, management transition exchanges and its recently institute new pricing structure.

The department store’s new plan, which began Feb. 1, includes eliminating heavy discounts and promotions in favor of a three tiered strategy: everyday low prices at about 40% less than a year ago, month long sales on select items and twice a month clearance events.

In its physical stores, the company plans to add 80 to 100 other brand “shops” inside its stores as well as “Town Squares,” which like the Apple Store’s Genius Bars (which JCPenney’s president Ron Johnson developed) will offer service, advice etc.

For the quarter ended Jan. 28, JCPenney posted a net loss of $87 million, or 41 cents a share, compared to net income of $271 million, or $1.13 a share in the prior-year quarter. Included in the loss were charges of 56 cents a share for restructuring and management transition charges, and 59 cents a share for costs relating to the new pricing and promotional strategy.

Still, excluding items, adjusted income plunged to $45 million or 21 cents a share.

A ‘Blueprint’ for the Future

Total net sales decreased 4.9% to $5.43 billion from $5.70 billion last year, reflecting in part closing its catalog businesses. Comparable store sales declined 1.8%. Internet sales through decreased 3.1% to $480 million in the fourth quarter.

The results were worse than analysts’ average estimate for earnings of 68 cents a share on sales of $5.50 billion.

For fiscal 2011, comparable store sales edged up 0.2%, while total sales decreased 2.8% to $17.26 billion.

Johnson’s comments regarding the quarter mostly dealt with JCPenney’s “new, simplified strategy” which he says will transform the department store’s image.

Ron Johnson

“We closed the year by spending two days with the Company’s key stakeholders to share our ‘blueprint’ for becoming America’s favorite store,” Johnson said. “While 2011 was a year of transition at JCPenney, 2012 will be a year of transformation.”

During its fourth quarter, the retailer’s gross margin decreased to 30.2%, compared to 37.6% in the prior year quarter. The two chief reasons the company cited for the margin drop were: “lower than expected sales, which resulted in a higher level of markdown activity,” and, “actions taken to convert to the company’s new pricing and promotional strategy.”

Johnson told analysts in a conference call earlier today that the store’s February sales are down from last year as the company shifts into its new pricing strategy. As part of its new strategy, the company announced it no longer would be reporting monthly comparable store sales or issue quarterly forecasts.

But Johnson added that early indications are that shoppers like the new pricing model and sales have been strong in apparel. Weaker sales were reported in home and fine jewelry.

For its fiscal 2012, the company said it continues to expect earnings to meet or exceed $2.16 a share. Analysts’ average estimate expects $2.16.

“As we embark on this transformation, the strategic changes we are making to our business model will dramatically simplify JCPenney operations, significantly lower the company’s cost structure and create a platform for growth that will result in improved profitability in 2012 and beyond,” Johnson commented. “We look forward to updating our shareholders, our vendors and other key stakeholders on our progress throughout the year, beginning in May 2012 with our first quarter earnings release.”


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