JC Penney Rebound Gains Traction


jcp jc penney logoJ.C. Penney Co. took another step away from the brink Thursday, when it reported higher sales, wider margins and a smaller quarterly loss.

Penney, which had lost more than $2.7 billion since early 2012, reported another loss of $172 million. But that result, for the quarter ended Aug. 2, was better than the $586 million loss a year earlier, and the company said its cash flow has improved faster than expected.

Penney shares soared in after-hours trading but eased back to end at $10.05, up 3.2%. Investors welcomed the steady if moderate improvement in sales at the battered retailer. Before the release of the results, Penney shares had risen more than 4% in regular trading Thursday.

Crucially, the department-store chain’s profitability improved as it sold less merchandise on clearance. Items sold on clearance carry the biggest markdowns, more even than items sold though planned promotions. Gross margin widened to 36% from 29.6%.

Chief Executive Myron Ullman has put together a string of better quarters at the retailer as it strives to recover from a disastrous overhaul led by former CEO Ron Johnson, a former executive who tried to do away with discounts and stock trendier merchandise but ended up driving away customers.

Penney said Mr. Ullman underwent surgery related to a medical condition he has had for more than two decades, and as a result he wasn’t on Thursday’s conference call. He suffers from a neurological condition resulting from a microscopic injury to his spinal cord. The condition makes it hard for Mr. Ullman to walk and he is known for using a Segway to get around Penney’s headquarters.

Despite Mr. Ullman’s efforts to put the chain on firmer footing, it remains badly damaged by its brief stint under Mr. Johnson, who was ousted in April 2013. Revenue increased to $2.8 billion in the quarter from $2.7 billion a year earlier. That is still 28% below the $3.9 billion in revenue the chain brought in for the second quarter of 2011.

Shopper traffic in the second quarter was lighter than it was a year earlier, though it improved from the first quarter.

“It’s not as easy as just putting back the merchandise and they will come back,” Ed Record, Penney’s chief financial officer, said of the challenges in getting customers back into Penney’s stores. Customers are spending more at the chain on average, but it still isn’t back to 2012 levels, he said.

Mr. Record said Penney was bracing for a cutthroat holiday season. “We will need to be competitive to drive the customers back into the store,” he said.

Sales excluding newly opened or closed locations rose 6% in the most recent quarter from a year earlier, and Penney expects gains of roughly that magnitude in the current quarter. Mr. Ullman said in a news release that the company had gained market share. Penney backed its sales outlook for the year.

The company pointed to another positive: Inventory levels dropped 9.7% to $2.85 billion.

Retailers broadly have suffered from a difficult selling environment that has forced them to rely on discounts to drive sales. The Commerce Department said Wednesday that spending at U.S. retailers was flat in July. Also on Wednesday, Penney rival Macy’s Inc. cut its sales forecast for the year.

By Suzanne Kapner and Tess Stynes , Wall Street Journal, August 15, 2014

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Posted on August 18, 2014, in Business News and tagged , , , , , , , , . Bookmark the permalink. Comments Off on JC Penney Rebound Gains Traction.

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