J.C. Penney ends 22-month sales slump at expense of margins

Staff Writer
Columbus CEO

(c) 2013, Bloomberg News.

NEW YORK — J.C. Penney Co. posted the first monthly sales gain in almost two years as the department-store chain ran deep discounts while demand improved for home products, men's apparel and women's accessories.

The unprofitable retailer, which has raised about $4 billion this year to fund a turnaround, said Thursday that sales at stores open at least 12 months rose 0.9 percent in October. That marks the first gain in monthly sales since December 2011.

Mike Ullman, who returned as chief executive officer after Ron Johnson was ousted in April, has reinstated sales events, revived private-label brands such as St. John's Bay and tried to clear out slow-selling merchandise at steep discounts. While the sales gain is a "good sign," it came at the expense of profitability, said Rick Snyder, an analyst for Maxim Group.

"That offsets the positive," said Snyder, who is based in New York. "Gross margin is going to be very ugly."

The shares jumped 5.6 percent to $8.13 at the close in New York. J.C. Penney, based in Plano, Texas, has slumped 59 percent this year, the worst performance in the 10-company Bloomberg U.S. Department Store Index.

Improving gross margin, or the percentage of sales left after subtracting the cost of goods sold, is key for J.C. Penney because it hasn't turned a quarterly profit since mid-2011 and has been consuming cash. That drain prompted it to draw $850 million from a credit facility in April, take out a $2.25 billion loan in May and raise $785 million in an equity offering about six weeks ago.

The chain had net losses of $1.61 billion in the 12 months through Aug. 3 on a 22 percent drop in revenue while using $2.09 billion in cash for its operations and capital spending.

The company didn't update its finances in Thursday's statement after saying in a similar press release last month that it expected to have more than $2 billion in liquidity at the end of the year.

The company will provide liquidity figures when it reports full third-quarter results on Nov. 20, Kristin Hays, a spokeswoman for J.C. Penney, said in an email.

Same-store sales, a key measure of a retailer's growth because new and closed stores are excluded, sank 25 percent last year during Ron Johnson's tenure as his plan to reduce discounting and swap in merchandise aimed at younger shoppers backfired.

J.C. Penney's return to same-store sales growth last month comes after the measure improved sequentially each month within the second quarter ended early August. In the third quarter, sales fell 4 percent in September after dropping 9.8 percent in August.