J.C. Penney's quarterly sales drop slows ahead of holidays

Staff Writer
Columbus CEO

(c) 2013, Bloomberg News.

J.C. Penney Co. showed progress in its attempted turnaround as revenue declines slowed in the third quarter and the department-store chain said sales and profit margins would improve during the holiday shopping season.

Revenue in the quarter ended Nov. 2 fell 5.1 percent to $2.78 billion, the Plano, Texas-based company said Wednesday in a statement. That was less than the 27 percent drop in the same period last year. The average of 20 analysts' estimates compiled by Bloomberg was $2.8 billion.

Chief Executive Officer Mike Ullman, who returned as CEO in April to replace Ron Johnson, has restored promotions and popular private-label brands while ending his predecessor's remodeling plan. He also raised about $4 billion to try to give the company enough cash to complete a turnaround after more than two years of net losses, including $489 million last quarter.

"What's good is that it's not worse than expected," Rick Snyder, an analyst at Maxim Group LLC in New York, said in a telephone interview. The chain still needs "a big uptick in sales and gross margin" to avoid running out of cash.

J.C. Penney's third-quarter loss of $1.94 a share widened from $123 million, or 56 cents, a year earlier.

J.C. Penney had declined 56 percent this year through yesterday, the worst performance in the Standard & Poor's 500 Index.

Gross margin, or the percentage of sales left after the cost of goods sold, will improve in the fourth quarter, J.C. Penney said. The margin narrowed to 29.5 percent last quarter from 32.5 percent the previous year as the company offered larger discounts to clear slow-selling merchandise brought in under Johnson. Those kind of markdowns will continue this quarter and early next year, Ullman said on a conference call with analysts.

J.C. Penney trails peers on that core measure of profitability. Macy's Inc. reported a 39.2 percent margin in the third quarter, and Kohl's Corp. posted 37.5 percent.

"We are definitely pleased with the progress being made, and we believe we've turned the corner," Ullman said. "It has not been easy, and we still have a long way to go."

Sales at stores open at least a year will increase in the fourth quarter, J.C. Penney said. Revenue by that measure dropped 4.8 percent last quarter, compared with a 26 percent decline a year earlier. The company had already reported same- store sales, a key measure of a retailer's growth because new and closed stores are excluded, for each month in the quarter.

The company updated its financial position, saying it has $1.71 billion in liquidity, which includes cash and what it can still drawn down from its credit revolver. The retailer reiterated it would have more than $2 billion of such liquidity at the end of the fiscal year.

"This fourth quarter is critical," said Snyder, who recommends holding the shares. "The promotional environment that seems to be taking hold is going to make it more difficult for them."