'No quick fixes' as J.C. Penney posts big 2Q loss

JCPenney

Credit: Getty Images

FILE: Customers walk into a JCPenney store on February 28, 2013 in Daly City, California. (Photo by Justin Sullivan/Getty Images)

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by ANNE D'INNOCENZIO

Associated Press

Posted on August 20, 2013 at 11:41 AM

NEW YORK (AP) — J.C. Penney Co. reported another big loss on a nearly 12 percent drop in revenue for the second quarter, underscoring big challenges the retailer is facing as it tries to recover from a botched transformation plan spearheaded by ousted CEO Ron Johnson.

The results, released Tuesday, mark the sixth straight quarter of big losses and steep revenue drops for the retailer.

CEO Mike Ullman was rehired in April to bring back frequent sales and basic merchandise that were eliminated by Johnson in a failed attempt to attract hipper, more affluent customers. Johnson, who took Penney's helm in November 2011, was ousted 17 months into his tenure.

While Penney said Tuesday it feels encouraged by back-to-school sales, the report offered few signs of a turnaround as the retailer heads into the final months of the year.

Analysts worry that a turnaround at the Plano, Texas-based chain could further be derailed as a string of other earnings reports from the likes of Macy's and Wal-Mart have showed reluctance among shoppers to spend on nondiscretionary items as they fret about their personal finances in an uncertain economy.

"Since I returned to J.C. Penney four months ago, we have moved quickly to stabilize our business — both financially and operationally — and we have made meaningful progress in important areas of the business," Ullman said in a statement. "There are no quick fixes to correct the errors of the past. 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."

The Plano, Texas-based department store chain said it lost $586 million, or $2.66 per share, for the three months ended Aug. 3. That compares with a loss of $147 million, or 67 cents per share, a year earlier.

Revenue reached $2.66 billion, down from $3.02 billion.

Analysts were expecting a $1.07-per-share loss on revenue of $2.77 billion.

Revenue at stores open at least a year dropped 11.9 percent, worse than the 8.3 percent analyst expected. That was on top of a 21.7 percent drop a year ago. However, the sales drop in the latest quarter is smaller than the 16.6 percent drop in the first quarter.

Revenue at stores open at least a year is considered a key indicator of a retailer's health because it excludes sales at stores that have recently opened or closed.

Penney's results come a week after its largest shareholder, William Ackman, resigned from the company's board of directors as part of a deal to resolve an unusually public battle between the activist investor and the department store chain. Ackman's Pershing Square Capital Management has a 17.7 percent stake, or 39 million shares, in Penney.

Ackman went public two weeks ago with statements saying he'd lost confidence in Penney's board and that Chairman Thomas Engibous should be replaced. Ackman and the retailer's board also were bickering over how quickly the company should replace Ullman.

The day Ackman resigned, Penney named Ronald Tysoe as a director to fill Ackman's seat. Tysoe is former vice chairman of Federated Department Stores Inc., which is now Macy's Inc. Penney will name an additional new director in the near future. Penney's board also reiterated its support for Ullman.

Ackman, who joined Penney's board in February 2011, was the one who pushed the board to hire Johnson, a mastermind of Apple Inc.'s successful stores. The hope was Johnson could inject new energy into a tired company.

Johnson's plan included getting rid of coupons and eliminating most discounts in favor of every day low prices, as well as bringing in hip brands like Joe Fresh and remaking outdated stores. But the changes that were meant to attract younger, wealthier shoppers, wound up turning off its loyal middle-income, middle-age customers who favor sales and basic merchandise like loose-fitting khakis.

As a result, Penney amassed nearly a billion dollars in losses and its revenue dropped 25 percent for the fiscal year that ended Feb. 2 in the first year of the failed transformation strategy. Sales declines and losses continued into the first quarter as Johnson's legacy cast a shadow on the results.

Even the home area, which was Johnson's project and features a slew of trendy new names like Jonathan Adler and Michael Graves, has failed to resonate with shoppers. Penney said Tuesday that early feedback from customers made it clear that they want a more balanced assortment of trendy and traditional merchandise. The company is now working to restage the home areas in the 500 stores where the home departments were relaunched.

Penney was counting on the new home area, launched last spring, to reinvigorate customer traffic, but analysts believe some of the products like $3,000 couches are just too pricey for the company's shoppers.

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