J.C. Penney falls short in third quarter, looks home for improvements in 2010
Filed under: Company News, Earnings, JC Penney
Expect a Kohl's vs. Penney's remodeling face-off next year, and new additions in their home departments. While reporting their third-quarter results this week, the department store rivals both said they're planning to focus on remodeling stores in 2010, and will pay more attention to their housewares departments, which have not been as profitable during the housing downturn. After posting mildly disappointing results for the third quarter, J.C. Penney Co. (JCP) told analysts it plans to stick to its knitting by adding brands and remodeling stores, rather than opening news ones.
Penney's posted income of $27 million during the third quarter, down 78% from last year, mostly due to a $73 million pension plan expense. But even after factoring out the pension expense, operating income for the quarter was below last year's. The company reported earnings per share of 11 cents, which was one penny below Wall Street's expectations. Net sales were down 3.2% and comparable-store sales were down 4.6%.
CEO Mike Ullman said that despite lower sales, the company managed to increase both its profit margin and cash-on-hand during the quarter. Lower costs, more customers buying goods at full price, and rising sales of private-label brands -- which bring higher profits than national brands -- contributed equally to the improvement.
Ullman said sales of private-label brands are running about 5% ahead of the company's average so far this year. He anticipated the addition next year of Liz Claiborne -- which just signed an exclusive deal with Penney's -- will continue the trend. Ullman said the Claiborne brand will launch over 30 product lines exclusive to J.C. Penney stores.
In a conference call with analysts, Ullman said some of the company's free cash will be spent on store remodeling, which accelerated this year as the company added in-store Sephora beauty departments.
But Ullman warned not to expect too many new store openings, despite the glut of available commercial real estate. Penney's is pulling back on its expansion of free-standing stores in suburbs because the housing developments it was counting on to provide customer growth have been stalled by the housing bust. Meanwhile, traffic at regional malls -- where Penney's has a strong presence -- will strengthen, he said.
Predicting a Surge in Home Furnishings
When asked which department Penney's will build up in the future, Ullman noted there is some "white space" in housewares. Penney's has seen some strong sales of the new Cindy Crawford Home collection, especially in soft goods such as linens, he said. That area has potential for growth as the economy rebounds, said Ullman.
"We see some opportunities in the home category, which had been dragging us down," he said. "We think people are getting tired of not spending on home furnishings."
Penney's will find some competition there from a surging Kohl's Corp. (KSS), which had reported a strong third quarter just a day earlier. Kohl's posted net income of $193 million, a 20% increase over last year, and comparable sales increases of 2.4%.
Kohl's management said the company will be very aggressive in remodeling stores now that it has completed the opening of the California stores it acquired from the defunct Mervyn's chain. Plans call for remodeling 65 stores in 2010, but that number may increase if the economy continues to improve, said CEO Kevin Mansell.
The company's remodeling plan includes launching an expanded home section next year, which will put more merchandise on the floor, said Mansell. Kohl's plans to add a number of new brands in home and apparel next year, which Mansell said he would announce in February.
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Reader Comments (Page 1 of 2)
11-13-2009 @ 1:46PM
JM Barbar said...
It's unfortunate for Penney's they sold all their customer accounts to GE, which is why I stopped shopping there. The folks at Penney's were always gracious, but GE treats Penney's customers like "debtors" rather than customers, charges 22.85% interest, delays processing payments until past the due date and then charges Penney's customers late charges of $29. Why does anyone have to tolerate that? There are enough other stores out there who value their customers' business and who make certain they are treated fairly and ethically by their accounts receivable departments. I feel "a little" sorry for Penney's, but they made the decision to use GE themselves and are suffering the consequences.
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11-14-2009 @ 4:58PM
Peg said...
You hit the nail on the head! EXCELLENT post.
11-13-2009 @ 3:21PM
jim millick said...
I worked for J C Pennys when I was 12 rears old putting toys together for the Christmas season, I metion this because I go way back with them. It seems to me that the mens depts are almost a fogotten enity,after going from floor to floor finding womens items I get discourged and go some where else.
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11-14-2009 @ 6:19PM
SweetP said...
I also worked in the toy dept for JCP, before toys r us came around. Always had the top sellers in stock. We always had a blast. Got transferred up to curtains & drapes. Top quality items, still buy from them.
Stock of women's clothing varies according to demographics. Still quality items.
Every so often JCP attempts to reinvent themselves, it's usually for the better.
11-14-2009 @ 7:41PM
myerssh61 said...
You were 12 rears old?
11-13-2009 @ 3:19PM
kevin said...
Penneys used to be a great store 30 years ago, but not no more.
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11-13-2009 @ 4:02PM
Margaret said...
1992--I had a balance of $300 on my JC Penney credit card, holder since 1981, had never missed a payment, would buy a few things, pay it off, let it lay dormant for a few months, repeat cycle. My kitchen was sadly lacking in storage, had an empty spot on the west side. So I bought a hutch, which brought my balance up to around $600. I had never maxxed the card out, never missed a payment, according to the latest statement had over $2000 available credit.
Next thing I know, I am getting a statement that demanding $485 minumum payment. I called their accounts department, to deal with a surly man who would not give me a reason why I was being treated so unfairly. Had never missed a payment, never went over my limit. I still do not understand, to this day, since 1992, why I was treated like this. That day, I informed JC Penney, " I am 31 years old, have many more years ahead of me, and you have lost me for life. I will never again buy so much as a pair of socks from you. You have lost my business permanently." I paid them off the next week, and have never crossed their door again. If I find out another business is a subsidary of JCP, I boycott it, too.
If they fail, they deserve it. I will not even buy their crap when it is auctioned off at a loss.
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11-14-2009 @ 7:15PM
jac said...
I had a JC Penny's credit card since 1991. Never had a balance, paid the entire amount each month. I used the cc to buy from the catalog. Suddenly this year I got a letter saying they had cancelled my card. I had been struggling to pay my house payments (but who hasn't that have been out of work) and it seems that JCP had checked my credit record and decided I was too great of a risk for their credit card. Good bye shopping at their store. Someone else will get my business.
11-13-2009 @ 4:19PM
Bo said...
JC Penny lost my business a while back.Their usary interest rates on Penny's card was one thing, but more than even that, their selection for women's clothing is garbage. The quality of their goods has taken a huge dip over the years. Whoever their buyer is obviously has all their taste in their mouth when it comes to style.
JC Penny used to be a staple in mylife, but no longer. I still have the card, but it stays at ZERO balance and will forever.
Penny's is the new K-MApaRT. cheap cheap cheap garbage
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11-13-2009 @ 4:26PM
Wendy said...
No wonder. They have great stuff and no stores. They closed their Philadelphia store years ago and the only other store is about 30 min. away. Other stores are much closer so no more Penney shopping.
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11-13-2009 @ 4:47PM
bigtom said...
I went all over two local J.C. Penny stores about two weeks ago searching for clothing made in the U.S.A. I found that most all of the clothes they sell are made outside this country. The only item I found was mens underwear. Even the old standard Penny brand "Stafford" clothing is not produced in the U.S. I was also shopping for a new lamp and they had 37 lamps on display and not a single one was made in the U.S. J.C. Penny, Walmart, Sears they have all moved to foriegn goods. We had better wise up and insist that these retail outlets carry merchandise made in the U.S.A. before it is too late and there is no more U.S.A.
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11-13-2009 @ 5:06PM
wally said...
Buy American!!??.....I say buy quality for the money
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11-13-2009 @ 6:18PM
David S. said...
Nothing new here, folks. Major department stores like these have been losing money for over 20 years -- Penney's , Dillards, Macy's, Sears, you name it. They cannot compete with the Wal-mart's and the Target's, Kohl,s and the big box retail outlets. Either we believe in good old American competition or we don't.
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11-14-2009 @ 2:28PM
pat said...
I have always loved shopping at J.C., but reciently I cann't find cloths (Blouses-pants) of good quality it seems as though its all from somewhere else and stiff material, not soft, pretty and good quality like years ago. And of course I am now older and would like to find these types of cloths for my body, not wild-tight-and scratchy. It seems like they have a good vareity but they are not geared for older people. And after all we are the ones who spend most of the money at there store weather for ourselves or our off-springs.
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11-14-2009 @ 3:01PM
Georgia said...
I was a big Kohl's shopper. When we went to Florida for the winter there were no Kohl's stores there (but there are now). My husband used to kid me on the way north in the spring when we would hit Ohio and start to see Kohl's stores. He said they had probably lost so much business they would have a welcome home banner across the border into Mich welcoming me home. THEN they changed all their brands in their housewares department. They also changed their women's wear brands. I shop very little there anymore. They still have good children's clothes and mens wear. Forget Vera Wang and the crazy new teen star clothes. I'm back to Macy's, Dillards, and Penny's and Parisianne. They even dropped their Phaltzcraft dinnerware line. Darn. Used to be great to get a senior 15% discount on Wed. Then they changed it to 10%. Then they started giving everyone the discount so no incentive for seniors to shop there anymore. Discounts are everywhere.
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11-14-2009 @ 7:44PM
myerssh61 said...
Phaltzcraft? Is that the same as Pfaltzgraff?
11-14-2009 @ 3:38PM
Georgia said...
Pat, you are so right. I spent more there on my grandkids than anyone else. Kohl's and Penny's. I am a senior now and they just don't seem to cater to me. I miss the Koret line that Kohl's used to carry and JH Collectables. They still have some Alfred Dunner but not much. As you said, more seniors are spending money in there than anyone else. Let's have a little respect.
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11-14-2009 @ 3:42PM
Thinking said...
Get Penny's away from the mall and they'll do even better . I like Kohl's. But Penny's has the best customer serivice
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11-14-2009 @ 3:45PM
iluvmldr said...
If they can't provide the level of customer service required (bridal registries, what's the difference between this sheet and this sheet, why would I buy this coffemaker and not that one etc.. etc.. ) that home departments demand, it's not worth the money.
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11-14-2009 @ 3:51PM
R said...
I love JCPenney. It's one of my favorite stores, and one of the few places where I can find reasonable priced clothes that actually fit and look nice.
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