EarningsCenter

J.C. Penney Posts Larger First-Quarter Loss Than Expected

Customer leaves J.C. Penney store in New York.
Mark Lennihan/AP

By ANNE D'INNOCENZIO

NEW YORK -- The legacy of J.C. Penney's former CEO continues to cast a dark cloud over the department-store chain.

J.C. Penney Co. (JCP) on Thursday reported that it widened its loss in the first quarter on a 16 percent plunge in revenue. It marks the fifth straight quarter that the struggling company has posted massive declines.

The results show that Penney is still reeling from the turnaround plan orchestrated by its former CEO Ron Johnson, who was ousted last month after less than a year and a half on the job.

The plan included getting rid of most sales and coupons in favor of everyday low prices, bringing in hip brands like Joe Fresh and remaking outdated stores.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 loyal Penney customers who like sales and basic merchandise like loose-fitting khakis.


Penney last month rehired Johnson's predecessor, Mike Ullman, who is adding back sales and bringing back some basics. The company also confirmed that Goldman Sachs will provide $1.75 million in financing, a move that eases worries that Penney could run out of cash this year.

But the Plano, Texas-based chain still faces big hurdles. Penney lost $348 million, or $1.58 a share, during the three months that ended on May 4. That compares with a loss of $163 million, or 75 cents a share, in the year-ago period. Revenue dropped 16.4 percent to $2.63 billion.

Wall Street had expected a loss of $1.06 a share on revenue of $2.65 billion, according to research firm FactSet. Revenue at stores opened at least a year -- one measure of a retailer's health -- fell 16.6 percent. That was worse than the 15 percent drop analysts predicted.

Penney blamed the revenue declines, which actually look better because they are being compared with big drops in the year-ago period, on old pricing and marketing strategies under Johnson. But the 1,100-store chain also said that construction to revamp its home departments in some stores also hurt sales.

The big question for Penney is whether it can get back the shoppers into stores. Analysts say one thing is clear: Penney can't go back to its old ways. They say the company needs to strike a balance between catering to its loyal shoppers while bringing in younger customers.

During the seven years he was at Penney's helm, Ullman tried to court younger shoppers by opening mini boutiques in stores that feature beauty company Sephora and exclusive names like European clothing brand MNG by Mango.

But overall, Ullman did little to change the stores, which have been criticized for being too dark and outdated. During Ullman's tenure, sales declined from $18.18 billion in 2004 to $17.6 billion in 2010, his last full year at the company. Sales per square foot dropped to $155 from $177, according to Deborah Weinswig, an analyst at Citi Research

Johnson, the mastermind behind Apple Inc. (AAPL) stores, planned to shake up the company's stodgy image when he took over the top job at Penney's in November 2011. But he was counting on everyday low prices and youthful fashions from names like Betsey Johnson and Joe Fresh to get shoppers to visit more often. He also borrowed from Ullman's strategy of opening mini-boutiques: He developed a plan to replace racks of clothing with shops-within-stores.

When Johnson announced his vision in January 2012, investor enthusiasm was high. But the honeymoon didn't last long as sales fell. Penney's shares have lost more than half their value since early last year and are now trading at about $18, down from $43 in February 2012.

Failure to Launch

Analysts say the problem wasn't Johnson's vision, but his execution. They say the big mistake was that Johnson didn't test the changes with shoppers before rolling them out, as is common in retailing.

Penney mostly has been quiet about its plans going forward. But one question that remains is how much Ullman will slow the pace of the openings of the shops-within-stores, which the company started rolling out last fall. Penney needs to conserve cash but it also needs to bring in shoppers.

Walter Loeb, a New York retail consultant, said he believes that the opening of Penney's revamped home departments, which were under construction when Johnson left on April 8, will help attract customers. The areas will feature 20 new shops devoted to names like Michael Graves and Jonathan Adler. When the renovations are done, about 30 percent of the store will be transformed.

"That is going to make the store more productive," Loeb said.

Penney is hoping the revamp will help lure back some of the customers it lost, including Patricia Kellogg, 50. Kellogg, who lives in Nelson, Ohio, is a former Penney customer who has turned more to Macy's since early last year when Penney cut back on discounts and got rid of some of her favorite brands.

"Penney was my main store, where I shopped for good quality things at a reasonable price," said Kellogg, who works at a bar. "Now, you can't find good quality stuff for the money."

Kellogg stopped by a Penney store this week and bought winter scarves that were discounted to $1. "If they bring back better sales and better quality, I will be back," she said.



Increase your money and finance knowledge from home

Advice for Recent College Grads

Prepare yourself for the "real world".

View Course »

Goal Setting

Want to succeed? Then you need goals!

View Course »

Add a Comment

*0 / 3000 Character Maximum

8 Comments

Filter by:
deanseigneur

The loss of income at Penneys is "music to my ears". I trust it continues and they go out of business or change their immoral ways. J.C. Penney, the founder, would roll over in his grave if he knew about the the unprofessional attitude and actions of the store employees, the greed and graft and corruption of its recent and present administration, and the immoral and perverted celebrity "Ms. Degenerate" that the company uses to inflict America with sexual perversion and sodomy. When Penney changes back to the values of the honest JC and his moral, ethical, honest, kind and family-oriented values I will return. Until then, Kohls is my "merchant of choice".

May 17 2013 at 8:25 AM Report abuse -1 rate up rate down Reply
felic2011

JC Penney, like a lot of other companies, stopped promoting from within, stopped valuing it's staff, stopped running the business according to Mr. Penney's personal and business philosophy, to treat others the way he himself would want to be treated.
Their latest failed CEO was from Apple, his brilliant ideas have pretty much put the final nail in the coffin. But no matter, because when a CEO leaves, they pay him millions to go. Most of their dedicated employee's have been laid off, what's left is a bunch of people who don't care, because the company doesn't care about them anymore.

May 17 2013 at 7:30 AM Report abuse +3 rate up rate down Reply
capecod.girl

I stopped going to Penneys when they started the "Kartrashian Collection"!!!! I won't be going back ever again!!!

May 17 2013 at 6:45 AM Report abuse +2 rate up rate down Reply
1 reply to capecod.girl's comment
kaysings

I thought the Kardouchian junk was at Sears.

May 17 2013 at 8:13 AM Report abuse -1 rate up rate down Reply
ddougl7502

But the new logo looks great!

May 17 2013 at 12:28 AM Report abuse -2 rate up rate down Reply
Karin Anderson

JCP is a store not worth visiting any more - no choices, and no clothing for anyone over the age of 20!!

May 16 2013 at 11:26 PM Report abuse +5 rate up rate down Reply
judy

i went to penney's the other day, my second trip in a couple of months. what a disapointment!
your value clothing is right there with walmart.

congrads!

May 16 2013 at 10:42 PM Report abuse +4 rate up rate down Reply
mizzjan56

I TRIED shopping at Penney a few weeks ago. (Hadn't been there for a long, long time). The store was HORRIBLE. I couldn't find anything. It's all jumbled up now. You have to look around corners and into little cubby holes to try to figure out what size clothing you might be looking at. It was awful. And I went in for some cheap tanks that were advertised. The saleslady showed me...and there was a sign...but at the register I was still told that was NOT the sale shirts. (After I had 6 of them in my hand, and had walked a long way with a sore foot to get them!). I will NEVER go back. They're done.

May 16 2013 at 10:34 PM Report abuse +3 rate up rate down Reply
1 reply to mizzjan56's comment
kaysings

Did you leave those six shirts at the cash register and walk out? I would have.

PS: Buy them at Target instead. Or better yet, go to Big Lots or Ross.

May 17 2013 at 8:20 AM Report abuse rate up rate down Reply
Larry

Excellent! Circle the drain with money from Soros & Goldman Sucks.

May 16 2013 at 9:58 PM Report abuse +1 rate up rate down Reply
Shirley

It's over for JC Penny

May 16 2013 at 8:49 PM Report abuse rate up rate down Reply
davefromfwb1

"Goldman Sachs will provide $1.75 million in financing, a move that eases worries that Penney could run out of cash this year." Oh thank god they are providing 1.75 million in financial aid! They'll burn through that in about 2 hours!!! Huffington Post strikes again....it's supposed to be BILLIONS not 1.75 million!

May 16 2013 at 7:06 PM Report abuse +3 rate up rate down Reply