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J.C. Penney’s Q1 Loss Nearly Doubles as Turnaround Falters

The first quarter results for the period ended May 4 shows just how pressured J.C. Penney Co. Inc. is, and how little time chief executive officer Jill Soltau has to effect a turnaround.

The earnings report showed a drop in retail comparable store sales and an overall decline in sales, not to mention an 8-cent miss on adjusted earnings per share, widening the quarterly loss from a year ago.

In a Nutshell: It was not a good quarter for J.C. Penney, even though the retailer said it still expects free cash flow to be positive for fiscal year 2019.

“We have made good progress on each of our immediate action steps highlighted last quarter, including our continued efforts to reduce and enhance our inventory position, which results in a 16 percent reduction in our inventory and a meaningful improvement in our free cash flow this quarter,” Soltau said.

The company’s inventory rationalization effort continues, she said, adding that the company is testing a number of strategies around “optimal inventory levels.”

J.C. Penney has also named Shawn Gensch as its new executive vice president and chief customer officer to improve the retailer’s customer touchpoints, and he’ll begin in the role starting June 3.

Net Sales: Total revenues fell 4.3 percent to $2.56 billion from $2.67 billion. Excluding credit income and other revenues, total net sales were down 5.6 percent to $2.44 billion from $2.58 billion. Comps fell 5.5 percent in the quarter. The company said the exit of the major appliances and in-store furniture categories had a negative impact on comp sales in the quarter. Credit income was also higher at $116 million for the quarter versus $87 million a year ago.

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Children’s, women’s and men’s apparel, plus fine jewelry were among the better performing categories.

Inventory at the end of the quarter was $2.48 billion, down 16 percent from the end of the year-ago quarter. The retailer also said it ended the quarter with liquidity of about $1.75 billion.

Earnings: J.C. Penney reported losses that nearly doubled to $154 million, or 48 cents a diluted share, from $78 million, or 25 cents, a year ago. On an adjusted basis, the net loss was $147 million, or 46 cents a diluted share. Wall Street’s estimates were for a loss of 38 cents on revenues of $2.56 billion.

The company didn’t provide any forward-looking projections, noting that the nature or amount of potential adjustments, which could be significant, “cannot be determined now.”

By the late morning’s trading session Tuesday, shares of J.C. Penney fell 9.1 percent to $1.04 cents.

CEO’s Take: “Retail is a dynamic business with many touchpoints that together lead back to the customer experience. We are working to re-establish the fundamentals of retail at J.C. Penney, and at the same time, we are building capabilities to satisfy the wants and expectations of our customers,” Soltau said, adding that the company is continuing to map out a comprehensive long-term strategy.