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J.C. Penney Blames Weather, Supply Chain for Q1 Performance

Hampered by weather and supply chain issues, J.C. Penney came in below expectations for the first quarter ended May 5.

In a Nutshell: J.C. Penney outlined three key challenges that negatively affected gross margin in the first quarter, including “mixed supply chain and process issues” which led to the need for clearance markdowns and negative comps in women’s and kids’ due to cool temperatures in early April.

Weather issues aside, executive vice president and chief customer officer Joe McFarland said in the company’s earnings call that apparel is improving and he’s pleased with the increased sell through. The retailer said it is focused on active, casual wear and special sizes. Marvin Ellison, chairman and CEO of J.C. Penney, said the latter category represents a $100 million growth opportunity this year, led by the Liz Claiborne brand. Activewear, which delivered a double digit gain in the quarter, will continue to be led by brands like Nike and Adidas as well as JCP’s new Fitbit offering. Looking ahead, JCP sees the addition of Fanatics shops as a way for it to catch up in the active space.

The retailer has revised its full-year guidance, reflecting a change in the company’s accounting methods. It is now expecting comp sales to be flat to up 2 percent. Adjusted earnings per share are projected to be down 7 cents to up 13 cents.

Sales: JCP reported net sales of $2.6 billion, a 4.3% decrease compared to the first quarter of 2017, which reached $2.7 billion. The company attributes the decline to the 141 store closures in Q2 and Q3 last year.

Comp sales increased 0.2%, on the strength of jewelry, Sephora, men’s wear and Salon. Apparel performance comped positive in February and March before unseasonable weather disrupted sales in early April.

Earnings: The retailer reported an adjusted net loss of $69 million, or 22 cents per share, for the quarter compared to $2 million, or 1 cent per share, income gain during the prior-year period.

CEO’s Take: “Overall, we believe that our strategies are beginning to take hold, as we are seeing improvement in a number of areas. Apparel categories performed well during seasonable weather periods, and our beauty and home refresh initiatives performed well above our total comp sales performance for the quarter.  The strength in sales performance early in the quarter, our investments in enhancing our apparel categories, continued strength in our beauty and home refresh initiatives and a focus on taking market share from ailing retailers all give us confidence in our annual comp sales guidance of flat to up 2 percent,” Ellison said.