J.C. Penney Posts 1st Profit Since 2011
New York — J.C. Penney Co. posted its first quarterly profit in more than two years and a gain in same-store sales, benefiting from a return to its traditional discounting strategy and the revival of popular private-label brands.
Net income was $35 million, or 11 cents a share, in the quarter ended Jan. 31, compared with a loss of $552 million, or $2.51, a year earlier, the Plano, Texas-based company said last week. Excluding the sale of assets and tax benefits, such as a $270 million from a change in the value of its pension, the company had a loss of 68 cents a share. The average of 24 estimates compiled by Bloomberg was a loss of 86 cents.
Chief Executive Officer Mike Ullman’s attempt to turn around the department-store chain gained traction during a holiday season marked by a discount war among retailers seeking to attract tentative shoppers. J.C. Penney’s fourth-quarter same-store sales rose 2 percent, and the retailer said revenue by that measure would gain 3 percent to 5 percent in the current quarter.
“Posting positive sales is a step in the right direction,” John Tomlinson, an analyst at ITG Investment Research Inc. in New York, said in an interview before the results. The company still faces “broad challenges.”
The company’s last quarterly profit was in the quarter ended July 2011.
J.C. Penney stock jumped more than 30 percent Wednesday after results were announced. Shares closed Friday at $7.28, well below the 52-week high of 19.63.
The retailer, which raised almost $4 billion in cash through borrowings and a share sale last year, may need to raise more capital in a few quarters if the sales recovery doesn’t accelerate, Charles Grom, an analyst for Sterne Agee & Leach Inc., wrote in a note to clients on Feb. 19.
J.C. Penney’s operations generated $383 million last quarter, down from $645 million a year earlier. In the first three quarters of last year, it used $2.2 billion of cash in its operations. The company reiterated it had more than $2 billion in liquidity at the end of last quarter and will have about that much at the end of the current fiscal year.
Revenue fell 2.6 percent to $3.78 billion, trailing analysts’ $3.86 billion average estimate. Excluding sales during an extra week a year earlier, revenue would have risen 1.6 percent. Same-store sales, which are a key measure of a retailer’s growth because new and closed stores are excluded, rose 2 percent, the first gain since the quarter ended April 30, 2011.
“The most challenging parts of the turnaround are behind us,” Ullman said today on a conference call with analysts. The company has improved its finances and operations and now is ready to boost sales and margins this year, he said.
Sales collapsed under Ron Johnson, J.C. Penney’s previous CEO, falling more than $4 billion, or 25 percent, in the fiscal year ended Feb. 2, 2013. Ullman, who stepped down in November 2011 to make way for Johnson, returned in April and set about reversing much of what he did.
Johnson lost customers after abandoning the chain’s history as a promotional retailer by switching to everyday low prices and trying to lure shoppers with new brands. Ullman quickly brought back discount events to give shoppers a reason to visit stores again and revived well-liked private-label brands such as St. John’s Bay that Johnson had removed.
Ullman also ended Johnson’s move to revamp about 700 of the chain’s 1,100 stores as collections of boutiques dedicated to brands such as Joe Fresh and Izod.
Improving customer service, including changing employees uniforms so they are more recognizable, and revamping the chain’s web operations has also been a focus.
While Ullman’s moves have helped stop sales from continuing to decline, the chain’s discounting has restrained much-needed margin gains, Rick Snyder, an analyst for Maxim Group in New York, said in an interview before the results.
Gross margin, or the percentage of sales left after cost of goods, improved to 28.4 percent from 23.8 percent. Analysts projected 30.5 percent.
The chain also is trying to reduce costs and sell off assets. In January, it announced plans to cut about 2,000 store workers and close 33 stores. Earlier this month, it entered a partnership to develop the land around its headquarters.
J.C. Penney also said today that the U.S. Securities and Exchange Commission’s office in Fort Worth, Texas, told the retailer on Feb. 13 that it had concluded an investigation into the company’s liquidity, cash position and recent stock offering and wasn’t recommending any action.