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J.C. Penney cuts sales forecast as turnaround bid stumbles

November 11, 2016

Shares of J.C. Penney slumped Friday after the department store chain reported sluggish third-quarter sales, particularly in apparel, and cut its forecast for the remainder of the year.

Shares fell more than 8 percent in premarket trading. The report is a setback for Penney, whose business like other retailers has been volatile, bouncing back in the summer after a tough start to the year.

Penney operates more than 1,000 stores, including five in the Indianapolis area.

Penney is trying to recover from a catastrophic reinvention plan under former CEO Ron Johnson that sent sales and profits into a free-fall in 2012 and 2013. Business stabilized under Mike Ullman, who came to the helm in 2013 after Johnson was pushed out. Under Marvin Ellison, who has been CEO since 2015, Penney is looking for new ways to increase sales while playing catch up in e-commerce.

Like other department stores, J.C. Penney is trying to adjust to changing shopping patterns. Consumers are shifting their spending away from clothing and toward experiences like beauty treatments or toward furnishing their home. And when they do pick up clothing, it's more often at off-price stores or online as Amazon moves more into apparel. Penney’s apparel sales were soft in the quarter even though it was back-to-school shopping season.

“That’s concerning because back-to-school was their big push,” said Poonam Goyal, an analyst at Bloomberg Intelligence. “If your back-to-school didn’t do well, what gives you confidence in the holiday season? Why won’t your customer go somewhere else?”

Comparable-store sales will rise 1 percent to 2 percent in the year through January, the company said in a statement Friday. That’s down from a previous projection that they’d increase as much as 4 percent.

Given the environment, Penney wants to be less dependent on clothing, and is focusing its efforts on its home area and rolling out major appliances in it stores. It's also expanding the Sephora beauty shops and is updating its beauty salons, now branded Salon by InStyle. It's also beefing up its store label brands like St. John's Bay.

In a written statement, Ellison said that sales accelerated in the latter part of the third quarter and he's optimistic about a strong holiday shopping season.

"We are excited about the initiatives we have in place to drive incremental growth during the holiday season with our increased appliance penetration, new Sephora locations, free same-day pickup for online orders, a strong cadence of promotional events and our new lowest price guarantee," said Ellison.

It's a tough challenge. Penney reported a loss of $67 million in its fiscal third quarter, which was down from a loss of $115 million in the year-ago period.

On a per-share basis, the Plano, Texas-based company said it had a loss of 22 cents. Losses, adjusted for restructuring costs, were 21 cents per share.

The results beat Wall Street expectations. The average estimate of 13 analysts surveyed by Zacks Investment Research was for a loss of 22 cents per share.

The department store operator posted revenue of $2.86 billion in the period, which missed Street forecasts. Eight analysts surveyed by Zacks expected $2.94 billion.

Revenue at stores opened at least a year fell 0.8 percent, below the 2.2 percent increase that analysts had expected.

Penney shares fell 71 cents, or 8.1 percent, to $8.10 in premarket trading Friday. They bounced back to $8.59 shortly after the market opened. The stock had surged 32 percent this year through Thursday as its comeback bid showed promise.

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