J.C. Penney: Home Re-Merchandising Played Role In Weak Q2 Results

J. C. Penney Company, Inc. announced financial results for its fiscal second quarter ended August 3, 2013. The company also reported on its initiatives to fix and stabilize the business and return to profitable growth. The retailer reported net sales of $2.66 billion compared to $3.02 billion in the fiscal second quarter of 2012. Comparable store sales declined 11.9% in the quarter and were negatively impacted by the company’s failed prior merchandising and promotional strategies, which resulted in unusually high markdowns and clearance levels in the second quarter, the company said.

In addition, the lengthy renovation and disappointing re-merchandising of its Home departments adversely impacted the company’s comparable store sales during the second quarter. Overall, the performance of the company’s Home division had a 240 basis point impact on its comparable store sales for the quarter, according to J.C. Penney.

“Getting the new Home strategy up and running has been more challenging and is taking much longer than originally planned. To date, the company has re-opened nearly 500 Home departments, but previous management’s Home strategy has not resonated well with customers,” the company stated.

“For example, early feedback has made it clear that customers would prefer a more balanced assortment between traditional and modern home furnishings, a better selection of good, better and best pricepoints across key items and would prefer to see certain merchandise arranged by category rather than brand. The testing of this modified shopping environment has shown significant improvement in performance,” the company stated. Consequently, the company has begun restaging its Home departments by category and expects to complete this work in the third quarter of fiscal 2013.  

Despite these challenges, comparable store sales for the quarter improved sequentially by 470 basis points when compared to the first quarter of fiscal 2013. In addition, sales results improved sequentially each month within the second quarter, a trend the company expects to continue through the back half of the year.  Gross margin was 29.6% of sales, compared to 33.2% in the same period last year. Gross margin was negatively impacted by lower than expected sales, and a higher level of clearance merchandise sales during the quarter including merchandise carried over from the first part of the year. For the second quarter, the company incurred a net loss in the amount of $586 million or $2.66 per share. 

Myron E. Ullman, III, CEO of jcpenney, said, “Since I returned to jcpenney four months ago, we have moved quickly to stabilize our business— both financially and operationally— and we have made meaningful progress in important areas of the business.”

“There are no quick fixes to correct the errors of the past. That said, we have identified the challenges, put solid plans in place to address them and have experienced and capable people in key roles to do so,” he said.