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J.C. Penney Reports Wider-Than-Expected Loss (Update 1)

Updated from 8:10 am EDT with additional information.

NEW YORK (TheStreet) -- J.C. Penney (JCP) reported a wider-than-expected second-quarter loss, but there are signs that perhaps the struggling department store chain is finally starting to turn things around.

The Plano, Texas-based company reported overall net sales for the quarter of $2.66 billion, down 12% from the prior year's quarter and below Wall Street's expectation of a 9% revenue decline to $2.75 billion.

J.C. Penney reported a net loss of $586 million, or $2.66 a share. Wall Street expected a loss of $1.06 a share.

The loss includes:

  • A loss of 99 cents associated with its tax valuation allowance;
  • 52-cent loss on retirement of debt associated with its tender offer;
  • 21-cent loss related to restructuring and management transition charges;
  • 4-cent loss for pension plan expenses; and
  • a 28-cent gain on the sale of a non-operating asset.

The adjusted net loss for the quarter was $477 million, or $2.16 per share, excluding everything except the tax valuation allowance, J.C. Penney said.

Also see: Will TJX Be Retail's Winner This Earnings Season?

Also see: J.C. Penney, Ackman Enter Agreement to Sell Stake

Also see: Urban Outfitters Surges on Wall Street Earnings Beat

"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," J.C. Penney's CEO Myron 'Mike' Ullman said in the earnings release. "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."

The stock jumped nearly 7% shortly after the numbers came out. At last check, shares were rising 2.5% to $13.55.

What investors are likely looking at is the improvement in J.C. Penney's monthly comparable store sales.

Comparable-store sales in the quarter dropped 11.9% from the year-earlier quarter, which the company blamed on its "failed prior merchandising and promotional strategies, which resulted in unusually high markdowns and clearance levels in the second quarter."

The company also put blame on its re-launched home departments, referring to it as a "lengthy renovation" and "disappointing re-merchandising" of the section, which also hurt comparable store sales by 240 basis points.

However, compared to the first quarter, comparable-store sales improved 470 basis points. In addition, sales improved sequentially each month within the second quarter, a trend the company said Tuesday it expects to continue through the back half of the year.

"Moving forward, we're focusing our efforts on regaining customer loyalty by offering trusted brands, award winning service and affordability that families can depend on," Ullman said. "We are encouraged by our early performance this Back to School season, which reflects customers' growing confidence in the brands and styles we offer."

Gross margin fell to 29.6% of sales in the quarter compared to 33.2% in the same period last year. The decline was attributed to 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, the company said.

Cash and cash equivalents totaled $1.53 billion at the end of the quarter. The company said expects to end the year with in excess of $1.5 billion in overall liquidity.

J.C. Penney has had quite a month. Activist investor Bill Ackman, the company's largest investor with an 18% stake, had been pushing for the resignation of CEO Ullman and for Chairman Thomas Engibous to step down. The back-and-forth very public fight between Ackman and J.C. Penney sent shares spiraling lower, on top of the already precipitous fall the stock had following news in July from The New York Post that CIT Group (CIT) "abruptly stopped financing deliveries" from smaller manufacturers that sell to J.C. Penney. The company responded the following day saying the rumor was untrue.

Ackman has since resigned from the board. On Friday, Ackman and J.C. Penney entered an agreement for the hedge fund investor to sell some or all of his stake.

-- Written by Laurie Kulikowski in New York.

To contact Laurie Kulikowski, send an email to: Laurie.Kulikowski@thestreet.com.

>To submit a news tip, email: tips@thestreet.com.



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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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