Q1 Loss Doubles for JCP

PLANO, Texas-In the face of a doubling of the loss in J.C. Penney's first quarter, CEO Myron Ullman III told financial analysts in a conference call yesterday that the retailer "has made very good progress over the last 18 months."

The company's net loss for the quarter, which ended on May 4, totaled $348 million, up from $163 million in last year's first quarter. The loss mounted largely because of a 16.4 percent drop in net sales, to $2.6 billion--which included a 16.6 percent plummet in same-store sales. During yesterday's conference call, Ken Hannah, chief financial officer, attributed the poor checkout numbers to declines in both traffic and conversion, and to the "disruption" caused by the ongoing transformation of the stores' home departments.

Also hurting the bottom line, gross margin lost 681 basis points to 30.8 percent. Selling, general and administrative expenses were down 7.6 percent in dollars but rose 411 basis points as a percentage of sales, to 40.9 percent.

Ullman said the launch of the new home shops is on course for next month, and that J.C. Penney's capital expenditures for the stores' reformatting are nearly complete. He added that "we're taking steps to reconnect with our core customer ... We need to make a connection with the customer that is meaningful as well as enduring. That won't happen overnight, but customers will begin to see important changes in the coming months that are aimed at meeting their needs."

When queried about marketing by one analyst, Ullman responded, "I think that we're very focused on the key shopping occasions throughout the year. So we can focus our spending on the times that customers expect to be shopping, probably about over 20 times that we've identified." He also said J.C. Penney is using "new techniques" to understand consumer insights, which involve pretesting marketing messages before going ahead with them. Listening to J.C. Penney shoppers "is a very important part of going forward, not only to our customers but also to our associates."

The progress Ullman spoke of involved the improvement of the look in the stores, especially with brand assortments such as Joe Fresh and Happy Chic by Jonathan Adler. He said the retailer plans to bring back a number of its private brands which, he said, "have been underemphasized over the last year or so."

HFN Staff | News & Commentary

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