"J.C. Penney Co. swung to a fiscal-second-quarter loss as sliding same-store sales squeezed the retailer's margins, raising further questions about Chief Executive Ron Johnson's new pricing strategy.
The company also said it no longer anticipates achieving its previously issued full-year earnings guidance for fiscal 2012 but didn't provide an updated estimate.
Penney's same-store sales declined 22% for the quarter ended July 28. Total sales decreased 23% to $3.02 billion, which includes the effects of the company's exit from its outlet business, while internet sales sank 33%. The Plano, Texas, company said sales for the quarter were hurt by its decision to "significantly reduce its marketing activities during the latter half of the quarter, as it reconsidered its approach to pricing and marketing in time for back to school."
The results cast doubt on Mr. Johnson's strategy of cutting discounts in favor of offering generally lower prices at all times. Last month, The Wall Street Journal said the retailer was attempting to stem a sales dive by making deep price cuts across much of its merchandise starting this month, under a new policy that gets rid of monthlong specials.
Penney on Friday reported a loss of $147 million, or 67 cents a share, versus a year-ago profit of $14 million, or seven cents. The most recent quarter included $159 million in restructuring and management-transition charges. Excluding pension-plan expenses, the adjusted loss was 37 cents, compared with a year-ago profit of 19 cents.
Analysts polled by Thomson Reuters projected a per-share loss of 25 cents on revenue of $3.2 billion.
Gross margin narrowed to 33.2%% from 38.3%, a drop the company says partly came from lower-than-expected sales and about $102 million of markdowns taken to clear discontinued inventory in preparation for new products arriving in the fall. . . .
Mr. Johnson defended the company's balance sheet, calling it "rock solid." He added that the transition from a "highly promotional business model to one based on everyday value will take time" and said the company "will stay the course."
Things remain very difficult for the attempted turnaround story of J.C. Penney.
No matter how clever or brilliant the new management's strategy, companies, like countries, need sales to grow to be successful. It's all about customers and what they choose to do with their money.
In the long run, only satisfying more and more free choosing customers can make Penney a winner.
Unlike government operations such as the U.S. postal service, which 'enjoy' apparently unlimited support at the expense of taxpayers, private sector companies have to perform or suffer the consequences.