JC Penney reported a weaker-than-expected second quarter loss, sending shares down to its all-time low.
Earnings and same-store sales fell short of Wall Street’s expectations, which weighed on the retailer’s shares, plunging over 16 percent in early trading. Shares plummeted 16.56 percent to close at $3.93 on Friday, even lower than when they debuted the market in 1978.
The Plano, Texas-based company reported adjusted earnings per share with a loss of 9 cents, against an expected loss on only 5 cents, according to a survey by Thomson Reuters. Revenue inched up at $2.96 billion compared to analysts’ consensus of $2.84 billion.
Same-store sales dropped 1.3 percent, which is better than the 3.5 percent decline in the earlier quarter but behind analysts’ estimate of 1.2 percent drop.
The company reported a quarterly loss of $62 million, or 20 cents per share, compared to a loss of $56 million, or 18 cents a share, in the same period last year.
“While broader retail remains challenged, we are encouraged by the improved performance in our total apparel business, including a significant acceleration in kids’ apparel,” Marvin Ellison, JC Penney chief executive officer, said in an earnings statement. “Nearly all categories delivered improved sales results during the quarter, with our growth initiatives in beauty, home refresh and omnichannel continuing to deliver positive sales growth.”
The decline is partly attributed to the closing of 127 stores during the quarter and liquidated a massive amount of merchandise, which took a toll on earnings and gross margin. According to JC Penney, they had never liquidated this many stores at one time, which made it difficult for the company to forecast the impact on the margin. While a challenging move in the short term, the liquidation efforts helped reduce excess inventory and put the company in a good position for the rest of the year, the company said.
“[We] feel it was the right thing to do for our business,” Ellison said in an earnings conference call on Friday. “This decision will allow us to improve working capital, generate more cash flow and invest capital into more productive locations.”
JC Penney’s results are weaker than its rivals Nordstorm, Macy’s and Kohl’s. These retail giants all posted better profits and same-store sales. Like Penney, Macy’s has also shut stores in non-performing locations in an effort to curb rising costs and invest more on its real estate assets. Nordstorm is investing heavily in its off-price stores and e-commerce platform in an effort to compete against off-price retailers and online store giant Amazon.com.
However, department stores in general have been lagging behind due to declining foot traffic. This uncertainty is worrying investors and is prompting them to flee.
“Although JCP’s numbers are not a disaster and represent a significant sequential improvement over the prior quarter, they are nevertheless underwhelming,” Neil Saunders, retail managing director at GlobalData, wrote in a note to investors. “The lack of progress on profit and same-store sales both highlight that the turnaround program is a long-term endeavor that will take some time to deliver.”
On a positive note, Penney’s home, fine jewelry, footwear and handbags, Sephora and Salon were the company’s top performers for the quarter. A total of 32 Sephora stores were opened within its stores and 31 expansions were completed. According to the company, it plans to have a total of 650 Sephora stores in about 75 percent of existing JC Penney stores.
The company has also been adding new categories like appliances, a toy section in time for the Holidays, and revamping its women’s apparel products to be trendier and more focused on casual clothing.
The company has reaffirmed its guidance for the full year 2017 but with updates in its guidance for cost of goods sold. The company expects comparable sales to decline between negative to positive 1 percent. Forecasted adjusted earnings is between 40 and 65 cents per share.