J.C. Penney Posts Worse-Than-Expected Sales--2nd Update

By Anne Steele 

J.C. Penney Co. on Friday reported an unexpected decline in revenue in the first quarter of the year, unable to avoid a slump in sales that has battered the industry.

"The first quarter was clearly challenging from a sales perspective," said Chief Executive Marvin Ellison, noting that "our business was not immune to the issues facing other retailers."

On Wednesday, Macy's Inc. set off fresh fears about the health of the U.S. retail sector as the country's largest department-store chain reported its worst quarterly sales since the recession. After that, Nordstrom Inc. cut its financial projections for the year following worst-than-anticipated results for the first-quarter, and said it needed bigger discounts to clear inventory. Kohl's Corp., meanwhile, posted a 87% drop in profit in the latest quarter and a surprise decline in sales.

In all for the quarter, Penney's loss narrowed to $68 million, or 22 cents a share, from $150 million, or 49 cents a share, a year earlier. On an adjusted basis, the loss was 32 cents. Analysts polled by Thomson Reuters had expected an adjusted loss of 38 cents a share.

Sales slipped 1.6% to $2.81 billion, below analysts' forecast for a rise to $2.92 billion. Sales at existing stores fell 0.4%. Still, Penney backed its same stores sales guidance for growth of 3% to 4% this year, citing "the positive nature of our recent sales trends," strength in its Sephora business and accelerated appliance rollout.

Gross margin edged down to 36.2% from 36.4% a year earlier, hurt by additional markdowns due to unseasonable weather. Penney also lowered its gross margin guidance for the year to a 10 to 30 basis-point increase from a previous forecast of 40 to 60 basis points, on the rollout of appliances and the rapid growth of its online business.

Penney said its men's line, footwear and handbags, and Sephora were among its top-performing divisions.

Earlier this week, Penney said it topped its own goal for a measure of profit during the quarter and that it would begin selling appliances online and in more stores as it reintroduces them to its business after more than 30 years on the sidelines. The company said it exceeded its quarterly estimate for earnings before interest, taxes, depreciation and amortization and is on track to achieve its full-year guidance of $1 billion.

That helped the stock recover from a 7.5% decline last Friday on worries ahead of the quarterly report. Media reports said then that the retailer may have sharply cut costs the past several weeks.

On Friday, Penney said it trimmed overhead expenses by 9.6% to $872 million during the quarter, which ended April 30, mostly owing to lower controllable costs and corporate overhead, reduced advertising spend and improved private label credit card income.

Shares rose 2.2% to $7.97 in midday trading, though they are still down 14% this month.

Write to Anne Steele at [e-mail]

(END) Dow Jones Newswires

May 13, 2016 11:41 ET (15:41 GMT)

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