WALL STREET – J.C. Penney Co Inc’s sales continued to fall sharply last quarter as shoppers balked at the fancier items in its relaunched home-goods section, but there were signs the retailer was winning back customers this back-to-school season.
The company on Tuesday said sales trend had improved every month in the quarter and said business so far this back-to-school period, the second-most important for Penney after the holidays, was “encouraging.”
But the impact of what Penney called “failed prior merchandising and promotional strategies” weighed on results.
Sales at stores open at least a year fell 11.9 percent in the quarter, during which it reverted to a promotions-heavy strategy to try to stop a sharp sales decline. Analysts were expecting a 7.4 percent drop, according to Thomson Reuters.
The quarter was the first full period under CEO Myron Ullman since he returned to the helm in April to fix the damage wrought by Ron Johnson, who left after his efforts to make Penney more trendy led to a 25 percent sales decline last year.
The company’s gross margin fell 3.6 percentage points to 29.6 percent of sales after it had to slash prices to clear merchandise shoppers did not want, much of which was brought in by Johnson who wanted to transform Penney into an emporium of dozens of boutiques each showcasing a trendy brand.
Shoppers have not taken to many of the new, trendier brands in the home goods section, Ullman said in a statement.
After spending hundreds of millions under Johnson to re-launch the home goods section, the company will now re-organize items by category rather than by brand and bring in more low-price merchandise.
“Ullman is rolling up his sleeves and working to get this ship back on track and bringing in the merchandise Penney shoppers want,” said Walter Loeb, an analyst with Loeb Associates.
Home-goods last year accounted for 12 percent of overall sales compared to 21 percent six years earlier. The relaunch was meant to re-invigorate an important business that generates shopper traffic.
The company also said it expected to have $1.5 billion in overall cash liquidity at year end.
It said it would have enough inventory in stores and online well in advance of the holiday season. Another encouraging sign for Penney was online sales fell 2.2 percent the quarter, suggesting the decline in that business is bottoming out.
The higher level of markdowns and lower-than-expected sales deepened Penney’s net loss in the quarter to $586 million, or $2.66 per share, from $147 million, or 67 cents per share a year earlier. Overall sales fell 11.9 percent to $2.66 billion.
Excluding items such as a loss associated with the tax valuation allowance, Penney lost $1.17 a share, 11 cents worse than expected.
The quarter was also full of boardroom drama: William Ackman, the activist billionaire investor who brought in Johnson and is still Penney’s largest shareholder, feuded publicly with Penney’s chairman earlier this month before quitting the board a few days later.
Its shares were up 3 percent at $13.61 in premarket trading.