J.C. Penney Co. (JCP) swung to a second-quarter loss as the retailer saw its margins squeezed on sliding same-store sales, 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%. J.C. Penney 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."
Shares fell 5% to $21 in recent premarket trading as results missed estimates. The stock is down 35% in the past three months.
Friday's results follow a disastrous first quarter. J.C. Penney--which is in the midst of a vast transformation effort to make it more competitive with rivals like Macy's Inc. (M) and Kohl's Corp. (KSS)--in May reported swinging to a steep loss as total sales declined 20% and same-store sales slid 19% on a double-digit drop in customer traffic.
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 reported the retailer is attempting to stem the 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.
"This month we simplified our pricing, launched the rest of our new shops, and accelerated our marketing efforts to focus on brands, products and value. Early response to these efforts has been very encouraging," Mr. Johnson said.
Penney also eliminated its dividend earlier this year, raising investor concerns about its cash flow. It said Friday it ended the second quarter with about $888 million in cash and equivalents and that cash used in operations in the second quarter was $32 million, $545 million less than the first quarter.
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."
The retailer 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 from a year-ago profit of 19 cents.
Analysts polled by Thomson Reuters had 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 product arriving in the fall.
Earlier this week, rival Macy's reported its second-quarter earnings surged 16%, with the department store seeing revenue, and particularly online sales, rise as its localized product offerings and its raft of exclusive brands resonated with customers. Kohl's, however, said its fiscal second-quarter earnings fell 20% as the department-store operator reported weak same-store sales and margins, while cutting its earnings guidance for the year.
Write to Saabira Chaudhuri at email@example.com
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