JCP J C Penney Company Inc

By Suzanne Kapner 

J.C. Penney Co. said its overreliance on apparel weighed on its quarterly results, after sluggish clothing sales dragged down overall revenue, a problem plaguing other department store chains.

"The consumer was simply spending their hard-earned dollars in experiences, entertainment and to beautify their home," Chief Executive Marvin Ellison, a former Home Depot Inc. executive, said on a conference call.

Penney's revenue slipped 1.6% to $2.81 billion in the period ended April 30. Sales excluding newly opened or closed locations fell 0.4%, below the company's expectations. Aggressive cost cutting helped the retailer narrow its quarterly loss.

To combat the problem, Mr. Ellison plans to stock more items for the home, such as appliances, window coverings and flooring that have been capturing a greater share of consumers' wallets and are less sensitive to the weather.

Department stores including Macy's Inc., Kohl's Corp. and Nordstrom Inc. have reported plunging profits and lower sales as shoppers are increasingly turning to Amazon.com Inc. for their clothing and apparel needs. The poor results this week has set off fresh fears about the health of U.S. retailers, but government data released Friday showed that Americans are spending, just not at department stores.

April sales at U.S. retailers and restaurants rose at the fastest pace in more than a year, driven by autos, gasoline stations and nonstore retailers, according to the Commerce Department. The online shopping and catalog category rose 2.1% in April and was up 10.2% from a year earlier, the strongest annual gain of all the categories tracked. Department-store spending rose 0.3%, but was down from a year earlier.

Hudson's Bay Co. on Friday pre-announced lower-than-expected sales for the recent quarter, dragged down by weakness at its Saks Fifth Avenue luxury chain. Excluding currency fluctuations, sales at established stores fell 1%. Sales declined 5.7% at Saks Fifth Avenue, and dropped 4.1% at the company's off-price division, which includes Saks OFF 5th and Gilt. Sales at the department store group, including its namesake brand and Lord Taylor, rose 2.3%.

Earlier this year, Penney reintroduced appliances in a handful of stores after a more than three-decade absence and plans to roll them out to 500 stores this summer. It also is beefing up its offering of blinds, curtains and other items for windows, and has partnered with Empire Today to offer tile, laminate, carpet and other types of flooring. The retailer plans to expand its furniture offerings by testing 21 collections of Ashley Furniture Industries Inc.

Mr. Ellison said that over one-third of customers who buy appliances at its stores are new to Penney, and that regaining share in window treatments represented a $200 million sales opportunity. Penney covered one-third of American windows as recently as 2006, he said, but lost ground during an ill-fated overhaul under prior leadership.

After falling 10% in premarket trading, Penney's shares were down 1.6% to $7.68 in Friday afternoon trading. Over the past year, the stock has fallen 9.3%.

The company backed its same-store sales forecast for the year anticipating growth of 3% to 4%, citing "the positive nature of our recent sales trends," strength in its Sephora business and an accelerated appliance rollout.

It also made headway trimming expenses. The retailer said it reduced overhead costs by 9.6% to $872 million during the quarter.

Mr. Ellison said the company reduced the hours worked by back-office employees by 500,000 in the quarter. The decision to end its sponsorship of the Academy Awards accounted for 75% of its savings in marketing in the quarter. The company is looking for other efficiencies such as packing its trucks with more goods, but he warned that expense savings for the rest of the year wouldn't be as great as what was recorded in the recent quarter.

Penney's loss for the quarter narrowed to $68 million from $150 million a year earlier. 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.

Gross margin edged down to 36.2% from 36.4% a year earlier, hurt by additional markdowns. Penney also lowered its gross margin forecast 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 online growth.

(END) Dow Jones Newswires

May 13, 2016 14:03 ET (18:03 GMT)

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