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Penney sales tumble again, amid hopeful signs

A man with a Macy's bag walks past the J.C. Penney's store in New York, April 11, 2013. REUTERS/Brendan McDermid
A man with a Macy's bag walks past the J.C. Penney's store in New York, April 11, 2013. REUTERS/Brendan McDermid

By Phil Wahba

(Reuters) - J.C. Penney Co Inc on Tuesday reported another quarter of steep sales declines, hit by the lingering effects of its former chief executive's failed marketing strategy.

But Wall Street brushed off the news after the company, which last month brought back ex-CEO Myron Ullman to turn around its operations, reported cash levels that implied the department store chain had gone through less money than feared. Vendors and analysts expect sales to improve later this year.

Shares rose 1.6 percent to $16.66 in after-hours trading.

Penney, coming off a 25 percent sales plunge in 2012 largely blamed on former CEO Ron Johnson's strategy of eliminating coupons and sales in favor of everyday lower prices, reported that same-store sales, or sales at stores open at least a year, fell 16.6 percent in the first quarter.

Analysts were expecting a drop of 13.2 percent, according to Thomson Reuters I/B/E/S.

Johnson was ousted last month and Ullman, whom he replaced in late 2011, has increased the pace of sales in the last two weeks and overseen an apologetic ad campaign aimed at winning back shoppers.

Penney reported quarterly sales of $2.64 billion, below the $2.74 billion Wall Street was expecting, according to Thomson Reuters I/B/E/S.

Some of the decline stemmed from a renovation at the home goods section at 500 of Penney's larger stores ahead of a re-opening this spring with brands by designers such as Jonathan Adler and Martha Stewart.

"This is all on Ron Johnson's dime," said Bernard Sosnick of Gilford Securities Inc about the first quarter results.

Penney will report full quarterly results May 16. Wall Street is more concerned about whether sales are improving now that the company has brought back some of its most popular private brands and old pricing strategy that included coupons and discounts, said Sosnick.

There is a sense among analysts and Penney vendors that sales are already improving since Penney brought back private brands like St. John's Bay clothing and a more aggressive promotion and discounting schedule, including using clear language like "sale" and "25 percent off."

"I think the direction the company is heading in is one that has higher probability of succeeding," Newell Rubbermaid Inc Chief Executive Mike Polk told Reuters last week. Newell sells items like Calphalon cookware and Levolor window treatments at Penney. Newell took a big hit because of Penney's sales hemorrhage last year.

PVH Corp Chief Executive Manny Chirico last week said at an investor conference that he thinks Penney will be able to win back customers and expects Penney's same-store sales to go positive in the second half of the year. The company is a major supplier of menswear to Penney, including Izod brand.

The company, in providing preliminary, partial results for the quarter, said it had $821 million in cash on hand as of May 4, which suggested it had gone through $870 million in cash in the quarter, according to an estimate by Morningstar analyst Paul Swinand.

In a research note put out on Tuesday before Penney reported its results, Morgan Stanley analyst Kimberly Greenberger had estimated Penney had burned through $1.2 billion in cash.

Investors expect to hear more on the earnings call about whether Ullman will try to preserve cash by not opening more branded boutiques within Penney stores, a key part of Johnson's turnaround plan.

Last week, Penney said it had lined up a five-year, $1.75 billion financing deal with Goldman Sachs, its latest move to shore up its finances as it looks to stabilize its operations.

(Reporting by Phil Wahba in New York. Additional reporting by Jessica Wohl in Chicago and Dhanya Skariachan in New York; Editing by Bernard Orr)

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