J.C. Penney Q2 Loss Expands as Sales and Margins Weaken

J.C. PenneyPLANO, Texas-Even though the company presented it as a quarter of progress, J.C. Penney’s third-quarter net loss widened from $123 million last year to $489 million this year.

The loss grew as a result of declines in sales and in margins. Net sales for the quarter, which ended on Nov. 2, were down 5.1 percent to $2.8 billion, including a decline of 4.8 percent in same-store sales.

Gross margin fell 305 basis points to 29.5 percent, the result of reduced clearance margins from the overhang of inventory from the first two quarters of this year, increased sales levels of clearance units and the retailer’s transition to a promotional pricing framework, compared to last year’s pricing strategy.

J.C. Penney did trim back selling, general and administrative expenses by 7.5 percent in dollars and 94 basis points as a percentage of sales, to 36.2 percent. However, the company incurred 35.3 percent more in restructuring and management transition charges in this third quarter.

Despite the negative data, J.C. Penney said it is on the road to improved sales and profitability. The company pointed out that it has achieved a same-store sales gain in October—0.9 percent, the first month of a same-store sales increase since December 2011, according to a statement the retailer issued two weeks ago. In addition, sales on jcp.com were up 24.5 percent in the quarter.

“Our strategies to reconnect with customers are beginning to take hold, and this became increasingly clear as the quarter progressed,” said Myron Ullman III, J.C. Penney’s CEO. “The spirit and determination of our associates has enabled us to maintain our momentum going into the fourth quarter.”

For this quarter, J.C. Penney said it now expects same-store sales and gross margin to improve sequentially and year over year. In addition, SG&A expenses should be below the levels seen in last year’s fourth quarter.