J.C. Penney Q2 Loss Widens; New Home Format Falling Short

J.C. PenneyPLANO, Texas-The second quarter brought a new flow of red ink to J.C. Penney’s bottom line, along with indications that the strategy for the home department put in place by the retailer’s previous CEO, Ron Johnson, has not worked with shoppers.

The company’s net loss in the quarter, which ended on Aug. 3, was $586 million, compared to last year’s second-quarter net loss of $147 million. Net sales were down 11.9 percent to $2.7 billion, with same-store sales dropping by the same 11.9 percent. A J.C. Penney statement attributed some of the sales shortfalls to “the lengthy renovation and disappointing remerchandising of its home departments.”

J.C. Penney said the difficulties in the home department involved both the length of time in getting the new strategy up and running, and the fact that the strategy “has not resonated well with customers. For example, early feedback has made it clear that customers would prefer a more balanced assortment between traditional and modern home furnishings; a better selection of good, better and best price points across key items; and would prefer to see certain merchandise arranged by category rather than brand.”

The company said it has begun “restaging” home along these lines, with tests of this altered environment showing “significant improvement in performance.” J.C. Penney said it expects to complete this new reformatting during the current quarter, and added that it has begun new merchandising initiatives “to make the home assortments more compelling to customers.”

Second-quarter gross margin  dropped 367 basis points to 29.6 percent. Selling, general and administrative expenses declined 2.3 percent in dollars but increased 379 basis points as a percentage of sales, to 38.5 percent.

Myron Ullman III, J.C. Penney’s CEO, said the company has “moved quickly to stabilize our business” since he succeeded Johnson in April. “There are no quick fixes to correct the errors of the past,” Ullman said. “That said, we have identified the challenges, put solid plans in place to address them and have experienced and capable people in key roles to do so.”