PLANO, Texas-In a period that CEO Ron Johnson described as “tougher than expected,” J.C. Penney posted a first-quarter net loss of $163 million, compared to net income in last year’s first quarter of $64 million.
Johnson delivered this assessment in New York City yesterday at a meeting with financial analysts—which included Michael Francis, president, and Mike Kramer, chief operating officer—that provided an update on the department-store retailer’s transformation. During the meeting, Francis announced that J.C. Penney has formed partnerships for new brands in its home area with Jonathan Adler, Michael Graves, Bodum and Sir Terence Conran for a number of home furnishings products.
Francis also said Royal Velvet, which he described as a “heritage brand,” would be extended beyond bedding and bath products to include furniture, window products and tabletop. He also said the Martha Stewart shop, part of the agreement between J.C. Penney and Martha Stewart Living Omnimedia, would be the home area’s “cornerstone” by next March 1.
A steep drop in sales along with charges for restructuring and management transition combined to turn J.C. Penney’s bottom line from black to red in the quarter, which ended on April 28. Net sales plummeted 20.1 percent to $3.2 billion, including a drop of 18.9 percent in same-store sales. Gross margin fell 282 basis points to 37.6 percent. Selling, general and administrative expenses dropped 9.4 percent in dollars but increased 431 basis points as a percentage of sales, to 36.8 percent.
In describing the progress J.C. Penney is making in its transformation, Johnson said while the first 90 days were difficult, the transformation is ahead of schedule. He said the retailer has received positive feedback from shoppers on its new pricing strategy (“fair” and easier-to-understand pricing, drastically reduced promotions) and on the look of the stores. In looking ahead as far as the financial results are concerned, he repeated his assessment in a meeting with analysts in January that “the back half of the year will be better than the front half.”