JC Penney Invites Investors' Wrath

JC Penney Company Inc JCP investors vented their ire against the company's below-than-expected sales by punishing the stock on Friday.

JC Penney suffered a smaller loss of $68 million or a loss of $0.22 a share in the first quarter than a net loss of $150 million or a loss of $0.49 a share in the year-ago quarter. On an adjusted basis too, its loss narrowed to $97 million from $173 million while the loss per share fell to $0.32 from $0.57 in the corresponding period of the last year. The loss per share is better than the expected loss of $0.38 a share by the Street analysts.

However, the total net sales fell 1.6 percent to $2.81 billion from $2.86 billion in the previous year quarter thus missing the Street expectations of $2.92 billion. Its comparable store sales fell 0.4 percent in the quarter.

JC Penney's CEO, Marvin Ellison, commented, "The first quarter was clearly challenging from a sales perspective. Although our business was not immune to the issues facing other retailers, I am pleased that we were able to deliver our second consecutive quarter of positive operating profit. In addition, the teams did an excellent job of proactively managing the business throughout the quarter to ensure we remained a fiscally disciplined organization. As a result, we exceeded our profitability expectations, achieving a 63 % increase in EBITDA to $176 million for the quarter."

Ellison continued, "While our first quarter sales were below our expectations, we are maintaining our annual comp guidance of 3 % to 4 % as a result of the positive nature of our recent sales trends, the strength of our Sephora business and our decision to accelerate our appliance rollout. However, we are lowering our full year gross margin guidance to a 10 to 30 basis points increase for the year, reflecting the rollout of appliances and the rapid growth of our online business. Having said that, we remain confident that our turnaround remains on track, and we are excited about our 2016 sales drivers including new Sephora locations, Center Core enhancements and our nationwide rollout of major appliances announced earlier this week. Accordingly, we are reaffirming our $1 billion in EBITDA for 2016."

The company said its Men's, Sephora and Footwear and Handbags were the top performing divisions in the first quarter. Geographically, the North East and Ohio Valley were the best performing regions for the company.

JC Penney pointed that its SG&A expenses were down $93 million to $872 million, or 31.0 percent of sales. That represented a 280 basis point improvement from last year. The company attributed these savings to lower controllable costs and corporate overhead, reduced advertising spend and improved private label credit card income.

Moving ahead, the company said it expects comparable store sales to increase 3–4 percent in the full year 2016 while gross margin is predicted to increase 10–30 basis points. The company expressed its confidence of reducing its SG&A. The retailer expects its adjusted earnings to be positive for the full year. Street analysts expect the company to deliver earnings of $0.04 a share on revenues of $12.97 billion.