This audio is auto-generated. Please let us know if you have feedback.
Dive Brief:
-
J.C. Penney on Friday reported that total Q1 net sales fell 8.1% to $1.4 billion, according to a financial filing. Net loss more than tripled, reaching $63 million from $17 million a year ago.
-
Following the late-April relaunch of the retailer’s loyalty program and other marketing efforts, organic Google search volume and net promoter scores improved. Inventory was down 9% year over year.
-
Consolidated adjusted EBITDA, often emphasized by co-owner Simon Property Group, swung into the red, reaching a negative $3 million from positive $56 million a year ago. That reflects “the impact of the sales declines that were mostly offset by margin improvement and ongoing cost saving efforts,” per the filing.
Dive Insight:
In its financial filing Friday, J.C. Penney noted that sales remain challenged due to “continuing economic pressure weighing on discretionary income for middle income Americans.” Its credit card income took a hit in the quarter, plunging more than 20% to $58 million.
“With sales declines accelerating over the last quarter and with losses growing on the bottom line, JCPenney has started its new fiscal year on a sour note,” GlobalData Managing Director Neil Saunders said by email. “Unfortunately, the market has been soft which has not helped revenue, but as it is only part way through its reinvention program JC Penney isn’t firmly on the front foot.”
There were bright spots. The department store said its “women’s business was strong,” particularly private labels Liz Claiborne and J. Ferrar. Thanks to an emphasis on inclusive sizing, plus, petite and big and tall men’s apparel outperformed, the company said.
Expenses were also kept in check in the quarter, with selling, general and administrative costs flat to last year. “Savings were achieved through lower store expenses, lower overall ecommerce expenses, and lower credit expenses,” the company said in its filing.
Changes to assortments and some stores under a billion-dollar turnaround plan initiated less than a year ago “seem to be delivering, with refurbished shops performing better and some categories like womenswear producing better numbers,” according to Saunders.
“Sadly, these things are not yet sufficiently developed or widespread enough to offset staleness in the balance of the business,” he also said.
Despite ongoing top-line disappointments, J.C. Penney remains financially robust. The company in its filing noted that it “continues to prioritize maintaining a very healthy balance sheet with significant liquidity” of about $1.6 billion, less than $500 million in long-term debt and no balance on its line of credit at the end of Q1.
Penney co-owners Brookfield Properties and Simon Property Group bought the department store out of bankruptcy four years ago and since then Simon CEO David Simon has touted the retailer’s progress. While four locations will close in coming months, none of those are in Brookfield or Simon malls. Moreover, the scale of the closures pales compared to the 150 Macy’s locations set to shutter over the next three years.
It’s still not clear whether the malls’ financial backing, its own fiscal discipline and the improvements in stores and assortments will pay off in the long run, however.
“Fortunately for JCPenney, it is well financed and has a strong financial partner in its owners. As such, management won’t lose too much sleep over being in the red,” Saunders said. “However, the company does need to produce some better results across the remainder of this fiscal to prove its strategy is working.”
via https://www.aiupnow.com
Daphne Howland, Khareem Sudlow
