J.C. Penney Turnaround Finally Takes Hold

Three years after Apple Inc. (NASDAQ: AAPL) retail chief took over as CEO of J.C. Penney Co. Inc. (NYSE: JCP) and set a course that nearly ruined the company, the century-old retailer is back. Under CEO Myron E. (Mike) Ullman III, who Johnson replaced, J.C. Penney showed that its prospects to remain a major retailer have returned. Ullman was brought back when it was clear that J.C. Penney’s prospects had turned so bleak that some financial analysts believed it would go bankrupt.

Shares moved higher by as much as 25% after J.C. Penney released quarterly earnings. The company announced:

For the first quarter, JCPenney reported net sales of $2.80 billion compared to $2.64 billion in the first quarter of 2013. Same store sales increased 6.2% and improved sequentially each month within the quarter. Operating income for the quarter was a loss of $247 million which represents a 49.2 % improvement over last year. For the first quarter, the Company incurred a net loss of $352 million or ($1.15) per share.

Online sales, which are critical to all retailers in the age of Inc.’s (NASDAQ: AMZN) dominance moved 25.7% higher in the quarter

Under Johnson, who altered the layout of J.C. Penney’s stores and also changed the way it offered discounts, same-store sales plunged more than 20% for a year, and revenue dropped as much as 25%. J.C. Penney’s board of directors made the mistake of believing that Apple’s method of driving customers through its doors would work. However, J.C. Penney is hardly a high-end consumer electronics organization. Rather, it caters to middle-class shoppers who shop by price as much as by product.

As J.C. Penney’s sales fell, its cash balance began to disappear. In April 2013, Goldman Sachs Group Inc. (NYSE: GS) threw J.C. Penney a lifeline in the form of a $1.75 billion loan. A few months later, J.C. Penney bolstered its balance sheet again by selling $932 million worth of shares.

Despite the excitement about J.C. Penney’s financial and same-store improvement, it has to contend with retailers in its sector that continue to do well. First among these is Macy’s Inc. (NYSE: M), which has a track record of growth that J.C. Penney’s management can only admire for now. J.C. Penney’s largest challenge going forward is whether it can capture market share from Macy’s and other mid-tier retailers and move from losses to profitability.

In the meantime, J.C. Penney had at least one day to boast. Instead of facing Chapter 11, it has proven it can become a viable retailer again.

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