Earnings Raise Question About J.C. Penney's Store Closings

Retail

Published: November 13, 2014 6:45 am

J.C. Penney Co. Inc. (NYSE: JCP) has tried to fight back from the disastrous period when Ron Johnson ran the company from January 2011 until April 2013. Revenue and same-store sales dropped over 20% during part of his tenure. Wall Street wondered, with reason, whether J.C. Penney would survive. After several quarters of very modest recovery, J.C. Penney results have begun to slide again, now raising the question of whether the company can become a force in retail again. In addition, the company will need to close stores if its turnaround does not surge in the fourth quarter.

The most visible proof that J.C. Penney may suffer mightily over the holiday season was its third-quarter results:

For the third quarter, JCPenney reported net sales of $2.764 billion compared to $2.779 billion in the third quarter of 2013, with same store sales flat for the quarter

The bottom line was equally as ugly:

For the third quarter, the Company incurred a net loss of $188 million or ($0.62) per share.

The fourth-quarter outlook was also troubling, and J.C. Penney management has a habit of forecasting results that do not hit projections. For the final quarter of the year:

The Company’s guidance for the fourth quarter of 2014 is as follows:

Comparable store sales: expected to increase 2 % to 4 %;

Gross margin: expected to increase 500 to 600 basis points versus last year; and

SG&A expenses: expected to be slightly above last year’s levels.

There is no longer any fear that J.C. Penney will go out of business. The concern has swung to whether it will continue to lose market share to competitors. If so, it will need to shutter stores and become ever smaller to turn its losses into the most modest of profits.

J.C. Penney has 1,060 stores. Based on its results, many of these stores have to lose money. The retailer cannot afford to support locations that probably cannot be turned around. That means some of them cannot survive.

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