J.C. Penney Co Inc reported a deeper-than-expected drop in quarterly sales at stores open at least a year, leading to a big loss, in the department store chain's second straight quarter of severe sales declines since changing its pricing strategy last winter.
Same-store sales fell 21.7 per cent during the second quarter, steeper than the 17.4 per cent drop analysts were expecting, according to Thomson Reuters. Revenue tumbled 22.6 per cent to $3.02-billion (U.S.), also below Wall Street's low expectations.
In February Penney eliminated the use of coupons and discounts in favor of everyday low prices. The move cost the 102-year-old retailer many shoppers.
The company last week debuted the first of its boutiques within a store, the other prong of Penney's transformation that will eventually see each store carved into a collection of 100 spaces for brands such as Levi's, Jonathan Adler, and Betsey Johnson.
In a statement, Chief Executive Ron Johnson, the man who built up Apple Inc's retail chain and the architect of Penney's turnaround strategy, vowed to stay the course.
"While business continues to be softer than anticipated, we are confident the transformation of jcpenney is on track," he said, adding that Penney is positioned to grow again in 2013. Weaning shoppers off discounts will take time, he said.
But faced with a mutiny by customers long trained to look for sales and use coupons, Mr. Johnson has backtracked a bit in recent weeks, making concessions like using the word "clearance" to denote items on sale and simplifying pricing to two levels rather than three.
Many experts say Mr. Johnson needs to make even more concessions on his pricing ahead of the crucial holiday season, as Penney faces pressure from Macy's and Kohl's Corp, among others, which still use sales and discounts.
"I am very skeptical as to whether he (Johnson) understands that the J.C. Penney customer is looking for value and perceives value only with couponing," said Walter Loeb, president of Loeb Associates, a management consultancy to the retail industry.
"As long as Macy's keeps banging away, I don't think he has a ghost of chance." Macy's on Wednesday reported its second quarter same-store sales were up 3 per cent.
Penney reported a net loss of $147-million, or 67 cents per share, for the second quarter ended July 28, compared with a profit of $14-million, or 7 cents per share, a year before.
Excluding items, Penney lost 37 cents per share, compared with analyst projections of 25 cents.
The company said it no longer expects to meet its earlier full-year profit forecast but did not give an updated estimate.
Penney's poor sales forced the retailer to mark down unsold items, knocking down its gross margin 5.1 points to 33.2 per cent of sales.
The company's sales also were hurt when it pulled back on advertising in late June and July as it rethought its pricing and marketing for back-to-school – just as business was picking up at Macy's and Kohl's.
But the company, which has laid off hundreds of workers at its headquarters and in stores, said it expects savings to exceed $900-million by the end of the year.
And Penney, which was downgraded by some ratings agencies during the quarter, said it would have $1-billion in cash at the end of the fiscal year.