Associated Press , Published November 09 2012
J.C. Penney reports 'worse than expected' 3Q loss as customers reject pricing changesNEW YORK — The bad news just keeps piling on at J.C. Penney Co.
The chain on Friday reported a third-quarter loss that's much wider than Wall Street expected on revenue that plunged 26 percent in the latest sign that customers aren't happy that the department-store chain ditched hundreds of coupons and big sales it offered each year in favor of everyday low pricing. It's the third consecutive quarter of losses and steep sales declines that Penney has reported since the change.
The results underscore the challenges Penney's CEO Ron Johnson, the former Apple Inc. executive who came on board a year ago, faces as he attempts to change the way people shop. Under Johnson, Penney has been changing everything from its merchandise to its stores. But the centerpiece of his strategy has been to tweak pricing, with the goal of weaning deal-addicted customers off of the kind of heavy discounting that eats away at a retailer's profits.
But customers have not embraced Penney's pricing plan, which it rolled out on Feb. 1. To be sure, during the third quarter, revenue at stores opened at least a year — a key measure in the retail industry because it excludes the impact from stores opened and closed during the year — plummeted 26.1 percent. That's higher than the 17.6-percent drop analysts had been expecting.
“I expected horrific but this was worse than expected,” said Brian Sozzi, a chief equities analyst for research firm NBG Productions.
During an investor meeting, held on Friday in New York following the results, Johnson said even though the quarter was challenging, he would not stray from the pricing plan he laid out earlier in the year.
“It is becoming clear to me that I am really leading two companies,” he said. “One is J.C. Penney, a promotional department store. The other is JCP, which is a startup, a specialty department store. And it turns out what is good for one isn't necessarily good for the other.”
Part of the problem, both the company and analysts agree, has been that customers have been confused by the pricing. Recognizing this, the company tweaked its ads to better communicate the plan. Rather than whimsical ads with dogs and children, the new ads have focused more on the merchandise Penney has to offer.
But that wasn't enough to convince shoppers. So Johnson said on Friday that Penney now will begin to display on price tags the “suggested” price from clothing and other manufacturers along with Penney's “everyday” price.
Johnson also said that company will have a big sale on the day after Thanksgiving known as Black Friday — the traditional start of the holiday shopping season. The company expects to release details on Monday.
In addition to those things, Johnson is hoping other aspects of his plan will resonate with consumers.
Among them, the remake of Penney's stores. The company is adding 10 mini-shops with various designers within in stores. The company plans to add 100 shops inside 700 of its 1,100 stores by late 2014. The remaining 400 stores are in small towns and won't feature the full makeover.
Surrounding those shops will be extra-wide aisles that Johnson calls “streets.” Along those pathways will be ice cream and coffee bars and wood tables with built-in iPad tablet computers shoppers can use. In the middle of it all, a Town Square will offer activities like Pilates.
Johnson said in September that he's encouraged by sales at the new shops, which are faring better than the rest of the stores. But Penney still has a long way to go toward revamping its business.
The retailer, based in Plano, Texas, said it lost 56 cents per share, or $123 million in the quarter ended Oct. 27. That compares with a loss of $143 million, or 67 cents per share, in the year ago period when results were dragged down by costs related to the management transition and a voluntary retirement program. Revenue dropped 26.6 percent to $2.93 billion in the quarter. Analysts had expected a 15 cent loss on revenue of $3.27 billion.
On the news, Penney shares fell more than 4 percent, or 90 cents, to $20.79. Investors, who initially sent Penney shares soaring 24 percent to about $43 after the company announced the pricing plan in late January, have pushed them down nearly 40 percent since the beginning of the year.
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