Myron Ullman: The J.C. Penney Co. CEO has started to stabilize the business.
NEW YORK - The worst may be over at J.C. Penney Co.
The beleaguered department store chain on Tuesday reported its sixth straight quarter of big losses and steep revenue drops as it continued to face challenges related to a botched turnaround plan spearheaded by its ousted CEO Ron Johnson.
But investors sent Penney shares up 6 percent to $14.01 - after having pushed the stock down nearly 70 percent in the last 18 months - in an expression of confidence that returning CEO Mike Ullman has started to stabilize the business.
Since he retook the top job in April after having occupied it from 2004 to 2011, Ullman has been bringing back coupons, frequent sales events and basic merchandise like khakis and jeans that Johnson eliminated in a failed attempt to attract hipper, more affluent shoppers. The latest report offered some encouraging signs that the move is beginning to pay off.
Revenue improved from month-to-month during the second quarter, and the decline in Penney's online business slowed significantly in part due to the company's move to veer from Johnson's strategy and go back to operating its online businesses with its physical stores in lockstep.
The Plano, Texas-based chain also said it is seeing an encouraging start to the back-to-school season, the second-largest selling period behind the winter holidays.
Bernard Sosnick, a retail analyst at Gilford Securities, said based on the results, he expects Penney to get back to profitability by the fourth quarter. He also said he wouldn't be surprised if during the first half of next year, the chain posted sales increases of 10 percent to 15 percent.
"There is light at the end of the tunnel," Sosnick said. Paul Swinand, a retail analyst at Morningstar, agreed, saying Penney "is showing some signs that it's turning the corner."
Penney's Ullman, however, took a more cautiously optimistic tone in his call with investors on Tuesday. He wouldn't promise that Penney would see a revenue gain in the current quarter, noting that August, the first month of the third quarter, will be difficult because business is being compared with a year ago when Penney drove customers in with free haircuts.
He also cited a challenging economic environment that has tripped up other retailers, including Wal-Mart Stores Inc., the world's largest retailer, and Macy's Inc., in the latest quarter. Both chains last week released bleaker outlooks for the year.
Indeed, Penney has a lot of work left to do. In the three-month period that ended Aug. 3, Penney lost $586 million, or $2.66 per share. That compares with a loss of $147 million, or 67 cents per share, a year earlier. Revenue was $2.66 billion, down 11.9 percent from $3.02 billion. Analysts were expecting a $1.07-per-share loss on revenue of $2.77 billion.
Revenue at stores open at least a year, an indicator of a retailer's health, also dropped 11.9 percent, worse than the 8.3 percent analyst expected. That was on top of a 21.7 percent drop a year ago. However, the sales drop in the latest quarter is smaller than the 16.6 percent decline in the first quarter.
The quarter was hurt by Penney's move to clear out some of the merchandise from the Johnson regime to make room for things like basic khakis. But the newly launched home business, another project of Johnson's, turned out to be a disaster, too. One of the big reasons: the merchandise was too trendy and pricey for Penney customers.
Still, Penney has some brighter spots. Online sales were $215 million for the quarter, down just 2.2 percent from the year ago period. That marked a dramatic improvement from the first quarter when online sales dropped about 30 percent.
Original Print Headline: Penney's 2Q shows signs of promise
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