The holiday shopping season is traditionally the time to shine for retailers. But for department store giant J.C. Penney Co. Inc. (JCP), the holiday shopping outlook is anything but rosy.
Shares of JCP, the nation’s No. 4 department store fell last Friday by almost 5 percent as the company reported disappointing third-quarter sales and profits, a gloomy harbinger of things to come.
The Plano, Texas-based company reported a net loss of $203 million for the third-quarter including temporary items, or $0.93 per share. Topline sales were $2.92 billion. Both figures came in below analysts’ expectations.
JCP CEO Ron Johnson is facing enormous challenges in reinventing the company’s retail model, and in turn, the company has lost customers, according to its regulatory filings. Same-store sales, a key measure of success in the retail industry, fell by a massive 26 percent compared to the same quarter in 2011.
“Today, JCP is really a tale of two companies,” Johnson said in a statement. “By far the largest part of our store is the old JCPenney, which continues to struggle and experience significant challenges as evidenced by our third-quarter results.”
“The new JCP, centered around the shop concept, is gaining traction with customers every day and is surpassing our own expectations in terms of sales productivity, which continues to give us confidence in our long-term business model,” he maintained.
Johnson, the former Apple Inc. retail head, is attempting to transform the layout and concept of the retailer. In the new model, gone are coupons and massive promotional sales, which are replaced by everyday lower prices, and stores have open layouts with “mini-stores” dedicated to specific brands scattered throughout the floor. Examples of such mini-stores include Jockey, Izod, Liz Claiborne, and Levi’s.
Holiday Shopping Season a Concern
While the transformation may yet work in the long run, there is deep concern regarding how well JCP is able to compete in the 2012 holiday shopping season, which begins later this month.
Chief rival Kohl’s Corp. last Thursday announced that this holiday shopping season will be heavy on promotions—a sentiment shared among the industry—especially given the fact that many U.S. families are still struggling to make ends meet.
The company is working to attract—and retain—customers. JCP has offered in-store coupons as well as free haircuts for children and free family portraits. But despite these efforts, this holiday shopping season could be underwhelming, which Johnson alluded to during a call with analysts last week, when he described JCP as having a “startup” mentality.
“Trends at J.C. Penney are obviously getting worse, not better, and we are becoming more and more convinced that sales in 2013 will also decline, which could lead to a going-concern problem next year,” Deutsche Bank analyst Charles Grom wrote in a note to clients.
But at least one key shareholder shares Johnson’s optimism. William Ackman of Pershing Square Capital Management said last week that he will give JCP several years to turn its company around, according to a Reuters report. Pershing Square is JCP’s largest single investor with almost 18 percent of its common stock.
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