J.C. Penney Co. (JCP:US), the department-store chain led by Apple Inc. (AAPL:US)’s former retailing chief, dropped the most in more than three decades after posting a first-quarter loss and sales that fell more than analysts projected.
J.C. Penney tumbled (JCP:US) 20 percent to $26.75 at the close in New York, the biggest drop since at least July 1980 and the largest decline on the Standard & Poor’s 500 Index today.
Sales slumped 20 percent to $3.15 billion, trailing the $3.43 billion average of 16 estimates (JCP:US) compiled by Bloomberg. The quarterly dividend will be discontinued, the Plano, Texas-based company said yesterday in a statement.
The $163 million loss is a new challenge for Chief Executive Officer Ron Johnson, whose appointment in June caused the shares to surge amid buzz that he would bring some Apple- style magic to the ailing retailer. Johnson vowed to flip the traditional department-store strategy upside-down by turning stores into a collection of branded shops and simplifying pricing into three tiers to wean consumers off discounts.
“Credibility has indeed been hit from different angles this evening, all of which emanates from the over-selling of the turnaround story months earlier,” Brian Sozzi, an independent analyst in New York, wrote yesterday in a note. There was a premium built into the stock on hopes that Johnson “could revive this relatively lifeless fish.” Sozzi recommends investors sell the shares.
The loss equaled 75 cents a share, compared with profit of $64 million, or 28 cents, a year earlier.
‘Tougher Than Anticipated’
“Sales and profitability have been tougher than anticipated during the first 13 weeks,” Johnson said in the statement. “While we have work to do to educate the customer on our pricing strategy and to drive more traffic to our stores, we are confident in our vision to become America’s favorite store.”
The company said discontinuing the 20-cent-a-share quarterly dividend will result in cash savings of about $175 million on an annual basis.
In the quarter ended April 28, the company incurred $76 million in restructuring and management-transition charges. Excluding those items, the loss totaled 25 cents a share. The average of 16 analysts’ estimates (JCP:US) compiled by Bloomberg was for a loss of 8 cents. J.C. Penney said it will record additional restructuring charges throughout the fiscal year.
Gross margin, the percentage of sales left after subtracting the cost of goods sold, shrank to 37.6 percent from 40.5 percent a year earlier, according to the statement.
Same-store sales tumbled 18.9 percent in the quarter.
“Even though we think sales are materially below plan, the team has been very focused on reducing costs up/down the entire organization,” Charles Grom, an analyst at Deutsche Bank AG in New York, wrote in a May 10 note. He recommends holding the shares.
Johnson’s taste for theater was apparent yesterday during the company’s earnings presentation.
Instead of dialing in to a conference call, hundreds of listeners packed a concrete-floor space on the far west side of Manhattan, near the Lincoln Tunnel, to hear Johnson and other executives detail the company’s plans from onstage.
Johnson told analysts, vendors and others assembled that the retailer needed to do a better job of communicating its pricing strategy and to “wean” customers from using coupons.
Executives announced several new brands, including collections by architect Michael Graves, whose housewares for Target Corp. (TGT:US) during Johnson’s time there helped establish that retailer as a destination for discount design. J.C. Penney also is adding lines by Jonathan Adler, Betsy Johnson and Tourneaux watches.
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