J.C. Penney Co. (JCP:US) Chief Executive Officer Mike Ullman, intensifying efforts to revive the money-losing department-store chain, plans to close 33 stores and eliminate about 2,000 jobs to help save $65 million a year.
The closings and cuts will result in pretax charges of $26 million in the fourth quarter and $17 million in future periods, the Plano, Texas-based company said in a statement yesterday.
Ullman, who returned in April to replace Ron Johnson, has restored promotions, brought back popular private-label brands and reinstated commissions for some salesmen while ending his predecessor’s strategy of remodeling the stores into collections of boutiques. The chain has gone nine straight quarters without a profit, and analysts surveyed by Bloomberg are estimating it will post a $207 million loss for the current quarter.
“The closing of 33 stores sounds like not all is well,” Paul Swinand, an analyst for Morningstar Inc. in Chicago, said in a telephone interview. “It’s also not a massive restructuring.”
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Many of the stores on the list are in small markets at regional malls that most likely have declining visitors, so their shuttering may boost results, he said. The closings, which will be completed by early May, represent about 3 percent of J.C. Penney’s stores, and the job cuts would be about 2 percent of its workforce.
J.C. Penney declined 1.6 percent to $6.90 at the close in New York. The stock (JCP:US) tumbled 54 percent last year, compared with a 30 percent gain for the Standard & Poor’s 500 Index.
Of the stores being closed, two are owned by J.C. Penney, and the remainder are leases, Daphne Avila, a spokeswoman, said in an e-mail. The majority are the chain’s smaller formats, she said. These locations, which total about 400, didn’t get remodeled under Johnson with special areas for such brands as Joe Fresh and Izod.
The company in November reported its first gain in monthly same-store sales in almost two years amid rising demand for home products, men’s apparel and women’s accessories.
Last week, J.C. Penney reiterated its forecast that same-store sales would improve in the fourth quarter and that it would have more than $2 billion in liquidity (JCP:US) at the end of the period. Still, the company failed to provide December sales data it had made public the previous three months. The shares dropped 10 percent that day and have fallen by more than half since the company announced Ullman was returning as CEO.
Ullman has raised about $3.89 billion to shore up J.C. Penney’s finances after Johnson’s reign led to a sales decline of 25 percent and a net loss of $985 million in its last fiscal year through February. Early on Ullman drew $850 million from a revolving credit facility, then arranged a loan commitment from Goldman Sachs Group Inc. that provided $2.25 billion in cash. He also sold 84 million shares, generating about $785 million after fees.
In November, J.C. Penney said it had $1.71 billion in liquidity at the end of its third quarter, which includes cash and what it can still draw down on its revolving credit line.
Ullman is trying to revive J.C. Penney at a time when many retailers are struggling with restrained consumer spending. Companies including L Brands Inc. and Family Dollar Stores Inc. have cut profit forecasts after reporting disappointing December sales as promotions that failed to lure shoppers hurt margins. U.S. retail sales rose 2.7 percent in November and December, the smallest increase since 2009, according to researcher ShopperTrak.
Macy’s Inc. (M:US) said last week that it would eliminate about 2,500 jobs and close five stores to help save $100 million a year. The cost reductions entail combining its Midwest and North regions, eliminating some merchandise planning and store positions as well as central office and administrative jobs.
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