J.C. Penney Co. reported a net loss in the third quarter as the department store operator's results were weighed down by restructuring costs and management transition charges.
Its adjusted results topped Wall Street expectations, but it offered a fourth-quarter outlook that was below what analysts expected, signaling the challenges the moderate price retailer has ahead to get its middle-income shoppers to buy during the holiday shopping season.
Its shares dropped 80 cents, or 2.4 percent, to $33.12 in premarket trading.
Penney said it lost $143 million, or 67 cents per share, for the three months ended Oct. 29. That compares with net income of $44 million, or 19 cents per share, in the year-ago period.
It said its adjusted earnings without the one-time items amounted to 11 cents per share. That topped the 9 cents per share that analysts expected.
The results included costs of $27 million, or 10 cents per share related the hiring of its new CEO Ron Johnson, a former Apple executive, who officially started his duties Nov. 1. He succeeds CEO Myron Ullman III. Johnson is taking over merchandising and marketing responsibilities and will assume the rest of Ullman CEO responsibilities on Feb. 1. Ullman will serve as executive chairman during the three-month transition.
Revenue slipped almost 5 percent to $3.98 billion from $4.19 billion largely reflecting the discontinuation of its catalog business. That was in line with analysts' expectations for revenue of $4 billion.
"While our more affluent customers continued to respond well to J.C. Penney's attractions, the moderate customers continues to have limited discretionary spending capability, and that was apparent during the quarter," Ullman said.
The company's gross profit margin rate slipped to 37.4 percent in the third quarter from 39 percent in the year-ago period because of increased discounting that was needed to pull in shoppers.
Like many department stores, J.C. Penney has been expanding its assortment of exclusive merchandise. Last year, it became the only U.S. retailer to sell Liz Claiborne and Claiborne women's wear, though the Isaac Mizrahi-designed Liz Claiborne New York brand went to QVC. Last month, Liz Claiborne agreed to sell to Penney the domestic and international trademark rights for both its Liz Claiborne brands and the U.S. and Puerto Rico trademark rights for the Monet jewelry brand.
Penney has cut costs by closing some stores, outlets and a call center. It is also discontinued its catalog business.
But Penney's needs to come up with new ways to get those who shop at its stores to spend more. Penney's revenue at stores opened at least a year fell 1.6 percent. That compares with increases of 4 percent at Macy's and 2.1 percent at Kohl's for the same period. The measure is a key indicator of a retailer's health.
For the fourth quarter, Penney expects revenue at stores opened at least a year to be between unchanged to slightly up from a year ago.
It expects earnings for the fourth quarter to be between 64 cents to 74 cents per share, including the restructuring and management transition charges. Excluding these charges, earnings are expected to be in the range of $1.05 per share to $1.15 per share. Analysts expected $1.17 per share, according to Factset.
The guidance doesn't include the financial impact expected to be incurred in the fourth quarter as the company executes changes to its pricing strategies to be implemented for spring. The company hasn't revealed details of the new strategy but said it will disclose the effect during the fourth-quarter earnings call with analysts.