JC Penney CEO Says Future Will Depend Less on Apparel

J.C. Penney reported a surprise drop in its first-quarter sales, joining a slew of others who muddled through a miserable spring. But investors were forgiving.

Shares tumbled by double-digits to start the day. But they bounced back, after Penney's CEO Marvin Ellison said Penney would be less dependent on the apparel business and follow shoppers where they are actually spending their money: services and new products like appliances.

"We're listening. We're addressing those customer needs and we think it's going to allow us to perform better in the back half and give us a strong future in serving our customers better," said Ellison.

Department stores including Macy's, Nordstrom and Kohl's have all reported weak sales results this week that revealed how drastically business has fallen off since in mid-March. Analysts cite a confluence of factors from temporary ones like unseasonably cool spring weather to more permanent shifts in spending and preferences. Shoppers are continuing to shift away from clothing and more toward services and experiences. Analysts also point to the growing dominance of Amazon.com, which is sapping traffic from America's malls.

The latest government figures on retail sales for April, released Friday, show that gains were fueled by online spending and automobile purchases.

J.C. Penney is still clawing its way back after a catastrophic reinvention plan under former CEO Ron Johnson sent sales and profits into a free fall in 2012 and 2013. Business had stabilized, though it has yet to fully recover.

Under Ellison, the department store is looking for new ways to increase sales while playing catch up in e-commerce. One area that it's betting on is appliances. Penney is getting back in the appliance business in nearly 500 stores, almost half of the locations, this summer. Penney got out of the major appliance business more than 30 years ago. That could be a big opportunity. Ellison said that one third of its appliance customers are new, based on a pilot program, and the overall average transaction in appliances is $1,200. Stores like Home Depot have avoided the retail funk thanks to a strong housing market.

Penney is also expanding its Sephora beauty shops and is rolling out its InStyle beauty salons.

A challenging environment in other areas of retail, however, could stall any momentum J.C. Penney has.

The department store chain reported a 0.4 percent decline in same-store sales -- stores open for at least a year -- reversing five straight quarters of growth. Analysts had expected an increase of about 3 percent.

The company, based in Plano, Texas, lost $68 million, or 22 cents per share, for the three-month period ended April 30. That compares with a loss of $150 million, or 49 cents per share, in the year-ago period.

Revenue dropped 1.6 percent to $2.81 billion.

Analysts were expecting a loss of 38 cents on revenue of $2.92 billion, according to FactSet.

Penney still expects same-store sales to rise 3 percent to 4 percent for the year. Ellison told analysts on the conference call that strong sales over Mother's Day provided confidence to keep its outlook intact. But it pared its gross margin estimates for 2016 due to the expenses it will occur in the rollout of its appliance business, and also rapid growth for its online business.

In afternoon trading, Penney shares slipped 26 cents, or 3.3 percent, to $7.54. They had fallen as low as $7.53 in morning trading and as high as $7.97 Friday. They are down more than 13 percent since a year ago.

Copyright AP - Associated Press
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