Shares of department store operator JC Penney (JCP) continue to get cheaper by the day and for good reason. Despite announcing fourth-quarter results which were better than expected, the company said its loss in the current quarter will be deeper than Wall Street analysts are expecting as shoppers continue to reign in spending.
Given the stock market is forward-looking, it didn’t really matter much that Penney said its earnings from continuing operations of 94 cents per share in the fourth quarter topped analysts’ average estimate of 92 cents per share, according to Reuters.
Despite earnings, sales were still well below the numbers from a year ago. JCP said sales for the fourth quarter fell almost 10 percent to $5.76 billion, while same-store sales dropped a whopping 10.8 percent.
Last year JCP earned $1.93 per share on $6.39 billion in revenue. The company said efforts to cut inventory and expenses helped it on the earnings front during the quarter, which was the weakest holiday shopping season in nearly four decades.
For the current quarter, JCP says it expects a per-share loss of 20 cents to 30 cents, below the 19 cents per share loss analysts were expecting.
In addition, the company said total sales will likely drop by 10 percent to 13 percent from a year ago and same-store sales would further deteriorate to a 12 percent to 15 percent decline.
Commenting on the current environment Chairman and CEO Myron E. Ullman III said, “Mall traffic still continues to be down 6, 7, 8 percent a week, but also when you get in the store, conversion is still under pressure. So the customer is very tentative. They’re buying what they need, and they’re being smart about how they spend their money.”
Still, Mr. Ullman doesn’t seem to be as pessimistic as most investors. He said sales were strong in shoes, women’s clothing and at its Sephora cosmetic centers, with weakness in jewelry and home businesses. He says Penney intends to gain market share by winning over consumers who used to shop at now-bankrupt companies like Linens ‘n Things and Mervyn’s.
He intends to do that by expanding its portfolio of exclusive labels like Nicole by Nicole Miller and Fabulosity by Kimora Lee Simmons, a strategy that has been working well according to Ullman, who believes Penney is taking market share in women’s clothing.
Penney is also hoping its television ad campaign seen during the Academy Awards will bring in young customers searching for trendy fashions that spotlight new lines including Allen B. by Allen B. Schwartz and “Heart” Ronson by Charlotte Ronson.
“This is truly a time of survival of the fittest in retailing,” said Ullman. Penney is opening fewer stores and cutting inventories in an effort to adjust to the current environment. At Jan. 31, the company had cash and equivalents of $2.4 billion and long-term debt of $3.5 billion.
This article was written by Jamie Dlugosch, contributor to InvestorPlace Media. For more actionable insights likes this, visit www.InvestorPlace.com.
