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JCPenney's 2Q Sales -12%, Loss Surges to $586M

Aug 20, 2013 8:30 AM   By Jeff Miller
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RAPAPORT... J.C. Penney Company Inc. reported that its revenue and same-store sales plunged 11.9 percent year on year to $2.7 billion for the second quarter that ended on August 3. Cost of goods sold fell only by 8 percent to $1.9 billion, contributing to a much greater loss than expected. JCPenney recorded a net loss of $586 million, or $2.66 per share, compared with a loss of $147 million, or 67 cents per share, one year ago.

The retailer's merchandise accounts payable jumped 25.7 percent to almost $1.3 billion and it took on an $850 million short-term loan during the period that was not on the balance sheet one year ago. Additionally, long-term debt jumped 69.1 percent to nearly $4.9 billion.

JCPenney explained to shareholders that the drop in sales was in part due to ''the failed prior merchandising and promotional strategies, which resulted in unusually high markdowns and clearance levels in the second quarter.'' In addition, a lengthy renovation and disappointing re-merchandising of its homewares  departments  adversely impacted comparable-store sales. Gross margin fell to 29.6 percent of sales compared with 33.2 percent one year ago.

The retailer enhanced its liquidity by entering into a $2.25 billion senior-secured term loan facility during the quarter and paid $355 million to complete a cash tender offer and consent solicitation with respect to substantially all of its outstanding 7 1/8 percent debentures due in 2023. In doing so, the retailer also recognized a loss on extinguishment of debt of $114 million reducing earnings per share by 52 cents.

JCPenney recorded an effective tax rate of 3 percent, down from 36.4 percent,  primarily driven by a charge of approximately $218 million to record an increase to the tax valuation allowance for deferred tax assets that negatively impacted earnings by 99 cents per share.

With JCPenney's  cash position and credit facility, its  liquidity is $1.85 billion. It expects to draw down this amount on stabilization plans and  end the year with in excess of $1.5 billion in overall liquidity. 

Myron E. Ullman, III, the CEO of JCPenney, said, "Since I returned to JCPenney four months ago, we have moved quickly to stabilize our business -- both financially and operationally -- and we have made meaningful progress in important areas of the business. There are no quick fixes to correct the errors of the past. That said, we have identified the challenges, put solid plans in place to address them and have experienced and capable people in key roles to do so."

Ullman said that JCPenney was focused  on regaining customer loyalty by offering trusted brands, strong service and affordable products. ''We are encouraged by our early performance this back to school season, which reflects customers` growing confidence in the brands and styles we offer. Our associates across the country are working tirelessly to serve our customers and I am proud of their efforts."

JCPenney claimed that it  is  rigorously focused on continuing to improve  marketing and messaging in order to drive traffic and conversion as it enters the second half of the year and prepares for the Christmas season.  It claims to have made significant progress restoring the higher-margin basics and private branded categories and JCPenney expects to improve inventory levels ahead of the holiday season. 

Another focus area for the retailer is its online sales at jcp.com, where revenue slipped just 2.2 percent this quarter but it was a sequential improvement of over 1,700-basis-points from the first quarter.  Women`s and men`s apparel were particular bright spots online, with both divisions experiencing double-digit growth in the quarter. The jcp.com domain  reclaimed its position among the most visited retail websites in the second quarter, based on aggregated traffic, according to the company.

 

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Tags: Debt, jcp, jcpenney, Jeff Miller, Liquidity, loss, markdowns, revenue
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