News Column

J.C. Penney Posts Upbeat Earnings

August 15, 2014

Gary Strauss, @gstrauss, USA TODAY

J.C. Penney store (file photo)
J.C. Penney store (file photo)

J.C. Penney renewed hope Thursday that its turnaround is gaining momentum after the troubled department store chain posted second-quarter results that exceeded Wall Street estimates.

Penney reported same-store second-quarter sales rose 6%, and projected similar gains for the current quarter.

Overall, Penney said revenue rose 5.2% to $2.8 billion from $2.66 billion in the year-ago quarter. Losses also narrowed, to 75 cents a share from 93 cents a year earlier.

Shares surged nearly 10% to $10.75 in after-hours trading and are now up 120% since Feb. 28's all-time, $4.90 low in the aftermath of former CEO Ron Johnson's ill-fated plan to reposition the venerable retailer with new product lines and marketing efforts.

"Our turnaround initiatives continue to produce improved financial results. We gained additional market share while significantly increasing gross margin in a highly competitive promotional environment," says CEO Mike Ullman.

Sterne Agee's Charles Grom told CNBC that the final three months of the year and holiday sales are key for Penney.

"They're still going up against double-digit declines from last year," Grom said. "Where the rubber hits the road is the fourth quarter."

Also Thursday, rival Kohl's beat Wall Street estimates after reporting second-quarter sales fell 1.1% to $4.24 billion, while net income remained essentially flat.

Overall, however, retailers are still hampered by apathetic consumers -- underscored by a Wednesday Commerce Department report showing overall retail sales in July were flat. Monthly retail sales have yet to match March's 1.5% peak.

Wal-Mart, which posted a 2.8% rise in quarterly earnings, said Thursday that traffic at U.S. stores dropped for a seventh-straight quarter. Citing higher capital and health care expenses, Wal-Mart also cut its full-year earnings guidance to $4.90 to $5.15 a share, down from $5.15 to $5.45. Macy's cut full-year same-store sales forecasts Wednesday.

Some market observers say most retailers will continue to lag.

"The consumer has plateaued," says David Tawil, president of hedge fund Maglan Capital.

"We should not expect considerable growth among retailers except for the standouts. We really need to see personal earnings and wage growth and a sense of comfort in the economy in order to make the next leg in consumer-driven spending."

And J.C. Penney?

"They are no longer on life support," Tawil says. "On the other hand, this is not about one quarter, but the next five to 10 years. You need to have a long-term strategy."

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Original headline: Pleased investors go in for a Penney


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