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JCPenney's new CEO says ending losses will be a 'lengthy process'

The tough times will continue at JCPenney.The department store reported a loss of $151 million for th...

Posted: Nov 15, 2018 10:26 PM
Updated: Nov 15, 2018 10:26 PM

The tough times will continue at JCPenney.

The department store reported a loss of $151 million for the third quarter, which was smaller than expected.

Companies

JCPenney

But the company also reported sales at stores open at least a year tumbled 5.4% in the quarter. It issued new guidance indicating that those sales will continue to decline into the "low single digits" this year. It had previously estimated full-year sales would be flat.

"While restoring JCPenney to sustained profitable growth will be a lengthy process, I understand the need for quick action," said CEO Jill Soltau, who started in the job a month ago. Previous CEO Marvin Ellison left the company earlier this year to run Lowe's.

The market reacted harshly to the results.

Shares of JCPenney (JCP) opened down 12% on the news and reached a record low, although shares rallied later in the day, and were up about 6% in mid-afternoon trading. Still, shares are still off about 60% so far this year.

Neil Saunders, managing director of GlobalData Retail, called the sales performance "atrocious," because the drop comes in the midst of a strong economy and "peak" consumer spending.

He said the company's long-term prospects showed no signs of turning around.

"If [Soltau] didn't realize it before, she will now be clear about the monumental task that faces her," he said. "This isn't so much as running up a down escalator, it's more akin to running up a super-speed down escalator with slippery oil poured all over it."

Despite Soltau's promise to take steps in the near term to turn around the company, she did not announce any new store closings Thursday. But company executives said they are looking at their current footprint of nearly 900 stores and could decide to close some.

Saunders said it's important that Penney makes additional store closings soon.

"JCPenney can no longer afford to squander resources," he said. "In our view, [money losing stores] must be pruned or put to productive use as outlets."

The 110-year old retailer has not been profitable since 2010 and it analysts are projecting that losses will continue for at least several years.

Rival Sears recently filed for bankruptcy after basically running out of cash.

Penney executives said cash-flow should remain positive for this year, even it net losses continue. And it has relatively modest amounts of debt scheduled to be repaid for the next two years.

But experts are worried about the company's long-term prospects, especially with $2.1 billion in debt coming due in 2023. Its credit rating is deep in junk status and expected to be cut further.

"Ultimately the jury is out on whether JCPenney will follow the path of Macy's or Sears - of reinvention of terminal decline," said Saunders. "The good news is that the business now has a CEO determined to follow the former course and who has the skills required for the journey. However, time is not on her side."

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