J.C. Penney stumbles with liquidations
Liquidation sales mean deep discounts for customers — but they proved devastating when it came to the bottom line for J.C. Penney.
The department store’s loss deepened because of the decision to close 127 stores in a single quarter, the most the chain has ever done in such a short period. The locations are among 138 stores J.C. Penney intends to shutter this year.
J.C. Penney recorded a net loss of $62 million, or 20 cents per share, up from $56 million for the same quarter last year. The loss was double the amount that S&P Global Market Intelligence analysts projected.
As a result, investors pummeled J.C. Penney’s stock. Shares were down more than 16% to $3.93, off 78 cents, at closing Friday.
By taking advantage of the deep discounts at liquidation sales at the closing stores, loyal J.C. Penney customers were able to stock up on sheets, underwear, bikini tops and whatever else caught their fancy, cutting into profit margins since they no longer needed to pay full price at a store that’s staying open.
“The effect from closing 127 stores had a greater impact ... than we anticipated,” J.C. Penney CEO Marvin Ellison said in a call with investors Friday.
He said closing so many stores over three months “was a difficult decision, but we felt it was the right thing to do for our business.”
Ellison emphasized that “this is a one-time event for the second quarter,” and the fallout shouldn’t extend into the final months of the year.
Sales at J.C. Penney locations open at least a year — a key industry sales measure meant to exclude growth in new units — fell 1.3%. Overall sales rose 1.5% to $2.96 billion for the period ended July 29, lifted by growth in apparel, home goods, beauty products and online orders designed to be picked up in stores.
Like several of its departmentstore peers, J.C. Penney has closed underperforming stores to free cash and focus investment on stronger locations.
The disappointing report echoed the results of competitors, offering another bleak example of how department stores have yet to find the formula that will restore profits and sales as shoppers move online, where Amazon is becoming increasingly dominant.
The chain is expanding its partnership with popular cosmetics brand Sephora, opening 38 instore locations during the third quarter. By the end of the year, about 75% of J.C. Penney stores will have Sephora shops.
J.C. Penney said it has been updating its clothing mix, expanding its relationship with Adidas and Nike to capitalize on the growing appeal of casual, athletic wear. It’s also boosting its plus-sized offerings.