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Penney CEO says company needs time to climb out of 'abyss'

The sign outside the J.C. Penney store is seen in Westminster, Colorado February 20, 2009. REUTERS/Rick Wilking
The sign outside the J.C. Penney store is seen in Westminster, Colorado February 20, 2009. REUTERS/Rick Wilking

By Phil Wahba

(Reuters) - J.C. Penney Co Inc Chief Executive Myron Ullman told Wall Street on Thursday that the department store chain is emerging from what he called an abyss but warned he needs time to fix the issues of the retailer.

Penney reported another steep quarterly loss on weak sales and heavy clearance deals, but Ullman said the company has taken steps in recent weeks to reassure vendors, shore up its finances, and win back shoppers that defected after a move last year away from coupons.

"This won't happen overnight," Ullman said on a conference call with analysts, of Penney's efforts to recover lost revenue. "Rest assured, we recognize the magnitude of the challenges that we face."

Under Ullman, who returned as CEO last month to replace his successor Ron Johnson, Penney has secured a new $1.75 billion loan and brought back brands such as St. John's Bay.

That brand alone brought in $1 billion in sales a year before Johnson dropped it for more fashionable lines.

The department store chain suffered a net loss of $348 million for the quarter ended May 4, or $1.58 per share, more than twice the $163 million, or 75 cents per share it lost last year. Gross profit margin fell 6.8 percentage points to 30.8 percent of sales as it slashed prices to move inventory.

Total sales fell 16.4 percent to $2.67 billion, in line with the company's warning last week.

Despite the wider loss, shares slipped only 2 percent to $18.42 as analysts dismissed it as a remnant of the Johnson era.

The shares have climbed nearly 40 percent since Ullman returned to the chain, which is showing signs of getting back on track. Ullman was CEO from 2004 to 2011.

"Trends are improving - this is still a year of change. But things are stabilizing and traffic is improving," said Marie Driscoll, an independent retail analyst, referring to the volume of visits by shoppers.

In addition to a new pricing strategy, Johnson's vision was to roll out dozens of boutiques within Penney's larger stores over the course of four years to showcase hipper, but affordable brands and offer exclusive merchandise.

Ullman never mentioned Johnson by name on the call, but indirectly praised his efforts, noting that brands that Johnson brought in such as home goods designer Jonathan Adler and clothes designer Nanette Lepore were attractions that bring in new shoppers.

Still, after burning through $948 million cash in the first quarter to roll out shops, including a new home goods section being launched in June, Penney is not planning any new boutiques for now, Ullman said.

Earlier this week, rivals Kohl's Corp and Macy's Inc each reported lower than expected same-store sales for the quarter, noting cautious shoppers in the lower-to-middle class. But they expect sales to rise this quarter.

(Reporting By Phil Wahba and Ben Berkowitz; Editing by Bernard Orr)

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