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JC Penney’s turnaround is still headed in exactly the wrong direction.The company just reported horrible Q2 results and announced that it will miss its targets for the balance of the year.
JC Penney has been in the spotlight since former Apple Store boss Ron Johnson took over as CEO last fall, promising to revolutionise the company.
Johnson still professes confidence in his turnaround strategy, but it’s hard to see how this confidence stems from the company’s results. In Johnson’s ~9 month tenure, JC Penney has gone from a stale and boring but stable company to a train wreck.
The release is below. Here are some quick highlights:
- Same-store sales dropped 22%
- Sales dropped 23%
- Online sales dropped 33%
- Gross margin dropped from 38% to 33%
- The company will miss its targets for the year
Here’s the release:
PLANO, Texas, Aug. 10, 2012 /PRNewswire/ — J. C. Penney Company, Inc. (JCP) today announced financial results for its fiscal second quarter ended July 28, 2012. For the quarter, jcpenney reported an adjusted net loss of $81 million or $0.37 per share, excluding restructuring and management transition charges, inventory transition markdowns, gain on the redemption of the Simon REIT units, net of fees and non-cash qualified pension expense. On a GAAP basis, the Company reported a net loss of $147 million or $0.67 per share. A reconciliation of GAAP to non-GAAP financial measures is included in the schedules accompanying the consolidated financial statements included with this release.
“We have now completed the first six months of our transformation and while business continues to be softer than anticipated, we are conﬁdent the transformation of jcpenney is on track. The transition from a highly promotional business model to one based on everyday value will take time and we will stay the course,” said jcpenney CEO Ron Johnson. “This month we simplified our pricing, launched the ﬁrst of our new shops, and accelerated our marketing efforts to focus on brands, products and value. Early response to these efforts has been very encouraging.”
He added, “We continue to learn and adjust, and fully expect that our unique, specialty department store experience will drive jcpenney’s long term success. Our rock solid balance sheet will support the execution of our transformation and position us for growth beginning in 2013.”
Second Quarter Results:
Comparable store sales for the second quarter declined 21.7 per cent. Total sales decreased 22.6 per cent, which includes the effects of the Company’s exit from its outlet business. Internet sales through jcp.com were $220 million in the second quarter, decreasing 32.6 per cent from last year. Sales were adversely impacted by the Company’s decision to significantly reduce its marketing activities during the latter half of the quarter, as it reconsidered its approach to pricing and marketing in time for back to school.
Gross margin was 33.2 per cent of sales, compared to 38.3 per cent in the same period last year. Gross margin was impacted by lower than expected sales in the quarter and approximately $102 million of markdowns taken to clear discontinued inventory in preparation for new product arriving in the fall of 2012. Excluding these transitional markdowns, which lowered gross margin by 340 basis points, adjusted gross margin was 36.6 per cent of sales. A reconciliation of GAAP gross margin to non-GAAP adjusted gross margin is included in the schedules accompanying this release.
The Company’s SG&A expenses decreased $193 million versus last year’s second quarter. Based on the pace of its ongoing efforts to aggressively manage expenses and additional operational efficiencies that management has identified, the Company continues to expect savings to accelerate and exceed an annual run rate of approximately $900 million at the end of 2012.
For the second quarter, the Company incurred $159 million in restructuring and management transition charges. These charges comprised the following:
- Home office and store severance expense $56 million, or $0.16 per share;
- Store fixtures $42 million, or $0.12 per share;
- Software and systems $36 million, or $0.10 per share;
- Supply chain $10 million, or $0.03 per share;
- Management transition $10 million, or $0.03 per share;
- Other $5 million, or $0.01 per share.
The Company ended the second quarter with approximately $888 million in cash and cash equivalents on its balance sheet. Cash used in operations in the second quarter was $32 million, $545 million less than the first quarter of 2012.
The Company no longer anticipates achieving the previously issued non-GAAP earnings guidance for fiscal 2012. Management intends to continue to provide qualitative information on business trends and capital expenditures throughout the year. Additionally, the Company expects to end the fiscal year with in excess of $1 billion of cash on the balance sheet after spending $800 million in capital expenditures to support the Company’s transformation efforts and paying off $230 million of notes due in August 2012.
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