Even though J.C. Penney’s latest results show the beleaguered retailer is hardly out of the woods, investors see reasons to cheer.
The department store chain’s shares rose 6 percent on Wednesday after it reported its seventh straight quarter of big losses that together total more than $2.4 billion. So why are investors celebrating?
The company began its big downward spiral during an ill-fated transformation strategy under former CEO Ron Johnson, who was fired in April after 17 months on the job. Now, experts say investors are encouraged that Mike Ullman, who took the top job after having previously led the retailer for seven years, is beginning to stabilize the business.
“Business is getting better,” said Ken Perkins, president of RetailMetrics LLC, a research firm. Still, he cautioned that Penney “can’t continue to lose money quarter to quarter and remain a going concern.”
Penney lost $489 million, or $1.94 per share, in the three months that ended on Nov. 2. That compares with a loss of $123 million, or 56 cents per share, a year earlier.
The company’s adjusted loss was $1.81 per share. And revenue fell 5.1 percent to $2.78 billion. That compares with the loss of $1.74 per share, on revenue of $2.79 billion, that analysts had been expecting.
Revenue at stores open at least a year, an indicator of a retailer’s health, fell 4.8 percent for the quarter compared with a year ago.
But investors seemed to focus on hopeful words from the company.
Penney said profit margins were hurt because it had to heavily discount mounds of merchandise that were purchased under the company’s former management. But it also said that sales and margins have been improving in the latest quarter and that it saw encouraging signs in early November. And the chain said the third quarter ended with its first monthly gain in revenue at stores open at least a year since December 2011.
Shares rose 73 cents to $9.44 at the close.
Shares have been volatile, as investors have been reacting to every bit of news, both good and bad. The stock has been hovering around $9, down 54 percent this year. Shares have lost 79 percent of their value since February of 2012, when investor enthusiasm was high on Johnson’s transformation plan.
Under Ullman, Penney has been bringing back more frequent sales and basic merchandise that were eliminated by Johnson in a bid to woo more affluent, younger shoppers. The company is also stepping up its discounting during the year-end shopping season, which officially starts next week.
But the question is whether the improvement in sales can be sustained.
The chain, based in Plano, Texas, faces an uphill battle. In fact, Ullman noted during a conference call for investors on Wednesday that it’s still a challenge to attract once-loyal shoppers who have defected to other rivals. Ullman also said that the fourth quarter was off to an “encouraging start,” but noted that a turnaround will take time.
“We know what the problems are. We know how to fix them, but it’s going to take time,” he said.