J.C. Penney’s first-quarter missed analysts’ expectations due to a cooler start to the spring season. The department store chain also cut the company’s full-year earnings outlook.
Marvin R. Ellison, chairman and chief executive officer said, “During the first quarter, we achieved a positive sales comp of 0.2 percent, which was impacted in large part by a very late start to spring, where we experienced cooler than normal temperatures in April. Although our overall top line sales results came in below our expectations for the quarter, we were encouraged by the strong positive comp performance throughout February and March, as well as the last two weeks of April, when temperatures began to normalize.”
Ellison continued, “Overall, we believe that our strategies are beginning to take hold, as we are seeing improvement in a number of areas. Apparel categories performed well during seasonable weather periods, and our beauty and home refresh initiatives performed well above our total comp sales performance for the quarter. The strength in sales performance early in the quarter, our investments in enhancing our apparel categories, continued strength in our beauty and home refresh initiatives and a focus on taking market share from ailing retailers all give us confidence in our annual comp sales guidance of flat to up 2 percent. Our teams remain committed to improving our core apparel business and executing on our strategic growth initiatives. I would like to thank our nearly 100,000 associates around our company for their hard work and commitment to J.C. Penney.”
Starting in the first quarter of fiscal 2018, the company adopted new accounting standards which relate to revenue recognition and pension accounting. Accordingly, the company has changed the current year and prior year presentation in its financial statements to reflect the requirements of the new standards.
For the first quarter ended May 5, 2018, total net sales decreased 4.3 percent to $2.58 billion compared to $2.70 billion for the first quarter ended Apr. 29, 2017. Wall Street on average was expecting $2.61 billion. The decline in total net sales was primarily the result of the 141 stores that closed in the second and third quarters of fiscal 2017.
Comparable sales increased 0.2 percent for the first quarter. Wall Street on average was expecting 2 percent growth.
Credit income, which was previously reflected as a reduction to SG&A, was $87 million for the first quarter this year compared to $83 million in the first quarter last year.
Jewelry, Sephora, Men`s and Salon were the company`s top performing divisions and categories during the quarter. Geographically, the Gulf Coast and Southeast were the best performing regions of the country.
Cost of goods sold, which excludes depreciation and amortization, was $1.71 billion, or 66.3 percent of sales, compared to $1.73 billion, or 63.9 percent of sales in the same period last year. The increase as a rate of sales was primarily driven by increased online clearance selling and continued growth in the mix of the company’s online business, markdown and pricing actions taken in the quarter to clear slow-moving seasonal inventory and ongoing growth in major appliances.
SG&A expenses for the first quarter were $826 million, or 32.0 percent of sales compared to $938 million, or 34.7 percent of sales in the first quarter last year. The improvement to last year was primarily driven by lower controllable costs and marketing spend and a reduction in lease expense associated with the remaining amortization of a gain on the sale of a leasehold interest last year.
For the first quarter, the company`s net loss was $78 million, or 25 cents per share, compared to a net loss of $187 million, or 60 cents, in the same period last year.
Adjusted net loss was $69 million, or ($0.22) per share, for the first quarter this year compared to adjusted net income of $2 million, or 1 cent per share, for the first quarter last year. Results came in 1 cent better than the 23 cent loss analysts were expecting on average.
Adjusted net loss/income for the first quarter of 2018 and 2017 included the sale of operating assets, which totaled $17 million, or $0.05 per share, and $117 million, or $0.38 per share, respectively. In addition, adjusted net loss/income for 2018 and 2017 included the following items:
- $7 million, or approximately ($0.02) per share, of restructuring and management transition charges in the first quarter this year compared to $100 million, or ($0.32) per share in the first quarter last year; and
- $19 million, or $0.06 per share, benefit this year related to other components of net periodic pension income compared to $106 million expense, or ($0.34) per share, of net periodic pension costs primarily associated with the company`s voluntary early retirement program last year
Inventory at the end of the first quarter was $2.95 billion, a decrease of 1.4 percent compared to the end of the first quarter last year, and up 2.6 percent on a comp store basis. Capital expenditures for the first quarter, net of landlord allowances, were $103 million.
Cash and cash equivalents at the end of the first quarter were $181 million. During the quarter, the company utilized available cash on hand to retire $190 million principal amount of outstanding secured notes that matured in February. The company also issued $400 million in senior secured second priority notes due 2025, utilizing the net proceeds of the offering to successfully complete its tender offer for $375 million aggregate principal amount of its outstanding 2019 and 2020 bonds. The company ended the quarter with liquidity of approximately $2 billion.
The company has revised its 2018 full year guidance as follows:
- Comparable store sales: expected to remain at 0.0 percent to 2.0 percent and
- Adjusted earnings per share1: now expected to be a loss of 7 cents to earnings of 13 cents.
Penney previously forecast a potential profit range of 5 cents to 25 cents per share. Analysts had been expecting 16 cents per share on average.