J. C. Penney Co. Inc. on Thursday announced a net loss in its fiscal second quarter ended August 3 of $48 million, or a loss of 15 cents per share, which beat Wall Street’s expectations by 17 cents. The company, which reaffirmed its outlook for fiscal year 2019, narrowed its loss from the year-ago quarter of $101 million, or a loss of 32 cents per share.

Adjusted net loss was $56 million, or a loss of 18 cents per share, compared to an adjusted net loss of $120 million, or a loss of 38 cents per share, last year.

Comparable sales decreased 9 percent for the quarter, but excluding the impact of the company’s exit from major appliance and in-store furniture categories, comparable sales decreased 6 percent for the quarter.

Cost of goods sold for the quarter was 63.2 percent of sales, a decrease of 310 basis points compared to the same period last year. Inventory at the end of the second quarter was $2.47 billion, down 12.5 percent compared to the end of the second quarter last year.

Jill Soltau, CEO of JCPenney, said: “I am pleased with the results we delivered this quarter and the progress we are making against our plan. While we still have work to do on our topline, I strongly believe that growing sales in an unprofitable way is simply not an option. The only way I know how to reconstruct a business, is through a holistic approach across all the key tenets of strategic, purposeful and effective retailing. Notably this quarter, the meaningful improvement we delivered in cost of goods sold was driven by lower permanent markdowns, improved shrink results, increased store and online selling margins and the exit of major appliance and in-store furniture categories. Additionally, we reduced inventory by 12.5 percent as we continue to reinstate the discipline required to improve inventory management and productivity. Delivering on our customers’ expectations relies heavily on our vendors and the portfolio of brands we offer. The ongoing dialogues and interactions we are having with our vendors are strong and positive – they are equally excited about our direction and are bringing new ideas and innovating with us.

“Today we will begin sharing more insights from where we have been as a company and the holistic approach we are taking to reposition JCPenney to its rightful place in the retail landscape. We have attracted top talent in the industry and each of these passionate leaders made a choice to come to JCPenney at a pivotal time. Together, we are laser-focused on two parallel paths. One is building a framework to reestablish the practices needed to strengthen the day to day operations of our business. Concurrently, we are developing differentiating, transformational initiatives. The journey we are on will restore health back into our company. It is an ongoing process and the proposition we are implementing is for the long-term. We are not simply running a business – we are rebuilding a business. We are making a difference and today, I feel more confident than ever that we will reinvigorate and rejuvenate this great company to sustainable, profitable growth. I will continue providing updates as we move through our business plan and finalize a more comprehensive, long-term strategy for JCPenney,” Soltau added.

For the quarter, total net sales decreased 9.2 percent to $2.51 billion compared to $2.76 billion for the quarter ended Aug. 4, 2018. Comparable sales decreased 9 percent for the quarter. Excluding the impact of the company’s exit from major appliance and in-store furniture categories, comparable sales decreased 6 percent for the quarter. Credit income was $110 million for the second quarter this year compared to $67 million in the second quarter last year.

Cost of goods sold, which excludes depreciation and amortization, was $1.59 billion, or 63.2 percent of sales, in the second quarter this year compared to $1.83 billion, or 66.3 percent of sales in the same period last year. The 310-basis point decrease as a rate of sales was primarily driven by lower permanent markdowns, improved shrink rates as a rate of net sales, improvements in both store and online selling margins, and the exit from the major appliance and in-store furniture categories earlier this year.

SG&A expenses for the second quarter were $870 million, or 34.7 percent of net sales this year compared to $880 million, or 31.9 percent of net sales, last year. The decrease in SG&A dollars this year was primarily due to lower store controllable expenses and advertising, which were offset by slightly higher incentive compensation. Last year, the company recorded a $7 million benefit in SG&A expenses in the second quarter related to the buyout of a store leasehold interest. Additionally, in connection with the adoption of the new Lease Accounting Standard at the beginning of fiscal 2019, SG&A expenses in the second quarter this year included approximately $5 million related to the company’s home office lease. Last year, the home office lease related expense was recorded as depreciation and amortization and interest expense.

Cash and cash equivalents at the end of the second quarter were $175 million. Free cash flow was ($133) million for the first six months this year, an improvement of $102 million compared to the same period last year.

Inventory at the end of the second quarter was $2.47 billion, down 12.5 percent compared to the end of the second quarter last year.

The company ended the second quarter with liquidity of approximately $1.7 billion, and no outstanding borrowings under its revolving credit facility. The company expects liquidity to be at least $1.5 billion for the remainder of the year.

A reconciliation of GAAP to non-GAAP financial measures is included in the schedules accompanying the consolidated financial statements in this release.

Outlook

The company is reaffirming its expectation of positive free cash flow for full year 2019. In addition, the company has provided financial guidance for full year fiscal 2019 as follows:

  • Comparable sales: expected to be in a range of (7) percent to (8) percent;
  • Comparable sales, excluding the impact of the company’s exit from major appliances and in-store furniture categories: expected to be in a range of (5) percent to (6) percent;
  • Cost of goods sold, as a rate of net sales: expected to decrease 150 to 200 basis points compared to last year; and
  • Adjusted EBITDA: expected to be in a range of $440 million to $475 million.

Photo courtesy J. C. Penney Co. Inc.