J.C. Penney Co. Inc. on Thursday morning reported total net sales decreased 7.5 percent to $2.76 billion in the second quarter ended Aug. 4, primarily due to the 141 stores that closed in fiscal 2017.

The department store reported a net loss for the quarter of $101 million, or (32) cents per share. Adjusted net loss was $120 million, or (38) cents per share, compared to an adjusted net loss of $23 million, or (7) cents per share, for the second quarter last year.

Comparable sales increased 0.3 percent for the second quarter, but analysts expected 1 percent comp increase for the company.

“During the second quarter, we delivered a positive sales comp of 0.3 percent. We had a strong start and finish to the quarter, with both May and July comps delivering ahead of our annual comp guidance range. Overall, we are confident that our renewed focus on Women’s is having a beneficial impact, evidenced by the positive comp sales performance in Women’s and Children’s apparel, both of which meaningfully out-performed our total Q2 comp results,” said Jeffrey Davis, CFO.

Davis continued, “This quarter we adjusted our approach to inventory management from ‘buying to store capacity’ to ‘buying and chasing’ into demonstrated sales trends. Inventory receipts continued to outpace total sales performance this quarter due to prior purchase commitments. As such, we took necessary actions to markdown and clear excessive inventory positions across many of our categories, which encompasses more than just seasonal product or fashion misses. We will continue to take actions to right-size our inventory, better curate our assortment and most importantly, provide a solid foundation that we can continue to build upon as we move forward. Consequently, we are reducing our earnings guidance for fiscal 2018.”

Comparable sales increased 0.3 percent for the second quarter. Credit income, which was previously reflected as a reduction to SG&A, was $67 million for the second quarter this year compared to $83 million in the second quarter last year.

Children’s, jewelry, Sephora, women’s apparel and salon were the company’s top performing divisions and categories during the quarter. Geographically, the Gulf Coast, Southeast and Northwest were the best performing regions of the country.

Cost of goods sold, which excludes depreciation and amortization, was $1.83 billion, or 66.3 percent of sales, for the second quarter this year compared to $1.93 billion, or 64.7 percent of sales, in the same period last year. The increase as a rate of sales was primarily driven by markdown and pricing actions taken in the quarter to clear slow-moving seasonal inventory due to lower than planned sales.

SG&A expenses for the second quarter were $880 million, or 31.9 percent of sales, compared to $935 million, or 31.3 percent of sales, in the second quarter last year. The dollar reduction to last year was primarily driven by lower store expenses because of 141 stores that closed during fiscal 2017, corporate overhead and incentive compensation.

For the second quarter, the company’s net loss was $101 million, or ($0.32) per share, compared to a net loss of $48 million, or ($0.15) per share in the same period last year.

Adjusted net loss was $120 million, or ($0.38) per share, for the second quarter this year compared to an adjusted net loss of $23 million, or ($0.07) per share, for the second quarter last year. Adjusted net loss for the second quarter of 2018 and 2017 included gains on the sale of operating assets, which totaled $40 million, or $0.13 per share, and $1 million, or $0.00 per share, respectively and $52 million, or approximately ($0.16) per share, resulting from an impairment charge in the second quarter this year related to the expected sale of the company’s three corporate-owned aircraft. In addition, second quarter adjusted net loss for 2018 and 2017 included the following items:

  • $2 million, or $0.01 per share, this year related to restructuring and management transition charges compared to $23 million, or $0.07 per share, last year;
  • $19 million, or ($0.06) per share, this year related to other components of net periodic pension income compared to $14 million, or ($0.05) per share, last year;
  • $35 million, or $0.11 per share, last year related to the loss on extinguishment of debt and
  • $1 million, or ($0.00) per share this year, compared to $19 million, or ($0.06) per share, last year related to the proportional share of net income from the home office land joint venture.

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

Cash and cash equivalents at the end of the second quarter were $182 million. Free cash flow was ($235) million for the six months ended Aug 4, 2018, an improvement of $186 million compared to the three months ended May 5, 2018.

The company ended the quarter with liquidity of approximately $2.2 billion.

Inventory at the end of the second quarter was $2.82 billion, an increase of 0.1 percent compared to the end of the second quarter last year, and up 1.0 percent on a comp store basis.

CEO Search Update

“I want to take this opportunity to update our stakeholders on the progress of the CEO search. The process is going well and the board has met with highly qualified candidates who have expressed a strong desire to become the next leader of J.C. Penney. The hiring of a new CEO is the top priority of the board of directors, and we will continue to expedite the process in order to bring this search to a successful conclusion,” said Ronald W. Tysoe, J.C. Penney board chairman.

Outlook

The company has revised its 2018 full year guidance as follows:

  • Comparable store sales: now expected to be approximately flat and
  • Adjusted earnings per share1: now expected to be ($1.00) to ($0.80).