J. C. Penney Company Inc. reported a loss that was lower than expected in the third quarter and raised its guidance for EBITDA for the year. Same-store sales were down  6.6 percent.

Highlights of the quarter ended November 3 include:

  • Comparable store sales decreased 9.3 percent; Adjusted comparable store sales decreased 6.6 percent
  • Cost of goods sold rate improved 350 basis points
  • Net loss per share improved over last year to ($0.29)
  • Inventory declined 9.0 percent to $2.93 billion
  • Strong liquidity position of approximately $1.7 billion
  • Company increased Adj. EBITDA1 guidance; Reaffirmed all other prior financial guidance

“The past quarter was an exciting and energizing time at JCPenney as we made significant progress on our efforts to return JCPenney to sustainable, profitable growth,” said Jill Soltau, chief executive officer of JCPenney. “We are beginning to see results – both in our numbers and how we operate as a business – from the early implementation of our Plan for Renewal, which is focused on driving traffic, offering compelling merchandise, providing an engaging experience, fueling growth, and building a results-minded culture. Going forward, I am confident that delivering our strategy, coupled with our ongoing discipline and commitment to improving the foundational elements of our business, will return JCPenney to its rightful place in the retail industry.”

For the quarter ended Nov. 2, 2019, total net sales decreased 10.1 percent to $2.38 billion compared to $2.65 billion for the quarter ended Nov. 3, 2018. Wall Street’s consensus revenue target was $2.51 billion.

Comparable store sales decreased 9.3 percent for the quarter. Adjusted comparable store sales, which exclude the impact of the company’s exit from major appliance and in-store furniture categories, decreased 6.6 percent for the quarter. Wall Street’s consensus same-store sales were down 7.7 percent. Credit income was $116 million for the third quarter this year compared to $80 million in the third quarter last year.

Cost of goods sold, which excludes depreciation and amortization, was $1.54 billion, or 64.6 percent of sales, in the third quarter this year compared to $1.81 billion, or 68.1 percent of sales in the same period last year. The 350-basis point improvement as a rate of sales was primarily driven by an increase in both store and online selling margins, improved shrink as a percent of net sales and the exit from the major appliance and in-store furniture categories earlier this year.

SG&A expenses for the third quarter were $854 million, or 35.8 percent of net sales this year compared to $883 million, or 33.3 percent of net sales, last year. The decrease in SG&A dollars this year was primarily due to lower advertising and store controllable expenses, which were offset by slightly higher incentive compensation. Last year, the company recorded a $26 million benefit in SG&A expenses in the third 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 third 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.

For the third quarter, the company’s net loss improved from a net loss of $151 million, or ($0.48) per share last year to a net loss of $93 million, or ($0.29) per share, this year.

Adjusted net loss was $97 million, or ($0.30) per share, this year compared to an adjusted net loss of $164 million, or ($0.52) per share, last year. Wall Street’s consensus adjusted loss was expected to be 55 cents.

Cash and cash equivalents at the end of the third quarter were $157 million. Free cash flow was ($518) million for the first nine months this year, a decrease of $18 million compared to the same period last year.

Inventory at the end of the third quarter was $2.93 billion, down 9.0 percent compared to the end of the third quarter last year. Inventory has declined 13.9 percent when compared to the end of the third quarter in fiscal 2017.

The company ended the third quarter with liquidity of approximately $1.7 billion. 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 updating its expectation of Adjusted EBITDA to now exceed $475 million for full year fiscal 2019. Previously, Adjusted EBITDA was expected to be in a range of $440 million to $475 million. In addition, the company has also reaffirmed its prior financial guidance for full year fiscal 2019 as follows:

  • Comparable store sales: expected to be in a range of (7.0) percent to (8.0) percent;
  • Adjusted comparable store sales, which excludes the impact of the company’s exit from major appliances and in-store furniture categories1: expected to be in a range of (5.0) percent to (6.0) percent;
  • Cost of goods sold, as a rate of net sales: expected to decrease 150 to 200 basis points compared to last year; and
  • Free Cash Flow1: expected to be positive