JCPenney Company Inc. widened its loss in the first quarter to $154 million, or 48 cents per share, from a loss of $78 million, or 25 cents, last year. The adjusted loss was 46 cents per share wider than the 39-cent loss forecast by FactSet.
Comparable sales decreased 5.5 percent for the first quarter. The exit of the major appliance and in-store furniture categories in the first quarter had a combined negative impact of 20 basis points to comparable sales.
“I am pleased with the strides we’ve made in setting key objectives, building our senior leadership team, executing significant changes in our assortment, such as eliminating major appliances, and mobilizing the entire organization around our priorities. We have made good progress on each of our immediate action steps highlighted last quarter, including our continued efforts to reduce and enhance our inventory position, which resulted in a 16 percent reduction in our inventory and a meaningful improvement in our free cash flow this quarter. As our inventory rationalization effort continues, we are testing a number of strategies around optimal inventory levels and assortment choice counts with a goal of delivering an improved experience for our customers and maximizing our return on investment,” said Jill Soltau, chief executive officer of JCPenney.
“Retail is a dynamic business with many touchpoints that together lead back to the customer experience. We are working to reestablish the fundamentals of retail at JCPenney, and at the same time, we are building capabilities to satisfy the wants and expectations of our customers. In everything we do, we are putting the customer at the center. My commitment is that we will make sound, strategic decisions backed by data and will always be rooted in delivering on our customers’ wants and expectations. Our current efforts are focused around two parallel paths. First, we are continuing to map out a comprehensive long-term strategy for JCPenney, which we look forward to sharing in the coming months. Second, we are working quickly to build a talented and accomplished team of retail experts. JCPenney is an American retail icon that is very important to all of our stakeholders, and I am encouraged by the early signs I am seeing in our business as we work to realize the potential that lies ahead,” Soltau added.
The company adopted the provisions of the new Lease Accounting Standard starting in the first quarter of fiscal 2019. The financial statement amounts for first quarter of fiscal 2019 reflect the prospective adoption of the new standard and prior period financial statement amounts remain in accordance with old accounting standards.
For the first quarter ended May 4, 2019, total net sales decreased 5.6 percent to $2.44 billion compared to $2.58 billion for the quarter ended May 5, 2018. Comparable sales decreased 5.5 percent for the quarter. The exit of the major appliances and in-store furniture categories had a combined negative impact of 20 basis points to comparable sales in the quarter. Credit income was $116 million for the first quarter this year compared to $87 million in the first quarter last year.
Fine Jewelry, Children’s Apparel, Women’s Apparel and Men’s Apparel were the company’s top performing divisions during the quarter.
Cost of goods sold, which excludes depreciation and amortization, was $1.63 billion, or 66.8 percent of sales, compared to $1.71 billion, or 66.3 percent of sales in the same period last year. The increase as a rate of sales was primarily driven by the negative impact from the liquidation of major appliance and furniture floor model inventory, offset partially by an improvement in both store and online non-clearance selling margins. The exit of the major appliance and in-store furniture categories in the first quarter had a combined negative impact of 70 basis points to cost of goods sold.
SG&A expenses were $856 million, or 35.1 percent of net sales this year compared to $826 million, or 32.0 percent of net sales, last year. Last year, SG&A expenses included approximately $40 million in expense offsets related to the sale of a leasehold interest as well as the reversal of previously accrued risk insurance reserves. Additionally, in connection with the adoption of the new Lease Accounting Standard, SG&A expenses in the first 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 in both depreciation and amortization and interest expense.
For the first quarter, the company’s net loss was $154 million, or ($0.48) per share, compared to a net loss of $78 million, or ($0.25) per share in the same period last year.
Adjusted net loss was $147 million, or ($0.46) per share, compared to an adjusted net loss of $69 million, or ($0.22) per share, last year.
Cash and cash equivalents at the end of the first quarter were $171 million. Operating cash flow was a use of $205 million, a $149 million improvement to last year. Free cash flow was a use of $268 million, a $153 million improvement to last year.
Inventory at the end of the first quarter was $2.48 billion, down 16.0 percent compared to the end of the first quarter last year.
The company ended the first quarter this year with liquidity of approximately $1.75 billion.
A reconciliation of GAAP to non-GAAP financial measures is included in the schedules accompanying the consolidated financial statements in this release.
The company currently expects free cash flow1 to be positive for fiscal year 2019.