JCPenney lowered its sales outlook after reporting a shortfall in revenues in the third quarter. The department store also withdrew its guidance for earnings due to the hiring of a new CEO and an interim CFO.
Comparable sales for its fiscal third quarter ended November 3 decreased 5.4 percent. Net loss for the quarter was $151 million or 48 cents per share.
Jill Soltau, chief executive officer, said, “I am excited to be at JCPenney, and having been in the office for a month now, I am encouraged by the many opportunities I see. Our objective to put JCPenney back on a path to profitable growth is clear. In the coming weeks and months, I will continue to meet with and learn from our teams throughout the entire organization – talking with them about what we’re doing that’s working well and, most importantly, what we can do to address our opportunities.”
Soltau continued, “In spite of our overall sales results, I am encouraged by the recent underlying trends in key businesses such as women’s apparel, active, special sizes and fine jewelry. We are making progress and taking the necessary steps to right-size our inventory positions to better support the brands and categories that are demonstrating profitable sales growth. While restoring JCPenney to sustained profitable growth will be a lengthy process, I understand the need for quick action. 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. We will act swiftly but thoughtfully as we move the business forward. While these things take time, the results we are reporting today only strengthen our sense of urgency and purpose.”
For the third quarter ended Nov. 3, 2018, total net sales decreased 5.8 percent to $2.65 billion compared to $2.82 billion for the third quarter ended Oct. 28, 2017. Wall Street expected sales to land at $2.81 billion.
Comparable sales decreased 5.4 percent for the third quarter on an unshifted basis. Reflecting the calendar shift in 2018 due to the 53rd week in 2017, comparable sales decreased 4.5 percent. Credit income, which was previously reflected as a reduction to SG&A, was $80 million for the third quarter this year compared to $69 million in the third quarter last year.
Jewelry, Women’s Apparel and Men’s were the company’s top performing divisions during the quarter.
Cost of goods sold, which excludes depreciation and amortization, was $1.81 billion, or 68.1 percent of sales, for the third quarter this year compared to $1.86 billion, or 66.0 percent of sales in the same period last year. The increase as a rate of sales was primarily driven by planned markdown and pricing actions taken in the quarter to clear slow-moving and excess inventory.
SG&A expenses for the third quarter were $883 million, or 33.3 percent of sales compared to $920 million, or 32.7 percent of sales in the third quarter last year. The dollar reduction to last year was primarily driven by lower corporate overhead and incentive compensation.
For the third quarter, the company’s net loss was $151 million, or 48 cents per share, compared to a net loss of $125 million, or 40 cents per share in the same period last year.
Adjusted net loss was $164 million, or 52 cents per share, for the third quarter this year compared to an adjusted net loss of $108 million, or 35 cents per share, for the third quarter last year. Results exceeded consensus loss of 56 cents a share.
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 third quarter were $168 million. Inventory at the end of the third quarter was $3.22 billion, down 5.4 percent compared to the end of the third quarter last year.
The company ended the quarter with liquidity in excess of $1.9 billion.
Guidance Update
Given the company has recently announced both a new CEO and an interim CFO and to allow the ability to effectively assess and address current and go-forward execution of the business, the company believes it is appropriate to withdraw its previous 2018 full year earnings guidance and update its previous full year comparable store sales guidance. Comparable store sales for fiscal 2018 are now expected to be down low-single digits. Comparable store sales were previously expected to be approximately flat. The company continues to expect to achieve positive free cash flow for the year.
