JCPenney Co. reported a steep drop in earnings in the fourth quarter ended February 2 although they were better than Wall Street’s expectations.

On a shifted basis, which compares the 13 weeks ended Feb. 2, 2019 and Feb. 3, 2018, comparable sales decreased 4.0 percent. On an unshifted basis, comparable sales for the fourth quarter decreased 6.0 percent. For the full year, comparable sales decreased 3.1 percent. Net income for the quarter was $75 million, or $0.24 per share, and net loss for the full year was $255 million, or ($0.81) per share.

“For the past few months, I have met with and listened to JCPenney associates throughout the organization, as well as our valued suppliers, customers and other partners, to gain their candid perspectives on our company, both positive and constructive. Based on everything I have seen and heard, I am even more convinced that JCPenney is a revered brand that has the capacity to deliver improved results. In spite of our past financial performance, we have already taken meaningful steps to drive improvement in key businesses such as women’s apparel, active apparel, special sized apparel and fine jewelry,” said Jill Soltau, chief executive officer of JCPenney.

“As we forge a path to sustainable profitable growth, our decisions included eliminating non-core and low gross margin product categories, significantly reducing unproductive inventory and continuing the revitalization of our women’s apparel business. While we are pleased with these actions, we know we need to move faster to reestablish the fundamentals of retail, build capabilities focused on satisfying our customers’ wants and needs and ensure that our digital and store operations operate seamlessly to provide an experience that wins with customers. We have much work to do to position JCPenney for success and create long-term value for our shareholders, however our unwavering focus and discipline is already enabling meaningful progress,” Soltau added.

Fourth Quarter 2018 Results

Unless noted otherwise, the following financial results reflect the 13 weeks ended Feb. 2, 2019 for fiscal 2018 and reflect the 14 weeks ended Feb. 3, 2018 for fiscal 2017.

Total net sales for the 2018 fourth quarter decreased 9.5 percent to $3.67 billion compared to $4.05 billion for the fourth quarter last year. On a shifted basis, which compares the 13 weeks ended Feb. 2, 2019 and Feb. 3, 2018, comparable sales decreased 4.0 percent. On an unshifted basis, comparable sales for the fourth quarter decreased 6.0 percent. Credit income, which was previously reflected as a reduction to SG&A, was $121 million for the fourth quarter this year compared to $84 million in the fourth quarter last year.

Jewelry, Women’s Apparel, Children’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 $2.52 billion, or 68.7 percent of sales, compared to $2.69 billion, or 66.5 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 related to the company’s initiatives to reduce excess inventory.

SG&A expenses were $1.01 billion, or 27.5 percent of sales this year compared to $1.05 billion, or 26.0 percent of sales, last year. The dollar reduction this year was primarily attributable to additional SG&A expenses last year related to the extra week in the fourth quarter of fiscal 2017. In addition, other SG&A expense reductions included lower incentive compensation.

Net income for the fourth quarter was $75 million, or $0.24 per share, compared to net income of $242 million, or $0.77 per share in the same period last year.

Adjusted net income was $57 million, or $0.18 per share, compared to adjusted net income of $160 million, or $0.51 per share, last year.

Compared to Wall Street’s targets: 

  • Earnings per share, adjusted: 18 cents vs. 10 cents expected
  • Revenue: $3.79 billion vs. $3.78 billion expected
  • Same-store sales: down 4 percent vs. a drop of 4.3 percent expected

Full Year 2018 Results

Unless noted otherwise, the following financial results reflect the 52 weeks ended Feb. 2, 2019 for fiscal 2018 and reflect the 53 weeks ended Feb. 3, 2018 for fiscal 2017.

Total net sales for fiscal 2018 decreased 7.1 percent to $11.66 billion compared to $12.55 billion for fiscal 2017. Comparable sales decreased 3.1 percent for the year. Credit income for 2018 was $355 million compared to $319 million last year.

Cost of goods sold, which excludes depreciation and amortization, was $7.87 billion, or 67.5 percent of sales, for 2018 compared to $8.21 billion, or 65.4 percent of sales last year. The increase as a rate of sales was primarily driven by planned markdown and pricing actions taken during the year to reduce excess inventory.

SG&A expenses were $3.60 billion, or 30.8 percent of sales this year compared to $3.85 billion, or 30.6 percent of sales, last year. The dollar reduction was driven by store controllable costs, lower incentive compensation and corporate overhead.

The company’s net loss for 2018 was $255 million, or ($0.81) per share, compared to a net loss of $118 million, or ($0.38) per share last year.

Adjusted net loss was $296 million, or ($0.94) per share, this year compared to adjusted net income of $31 million, or $0.10 per share, last year.

Cash and cash equivalents at the end of fiscal 2018 were $333 million. Inventory at the end of the fiscal year was $2.44 billion, down 13.1 percent compared to the end of fiscal 2017. Liquidity at year end was approximately $1.9 billion.

2019 Store Closures Update

The company has determined that it will close 18 full-line stores in 2019, including the three locations previously announced in January. In addition, the company will also close 9 ancillary home and furniture stores, further aligning the company’s brick-and-mortar presence with its omnichannel network, and enabling capital resources to be reallocated to locations and initiatives that offer the greatest long-term value potential.

The stores identified for closure either require significant capital, are minimally cash flow positive today relative to the company’s overall consolidated average or represent a real estate monetization opportunity. Comparable sales performance for the closing stores was significantly below the remaining store base and these stores operate at a much higher expense rate given the lack of productivity. Associates who will be impacted by the store closures will receive separation benefits, which includes assistance identifying other employment opportunities and outplacement services, such as resume writing and interview preparation.

During the first half of 2019, the company expects to record an estimated pre-tax charge of approximately $15 million, primarily relating to non-cash asset impairments and transition costs, in connection with this action.

Nearly all impacted stores are expected to close in the second quarter of 2019.

Outlook

The company currently expects free cash flow to be positive for fiscal year 2019.

Image courtesy JCPenney